For 2015 RBS intends to: • Move towards a capital target of 13%
December 2014, down £35 billion in the last quarter and £43 billion over the course of the year, principally reflecting continued risk and balance sheet reduction in CIB and disposals and run-off in RCR.
As announced previously I will be leaving RBS in 2015. The Board is pleased to announce that Howard Davies will succeed me as Chairman, and we welcome him to RBS. He will join the Board at the end of June and take over from me on 1 September. On the day I joined the Board in January 2009, the shares traded at 9p, equivalent to 90p today, and the implications of the bank’s financial distress were unknowable. RBS has transformed itself over the last several years and continues to do so. The renewed focus on customer and customer service will make this a better organisation for all stakeholders, most especially customers, staff and shareholders.
As well as being a stronger, simpler and fairer bank, I said that we would also be a very different bank. No longer chasing global market share, but instead focusing squarely on our core strength, namely our home market places in the UK and the Republic of Ireland (RoI).
We also track a number of other performance measures and have set long-term targets for these to keep us on track.
We will continue to aim for improvement through a secure, consistent and reliable service, and an unrelenting focus on our customers.
• We bring the best of ourselves to work and support one another to realise our potential.
We will speed up our account opening process for personal customers. We will cut how long it takes to open a personal current account from five days to next day.
Selected interest rates in 2013 and 2014 (%) UK house prices 12 month growth rate (%) Average weekly wage annual growth (%)
This year we were awarded a place on the ePurchasing Card Solution Framework Agreement for the supply of Commercial card and Management Information solutions that can be used by organisations across the UK public sector including central government, local government, health, education, devolved administrations, emergency services, defence and not-for-profit organisations.
• The net effect of the £988 million operating profit and RWA equivalent reduction of £38 billion (1) was CET1 accretion of £4.8 billion.
Conduct and regulatory investigations have been key areas of focus and our 2014 results reflect the impact that conduct related matters continue to have on financial and operating performance. The Board will continue to drive cultural change and it is essential that our governance framework continues to evolve to support this.
• Pension risk: The triennial actuarial funding valuation of the main scheme, agreed in May 2014, showed the value of liabilities exceeded the value of assets by £5.6 billion at 31 March 2013, a ratio of assets to liabilities of 82%. To eliminate this deficit, RBS has agreed to pay additional contributions: £650 million from 2014 to 2016 and £450 million (indexed for inflation) from 2017 to 2023. These contributions are in addition to regular annual contributions of around £270 million.
Conduct, litigation and reputational risk • Risks to income, costs and business models arising from regulatory requirements: RBS is exposed to the risk of further increases in regulatory capital requirements as well as risks related to new regulations that could affect its business models. Regulatory intervention may result from a competition review of the personal current account and small business banking markets; the ring-fencing proposals from the Independent Commission on Banking or failure to implement the Basel Committee on Banking Supervision’s Risk Data Aggregation and Reporting principles. RBS considers the implications of proposed or potential regulatory requirements in its strategic and financial plans.
• Inability to recruit or retain suitable staff: RBS is going through a period of strategic and organisational change, leading to the need to implement new business strategies to respond to a changing external environment. Strong competition for staff from peers, the impact of remuneration regulations, and the implications of the new Bank of England Senior Managers Regime may contribute to this risk.
As part of our wider stakeholder engagement programme, the Sustainable Banking
“Our ambition is to shape the communities we serve in a positive way. We recognise that we still have a long way to go to achieve this position across our business.
Accelerate for growth Over the next two years we’ll be building on our successful partnership with Entrepreneurial Spark and increasing our support for entrepreneurs. We’re backing eight new business accelerator hubs in locations like Birmingham, Bristol, Cardiff, Leeds, Manchester and Belfast. Each hub will offer workspace, hands-on mentoring, start-up ‘boot camps’ and a free 18 month programme including advice, support and funding clinics.
Assists the Board in discharging its responsibilities for monitoring the quality of the financial statements of RBS. It reviews the accounting policies, financial reporting and regulatory compliance practices of RBS
Experience: Previously at Credit Suisse for 25 years where he was latterly co-Head of the EMEA Investment
Chief Credit Officer then Chief Risk Officer from 2004 to 2014. He was also previously a Director of RBC Bank
Non-executive directors Tony Di Iorio and Philip Scott stepped down from the Board on 26 March 2014 and 31 October 2014 respectively. Nathan
Ensure that Board and Committee agendas for 2015 minimise duplication and allow effective oversight of key areas of strategic focus, sufficient time for debate and focus on the RBS priorities, particularly the customer.
The Committee continues to monitor succession planning on an ongoing basis taking into account business requirements and industry developments. In 2014, discussions principally focussed on the Chairman search and the search for new non-executive directors. The Board held a separate session on succession planning in September 2014, covering the Executive Committee and an update on RBS’s People Strategy.
The Group Nominations Committee holds at least two scheduled meetings per year, and also meets on an ad hoc basis as required. In 2014, there were four scheduled Group Nominations Committee meetings, which I chaired, and individual attendance by directors at these meetings is shown in the table below. In addition a number of ad hoc meetings were held to discuss Chairman succession.
Owing to favourable credit conditions and the delivery of the early cost saving benefits from RBS’s Transformation Programme, RBS
Audit. The review compared Internal Audit’s current audit policies, procedures and practices to the applicable regulatory and industry standards. The Committee were pleased to note that notwithstanding the level of change within the organisation, Internal Audit has made progress in key areas identified within its strategic plan, including enhancing its role, people and audit processes. The review also highlighted future areas of focus for the function, including a continued focus on retention and recruitment of skilled personnel and identification of opportunities to increase further the efficiency and effectiveness of audit processes.
• The methodology and assumptions underlying the level of provision held and/or the appropriateness of required disclosure in relation to: ° redress, specifically in relation to Payment Protection Insurance and Interest Rate Hedging Products; ° ongoing regulatory and litigation actions: including foreign exchange trading; retail mortgage backed securities litigation in the US; and UK shareholder actions.
Regular updates on RBS’s credit quality assurance testing were received by the Committee. These reports highlighted certain weaknesses within the wealth credit business and the Committee requested that management report on action being taken to address these issues.
Audit Committee had regard to the experience of the audit engagement team; the scope of the audit work planned and executed; standards of communication and reporting; quality of insights on the internal control environment; and independence.
The outcomes of the evaluation have been reported to the Board. The conclusions and the recommendations to help improve the Committee’s effectiveness will be taken forward and progress will be tracked during 2015.
Committee will continue to rigorously monitor the risks and issues arising as plans progress.
Throughout 2014 the Committee received reports on key risk issues and risk metrics at each meeting and the Chief Risk Officer provided a verbal update on the key risks to RBS. The Chief Conduct and Regulatory
PwC that the work undertaken by the business has been appropriate, sustainable and addresses the key areas requiring remediation. In order to further inform the Committee’s considerations around technology resilience a ‘deep dive’ session was held for all Board members in May 2014. As well as considering the immediate concerns around improving resilience, this session also offered an opportunity to review longer term priorities for the function. The Committee is satisfied with the progress of the IT resilience remediation programme and it is anticipated that the work will be complete in early 2015. At this point the Committee will determine appropriate methods of future oversight of the risks associated with IT resilience.
The Committee conducted its regular review of the market risks managed by RBS. The appetite for market risk and related limits were also reviewed in the context of the reduction in the size of the Corporate and Institutional Banking business, in line with the bank’s strategy. The
Management Framework (ORMF). The way in which RBS currently manages Operational Risk is inconsistent across the bank and a programme of work has been established to address identified weaknesses in capabilities. During 2014, RBS Risk has defined an enterprise wide approach to risk management covering all risk disciplines and has aligned its end state vision of what a good ORMF
which supported it; • the New Product Risk Assessment process including enhancements made to the end to end product life cycle; • the status of RBS’s compliance with the Single European Payments
Area (SEPA) Directive; • regular reports on improvements in information security, corporate security, records management and cyber risk; • enhancements to data quality across the organisation. The opinion of Internal Audit was considered in this respect also. Further status updates will be provided during 2015.
In December 2014, the Committee supervised the responses provided by RBS to the PRA and FCA as part of their Dear Chairman II Exercise on IT resilience. In particular, it reviewed the detailed responses to the
Committee reviewed the processes used to prepare the responses. In each case the Committee received assurance reports from Risk and from Internal Audit and on this basis recommended to the Board that it approve the submissions to the regulators.
RCR was established to separate and wind down RBS’s high capital intensive assets. Targets were set to remove 55-75% of these assets from the balance sheet by the end of 2015 and 85% by the end of
Power Generation and Animal Testing. As a result of these policy decisions, the Committee has played an instrumental role in not providing finance to a number of controversial areas of industry.
• Considering sustainability positioning on environmental targets, climate change, human rights and sustainable energy opportunities.
• Reputational challenges relating to people agenda including embedding of values and cultural change activity
Living Wage employer. RBS has been an accredited Living Wage employer in London since 2010 and we are pleased to be extending that commitment to our operations and suppliers in the rest of the UK. Some other key decisions are set out below: • The average annual salary increase amongst our core population of employees in 2015 will be 2%, up from 2014, whereas it will be less than 1% across the most senior RBS employees.
• The bonus pool represents 6% of operating profit (excluding CFG
• Variable pay will consist of a long-term incentive award (LTI) with performance conditions that are designed to be stretching and support delivery of the business strategy.
The full Directors’ Remuneration Policy, as approved by shareholders at the AGM on 25 June 2014, is available at rbs.tm/complianceandrem and no changes are proposed that would require shareholder approval. An extract of the policy with certain updates to ensure it is relevant for the current year is set out below for ease of reference. In the event of any conflict, the approved policy on rbs.com takes precedence over the information set out in this section.
Base salary To aid recruitment and retention of high performing individuals whilst paying no more than is necessary. To provide a competitive level of fixed cash remuneration, reflecting the skills and experience required, and to discourage excessive risktaking.
Any award made will be subject to performance conditions measured over a minimum three year period.
• The Committee sets stretching performance targets taking into account the company’s business strategy, financial forecasts and wider non-financial metrics. The performance conditions for variable pay awards made to EDs have been chosen to promote the building of a safer, stronger and more sustainable business. The Committee agrees the performance conditions each year after consultation with major shareholders.
• The maximum level of variable pay which may be granted to new executive directors is the same as that applicable to existing executive directors, excluding any buy-out arrangements. The
discount for long-term deferral, with the first award due to be made in
Service contracts and policy on payments for loss of office – directors
Measure: The key measures in this category are the achievement of predetermined Common Equity Tier 1 (CET1) and Cost:income (C:I) ratios.
All awards are subject to malus provisions which allow for awards to be reduced, if appropriate to zero, prior to vesting. In addition, awards granted in 2015 will be subject to clawback provisions for a period of seven years from the grant date, in line with the requirements of the
PRA/FCA Remuneration Code. Any awards that vest will be subject to a minimum six month retention period.
All measures currently expected to be on track or ahead of targets by end of
Other share plans To offer employees in certain jurisdictions the opportunity to acquire
In accordance with the PRA/FCA Remuneration Code and the RBS Staff Dealing Rules, the conditions attaching to discretionary share-based awards prohibit the use of any personal hedging strategies to lessen the impact of a reduction in value of such awards.
• Collective responsibility may be considered where a committee or group of employees are deemed to have not appropriately discharged their duties.
The Accountability Review process is fully embedded and is operated throughout the year. There are certain trigger events under which malus and clawback will be considered including: • the individual participating in or being responsible for conduct which results in significant losses for RBS; • the individual failing to meet appropriate standards of fitness and propriety; • reasonable evidence of an individual’s misbehaviour or material error; and
Accountability Review framework. The outcomes covered a range of actions including: forfeiture of unvested awards through malus, reduction of current year variable pay awards; dismissal with forfeiture of unvested awards; and suspension of awards pending further investigation.
For 2015, the Board has decided to continue partially neutralising the
On 1 April 2010, the businesses acquired by the Dutch State were transferred to ABN AMRO Group N.V., itself owned by the Dutch State. In connection with the transfer ABN AMRO Holding N.V. was renamed RBS
Accordingly, the financial statements of RBS and of the company have been prepared on a going concern basis.
This statement should be read in conjunction with the responsibilities of the auditor set out in their report on pages 336 to 341.
104 Presentation of information 105 Description of business 108 Risk factors 111 Key financials 112 Summary consolidated income statement 113 Results summary 116 Analysis of results 126 Segment performance 158 Consolidated balance sheet 161 Cash flow 162 Capital resources 163 Reconciliations of non-statutory to statutory income statements 166 Analysis of balance sheet pre and post disposal groups 168 Capital and risk management
Central Functions comprises corporate functions, such as treasury, finance, risk management, compliance, legal, communications and human resources. Central functions manages RBS capital resources and
It is intended that Williams & Glyn will be launched by the end of 2016.
Competition for corporate and institutional customers in the UK is from
US, will be impacted by the implementation of the refined CIB strategy.
• The Group is implementing a large number of existing and new programmes and initiatives intended to improve the Group’s capital position, meet legal and regulatory requirements and result in the
Group’s portfolios and businesses, including its remaining stake in CFG, are designed to allow the Group to achieve its capital targets. There is no assurance that the Group will be able to successfully implement these initiatives on which its capital plan depends or that it will achieve its goals within the time frames contemplated.
• The Group is subject to substantial regulation and oversight and although it is difficult to predict with certainty the effect that the recent regulatory changes, developments and heightened levels of public and regulatory scrutiny will have on the Group, the enactment of legislation and regulations in the UK, the EU and the US has resulted in increased capital, funding and liquidity requirements, changes in the competitive landscape, changes in other regulatory requirements and increased operating costs and has impacted, and will continue to impact, products offerings and business models as well as the risks that the Group may be unable to comply with such requirements in the manner or within the timeframes required. A
• The Group or any of its UK bank subsidiaries may face the risk of full nationalisation or other resolution procedures, including recapitalisation of the Group or any of its UK bank subsidiaries, through the exercise of the bail-in tool which was introduced in the
• As a result of the UK Government’s majority shareholding in the
Group it is able to exercise a significant degree of influence over the
Group including on dividend policy, the election of directors or appointment of senior management, remuneration policy and/or limiting the Group’s operations. The offer or sale by the UK
• The value of certain financial instruments recorded at fair value is determined using financial models incorporating assumptions, judgements and estimates that may change over time or may ultimately not turn out to be accurate. The Group’s valuation, capital and stress test models and the parameters and assumptions on which they are based rely on market data inputs and need to be constantly updated to ensure their accuracy. Failure of these models to accurately reflect changes in the environment in which the Group operates or the failure to properly input any such changes could have an adverse impact on the modeled results.
Risk asset ratios - Common Equity Tier 1/Core Tier 1 (8) 11.2% 10.9% 10.3%
(statutory basis - 7.6%) of loans and advances to customers excluding reverse repos, compared with 9.4% (statutory basis - 9.5%) the previous year. Provision coverage remained stable at 65% (statutory basis - 64%).
On a non-statutory basis, net interest income decreased by 4% to £10,992 million largely reflecting lower interest-earning asset balances partially offset by re-pricing initiatives.
On a non-statutory basis, operating expenses decreased by £2,661 million, or 14%, to £15,849 million. Operating expenses excluding restructuring costs of £1,257 million (2013 - £656 million) and litigation and conduct costs of £2,194 million (2013 - £3,844 million) declined by £1,612 million, or 12%, to £12,398 million.
On a non-statutory basis, net loan impairment releases were £1,170 million compared with a net impairment charge of £8,412 million in 2013 which included £4,490 million provisions related to the creation of RCR.
Releases were recorded principally in RCR (£1,306 million), which benefited from favourable economic and market conditions, and in Ulster
(£850 million) and US temporary differences (£775 million) reflecting the impact of the decision to restructure CIB, partially offset by an increase in the carrying value of the deferred tax asset in respect of Irish tax losses, the benefit of previously unrecognised Irish tax losses being offset against profits arising in Ireland during the year and the impact of certain conduct charges that do not qualify for tax relief.
• There are now more ways to bank with UK PBB than ever. With services being extended to the Post Office network, customers now have over 13,000 branches and post offices across the UK where they can carry out their every day banking.
Non-interest income fell by 2% to £1,323 million due to a change in the fee charging structure in business banking and subdued personal advice income post RDR.
Impairment losses, excluding the impact of RCR, were lower by £482 million or 35%. This was predominantly due to a sharp reduction in losses on the mortgage portfolio which reduced by £411 million or 64% due to a decline in arrears levels driven by an improved collections performance and the development of programmes to assist customers in financial difficulty, coupled with stabilising residential property prices.
Commercial Banking continues to back UK businesses and communities, with over 8,400 Statement of Appetite letters issued in 2014 at a total value of £4.7 billion. As part of our plan to support entrepreneurs across the UK, the first of eight accelerator hubs opened in February 2015, offering free space, support and advice to high growth business owners.
This impacted income, as did the year on year weakening in corporate investment grade debt capital market issuance in EMEA.
Operating expenses fell by £2,360 million driven primarily by lower litigation and conduct costs. Adjusted expenses decreased by £1,006 million, or 22%, reflecting the continued focus on cost savings across both business and support areas.
Treasury available-for-sale securities, down £156 million from £880 million in 2012 to £724 million in 2013.
Assets Held for Sale and Discontinued Operations’, Citizens is presented with effect from 31 December 2014 as a discontinued operation, with comparatives restated, and as a disposal group.
Excluding the £47 million ($75 million) gross gain on the sale of Visa B
Notes: (1) Includes disposal groups. (2) Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
Notes: (1) Includes all effects relating to disposals, including associated removal of deductions from regulatory capital. (2) Principally reflects credit migration and other technical adjustments. (3) Includes fair value adjustments and foreign exchange movements. (4) RWA equivalent (RWAe) is an internal metric that measures the equity capital employed in segments. RWAe converts both performing and non-performing exposures into a consistent capital measure, being the sum of the regulatory RWAs and the regulatory capital deductions, the latter converted to RWAe by applying a multiplier. RBS applies a CET1 ratio of 10% for RCR; this results in an end-point CRR RWAe conversion multiplier of 10.
January 2014. Based on the strong performance in 2014, RCR is now expected to reduce funded assets by 85% by the end of 2015, a year earlier than planned.
Operating loss of £5,549 million was £2,651 million higher than 2012, principally due to a £2,353 million increase in impairments. This was predominantly due to £3,118 million of 2013 impairments related to the creation of RCR, most significantly with £2,299 million in Ulster Bank and £742 million in International Banking, driven by the new RCR
The decrease in assets and liabilities of disposal groups, down £11.0 billion, 78%, to £3.0 billion, and £6.8 billion, 67%, to £3.4 billion respectively, primarily reflects the deconsolidation of Direct Line Group following the further sale of shares and ceding of control in 2013. The remaining interest, classified as an associate, is included in assets of disposal groups at 31 December 2013. In addition, disposal groups include loans and deposits in Illinois branches for sale in Citizens
Net cash inflows from investing activities of £27,175 million related to the net inflows from sales of securities of £26,092 million, the sale of property, plant and equipment of £2,215 million and divestments in business interests and intangible assets of £352 million offset by net cash outflows from the purchase of property, plant and equipment of £1,484 million.
Note: (1) The results of Citizens, which is classified as a discontinued operation.
RBS’s transformation plan is material and complex affecting all business areas and functions simultaneously and so has the potential to increase operational risk profile at least in the short term. Significant investments were made to improve technology resilience for core banking services, operating practices and risk management across the three lines of defence. In particular, enhancements were made to cyber security programmes, mitigating a number of vulnerabilities.
Key milestones achieved in 2014 included the sell down of the first tranche of
Board’s proposals, RBS may issue £3 - £5 billion per annum of qualifying debt between 2015 - 2019 to meet future total loss absorbing capital requirements.
Country risk Country risk arises from possible economic or political events in each country to which RBS has exposure, and from unfavourable conditions affecting daily operations in a country.
Management is concerned with a range of risk scenarios, but some have attracted particular attention from senior management during the past year. These were grouped into three broad categories: • Macro-economic risks and other external risks; • Regulatory and legal risks; and
(v) Increased losses arising from the failure of information technology systems
Responsibilities include: • Providing assurance on the key risks to the organisation by assessing the entire control framework.
• Holding RBS Risk Management accountable for establishing an appropriate risk management framework.
Risk committees in the customer businesses oversee risk exposures arising from their business activities and focus on ensuring that they are adequately monitored and controlled.
The framework is supported by a programme of communication, engagement and training rolled out across RBS to embed a wide understanding of the purpose and value of an effective risk appetite.
• Simplifying RBS’s retail product offering and sales processes; enhancing training for, and controls in relation to, customer advisors; and improving management information on product sales.
C&RA works closely with the customer facing businesses to assess business models, strategy and products and influence better outcomes for customers.
CEC outcomes are reported to the Board, the Group Audit Committee and the Board Risk Committee, and are shared with external auditors.
RBS calculates the Pillar 1 capital requirement for operational risk using the standardised approach. For 2014, RBS’s minimum Pillar 1 capital requirement was £2.9 billion (2013 - £3.4 billion).
Framework through business and functional policy standard owners. The effectiveness of these policies within each franchise is reported on through the Control Environment Certification process (Refer to the
RBS’s capital risk appetite framework, which informs its capital targets, includes consideration of the maximum distributable amount (MDA)
Based on current capital requirements, including holding current estimates of Pillar 2A constant for illustrative purposes, RBS estimates that its ‘fully phased’ CET1 MDA requirement would be 10.5% in 2019, assuming RBS’s current risk profile. It should be noted that this estimate does not reflect the anticipated impact of RBS’s planned restructuring and balance sheet risk reduction programmes, changes in the regulatory framework or other factors that could impact target CET1 ratios. The estimated MDA requirement comprises: • 4.5% Pillar 1 minimum CET1 ratio; • 2.0% Pillar 2A CET1 ratio; • 2.5% Capital conservation buffer; and
• All Pillar 2A risks, including pension risk, must be met with at least 56% CET1 capital from 1 January 2015 onwards. This matches the proportion of CET1 capital required for Pillar 1. The remaining (44%)
Stress testing is used to evaluate the capital position under severe but plausible stress scenarios. Stress testing also refers to the broader framework under which these tests are developed, evaluated and used within the bank’s decision-making process in the context of the wider economic environment.
RBS conducts reverse stress testing within the ICCAP for the specific purpose of identifying and assessing scenarios most likely to render
The second regulatory stress test, designed by the BoE in cooperation with the EBA, tested the combined impact of the global macroeconomic and market elements of the EBA adverse scenario, and UK-specific stress assumptions under the guidance of the FPC. In particular, the UK
Total loss absorbing capital (TLAC) is a new requirement announced by the Financial Stability Board (FSB) at its meeting in October 2014. TLAC
January 2019 and capital buffers will range from 0-3% of a firm’s RWAs.
General: In accordance with the PRA’s Policy Statement PS7/2013 issued in December 2013 on the implementation of CRD IV, all regulatory adjustments and deduction to CET1 have been applied in full (endpoint CRR) with the exception of unrealised gains on AFS securities which will be included from 2015 (PRA transitional basis).
Defined benefit pension fund adjustment (238) (238) (172) (172) 362 913
Tier 1 deductions 50% of material holdings — — — — (976) (295)
Derivative potential future exposures (PFE) are calculated based on the notional value of the contracts and is dependent on the type of contract. For contracts other than credit derivatives the PFE is based on the type and maturity of the contract after the effect of netting arrangements.
• CIB managed down RWAs by £40 billion, through both balance sheet and risk reductions. The reduction included £15 billion of market risk RWAs due to the wind down of the US asset-backed products business, £6 billion credit risk RWAs in GTS and Portfolio and £10 billion in Rates reflecting counterparty reviews as well as exits, novations and mitigation. Operational risk RWAs decreased by
CFG (£63 billion), and Private Banking (£10 billion); repo transactions undertaken by RBSSI, the broker-dealer and certain securitisation exposures.
• Total shipping portfolio exposure at default (EAD) was £10.9 billion and RWAs of £8.4 billion of which £2.3 billion and £1.7 billion were in RCR.
The EC has stated that it shall, if appropriate, submit a legislative proposal to the European Parliament by the end of 2016 for implementing
• Secondary liquid assets that are eligible as collateral for local central bank liquidity facilities but do not meet the core local regulatory definition. These assets include own-issued securitisations or whole loans that are retained on balance sheet and pre-positioned with a central bank so that they may be converted into additional sources of liquidity at very short notice.
Note: (1) Cash collateral includes £12,036 million (2013 - £6,720 million; 2012 - £7,191 million) from financial institutions.
(5) Assets that cannot be encumbered include: (a) Derivatives, reverse repurchase agreements and trading related settlement balances. (b) Non-financial assets such as intangibles, prepayments and deferred tax. (c) Loans that cannot be pre-positioned with central banks based on criteria set by the central banks, including those relating to date of origination and level of documentation. (d) Non-recourse invoice financing balances and certain shipping loans whose terms and structure prohibit their use as collateral.
Through its global activities in foreign exchange, trade finance and payments, RBS is exposed to settlement risk.
CFG portfolios. This was in line with business strategy to expand personal mortgage lending and auto finance organically as well as through acquisition. The growth in wholesale exposures has been across a broad range of industry sectors and customer types, reflecting improving economic conditions in the US and specific focus on areas such as asset finance, CRE and franchise finance. Changes to strategy or the risk appetite framework are subject to review in accordance with
The RBS credit control and assurance framework has three key components: credit policy; policy compliance assessment; and independent assurance. These apply to both wholesale and personal credit risk at both portfolio and individual customer level.
Audit Committee and the results of its reviews are regularly shared with the regulators.
Tools such as stress testing and economic capital are used to measure credit risk volatility and develop links between risk appetite targets and the credit risk appetite framework. The frameworks are supported by a suite of policies that set out the risk parameters within which franchises must operate. Impairments, and associated key metrics such as loan loss rates and provision coverage, are an integral part of standard credit risk portfolio reviews and are presented to CRC monthly. These metrics are also fully considered as part of the sector and product class appetite reviews. RBS also manages its exposures to counterparty credit risk closely, using portfolio limits and specific tools to control more volatile or capital-intensive business areas.
• Overdrafts and other unsecured loans: Write-off usually occurs within six years of default.
The model takes into account migration risk (the risk that credit assets will deteriorate in credit quality across multiple years), factor correlation
• Overall, CRA fell by 2% during 2014 (compared with an 8% fall in 2013). This is in line with the continued focus on reducing exposure concentrations, improving overall portfolio credit quality and running down assets in RCR.
The types of collateral RBS takes to mitigate the credit risk arising from wholesale lending varies according to the nature of the counterparty and its assets. The most common types are: • Commercial real estate - Refer to CRE section on page 251.
In return for this relief, RBS would seek to obtain a return commensurate with the risk that it is required to take. The increased return for the increased risk can be structured flexibly to take into account the customer’s circumstances. For example it may be structured as either increased margin on a cash or payment in kind basis, deferred return instruments or both. While RBS considers these types of concessions qualitatively different from other forms of forbearance, they constitute a significant proportion of wholesale forborne loans and are therefore included in these forbearance disclosures.
In the case of non-performing forborne loans, the loan impairment provision assessment almost invariably takes place prior to forbearance being granted. The amount of the loan impairment provision may change once the terms of the forbearance are known, resulting in an additional provision charge or a release of the provision in the period the forbearance is granted.
The transfer of wholesale loans subject to forbearance from impaired to performing status follows assessment by relationship managers and the
in 2013), finance companies (17% - 14% in 2013) and financial intermediaries (16% - unchanged from 2013) including broker dealers and central counterparties (CCPs). The non-RCR other financial institutions exposure increased by 10% in 2014 driven by increased exposures to securitisation vehicles and finance companies. Product-based sub-limits were in place to ensure that exposure remained within appetite.
• Exposure in the telecoms, media and technology sector fell by 7%
• The remaining Restructuring population decreased during the year both in number and value. This reflects a reduced flow of cases into
• Year-on-year analysis of forborne loans may be skewed by individual material cases during a given year. This is particularly relevant when comparing the value of forbearance completed in the property and transport sectors in 2014 with previous years.
Watchlist process. The table below shows CRE (Non-RCR and RCR) lending split by loan-to-value ratio, which represents loan value before provisions relative to the value of the property financed.
Corporate risk elements in lending and potential problem loans (excluding CRE) 2014 2013 2012
Exposures to this sector continue to be closely managed through the sector concentration framework and through ongoing customer and subsector reviews including stress testing. Risk appetite to the overall oil and gas sector was reduced during 2014. Further action is ongoing to mitigate exposure where possible.
Loan balances are shown as at the end of the year whereas property values are calculated using property index movements since the last formal valuation.
have been subject to a forbearance arrangement with stock levels decreasing by 10.5% since the end of 2013. The year-on-year reduction partly reflects the change in definition to report only financially stressed customers from July 2014 onwards. On a likefor -like basis underlying stock was down by 5.3%.
• The most frequently granted forbearance types were term extensions (44% of forbearance loans at 31 December 2014), interest only conversions (31%) and capitalisations of arrears (17%).
(26%); a diminishing portfolio of arrangements that negatively amortised (4%); and payment holidays (1%).
Private Banking portfolios offer interest only mortgages to high net worth customers.
• Mortgage lending grew by £2.0 billion reflecting a £3.9 billion increase in UK PBB, partially offset by a £1.5 billion decrease in
published default rates do not increase uniformly by grade and the historical default rate is nil for the highest rating categories.
• HFT- Holdings of US government and ABS (primarily in the US)
Total sponsored Non- covered Other or similar (2) conforming bond ABS
RCR disposal strategy being partly offset by increases in CFG and
• Property and construction lending fell by £11.4 billion, of which £9.3 billion related to commercial real estate lending. Refer to Credit Risk
Within the business segments: • RCR REIL decreased by £8.7 billion or 36% to £15.4 billion from £24.1 billion at 1 January 2014 primarily due to a mixture of asset disposals and write-offs. Provision coverage of REIL and REIL as a proportion of loans were both around 70%.
Non-Core and creation of RCR 137 (3,547) (560) — (1,421) — 289 (5,102) 24,116 (19,014) —
Disposal of subsidiaries — — — — — — — — (89) (89)
UK PBB Bank Banking Banking CIB Items CFG Non-Core Non-Core Total £m £m £m £m £m £m £m £m £m £m
Gross Gross Gross unrealised unrealised unrealised losses Fair value losses Fair value losses £m £m £m £m £m £m
Non-traded interest rate risk (NTIRR) arises from the provision to customers of a range of banking products that have differing interest rate characteristics. Therefore, when aggregated, these products form portfolios of assets and liabilities with varying degrees of sensitivity to changes in market interest rates. Mismatches in these characteristics can give rise to volatility in net interest income as interest rates rise and fall.
Run-off & Recovery Responsible for active divestment of all products identified for exit from RBS, through a combination of restructuring, asset sales or, where possible, business sales.
RBS’s qualitative market risk appetite is set out in policy statements.
The factors noted above are sufficient to define RBS’s overall market risk exposures. Other types of risk which are components of the abovementioned factors, are also monitored by individual businesses to identify and address any material concentrations.
• Any Day 1 P&L exceeding an amount of £500,000 (per transaction).
As with VaR, the SVaR technique produces estimates of the potential change in the market value of a portfolio, over a specified time horizon, at a given confidence level. SVaR is a VaR-based measure using historical data from a one-year period of stressed market conditions.
The need for an RNIV calculation is typically identified in one of the following two circumstances: (i) as part of the New Product Risk
• Missing basis risks: to cover cases where data sources are not detailed enough to differentiate the risks of long and short pairs of closely related instruments.
Macroeconomic stress tests are carried out periodically as part of the firm-wide, cross-risk capital planning process. The scenario narratives are translated into risk factor shocks using historical events and insights by economists, risk managers and the front office. Market risk stress results are combined with those for other risks into the capital plan that is presented to the Board. The cross-risk capital planning process is conducted twice a year, in April/May and October/November, with a planning horizon of five years. The scenario narratives cover both regulatory scenarios such as the PRA Anchor and the Federal Reserve
(small-amplitude) risk calculations which provide valuable additional controls, often at individual desk or business unit level. They mainly include, but are not limited to, sensitivity and position-based risk measures.
For RBS’s trading book, a green model status was maintained throughout 2014. For details of back-testing results for regulatory VaR, refer to the table on page 307.
The model has distinct parameter sets for sovereign and corporate exposures. It reflects the overall liquidity of each position referencing an entity, using product type, product maturity and product concentration characteristics.
• The interest rate position risk requirement decreased, primarily due to the closure of the interest rate trading business in Japan and the associated disposal of bond positions.
Product controllers are responsible for ensuring that independent price verification processes are in place covering all trading book positions held by their business. Independent price verification and trader supervision are the key controls over front office marking of positions.
The models used for managing non-traded market risk are subject to the validation process described on page 315.
Common Equity Tier 1 (CET1) ratio from exchange rate movements by maintaining a structural open currency position. Gains or losses arising from the retranslation of net investments in overseas operations are recognised in equity reserves and reduce the sensitivity of capital ratios to foreign exchange rate movements primarily arising from the retranslation of non-sterling-denominated RWAs. Sensitivity is minimised where, for a given currency, the ratio of the structural open position to
+ 100 basis point shift in yield curves 59 416 175 31 681 183
banking businesses except Private Banking. The figure shown represents the incremental contribution of the hedge relative to short-term wholesale cash rates.
The country of operation is the country where the main operating assets of a legal entity are held, or where its main cash flows are generated, taking account of the entity’s dependency on subsidiaries' activities.
Notes: (1) Net lending - Comprises loans and advances, including cash balances and risk elements in lending - net of provisions. (2) Debt securities - Comprise securities classified as available-for-sale (AFS), loans and receivables (LAR), held-for-trading (HFT) and designated as at fair value through profit or loss (DFV). All debt securities other than LAR securities are carried at fair value. LAR debt securities are carried at amortised cost less impairment. HFT debt securities are presented as long positions (including DFV securities) net of short positions per country. Impairment losses and exchange differences relating to AFS debt securities, together with interest, are recognised in the income statement. Other changes in the fair value of AFS securities are reported in AFS reserves.
• Other eurozone - net HFT government bonds increased by £0.6 billion to £0.9 billion, reflecting increased long positions.
The Main scheme operates under a trust deed. The corporate trustee,
RBS Pension Trustee Limited, is a wholly owned subsidiary of The Royal
Investment policy for the schemes is defined by the trustee with quantitative and qualitative input from RIEL and other specialist advisers employed by the trustee. While the trustee is responsible for the management of the scheme assets, it consults with RBS on material changes to risk appetite and investment policy.
Opinion on financial statements of The Royal Bank of Scotland Group plc
Profit/(loss) attributable to ordinary and B shareholders and other equity owners
Net cash flows from operating activities before tax (19,973) (30,285) (44,818)
(the automated clearing house that processes direct debits and direct credits). These are generally charged on a per transaction basis. The income is earned when the payment or transaction occurs. Charges for payment services are usually debited to the customer's account monthly or quarterly in arrears. Income is accrued at period end for services provided but not yet charged.
A non-current asset (or disposal group) is classified as held for sale if the
An obligation exists when the Group has a detailed formal plan for the restructuring and has raised a valid expectation in those affected by starting to implement the plan or by announcing its main features.
A joint venture is one which it controls jointly with other parties.
The Group operates a number of share-based compensation schemes under which it awards RBSG shares and share options to its employees.
As set out in Note 22, at 31 December 2014 the Group recognised provisions for liabilities in respect of Payment Protection Insurance, £799 million (2013 - £926 million; 2012 - £895 million), Interest Rate Hedging foreign exchange investigations, £320 million (2013 and 2012 - nil),
Changes in the fair value of investment properties (25) (281) (153)
In conjunction with the Initial Public Offering of Citizens Financial Group,
Add: current year charge for amounts deferred from prior years 201 279 342
Variable compensation deferred from 2012 and earlier 401 289 42 20 2
At a General Meeting on 25 June 2014, the company’s independent shareholders approved an agreement between RBS and HM Treasury for the retirement of the Dividend Access Share (the DAS retirement agreement).
In 2014, UK Government bonds with a fair value of £3.6 billion were reclassified from available-for-sale (AFS) to held-to-maturity (HTM). In 2008 and 2009, RBS reclassified financial assets from held-for-trading (HFT) and AFS categories into loans and receivables (LAR) and from HFT into AFS. The tables below show the carrying value, fair value and the effect on profit or loss of these reclassifications.
• Interest rates - these are principally benchmark interest rates such as the London Interbank Offered Rate (LIBOR), Overnight Index
• Price volatilities and correlations - volatility is a measure of the tendency of a price to change with time. Correlation measures the degree which two or more prices or other variables are observed to move together. If they move in the same direction there is positive correlation; if they move in opposite directions there is negative correlation. Volatility is a key input in valuing options and in the valuation of certain products such as derivatives with multiple underlying variables that are correlation-dependent. Volatility and correlation values are obtained from broker quotations, pricing services or derived from option prices.
Notes: (1) The OCA does not alter cash flows and is not used for performance management. (2) Includes wholesale and retail note issuances. (3) The reserve movement between periods will not equate to the reported profit or loss for own credit. The balance sheet reserve is stated by conversion of underlying currency balances at spot rates for each period, whereas the income statement includes intra-period foreign exchange sell-offs.
An assessment is made of each input into a model. There may be multiple inputs into a model and each is assessed in turn for observability and quality. As part of the process of classifying the quality of IPV results the IPV quality classifications have been designed to follow the accounting level classifications, although with a further level of granularity. For example there are a number of different IPV quality levels that equate to a Level 2 classification and so on.
Loans and advances to banks - items in the course of collection from other banks 1.0
Cash and balances at central banks 74,872 — — — — —
Cash and balances at central banks 79,290 — — — — —
Cost Provision value Cost Provision value Cost Provision value £m £m £m £m £m £m £m £m £m
Loans and advances to banks (1) 42 40 2 70 63 7 134 114 20
Included in the table above are derivatives held for hedging purposes as follows: Assets Liabilities Assets Liabilities Assets Liabilities £m £m £m £m £m £m
The carrying value of goodwill and amount by which it is exceeded by the recoverable amount is set out below by reportable segment along with the key assumptions applied in calculating the recoverable amount and sensitivities to changes in those assumptions.
Other intangible assets are reviewed for indicators of impairment. In 2014, £401 million (2013 - £215 million; 2012 - £5 million) of previously capitalised software was written off.
Currency translation and other adjustments 34 (10) (2) (15) (42) (1) (36)
Cash and balances at central banks - loans and receivables 0.6 0.6 0.6
Group incurring a liability and to evaluate the extent to which a reliable estimate of any liability can be made. An additional charge of £820 million was booked in 2014 (2013 - £124 million; 2012 - £75 million), primarily relating to investigations into the foreign exchange market, regulatory fines in connection with the June 2012 technology incident and other conduct and regulatory matters. Details of these investigations and a discussion of the nature of the associated uncertainties are given in Note 32.
Paid-in equity - comprises equity instruments issued by the company other than those legally constituted as shares.
The table below gives details of the unguaranteed residual values included in the carrying value of finance lease receivables (see pages 375 to 377)
and operating lease assets (see pages 405 and 406). Year in which residual value will be recovered
Less than less than less than Over £m £m £m £m £m £m £m
Notes: (1) Predominantly property leases. (2) Of which due within 1 year: £389 million (2013 - £373 million; 2012 - £444 million).
Scottish Bank plc. The interest rate on these borrowings is subject to a floor being the higher of 12 month LIBOR plus 100 basis points or the relevant gilt rate for the equivalent cost of borrowing from HMT. The
IndyMac Mortgage-Backed Securities Litigation (the court indicated its intention to approve settlement at the final settlement hearing held on 3
(1) exchange-based purchaser plaintiffs, (2) over-the-counter purchaser plaintiffs, and (3) corporate debt purchaser plaintiffs. In orders dated 29
Improvements Act. On 23 February 2015, an additional class action complaint was filed in the United States District Court for the Southern
Act because NatWest previously maintained bank accounts and transferred funds for the Palestine Relief & Development Fund, an organisation which plaintiffs allege solicited funds for Hamas, the alleged perpetrator of the attacks. On 28 March 2013, the trial court (the United
study. As regards SMEs, the CMA concluded that it would be more appropriate to make a MIR than accept a set of undertakings in lieu put forward by RBS, Barclays, HSBC and Lloyds. Alongside the MIR, the
Although there has in recent times been disruption in the ability of certain financial institutions operating in the United States to complete foreclosure proceedings in respect of US mortgage loans in a timely manner or at all (including as a result of interventions by certain states and local governments), to date, Citizens has not been materially impacted by such disruptions and RBS has not ceased making foreclosures.
practices with respect to overdraft protection and other consumer products have not met applicable standards. The bank subsidiaries have implemented and are continuing to implement changes to improve and bring their practices into compliance with regulatory guidance. In April 2013, the bank subsidiaries consented to the issuance of orders by their respective primary federal banking regulators, the Office of the
• a plan to oversee compliance by RBS’s U.S. operations with all applicable U.S. laws, rules, regulations, and supervisory guidance,
External segment Total External segment Total External segment Total £m £m £m £m £m £m £m £m £m
Cost to acquire property, plant and equipment and intangible assets 1,086 428 232 10 1,756
Profit/(loss) attributable to ordinary and B shareholders and other equity owners 1,128 964 (684)
The following table shows the carrying value and fair value of financial instruments carried at amortised cost on the balance sheet.
Details of the company’s share capital are set out in Note 26 on the consolidated accounts.
Return on average owners' equity (3) (4.6%) (12.6%) (7.8%) (2.8%) (1.5%)
Return on average ordinary and B shareholders' equity (4) (6.3%) (14.5%) (8.9%) (3.1%) (0.9%)
Loans and advances to customers - gross 166,578 100,971 128,149 395,698 465,875 521,271 535,366 573,315
Customer (releases)/charge to income statement as a % of gross loans and advances to customers (2)
Average loans and advances to customers - gross 472,545 509,937 541,588 578,057 610,131
Amounts written-off (net of recoveries) - customers 1.1% 0.8% 0.7% 0.7% 0.9%
The following table analyses customer loan impairment provisions by geographical area and type of UK customer.
Notes: (1) Wholesale loans subject to forbearance include only those arrangements above thresholds set individually by the segments, ranging from nil to £3 million. (2) For 2014, wholesale loans subject to forbearance were £3,040 million (2013 - £4,305 million) (refer to page 249) and secured retail loans subject to forbearance were £3,051 million (2013 - £3,596 million) (refer to pages 261 to 273). Unsecured retail loans subject to forbearance are not included. The balance of unsecured retail loans subject to forbearance amounted to £244 million (2013 - £272 million).
The company and HM Treasury further agreed the terms of the £8 billion
Subscription, the outstanding final annual fee of £320 million was not payable. The balance sheet liability for this fee was extinguished with a corresponding entry to equity.
HMT which was approved by the Company’s shareholders on 25 June 2014. Pursuant to the terms of the DRA the company has paid HMT an initial DAS dividend of £320 million. A further £1.18 billion is payable to
Retirement Dividend Amount will be subject to an increase of 5 percent.
January 2021. Once the DAS Retirement Dividend Amount (subject to any increase) has been paid, the DAS will lose its enhanced dividend rights and will become a single B share.
On 27 September 2013, RBS agreed a £600 million pre-IPO investment with a consortium of investors led by Corsair Capital and Centerbridge
SSA will terminate upon a reduction of the company’s ownership of CFG
In response to the global economic and financial crisis that began in 2008 and the weak economic environment that followed, the Group engaged in a financial and core business restructuring focused on achieving appropriate risk-adjusted returns under these changed circumstances, reducing reliance on wholesale funding, lowering exposure to capitalintensive businesses and meeting new capital standard requirements. In
International and some corporate banking activities that are not permitted activities for the RFB and will be the remaining businesses following completion of the restructuring of the Group’s CIB
As a result, the implementation of the ring-fence could have a material adverse effect on the Group’s reputation, results of operations, financial condition and prospects.
The Group continues to implement certain divestment and restructuring activities announced in 2013 and 2014 as part of its 2013/2014 Strategic
Group’s IT infrastructure to comply with the regulatory requirements of such regime.
Group. The Group entered into a deferred prosecution agreement in 2013 in connection with the settlement of the charges relating to the LIBOR
(including those arising out of anti-bribery, anti-money laundering and anti-terrorism legislation, as well as the provisions of applicable sanctions programmes), equipment failures, business continuity and data security system failures, natural disasters or the inadequacy or failure of systems and controls, including those of the Group’s suppliers or counterparties.
December 31, 2014. The Group’s Transformation Plan targets a fully loaded Basel III CET1 ratio of 13% over the restructuring period. The
UK, including with respect to SME banking and PCAs; • the introduction of, and changes to, taxes, levies or fees applicable to the Group’s operations (such as the imposition of a financial transaction tax or changes in tax rates or to the treatment of carryforward tax losses that reduce the value of deferred tax assets and require increased payments of tax); and
UK, the BRRD which came into force on 1 January 2015, sets out a harmonised legal framework governing the tools and powers available to national authorities to address the failure of banks and certain other financial institutions. These tools and powers include preparatory and preventive measures, early supervisory intervention powers and resolution tools. In July 2014, the PRA published a paper on the implementation of the BRRD in the UK and in December 2014 HM
Central Banks in Europe and of the Federal Reserve in the US and lead to sharp and sudden variations in foreign exchange rates. For accounting purposes, the Group carries some of its issued debt, such as debt securities, at the current market price on its balance sheet. Factors affecting the current market price for such debt, such as the credit spreads of the Group, may result in a change to the fair value of such debt, which is recognised in the income statement as a profit or loss.
Group’s ability to recognise tax losses within the Group as deferred tax assets .
The ordinary ADSs were issued pursuant to a Deposit Agreement, among the company, The Bank of New York Mellon, as depository, and all owners and holders from time to time of ordinary ADSs issued thereunder. The ordinary shares of the company are listed and traded on the London Stock Exchange. All ordinary shares are deposited with the principal London office of The Bank of New York Mellon, as custodian for the depository.
Internal Revenue Code of 1986 as amended (the “Code”), US Holders of ordinary ADSs and preference ADSs should be treated as owners of the respective ordinary shares and the non-cumulative dollar preference shares underlying such ADSs.
The company is not required to withhold UK tax at source from dividend payments it makes or from any amount (including any amounts in respect of accrued dividends) distributed by the company. US Holders who are not resident in the UK and who do not carry on a trade, profession or vocation in the UK through a branch, agency or permanent establishment in connection with which their ordinary shares, ordinary ADSs or preference ADSs are held, used or acquired will not be subject to UK tax in respect of any dividends received on the relevant shares or ADSs.
Dividends will be included in a US Holder's income on the date of the US
UK tax on capital gains realised on the disposition of an ordinary share, an ordinary ADS or a preference ADS unless at the time of the disposal, in the case of a corporate US Holder, such US Holder carries on a trade in the UK through a permanent establishment or, in the case of any other
ADSs of the company) in an amount equal to the difference between the amount realised (excluding any amount in respect of mandatory interest and any missed payments which are to be satisfied on a missed payment satisfaction date, which would be treated as ordinary income) and the US
Act 2007, such as the main market of the New York Stock Exchange. In all other cases, an amount must be withheld on account of UK income tax at the basic rate (currently 20%) subject to any direction to the contrary by HM Revenue & Customs under the Treaty and except that the withholding obligation does not apply to payments to persons who the company reasonably believes are within the charge to corporation tax or fall within various categories enjoying a special tax status (including charities and pension funds), or are partnerships consisting of such persons (unless HM Revenue & Customs directs otherwise). Where interest has been paid under deduction of UK withholding tax, US
through a branch or agency in each case in connection with which the interest is received or to which the PROs are attributable. There are also exemptions for interest received by certain categories of agents (such as some brokers and investment managers).
Under the European Union Council Directive 2003/48/EC on the taxation of savings income, member states of the European Union are required to provide to the tax authorities of other member states details of payments of interest and other similar income paid by a person to an individual or certain other persons resident in another member state, except that
PROs beneficially owned by an individual, whose domicile is determined to be the United States for the purposes of the Estate Tax Treaty and who is not a national of the UK, will not be subject to UK inheritance tax on the individual's death or on a lifetime transfer of the PRO, except in certain cases where the PRO (i) is comprised in a settlement (unless, at the time of the settlement, the settlor was domiciled in the United States and was not a national of the UK); (ii) is part of the business property of a
CDPCs are similar to monoline insurers. However, unlike monoline insurers, they are not regulated as insurers.
Effective interest rate method - the effective interest method is a method of calculating the amortised cost of a financial asset or financial liability
funds compensation for customers by raising management expenses levies and compensation levies on the financial services industry.
Internal Capital Adequacy Assessment Process (ICAAP) - the Group’s own assessment, as part of Basel II requirements, of its risks, how it intends to mitigate those risks and how much current and future capital is necessary having considered other mitigating factors.
Leveraged finance - funding (leveraged finance) provided to a business resulting in an overall level of debt in relation to cash flow that exceeds that which would be considered usual for the business or for the industry in which it operates. Leveraged finance is commonly employed to achieve a specific, often temporary, objective: to make an acquisition, to effect a buy-out or to repurchase shares.
Pillar 2A, in addition to the Pillar 1 requirements, is the minimum level of regulatory capital a bank should maintain at all times to cover adequately the risks to which it is or might be exposed, and to comply with the overall financial adequacy rules. Pillar 2B is a capital buffer which helps to ensure that a bank can continue to meet minimum requirements during a stressed period, and is determined by the PRA evaluating the risks to which the firm may become exposed (e.g. due to changes to the economic environment) during the supervisory review and evaluation process. All firms will be subject to a PRA buffer assessment and the
IRB standards. Under this approach, the bank classifies exposures from 1 to 5, where 1 is strong and 5 is default. Specific risk-weights are assigned to each classification.
Tier 1 capital - a component of regulatory capital, comprising common equity tier 1 and additional tier 1. Additional tier 1 capital includes eligible non-common equity capital securities and any related share premium.
Credit risk 26 Credit risk exposures, including linkage to balance sheet. 215,237,238, 246,260, 275-278,281-292,326-327