RBS.L Regulatory News (RBS)

Contents

Page

Introduction

1

Highlights

3

Analysis of results

11

Segment performance

18

Selected statutory financial statements

26

Notes

31

Appendix 1 - Additional segment information

Appendix 2 - Go-forward Bank profile

Appendix 3 - Income statement reconciliations

For analyst enquiries:

Richard O'Connor

Head of Investor Relations

+44 (0) 20 7672 1758

For media enquiries:

RBS Press Office

+44 (0) 131 523 4205

Date:

Friday 30 October 2015

Time:

9.00 am UK time

Webcast:

www.rbs.com/results

Dial in details:

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●

Q3 attributable profit was £952 million, up slightly from £896 million in Q3 2014. Restructuring costs remained high at £847 million as the Go-forward Bank transforms, while litigation and conduct costs were £129 million compared with £780 million in Q3 2014.

●

Attributable profit included (in profit from discontinued operations) the gain on loss of control of Citizens (£1,147 million). The principal component of this gain was a reclassification of foreign exchange reserves of £962 million to profit or loss with no effect on RBS's net asset value.

●

Q3 operating loss(1) was £134 million, down from a profit of £1,107 million in Q3 2014. Adjusted operating profit(2) was £842 million (Q3 2014 - £2,054 million), after £126 million of losses relating to IFRS volatility, and £77 million of CIB disposal losses.

○

Income was £596 million lower than in Q3 2014, principally driven by a £394 million decline in Corporate & Institutional Banking (CIB), reflecting its planned reshaping. Income pressures were also seen in UK Personal & Business Banking (UK PBB) and Commercial Banking where good loan volume growth was offset by continued competitive pressure on asset margins.

○

Operating expenses, excluding restructuring costs and litigation and conduct costs, were £152 million lower, with headcount down and restructuring benefits feeding through to a lower cost base.

○

Credit quality remained good, with net impairment releases of £79 million, £768 million lower than the high levels of releases recorded in Q3 2014.

●

Tangible net asset value per ordinary and equivalent B share increased from 380p per share at 30 June 2015 to 384p per share at 30 September 2015. This was largely driven by the attributable profit for the period (less the impact of reclassified reserves), together with underlying gains in foreign exchange reserves reflecting the strengthening of the US dollar and the euro, and gains in cash flow hedging reserves as swap rates decreased.

●

RBS remains well on track to achieve substantially all its priority targets for 2015. The cost savings target for the year has already been exceeded and strong improvements were recorded in the bank's annual employee engagement survey.

Strategy goal

2015 target

Q3 2015 Progress

Strength and sustainability

Reduce risk-weighted assets (RWAs) to

£316 billion, a reduction of £10 billion in the quarter

RCR exit substantially completed

Funded assets down 83% since initial pool of assets identified

Citizens deconsolidation

Further sale in August 2015 takes holding to 20.9%; de-consolidated for accounting purposes

£2 billion AT1 issuance

Successfully priced US$3.15 billion AT1 capital notes (£2 billion equivalent)

Customer experience

Improve NPS in every UK franchise

Year-on-year, significant improvement in NatWest Business Banking, RBS Business Banking and Ulster Bank Personal Banking (NI)

Simplifying the bank

Reduce costs by £800 million(3)

Target exceeded by Q3 2015, target increased to >£900 million

Supporting growth

Lending growth in strategic segments ≥ nominal UK GDP growth

4.6% annualised growth in the first nine months of 2015 in UK PBB and Commercial Banking

Employee engagement

Raise employee engagement index to within 8% of Global Financial Services (GFS) norm

Surpassed employee engagement goal, up six points to within three points of GFS

●

RBS is on track with its plan to build a stronger, simpler, fairer bank for customers and shareholders.

●

Capital strength continued to build with the Common Equity Tier 1 ratio strengthening to 12.7% at 30 September 2015, up 40 basis points from 30 June 2015 and 150 basis points from 31 December 2014. RBS's leverage ratio rose from 4.6% at 30 June 2015 to 5.0% at 30 September 2015, assisted by the successful issue of US$3.15 billion (£2 billion) of Additional Tier 1 capital notes in August 2015.

●

We continue to develop our technology capabilities to make it simpler for us to serve our customers and for them to do business with us. A new automated account-opening system is being rolled out and will increase the efficiency of our onboarding processes, reducing end-to-end account opening times by 50% for business banking customers and 30% for Commercial Banking customers. Our Pay on Your Mobile (PAYM) capability has been enhanced, with customers now able to both send and receive payments. We continue to simplify our core technology platforms with 245 applications decommissioned year-to-date.

●

We are seeking to build customer engagement with a market-leading current account that enables customers to receive 3% cash back on their household bills for a monthly account fee of £3. The initial launch of the Reward account to existing private and packaged account holders has attracted around one million customers with the majority of these moving additional direct debits to their RBS and NatWest accounts. We are also extending our stand against teaser rates by offering three year fixed rates on home insurance, breaking with insurance industry practice.

●

RBS delivered good support for both household and business customers. UK PBB net mortgage lending totalled £3.8 billion in Q3 2015, with a strong applications pipeline and gross lending up 42% from Q3 2014 to £7.4 billion. Our flow market share in Q3 2015 was 12.1% of the UK market, compared with RBS's stock share of 8.5%. Net new lending in Commercial Banking totalled £1.5 billion in the quarter with growth across most of the customer segments. Further support was provided to small businesses with the opening of three new business accelerator hubs in Brighton, Leeds and Bristol in partnership with Entrepreneurial Spark: seven hubs are now open.

●

Adjusted return on equity(4) in the Go-forward Bank on an annualised basis for the first nine months of 2015 is estimated at 13%. IFRS volatility had a minimal impact on the adjusted return on equity during the first nine months of 2015.

(1)

Operating profit/(loss) before tax, own credit adjustments, gain on redemption of own debt and strategic disposals. The nine months and quarter ended 30 September 2014 are stated before RFS minority interest.

(2)

Excluding restructuring costs and litigation and conduct costs.

(3)

Excluding restructuring costs and litigation and conduct costs, write off of intangible assets and operating expenses of Williams & Glyn.

(4)

Calculated using operating profit after tax on a non-statutory basis excluding restructuring costs and litigation and conduct costs adjusted for preference share dividends divided by average notional equity (based on 13% of average RWA equivalent (RWAe)).

●

RBS has maintained good momentum in the run-down of its Exit Bank, with RWAs down by approximately £31 billion since the start of 2015 to £141 billion at 30 September 2015.

●

RBS Capital Resolution (RCR) funded assets have fallen to £6.5 billion at 30 September 2015, down 83% since the initial pool of assets was identified. This leaves it on track to achieve its targeted 85% reduction in funded assets by the end of 2015, a year ahead of schedule. Good progress was also recorded in CIB Capital Resolution where RWAs were reduced by £6.7 billion to £38.7 billion in Q3 2015 with the reduction since the start of 2015 totalling £25.4 billion.

●

The sale of a further 109 million shares in August 2015 reduced RBS's stake in Citizens to 20.9%. Following this significant reduction in its voting interest RBS no longer controls Citizens for accounting purposes and ceased to consolidate it, classifying its remaining investment as an associate held for sale. Citizens remains fully consolidated for regulatory capital purposes. RBS continues to target a complete exit by the end of 2015, subject to market conditions.

●

On a pro forma basis, assuming full deconsolidation of Citizens credit and counterparty risk RWAs at 30 September 2015, RBS's CET1 ratio would have been 16.2% and its leverage ratio 5.6%.

●

Williams & Glyn submitted its banking licence application to the UK regulatory authorities in October 2015. RBS continues to work towards its separation in the summer of 2016 and an initial public offering by the end of 2016.

●

On 4 August 2015, HM Treasury sold 630 million RBS ordinary shares, its first sale since its initial investment in 2008. The sale of the 5.4% stake reduced HM Treasury's economic interest in RBS to 72.9%.

●

On 8 October 2015, HM Treasury gave notice of its intention to convert 51 billion B shares it held into 5.1 billion ordinary shares, a move that helps normalise the ownership structure of RBS. These new ordinary shares have now been admitted to the London Stock Exchange. HM Treasury's economic interest in RBS remains unchanged at 72.9%. The Dividend Access Share (DAS) remains outstanding and may be retired at any time following the payment of dividends amounting to £1,180 million (with interest starting to accrue on this amount from 1 January 2016).

Q3 2014

Q2 2015

Q3 2015

Year end 2015 target

Personal Banking

NatWest (England & Wales)(1)

7

8

8

9

Royal Bank of Scotland (Scotland)(1)

-4

-10

-9

-10

Ulster Bank (Northern Ireland)(2)

-29

-11

-9

-21

Ulster Bank (Republic of Ireland)(2)

-19

-14

-15

-15

Business Banking

NatWest (England & Wales)(3)

-13

4

6

-7

Royal Bank of Scotland (Scotland)(3)

-26

-17

-12

-21

Commercial Banking(4)

10

10

9

15

Q3 2014

Q2 2015

Q3 2015

Year end 2015 target

Customer trust(5)

NatWest (England & Wales)(1)

45%

48%

44%

46%

Royal Bank of Scotland (Scotland)

8%

-2%

11%

11%

(1)

Source: GfK FRS six month rolling data. Latest base sizes: NatWest (England & Wales) (3392) Royal Bank of Scotland (Scotland) (545). Based on the question: "How likely is it that you would recommend (brand) to a relative, friend or colleague in the next 12 months for current account banking?"

(2)

Source: Coyne Research 12 MAT data. Latest base sizes: Ulster Bank NI (305) Question: "Please indicate to what extent you would be likely to recommend (brand) to your friends or family using a scale of 0 to 10 where 0 is not at all likely and 10 is extremely likely"

(3)

Source: Charterhouse Research Business Banking Survey, based on interviews with businesses with an annual turnover up to £2 million. Quarterly rolling data. Latest base sizes: NatWest England & Wales (1289), RBS Scotland (429). Weighted by region and turnover to be representative of businesses in England & Wales/Scotland.

(4)

Source: Charterhouse Research Business Banking Survey, based on interviews with businesses with annual turnover between £2 million and £1 billion. Latest base size: RBSG Great Britain (878). Weighted by region and turnover to be representative of businesses in Great Britain.

(5)

Source: Populus. Latest quarter's data. Measured as a net of those that trust RBS/NatWest to do the right thing, less those that do not. Latest base sizes: NatWest, England & Wales (925), RBS Scotland (214).

Nine months ended

Quarter ended

30 September

30 September

30 September

30 June

30 September

2015

2014 

2015 

2015 

2014 

£m

£m

£m

£m

£m

Net interest income

6,605 

6,879 

2,187 

2,215 

2,370 

Non-interest income

3,545 

5,131 

860 

1,354 

1,273 

Total income

10,150 

12,010 

3,047 

3,569 

3,643 

Litigation and conduct costs

(1,444)

(1,030)

(129)

(459)

(780)

Restructuring costs

(2,317)

(612)

(847)

(1,023)

(167)

Other costs

(6,783)

(7,768)

(2,284)

(2,207)

(2,436)

Operating expenses

(10,544)

(9,410)

(3,260)

(3,689)

(3,383)

(Loss)/profit before impairment releases

(394)

2,600 

(213)

(120)

260 

Impairment releases

400 

682 

79 

192 

847 

Operating profit/(loss) (1)

6 

3,282 

(134)

72 

1,107 

Own credit adjustments

424 

(2)

136 

168 

49 

Gain on redemption of own debt

- 

20 

- 

- 

- 

Write down of goodwill

- 

(130)

- 

- 

- 

Strategic disposals

(135)

191 

- 

- 

- 

RFS Holdings minority interest

- 

(35)

- 

- 

(56)

Operating profit before tax

295 

3,326 

2 

240 

1,100 

Tax charge

(294)

(869)

(1)

(100)

(277)

Profit from continuing operations

1 

2,457 

1 

140 

823 

Profit from discontinued operations, net of tax (2)

1,451 

437 

1,093 

674 

117 

Profit for the period

1,452 

2,894 

1,094 

814 

940 

Non-controlling interests

(389)

11 

(45)

(428)

53 

Other owners

(264)

(264)

(97)

(93)

(97)

Dividend access share

- 

(320)

- 

- 

- 

Profit attributable to ordinary and B shareholders

799 

2,321 

952 

293 

896 

Memo:

Operating expenses - adjusted (3)

(6,783)

(7,768)

(2,284)

(2,207)

(2,436)

Operating profit - adjusted (3)

3,767 

4,924 

842 

1,554 

2,054 

Key metrics and ratios

Net interest margin

2.12%

2.09%

2.09%

2.13%

2.17%

Cost:income ratio

104%

78%

107%

103%

93%

(Loss)/earnings per share from continuing operations

- basic

(2.8p)

16.9p

(0.9p)

0.2p

6.9p

- adjusted (4)

(4.5p)

16.1p

(1.8p)

(0.9p)

6.5p

Return on tangible equity (5)

2.4%

7.3%

8.8%

2.7%

8.2%

Average tangible equity (5)

£43,538m

£42,231m

£43,403m

£43,062m

£43,536m

Average number of ordinary shares and equivalent B

shares outstanding during the period (millions)

11,503 

11,333 

11,546 

11,511 

11,384 

(1)

Operating profit/(loss) before tax, own credit adjustments, gain on redemption of own debt, write down of goodwill and strategic disposals. The nine months and quarter ended 30 September 2014 are stated before RFS minority interest.

(2)

Refer to Note 2 on page 31 for further details.

(3)

Excluding restructuring costs and litigation and conduct costs.

(4)

Adjusted earnings excludes own credit adjustments, gain on redemption of own debt, write down of goodwill and strategic disposals. RFS minority interest was also a reconciling item for periods ended 30 September 2014.

(5)

Tangible equity is equity attributable to ordinary and B shareholders less intangible assets.

30 September 

30 June 

31 December 

2015 

2015 

2014 

£m 

£m 

£m 

Cash and balances at central banks

77,220 

81,900 

74,872 

Net loans and advances to banks (1)

22,681 

20,714 

23,027 

Net loans and advances to customers (1)

311,383 

314,993 

334,251 

Reverse repurchase agreements and stock borrowing

51,800 

67,606 

64,695 

Debt securities and equity shares

83,506 

80,550 

92,284 

Assets of disposal groups (2)

6,300 

89,071 

82,011 

Other assets

27,517 

28,010 

26,033 

Funded assets

580,407 

682,844 

697,173 

Derivatives

296,019 

281,857 

353,590 

Total assets

876,426 

964,701 

1,050,763 

Bank deposits (3)

30,543 

30,978 

35,806 

Customer deposits (3)

346,267 

342,023 

354,288 

Repurchase agreements and stock lending

43,355 

66,362 

62,210 

Debt securities in issue

37,360 

41,819 

50,280 

Subordinated liabilities

20,184 

19,683 

22,905 

Derivatives

288,905 

273,589 

349,805 

Liabilities of disposal groups (2)

6,401 

80,388 

71,320 

Other liabilities

45,164 

48,090 

43,957 

Total liabilities

818,179 

902,932 

990,571 

Non-controlling interests

703 

5,705 

2,946 

Owners' equity

57,544 

56,064 

57,246 

Total liabilities and equity

876,426 

964,701 

1,050,763 

Contingent liabilities and commitments

160,205 

210,679 

241,186 

(1)

Excludes reverse repurchase agreements and stock borrowing.

(2)

Primarily International Private Banking and the interest in associate in relation to Citizens at 30 September 2015, Citizens and International Private Banking at 30 June 2015 and Citizens at 31 December 2014.

(3)

Excludes repurchase agreements and stock lending.

30 September

30 June

31 December

Balance sheet related key metrics and ratios

2015 

2015 

2014 

Tangible net asset value per ordinary and equivalent B share (1)

384p

380p

387p

Loan:deposit ratio (2,3)

89%

92%

95%

Short-term wholesale funding (3,4)

£17bn

£25bn

£28bn

Wholesale funding (3,4)

£66bn

£76bn

£90bn

Liquidity portfolio

£164bn

£161bn

£151bn

Liquidity coverage ratio (5)

136%

117%

112%

Net stable funding ratio (6)

117%

115%

112%

Tangible equity (7)

£44,442m

£43,919m

£44,368m

Number of ordinary shares and equivalent B shares in issue (millions) (8)

11,574 

11,570 

11,466 

Common Equity Tier 1 ratio

12.7%

12.3%

11.2%

Risk-weighted assets

£316.0bn

£326.4bn

£355.9bn

Leverage ratio (9)

5.0%

4.6%

4.2%

Balance sheet related key metrics and ratios excluding Citizens (10)

Liquidity portfolio

£149bn

£148bn

Liquidity coverage ratio (5)

139%

118%

Net stable funding ratio (6)

118%

112%

Common Equity Tier 1 ratio

16.2%

15.3%

Risk-weighted assets

£248.7bn

£261.5bn

Leverage ratio (9)

5.6%

5.1%

(1)

Tangible net asset value per ordinary and equivalent B share represents tangible equity divided by the number of ordinary shares and equivalent B shares in issue.

(2)

Includes disposal groups.

(3)

Excludes repurchase agreements and stock lending.

(4)

Excludes derivative collateral.

(5)

On 1 October 2015 the LCR became the PRA's primary regulatory liquidity standard; UK banks are required to meet a minimum standard of 80% initially, rising to 100% by 1 January 2018.

(6)

NSFR for all periods have been calculated using RBS's current interpretations of the revised BCBS guidance on NSFR issued in late 2014. Therefore, reported NSFR will change over time with regulatory developments. Due to differences in interpretation, RBS's ratio may not be comparable with those of other financial institutions.

(7)

Tangible equity is equity attributable to ordinary and B shareholders less intangible assets.

(8)

Includes 26 million Treasury shares (30 June 2015 - 26 million; 31 December 2014 - 28 million).

(9)

Based on end-point CRR Tier 1 capital and revised 2014 Basel III leverage ratio framework and the CRR Delegated Act.

(10)

Assuming Citizens was fully divested at the carrying value at 30 September 2015 and excluding only credit and counterparty risk RWAs.

Nine months ended

Quarter ended

30 September

30 September

30 September

30 June

30 September

2015

2014

2015

2015

2014

Net interest income

£m

£m

£m

£m

£m

Net interest income

RBS

6,605 

6,879 

2,187 

2,215 

2,370 

- UK Personal & Business Banking

3,460 

3,474 

1,170 

1,147 

1,198 

- Ulster Bank

392 

486 

127 

132 

163 

- Commercial Banking

1,673 

1,520 

565 

562 

521 

- Private Banking

377 

516 

123 

126 

172 

- Corporate & Institutional Banking

518 

595 

142 

174 

230 

- Central items

227 

312 

77 

88 

109 

- RCR

(42)

(24)

(17)

(14)

(23)

Average interest-earning assets

RBS

415,463 

436,876 

413,778 

417,248 

431,863 

- UK Personal & Business Banking

129,422 

127,101 

131,299 

128,569 

127,896 

- Ulster Bank

27,621 

28,033 

27,825 

27,404 

27,922 

- Commercial Banking

78,559 

74,611 

79,689 

78,880 

74,339 

- Private Banking

15,752 

18,669 

15,557 

15,729 

18,681 

- Corporate & Institutional Banking

63,634 

83,821 

48,612 

69,437 

83,903 

- Central items

85,117 

70,662 

99,526 

82,471 

69,872 

- RCR

15,358 

33,979 

11,270 

14,758 

29,250 

Gross yield on interest-earning assets of banking

business

2.92%

3.01%

2.84%

2.91%

3.04%

Cost of interest-bearing liabilities of banking business

(1.15%)

(1.26%)

(1.09%)

(1.14%)

(1.20%)

Interest spread of banking business

1.77%

1.75%

1.75%

1.77%

1.84%

Benefit from interest free funds

0.35%

0.34%

0.34%

0.36%

0.33%

Net interest margin (1)

RBS

2.12%

2.09%

2.09%

2.13%

2.17%

- UK Personal & Business Banking

3.57%

3.65%

3.54%

3.58%

3.72%

- Ulster Bank

1.90%

2.32%

1.81%

1.93%

2.32%

- Commercial Banking

2.85%

2.72%

2.81%

2.86%

2.78%

- Private Banking

3.20%

3.70%

3.14%

3.21%

3.65%

- Corporate & Institutional Banking

1.09%

0.95%

1.16%

1.00%

1.08%

- Central items

0.34%

0.52%

0.29%

0.41%

0.58%

- RCR

(0.37%)

(0.09%)

(0.60%)

(0.38%)

(0.31%)

Non-interest income

Net fees and commissions

2,280 

2,688 

685 

783 

920 

Income from trading activities

747 

1,644 

82 

430 

205 

Other operating income

518 

799 

93 

141 

148 

Total non-interest income

3,545 

5,131 

860 

1,354 

1,273 

(1)

For the purposes of net interest margin (NIM) calculations, a decrease of £12 million arising in Central items (nine months ended 30 September 2014 - £35 million; Q3 2015 - £4 million; Q2 2015 - £3 million; Q3 2014 - £7 million) was made in respect of interest on financial assets and liabilities designated as at fair value through profit or loss. Related interest-earning assets and interest-bearing liabilities have also been adjusted.

(2)

PBB NIM Q3 2015 was 3.23% and Q2 2015 was 3.29%. CPB NIM for Q3 2015 was 2.87% and Q2 2015 was 2.92%.

·

Net interest income of £2,187 million was down £183 million from Q3 2014. While there has been good volume growth in some segments during the quarter, average interest-earnings assets remain 4% lower than Q3 2014. Higher yielding assets such as credit card balances and personal unsecured loans have declined in volume, reflecting RBS's positioning in these products. Good progress in the run-down of CIB Capital Resolution assets has amplified the bank's excess liquidity position.

·

NIM for RBS of 2.09% continues to compress modestly, down 4 basis points from Q2 2015 and 8 basis points from Q3 2014. RBS's previously reported NIM included Citizens, whose exclusion results in a lower bank NIM.

·

In UK PBB, NIM declined by 4 basis points during Q3 2015, principally reflecting more competitive front book pricing in combination with increased switching from the standard variable rate book (15% of the overall mortgage book at 30 September 2015 compared with 23% a year earlier and 18% at the end of Q2 2015).

·

Non-interest income totalled £860 million, down £413 million from Q3 2014. This was principally driven by the planned reshaping of CIB (down £306 million) and reduced trading income and disposal gains in RCR (down £144 million). Equity gains were also lower in Commercial Banking, which had recorded significant disposal gains in previous quarters. Interchange fee income in UK PBB remains under pressure.

·

Compared with Q2 2015, non-interest income was £494 million lower. This included a movement of £331 million in volatile items under IFRS, which represented a charge of £126 million in the quarter compared with a credit of £205 million in Q2 2015.

Nine months ended

Quarter ended

30 September

30 September

30 September

30 June

30 September

2015

2014 

2015

2015 

2014 

Operating expenses

£m

£m

£m

£m

£m

Staff costs

3,776 

4,184 

1,265 

1,242 

1,356 

Premises and equipment

1,061 

1,360 

352 

298 

423 

Other

1,338 

1,418 

477 

481 

396 

Restructuring costs*

2,317 

612 

847 

1,023 

167 

Litigation and conduct costs

1,444 

1,030 

129 

459 

780 

Administrative expenses

9,936 

8,604 

3,070 

3,503 

3,122 

Depreciation and amortisation

608 

724 

190 

186 

261 

Write down of intangible assets

- 

82 

- 

- 

- 

Operating expenses

10,544 

9,410 

3,260 

3,689 

3,383 

Adjusted operating expenses (1)

6,783 

7,768 

2,284 

2,207 

2,436 

*Restructuring costs comprise:

- staff expenses

625 

248 

281 

288 

79 

- premises, equipment, depreciation and amortisation

705 

244 

375 

42 

52 

- other

987 

120 

191 

693 

36 

Restructuring costs

2,317 

612 

847 

1,023 

167 

Staff costs as a % of total income

37%

35%

42%

35%

37%

Cost:income ratio

104%

78%

107%

103%

93%

Cost:income ratio - adjusted (1)

67%

65%

75%

62%

67%

Employee numbers (FTE - thousands)

92.4 

93.3 

92.4 

91.6 

93.3 

(1)

Excluding restructuring costs and litigation and conduct costs.

·

Staff costs totalled £1,265 million, down £91 million or 7%, compared with Q3 2014, principally driven by declining headcount. Premises and equipment expenses were down £71 million from Q3 2014 as RBS's property portfolio is managed down.

·

Adjusted operating expenses in the nine months ended 30 September 2015 totalled £6,783 million, down £985 million or 13%, compared with the same period of 2014. RBS expects to exceed £900 million of cost savings for the full year. However, Q4 2015 will include the annual bank levy charge; in addition, £190 million of accrual reversals were recorded in Q4 2014.

·

Restructuring costs totalled £847 million for Q3 2015, principally relating to CIB (£637 million, including £276 million of property related charges) and to Williams & Glyn separation (£190 million). Restructuring costs in the first nine months of 2015 were £2.3 billion, approaching half of the expected c.£5 billion of total restructuring costs from 2015 to 2019.

·

Litigation and conduct costs of £129 million were lower than recorded in recent quarters and related principally to a charge in CIB in relation to certain mortgage-backed securities litigation.

Nine months ended

Quarter ended

30 September

30 September

30 September

30 June

30 September

2015 

2014 

2015 

2015 

2014 

Impairment (releases)/losses

£m

£m

£m

£m

£m

Loan impairment (releases)/losses

- individually assessed

(135)

(321)

(15)

(105)

(415)

- collectively assessed

(8)

293 

(13)

(7)

16 

- latent

(380)

(642)

(64)

(91)

(450)

Customer loans

(523)

(670)

(92)

(203)

(849)

Bank loans

(4)

(10)

(4)

- 

- 

Total loan impairment releases

(527)

(680)

(96)

(203)

(849)

Securities

127 

(2)

17 

11 

2 

Total impairment releases

(400)

(682)

(79)

(192)

(847)

30 September 

30 June 

31 December 

Credit metrics (1)

2015 

2015 

2014 

Gross customer loans

£322,957m

£390,781m

£412,801m

Loan impairment provisions

£9,277m

£11,303m

£18,040m

Risk elements in lending (REIL)

£14,643m

£18,714m

£28,219m

Provisions as a % of REIL

63%

60%

64%

REIL as a % of gross customer loans

4.5%

4.8%

6.8%

Credit metrics excluding Citizens

Gross customer loans

£322,957m

£328,821m

£352,659m

Loan impairment provisions

£9,277m

£10,771m

£17,504m

Risk elements in lending (REIL)

£14,643m

£17,474m

£26,889m

Provisions as a % of REIL

63%

62%

65%

REIL as a % of gross customer loans

4.5%

5.3%

7.6%

(1)

Includes disposal groups. Citizens is included in disposal groups at 30 June 2015 and 31 December 2014.

·

Loan impairment releases in Q3 2015 were £96 million compared with £849 million in Q3 2014.

·

Excluding Citizens, provision coverage increased from 62% at 30 June 2015 to 63% at 30 September 2015, largely reflecting the £2.8 billion reduction in REIL, principally driven by RCR disposals.

Selected credit risk portfolios

30 September 2015

30 June 2015 (1)

31 December 2014 (1)

CRA (2)

TCE (2)

EAD (2)

CRA (2)

TCE (2)

EAD (2)

CRA (2)

TCE (2)

EAD (2)

Natural resources

£m

£m

£m

£m

£m

£m

£m

£m

£m

Oil and gas

4,632 

9,181 

7,224 

6,664 

15,499 

11,318 

9,421 

22,014 

15,877 

Mining and metals

1,397 

2,516 

1,934 

1,717 

2,914 

2,543 

2,660 

4,696 

3,817 

Electricity

3,323 

9,145 

6,282 

4,361 

11,935 

7,933 

4,927 

16,212 

9,984 

Water and waste

4,901 

5,955 

5,906 

5,006 

6,174 

6,041 

5,281 

6,718 

6,466 

Natural resources

14,253 

26,797 

21,346 

17,748 

36,522 

27,835 

22,289 

49,640 

36,144 

Commodity traders (3)

884 

1,239 

1,355 

1,136 

1,835 

1,996 

1,968 

2,790 

3,063 

Of which: natural resources

662 

915 

922 

706 

1,083 

1,197 

1,140 

1,596 

1,852 

Shipping

7,937 

8,568 

8,266 

8,258 

8,874 

8,616 

10,087 

10,710 

10,552 

(1)

Prior period data excludes Citizens for comparative purposes: Citizens totals for natural resources and shipping were 30 June 2015 - TCE £4.4 billion, EAD £3.6 billion; 31 December 2014 - TCE £4.2 billion, EAD £3.4 billion.

(2)

Credit risk assets (CRA) consist of lending gross of impairment provisions, derivative exposures after netting and contingent obligations. Total committed exposure (TCE) comprises CRA, securities financing transactions after netting, banking book debt securities and committed undrawn facilities. Exposure at default (EAD) is gross of credit provisions and is after credit risk mitigation. EAD reflects an estimate of the extent to which a bank will be exposed under a specific facility on the default of a customer or counterparty. Uncommitted undrawn facilities are excluded from TCE but included within EAD; therefore EAD can exceed TCE.

(3)

Commodity traders represents customers in a number of industry sectors, predominately natural resources above.

·

Oil and gas: total exposure has more than halved during 2015 and decreased significantly during Q3 2015. This primarily reflected continued loan sales and run-off across the CIB portfolio in Asia-Pacific and the US.

·

Mining and metals: the reduction in exposure during 2015 reflected proactive management of more vulnerable sub-sectors. The majority of the exposure is to large international customers and matures within five years.

·

Commodity traders: total exposure has more than halved during 2015 and is primarily to the largest physical commodity traders, the exposure is predominantly short-dated, collateralised and uncommitted facilities used for working capital.

·

Shipping: exposure is in CIB Capital Resolution and RCR. The decrease in exposure in Q3 2015 principally reflected sales in RCR.

30 September 2015

30 June 2015

31 December 2014

Balance

Total

Balance

Total

Balance

Total

sheet

exposure

sheet

exposure

sheet

exposure

Emerging markets (1)

£m

£m

£m

£m

£m

£m

India

1,952 

2,456 

1,680 

2,225 

1,989 

2,628 

China

1,588 

1,651 

2,358 

2,510 

3,548 

4,079 

Russia

953 

1,028 

1,618 

1,709 

1,830 

1,997 

(1)

Balance sheet and total exposures include banking and trading book debt securities and are net of impairment provisions in respect of lending - refer to the Country risk section of the 2014 Annual Report and Accounts for detailed definitions.

·

Exposure to most emerging markets decreased in 2015 as RBS continues to implement its strategy to withdraw from non-strategic countries. The drop in Chinese exposure in Q3 2015 reflected corporate loan sales and reductions in cash collateral due to reduced volumes of foreign exchange trading. Total exposure to Russia has halved during 2015 and the reduction in Q3 2015 was mostly due to corporate loan sales.

Capital and leverage ratios

End-point CRR basis (1)

PRA transitional basis

30 September 

30 June 

31 December 

30 September 

30 June 

31 December 

2015 

2015 

2014 

2015 

2015 

2014 

Risk asset ratios

% 

% 

% 

% 

% 

% 

CET1

12.7 

12.3 

11.2 

12.7 

12.3 

11.1 

Tier 1

13.3 

12.3 

11.2 

15.5 

14.3 

13.2 

Total

16.0 

14.8 

13.7 

19.8 

18.5 

17.1 

Capital

£m

£m

£m

£m

£m

£m

Tangible equity

44,442 

43,919 

44,368 

44,442 

43,919 

44,368 

Expected loss less impairment provisions

(1,185)

(1,319)

(1,491)

(1,185)

(1,319)

(1,491)

Prudential valuation adjustment

(392)

(366)

(384)

(392)

(366)

(384)

Deferred tax assets

(1,159)

(1,206)

(1,222)

(1,159)

(1,206)

(1,222)

Own credit adjustments

208 

345 

500 

208 

345 

500 

Pension fund assets

(256)

(250)

(238)

(256)

(250)

(238)

Other deductions

(1,478)

(1,070)

(1,614)

(1,456)

(1,047)

(1,884)

Total deductions

(4,262)

(3,866)

(4,449)

(4,240)

(3,843)

(4,719)

CET1 capital

40,180 

40,053 

39,919 

40,202 

40,076 

39,649 

AT1 capital

1,997 

- 

- 

8,716 

6,709 

7,468 

Tier 1 capital

42,177 

40,053 

39,919 

48,918 

46,785 

47,117 

Tier 2 capital

8,331 

8,181 

8,717 

13,742 

13,573 

13,626 

Total regulatory capital

50,508 

48,234 

48,636 

62,660 

60,358 

60,743 

Risk-weighted assets

Credit risk

- non-counterparty

237,800 

245,000 

264,700 

237,800 

245,000 

264,700 

- counterparty

26,900 

27,500 

30,400 

26,900 

27,500 

30,400 

Market risk

19,700 

22,300 

24,000 

19,700 

22,300 

24,000 

Operational risk

31,600 

31,600 

36,800 

31,600 

31,600 

36,800 

Total RWAs

316,000 

326,400 

355,900 

316,000 

326,400 

355,900 

Leverage (2)

Derivatives

296,500 

282,300 

354,000 

Loans and advances

402,300 

402,800 

419,600 

Reverse repos

52,100 

67,800 

64,700 

Other assets

207,700 

211,800 

212,500 

Total assets

958,600 

964,700 

1,050,800 

Derivatives