2015 results included a charge for goodwill impairment of £498 million attributed to Private Banking; a loss on redemption of own debt of £263 million; and a gain of £1,147 million on loss of control of Citizens largely arising from the reclassification of foreign exchange reserves (£962 million).
Notes: (1) Operating profit/(loss) before tax, own credit adjustments, (loss)/gain on redemption of own debt, strategic disposals and excluding restructuring costs, litigation and conduct costs and write down of goodwill.
Ulster Bank RoI adjusted operating profit declined 45% to £264 million as net impairment releases, though still substantial, were lower than in 2014. Private Banking adjusted operating profit was 41% lower at £113 million, while RBS International (RBSI) recorded an adjusted operating profit of £211 million, down 14%.
Credit quality remained strong, with risk elements in lending (REIL) decreasing to £12.2 billion (3.9% of gross customer loans) at 31 December 2015, from £28.2 billion (6.8%) at 31 December 2014 and £39.4 billion (9.4%) at 31 December 2013. This reduction was primarily driven by disposals in Capital Resolution coupled with the recovering Irish economy.
I took over as Chairman in September 2015, so much of the business transacted by the Board during the year predated my arrival.
What I can say is that the future shape of the bank is now far clearer than it was a year ago. We are well on the way to exiting the non-core elements of the business, and the divestments are proceeding well. We can also see signs of progress in the core business, especially in the mortgage market, though all retail and commercial banks find a very low interest rate environment one in which margins and profits are under pressure.
Our ‘Reward’ current account proposition and increasing share of the mortgage market give us a platform to be the main bank provider to more valuable customers.
We are organised to provide products and services to personal, commercial and large corporate and institutional customers. Our principal customer-facing businesses are supported by a central Services function and other support and control functions.
Ulster Bank Corporate Ulster Bank (Northern Ireland) (4) -44 n/a -45 -34
The table below lists all of the businesses for which we have a NPS for Q4 2015. Year-onyear, NatWest Business Banking, RBS Business Banking and Ulster Bank Personal Banking (Northern Ireland) have seen significant improvements in NPS.
(2) Source: Coyne Research 12 MAT data. Latest base sizes: Ulster Bank NI (300) Ulster bank RoI (302) 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”.
Personal & Business Banking (PBB) serves individual and mass affluent customers together with small businesses (generally up to £2 million turnover). PBB’s principal brands are NatWest in England and Wales, Royal Bank of Scotland in Scotland, and Ulster Bank RoI in the island of Ireland. The operations of Ulster Bank in Northern Ireland have been combined with the main UK business.
There are no catches, or complicated terms and conditions. For a small fee all customers can earn 3% cashback on up to seven household bills paid by direct debit. That means anyone paying household bills of more than £100 a month will cover the monthly Reward fee, and the more you pay out for your bills, the more you earn.
• Steady state target for CIB is c.£1.4 billion of income with c.£30bn RWAs. Operating expenses are targeted at c.£0.7-0.8bn to deliver 8-10% return of equity.
The company wanted to raise £450 million, so turned to the bank for help to raise the funds in the debt capital markets. RBS acted as joint lead manager, documentation bank as well as billing and delivery agent on the benchmark 10-year deal, which had a coupon of 3.375 per cent.
The deal marked Whitbread’s debut sterling bond issue and will help the hospitality company continue to grow its business.
Capital Resolution consists of CIB Capital Resolution and RBS Capital Resolution (RCR). At 1 January 2015, CIB Capital Resolution comprised £101 billion of funded assets consisting of non-strategic portfolios from the CIB segment. RCR was created on 1 January 2014 to de-risk the bank’s balance sheet.
RBS maintained a strong liquidity and funding risk profile in 2015. Its loan to deposit ratio was 89% at 31 December 2015, compared with 95% in 2014. The latest Individual Liquidity Adequacy Assessment (ILAA) showed that RBS is in a strong position to withstand liquidity stress scenarios. It suggested that RBS’s liquidity portfolio was large enough to cover more than double (227%) the expected outflows in the worst of three severe scenarios.
A cornerstone of our ambition to become No. 1 for customer service, trust and advocacy by 2020 is our commitment to help people manage their money better. This means supporting people’s financial capability both day-to-day and through significant life events.
Our approach to Human Rights RBS recognises its corporate responsibility to respect and uphold human rights. We regularly review our policies and procedures to ensure that we avoid infringing on the human rights of others throughout our sphere of influence.
Chartered Accountants in England and Wales. She was appointed to the House of Lords in 2000 and has served on the Conservative front bench in various roles including as shadow treasury minister between 2003 and May 2010. Previously held nonexecutive roles on the Court of the Bank of
Chairman of the Group Nominations Committee consider succession planning for Board appointments; • manage the business of the Board and set the agenda, style and tone of Board discussions to promote effective decisionmaking and constructive debate; • facilitate the effective contribution and encourage active engagement by all members of the Board; • in conjunction with the Chief Executive and Chief
• ensure RBS maintains effective communication with shareholders and other stakeholders.
Officer and Board Counsel, ensure the Board receives accurate, timely and clear information.
In addition to the nine scheduled meetings, 25 additional meetings and committees of the Board were held, including meetings to consider and approve financial statements. The
• A number of actions to improve alignment between the board and executives which were identified in light of the review’s findings, and will be progressed during 2016 to ensure a consistent ‘tone from the top’.
Nominations Committee I am pleased to present our report on the committee's activity during 2015.
During 2015, two temporary Board oversight committees were formed in relation to CIB and the bank’s Global Restructuring
The Committee considered RBS’s compliance with the requirements of the Sarbanes-Oxley Act of 2002, and was satisfied in this respect. Deficiencies were identified in the review processes over user-access to certain IT
The Chief Audit Executive continued to report to the Chairman of the Audit Committee, with a secondary reporting line to the Chief Executive for administrative purposes. The Committee assessed the annual performance
Williams & Glyn The Committee approved the appointment of both an auditor and a reporting accountant for Williams & Glyn.
Categories of permitted non-audit services not covered by the annual pre-approval, require ad-hoc approval in advance on a case-by-case basis. Engagements below £100,000 may be approved by the Committee Chairman.
During 2015, the current and incoming external auditors were approved to undertake the significant engagements set out below: • assurance testing in relation to RBS’s 2014 and 2015 Sustainability Report. The External Auditor was selected given its significant experience in specialist sustainability reporting (Deloitte and EY); • review of financial statements of certain defined benefit funds within RBS Americas. The External Auditor was selected as it was already responsible for reviewing the financial statements of the existing defined benefit funds, and there were clear synergies to ensuring continuity of service (Deloitte); and
Williams & Glyn and we examined the risks and challenges to meeting the delivery target in some detail during the year. In
Committee in 2016 and, as the bank advances its strategic ambitions, it will be essential that the heightened change agenda does not adversely impact on the control environment and this will be closely monitored. Other areas of focus will include continued supervision of the embedding of the three lines of defence model, data quality, cyber risk, further evolution and enhancement of the risk appetite framework and the implementation of the Senior Managers Regime across the organisation.
Membership The Board Risk Committee comprises independent nonexecutive directors. Details of the skills and experience of each of the Committee members are set out in their biographies on
Continued to monitor model risk management and oversaw the redesign of the model governance structure.
Key principles are: • removing risk from the balance sheet in an efficient, expedient and economic manner; • reducing the volatile outcomes in stressed environments; and
Having now completed my first full year as Chairman of the
Although there is still much to be done to rebuild trust, it is pleasing that the efforts to build a responsible and sustainable business are being recognised through independent and external measures. We have successfully retained our place in the Dow
The review also recommended that all Committee Chairs should ensure continued focus on agenda planning and streamlined reporting to the Board, which will be a priority for the Committee
Committee will structure its meetings around five key drivers: culture, people, customer, brand & communications and
Committee on variable pay are driven by a thorough step by step process with adjustments for performance, risk and conduct events in order to determine appropriate outcomes.
The Directors’ Remuneration Policy will then be presented to shareholders for approval at the 2017 AGM, at the end of its current three year cycle.
• In 2015, RBS announced its intention to increase the proportion of women in the top three leadership layers to 30% by 2020 and to have an approximate 50/50 balance at all levels by 2030.
Note: (1) The company believes that delivery in shares is the most appropriate construct for a fixed allowance to executive directors, qualifying as fixed remuneration for the requirements imposed under CRD IV. If regulatory requirements emerge that prohibit allowances being delivered in shares, or deem that such allowances will not qualify as fixed remuneration, then the company reserves the right to provide the value of the allowance in cash instead in order to comply with the requirements. In 2015 the shares were awarded in August and November, during open periods for directors’ share dealings.
Morten Friis is the RBS Board nominated member of the Steering Group to oversee compliance remediation activities in respect of RBS’
(3) In determining the outcome above, the Committee reviewed financial and operational performance against the Strategic Plan and risk performance with input from the BRC.
Cost:income ratio qualified by Committee discretion taking into account the margin by which targets have been missed or exceeded
Measure: The measure compares performance against a group of comparator banks. The TSR comparator group has been updated for awards made in 2016 to more accurately reflect the business strategy with less focus on investment banking. This has resulted in Credit Suisse, Deutsche Bank and UBS being replaced by ING, Intesa San Paolo and Nordea. The weighting of
Total remuneration paid to the Chairman and non-executive directors for 2015 (audited)
PwC is a signatory to the voluntary code of conduct in relation to remuneration consulting in the UK.
shall not exceed 100% of the fixed component. Based on the information disclosed above, the average ratio between fixed and variable remuneration for 2015 is approximately 1:0.5 3. Outstanding deferred remuneration through 2015
Group Performance and Remuneration Committee are deemed independent in compliance with the provisions of the Code, the
Following placing and open offers in December 2008 and in April 2009, HM Treasury (HMT) owned approximately 70.3% of the enlarged ordinary share capital of the company. In December 2009, the company issued a further £25.5 billion of new capital to
Merchant Services business (completed in 2010) and the sale of substantially all of the RBS Sempra Commodities joint venture business (largely completed in 2010), as well as the divestment of the RBS branch-based business in England and Wales and the NatWest branches in Scotland, along with the direct SME
Following an IPO in 2014 when RBS disposed of 30% of its shareholding in Citizens Financial Group Inc., RBS disposed of further tranches of shares in March 2015 (28%), August 2015
(OurView). The results enable our people leaders to monitor levels of engagement and work with their teams to make improvements. It also enables us to monitor employee perception and the progress we are making versus our goals. Our most recent survey, in which more than 62,000 colleagues took part, showed significant improvement in employee engagement and leadership.
A number of the company’s share plans include restrictions on transfers of shares while shares are subject to the plans or the terms under which the shares were awarded.
CIB, Capital Resolution and Central items (Treasury) in line with where the related liabilities are recorded. The non-statutory results will continue to show these items and restructuring costs and litigation and conduct costs as separate line items within the relevant caption of the income statement where significant.
Net interest margin was 2.13%, up from 1.88% in 2013, with improved liability margins partially offset by pressure on mortgage and corporate lending margins and by the continuing shift in mix towards lower margin secured lending.
Notes: (1) Excluding restructuring costs and litigation and conduct costs. (2) Return on equity is based on segmental operating profit after tax adjusted for preference dividends divided by average notional equity based on 15% (previously 13%) of the monthly average of segmental RWAes, assuming 28% tax rate; previously 25%.
Delivering enhanced digital capabilities: • In February RBS became the first UK bank to launch
• Customers using the mobile app increased 27% to 3.7 million in 2015 as we continue to invest in and enhance the platform to reflect the growing customer preference for this channel.
• We continue to invest and improve our branch network to meet the demands and enrich the experience of our customers. During 2015, 322 branches received an upgrade via our Branch Transformation programme.
RWA intensity reduced by 2 percentage points to 104%. RWAs on the tracker mortgage portfolio reduced from £9.3 billion in
RBSI reported an operating profit of £207 million, £31 million lower than 2014, largely due to lower income from deposits which in turn drove return on equity down to 18.5%, from 24.2%.
Notes: (1) Excluding own credit adjustments. (2) Excluding restructuring costs and litigation and conduct costs. (3) Return on equity is based on segmental operating profit after tax adjusted for preference dividends divided by average notional equity based on 15% (previously 13%) of the monthly average of segmental RWAes, assuming 28% tax rate (previously 25%).
The steady-state target for the business is c.£1.4 billion of income with c.£30 billion of RWAs. Operating expenses are targeted at c.£0.7-0.8 billion to deliver 8-10% return on equity.
RCR has achieved its asset and risk reduction objectives: • Reduced funded assets by 88% since its formation to £4.6 billion with £10.3 billion reduction in 2015. This exceeded the targeted reduction of 85%, a year ahead of schedule; and
RBS has agreed to divest part of its UK retail and commercial banking franchise. This comprises RBS branches in England and
W&G has c.1.6 million retail banking customers with an estimated market share of 2% in Personal Current Accounts (PCA) in the
Central items not allocated represented a charge of £931 million compared with a gain of £300 million in 2013. The charge includes lower gains on the disposal of available-for-sale securities in Treasury, which were down £575 million to £149 million in 2014, along with a £309 million higher restructuring charge relating to the Williams & Glyn segment. 2014 includes a £247 million write-down of previously capitalised software development. In addition, unallocated Treasury funding costs, including volatile items under IFRS, were £437 million in the year versus £282 million in 2013.
Intangible assets decreased by £1.2 billion, 16%, to £6.5 billion due to the write down of £0.5 billion goodwill in Private Banking and the write down of other intangible assets of 0.8 billion, mainly in relation to the reorganisation of CIB.
Subordinated liabilities decreased by £3.1 billion, 13% to £19.8 billion, primarily as a result of the net decrease in dated loan capital with redemptions of £3.0 billion.
In accordance with IFRS 5, assets and liabilities of disposal groups are presented as a single line on the face of the balance sheet. As allowed by IFRS, disposal groups are included within risk measures in the Capital and risk management section.
Cash and balances at central banks 79,404 535 79,939 74,872 622 75,494
Gross unrealised losses on debt securities (140) — (140) (145) (137) (282)
Risk appetite is the way in which RBS expresses the level of risk it is willing to accept in order to achieve its strategic, business and financial objectives.
at year end 2014 primarily reflecting the strategic run-down of Capital
• Following the major IT incident of 2012, there was further significant investment in upgrading RBS’s core banking technology infrastructure and in improving a broad range of processes and tools.
Counterparty credit risk results from derivatives and securities financing transaction activities.
The starting point for any capital plan will be with the annual budget cycle which forecasts the bank’s balance sheet trajectory over a 5 year forward looking horizon. The budget cycle will incorporate assumptions about the future shape and direction of the balance sheet of RBS and its operating entities. It will include assumptions around the future path of RWAs, profitability and tax. Idiosyncratic factors such as conduct and litigation costs and disposals are also considered. Finally known or expected system or firm specific regulatory guidance (for example phasing in of
The capital plans are tested for capital adequacy and measured against the bank’s risk appetite framework using a range of stress scenarios covering adverse economic conditions as well as other adverse factors that could impact the bank. In addition the bank maintains a recovery plan which sets out a range of potential mitigating actions that could be taken in response to an extreme stress. Known and expected assumptions around the future direction of regulation is also taken into account.
• Management actions and governance: ° Internal subject matter experts determine a ‘menu’ of possible management actions under stress conditions such as capital raising, de-risking and sale of assets, and cost reduction; and
° Stress testing is reviewed by senior risk management and executives; and governance is provided by ERF,
Supervision (BCBS); • EU - issue consistent rules for all EU banks and investment firms, commonly through the European Banking Authority
• PRA - additional local rules for UK banks and investment firms.
CET1 and a maximum 25% AT1; • A supplementary leverage buffer applying to GSIBs equal to 35% of the corresponding risk-weighted systemic risk buffer rates to be met with CET1; and
In October 2015, the BoE published its approach to stress testing of the UK banking system out to 2018. The publication outlines the following key features of the BoE approach: • A cyclical scenario to assess the risks to the banking system based on the financial cycle.
• Every second year, the BoE will complement the annual testing with an additional exploratory scenario to probe the resilience of the system to risks not easily linked to the financial cycle.
• The BoE intends to include an integrated framework for decision-making around the setting of capital buffers, as well as a clear and transparent process for determining whether banks need to strengthen their capital positions.
On 29 January 2016, the FPC proposed that those banks and building societies with total assets above £175 billion will be set progressively higher SRB rates as total assets increase through defined buckets. HM Government required the FPC to produce a framework for the SRB at rates between 0% and 3% of RWAs.
Capital management* continued Capital and leverage: Leverage ratio and related disclosures
Internal liquidity policies are designed to ensure that RBS: • Has a clearly stated liquidity risk tolerance: appetite for liquidity risk is set by the Board as a percentage of the
Parliament by the end of 2016 for implementing the NSFR in the
• Primary liquid assets such as cash and balances at central banks, treasury bills and other high quality government and
The table below shows RBS's principal funding sources excluding repurchase agreements (repos) by currency.
Covered Repos Total Positioned Readily Capable bonds and and encumbered at the available for of being Cannot be securitisations (1)Derivatives similar (2) assets (3) central bank encumbrance encumbered
RBS’s “Top Risks” process became more firmly embedded. In addition, RBS’s stress testing processes continued to develop, improving the management of business risk. Additional stress testing was undertaken in response and scenario modelling capability was enhanced further.
The Sustainable Banking Committee is responsible for overseeing how RBS manages its reputation and delivers its commitments on trust, advocacy, and customer service.
Our customers are sold products and services appropriate for their needs. Any information or advice provided is suitable, relevant and communicated in a clear, fair way. Delivery of post sales support meets customer expectations
Other activities undertaken to address regulatory risk included: • Migration to simpler, principle-based policies with accountable executives identified and roles, accountabilities and responsibilities defined; • Roll-out of RBS-wide policies, processes and strategic systems to identify and manage conflicts of interest better; • Implementation programmes to prepare for ring-fencing and the UK’s new individual accountability regime, as well as other future regulatory requirements; • Enhancement of the RBS-wide surveillance programme; and
Key elements of the governance structure are set out below: • The C&RA Executive Committee considers emerging issues material to C&RA’s strategy, and implements Board and
C&RA’s Regulatory Affairs department separately oversees the regulatory changes, interactions with regulators and regulatory approvals for individuals.
Group Audit Committee and the Board Risk Committee. They are also shared with external auditors.
Controls are tested at the appropriate frequency to verify that they remain fit for purpose and operate effectively.
Process (ICAAP) an operational risk economic capital model is used as a key capital benchmark. The model utilises loss data and scenario analysis inputs from the operational risk framework to provide a risk sensitive view of RBS’s operational risk capital requirement.
The most serious events are escalated in a simple, standardised process to all senior management, by way of the Group Notifiable
All losses and recoveries associated with an operational risk event are reported against their financial accounting date. A
December 2015, events associated with clients, products and business practices accounted for 98% of the losses (compared to
Throughout 2015, various pension risk stress-testing initiatives were undertaken, focused both on internally defined scenarios and on scenarios to meet integrated Bank of England stresstesting requirements. For more information on stress testing, refer to page 148.
Risk monitoring and measurement Pension risk reporting is submitted quarterly to the Board in the
Frameworks are maintained to ensure that the risk of an outsized loss due to a concentration to a particular borrower, sector, product type or country remains within appetite. The credit frameworks are aligned to the RBS risk appetite framework.
Collateral may consist of either cash or securities. In the case of derivatives, collateral generally takes the form of cash. In the case of securities financing transactions, collateral usually takes the form of debt securities and, to a much lesser extent, equity securities at the outset. However, if the value of collateral falls relative to the obligation, RBS may require additional collateral in the form of cash (variation margin). The vast majority of agreements are subject to daily collateral calls with collateral valued using RBS’s internal valuation methodologies.
Key assumptions relating to impairment levels relate to economic conditions, the interest rate environment, the ease and timing of enforcing loan agreements in varying legal jurisdictions and the level of customer co-operation.
Concentration framework Single name (SNC) Sector Product and asset class Country
RBS’s long-term risk appetite. However material reductions were achieved during the year. There was a 40% decrease in the number of SNC excesses in exposure - however a risk mitigation strategy is in place to reduce this). The top ten SNC excesses comprised 90% of total SNC
Such circumstances include deteriorating trading performance, imminent breach of covenant, challenging macroeconomic conditions, a late payment or the expectation of a missed payment.
A recalibration of covenants or a covenant amendment may be used to cure a potential or actual covenant breach. 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.
• £0.9 billion of completed forbearance granted during the year related to exposures managed by RCR. RCR uses forbearance as a tool to assist with the orderly realisation of assets.
• The remaining non-performing exposure with minimal security has a 94% provision coverage in place. Total individual provisions for the non-performing CRE book are £1.5 billion and collective provisions of £0.4 billion, which equates to a provision coverage of 50%.
(2014 - £9.4 billion) on a CRA basis, of which £1.6 billion was in Capital Resolution at 31 December 2015. Oil & Gas represented 0.8% of the Wholesale portfolio, excluding
December 2015. This was the result of management strategy weighted towards market leaders in this sector. The bulk of the exposure was to large international customers.
• The majority (93%) of UK PBB forbearance is permanent in nature (term extensions, capitalisation of arrears, historic conversions to interest only). Temporary forbearance comprises payment concessions such as reduced or deferred payments with such arrangements typically agreed for a period of three to six months.
• Gross new mortgage lending amounted to £522 million in 2015. Lending to owner-occupiers during this period was £511 million (2014 - £392 million) and had an average LTV
by weighted value of 77% (2014 - 76%). Buy-to-let lending was £10 million (2014 - £10 million) with an average LTV by
• The number of customers approaching Ulster Bank RoI for the first time in respect of forbearance assistance declined
• The number of customers with mortgages in forbearance at the end of 2015 increased from 43 to 59 compared to the end of 2014. In value terms, the exposure increased from £51 million to £64 million.
• Customer loans decreased by £22.5 billion (7%) to £290.8 billion, across most AQ bands, with investment grade loans at 59% compared with 55% in 2014. The increase of £4.2 billion in AQ3 reflected the improved asset quality in UK
regions (£1.7 billion) as well as lower derivative collateral requirements. Ulster Banks RoI’s increased bank loans reflected higher cash deposits with central banks.
• Commercial Banking: of the £6.3 billion loan increase, £5.0 billion related to UK and Western Europe loans transferred from CIB and £1.4 billion loan growth that despite £2.2 billion of strategic write-off and disposals.
• Refer to Credit risk - Problem debt management section for risk management approaches.
of which: commercial real estate 29,366 6,369 3,802 21.7 60 12.9 (181) 2,034
Charge to the income statement from discontinued operations — — — — 194 194
• Bid-offer reserve decreases were largely driven by risk reduction in CIB.
• Non-traded market risk: ° Interest rate risk VaR; VaR for selected AFS non-trading portfolios; Structured credit portfolio
Identification and assessment of traded market risk is achieved through gathering, analysing, monitoring and reporting market risk information by business line or at a consolidated level.
This is complemented by the New Product Risk Assessment process, which requires market risk teams to assess and quantify the market risk associated with all proposed new products.
These included, but were not limited to, the Swiss central bank’s unexpected removal of the Swiss franc’s peg to the euro in January and growing concerns regarding economic slowdown in China.
A portfolio is said to produce a back-testing exception when the
• The exceptions in RBSSI resulted from losses in the US
• The exceptions in RBS N.V. were mainly due to market moves adversely affecting Chinese renminbi positions.
Vulnerability-based stress testing is used for internal management information and is not subject to limits. However, relevant scenarios are reported to senior management.
The PRA approval covers general market risk in interest rate, foreign exchange, equity and commodity products and specific market risk in interest rate and equity products.
during 2015, primarily driven by reductions in the IRC and the RNIV charge, offset partly by an increase in the VaR
NTIRR can be measured from either an economic value-based or earnings-based perspective (or both). Value-based approaches measure the change in value of the balance sheet assets and liabilities over a longer timeframe, including all cash flows.
RBS’s standard VaR metrics - which assume a time horizon of one trading day and a confidence level of 99% - are based on interest rate repricing gaps at the reporting date. Daily rate moves are modelled using observations over the last 500 business days. These incorporate customer products plus associated funding and hedging transactions as well as nonfinancial assets and liabilities such as property, plant and equipment, capital and reserves. Behavioural assumptions are applied as appropriate.
• Governance controls, including attending key meetings that form part of the approval process for loan impairment provisions and assessing management’s analysis and challenge in the actions taken as a result of the meetings.
As the directors have described in the accounting policies, estimating future profitability requires the application of significant judgement by the directors particularly given the uncertainties that exist in the markets in which the Group operates and the changes that are expected in the foreseeable future as a result of changing regulation of which ring-fencing is the most significant. The key judgements made by the directors include estimating future taxable profits, long term growth and discount rates. The sensitivity of these key judgements and their effect on the carrying value of goodwill has been set out in Note 15 of the consolidated financial statements and the bases of the deferred tax assets set out in Note 21 of the consolidated financial statements.
The complexities of the Group’s pension arrangements over a number of schemes together with the complexities of accounting for defined benefit pension schemes meant that the change in accounting policy was an area of audit focus during the year.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Under the UK Listing Rules we are also required to review the part of the Corporate Governance
Net divestment of/(investment in) business interests and intangible assets 32 391 (1,481) 1,150
Consolidated income statement 2015 Under previous policy Adjustment As published £m £m £m
Contracts with customers to lease assets are classified as finance leases if they transfer substantially all the risks and rewards of ownership of the asset to the customer; all other contracts with customers to lease assets are classified as operating leases.
Provision is made for restructuring costs, including the costs of redundancy, when the Group has a constructive obligation to restructure. 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.
Accounting policy 3) as are gains and losses attributable to the hedged risk on available-for-sale financial assets that are hedged items in fair value hedges (see Accounting policy 23). Other changes in the fair value of available-for-sale financial assets and any related tax are reported in other comprehensive income until disposal, when the cumulative gain or loss is reclassified from equity to profit or loss.
Impairment testing in accordance with Accounting policy 8 above inherently involves a number of judgmental areas: the preparation of cash flow forecasts for periods that are beyond the normal requirements of management reporting; the assessment of the discount rate appropriate to the business; estimation of the fair value of cash-generating units; and the valuation of their separable assets. The sensitivity of the assessment to changes in assumptions is discussed in Note 15.
Experience (losses)/gains on plan assets (415) 4,629 986 301 935 (458) 5,171 1,097 485 842
Post retirement mortality assumptions: Longevity at age 60 for current pensioners (years) Male 28.8
The actual tax charge differs from the expected tax charge computed by applying the standard rate of UK corporation tax of 20.25%
DAS dividends recognised before the end of a reporting period; this amounted to £320 million in respect of the year ended 31
Value Measurement’. These differences are classified into fair value levels 1, 2 and 3 (with the valuation uncertainty risk increasing as the levels rise from 1 to 3) and then further classified into high, medium, low and indicative depending on the quality of the independent data available to validate the prices.
RBS takes into account the effect of its own credit standing when valuing financial liabilities recorded at fair value in accordance with IFRS. Own credit spread adjustments are made when valuing issued debt held at fair value, including issued structured notes, and derivatives. An own credit adjustment is applied to positions where it is believed that counterparties would consider
Loans and advances to banks 1.0 12.8 12.8 — 6.6 6.2
In estimating the fair value of loans and advances to banks and customers measured at amortised cost, RBS’s loans are segregated into appropriate portfolios reflecting the characteristics of the constituent loans. Two principal methods are used to estimate fair value: (a) Contractual cash flows are discounted using a market discount rate that incorporates the current spread for the borrower or where this is not observable, the spread for borrowers of a similar credit standing. This method is used for portfolios where counterparties have external ratings: institutional and corporate lending in CIB.
0-3 months 3-12 months 1-3 years 3-5 years 5-10 years 10-20 years 2014 £m £m £m £m £m £m
Hedge ineffectiveness recognised in other operating income in continuing operations comprised: 2015 2014 2013 £m £m £m
As a result of the changes to the reportable segments in 2015 goodwill of £0.3 billion was allocated to RBS International, £0.2 billion of which was previously reported in Commercial Banking and £0.1 billion of which was previously reported in Private
Disposals and write-off of fully depreciated assets — (263) (49) (106) (802) (144) (1,364)
US$250 million 5.00% subordinated notes Tier 2 — 151 €391 million floating rate undated notes Tier 1 — 310
US$211.9 million floating rate subordinated notes (partial redemption) Tier 2 — 129
The B shares carried no voting rights at general meetings of ordinary shareholders and were convertible at any time at HM
On 25 June 2014, the company’s independent shareholders approved the ‘DAS Retirement Agreement’ between RBS and
(subject to the terms of issue) to receive periodic non-cumulative cash dividends at specified fixed rates for each Series payable out of distributable profits of the company.
Loans and advances to customers 139 — 139 449 22 471
Loans and advances to customers 2,663 2 2,665 5,549 23 5,572
MBS issued by Nomura Holding America Inc. (Nomura) and subsidiaries, and is now the subject of an appeal. On 11 May 2015, following a trial, the United States District Court for the
litigation described in this note, including £2.1 billion added in 2015. Additional settlement costs or provisions related to the
ISDAFIX rates. RBS has reached an agreement to settle this matter, subject to final settlement documentation and court approval. The settlement amount is covered by an existing provision.
Services and Markets Act, under which a Skilled Person was appointed to carry out the exercise. Redress has been paid/offered to certain customers in this sample group. Following discussions with the FCA after issue of the draft section 166 report, RBS agreed with the FCA that it would carry out a wider review/remediation exercise relating to certain investment, insurance and pension sales from 1 January 2011 to present.
In March 2014, the CMA announced that it would be undertaking an update of the OFT’s 2013 personal current account (PCA)
A prosecuting authority in Germany undertook an investigation into Coutts & Co Ltd in Switzerland, and current and former employees, for alleged aiding and abetting of tax evasion by certain Coutts & Co Ltd clients. Coutts & Co Ltd cooperated with the relevant authorities and on 4 December 2015 paid EUR 23.8 million to settle the investigation against it. The settlement amount was covered by an existing provision.
Transfers to disposal groups — — (220) — — — (220)
No directors accrued benefits under defined benefit schemes or money purchase schemes during 2015 and 2014.
Executive Committee. The captions in the Group's primary financial statements include the following amounts attributable, in aggregate, to key management: Loans and advances to customers 2,741 4,089
The following table shows undiscounted cash flows payable up to 20 years from the balance sheet date, including future interest payments.
Pittville Leasing Ltd BF Premier Audit Company Ltd BF Price Productions Ltd BF Primemodern Ltd OTH Priority Sites Investments Ltd BF Priority Sites Ltd OTH Property Venture Partners Ltd OTH Property Ventures (B&M) Ltd OTH R.B. Asset Value Ltd BF R.B. Capital Leasing Ltd BF R.B. Equipment Leasing Ltd BF R.B. Investment Holdings Ltd BF R.B. Leasing (April) Ltd BF R.B. Leasing (Bluewater) Ltd
The Royal Bank of Scotland N.V. Australia, Canada, Hong Kong, India, Indonesia, Republic of Ireland, United Kingdom
Return on average total assets (5) (0.2%) (0.3%) (0.7%) (0.4%) (0.1%)
Customer accounts: savings deposits - UK 70,803 435 0.61 85,649 710 0.83
Customer accounts: other time deposits - UK 14,018 221 1.58 18,866 278 1.47
REIL as a % of gross lending to customers excluding reverse repos 3.9% 7.6% 9.5% 9.1% 8.6%
Analysis of deposits - product analysis The following table analyses deposits excluding repos by geographical area (location of office) and type of deposit.
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.
US (resulting in total provisions made for this matter of £3.8 billion, of which £0.1 billion had been utilised at 31 December 2015). No provisions have been made in relation to resolving the ongoing US Department of Justice and various US State
European Union on 23 June 2016, subject to parliamentary approval expected by mid-April. The outcome of the EU
UK ring fencing regime. Such risks will increase in line with any additional delays.
As a direct consequence of the divestment of Williams & Glyn, the Group will lose existing customers, deposits and other assets.
& Business Banking and Commercial & Private Banking and the further restructuring of its Corporate and Institutional Banking
(which in the UK will incorporate elements of the ring-fencing regime). See “The Group and its subsidiaries are subject to a new and evolving framework on recovery and resolution, the impact of which remains uncertain and which may result in additional compliance challenges and costs.”
UK ring-fencing rules, including in areas such as information technology (“IT”) infrastructure, human resources and critical service providers. Arrangements between RFB and NRFBs entities will also need to be reviewed in light of these requirements and the requirement that all such transactions take place on an arm’s-length basis.
• The Group will also need to evaluate, among other things, any accounting consequences resulting from the restructuring as well as any tax costs in the event the implementation of the UK ring-fencing regime is delayed, the tax attributes of each of the RFB and NRFBs and the ability to transfer tax losses between RFB and NRFB entities.
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people or systems, or from external events, including legal risk. The Group has complex and geographically diverse operations and operational risk and losses can result from IT failures, internal and external fraud, errors by employees or third parties, failure to document transactions properly or to obtain proper authorisations, failure to comply with applicable regulatory requirements and conduct of business rules
Glyn, it is not possible to be certain that such actions have been or will be effective in controlling each of the operational risks faced by the Group. Ineffective management of operational risks could have a material adverse effect on the Group’s business, financial condition and results of operations.
The Group’s businesses and many of its customers are, and will continue to be, affected by global economic conditions, perceptions of those conditions and future economic prospects, in particular insofar as they impact the UK economy. The outlook for the global economy over the near to medium-term remains uncertain due to a number of factors including: major geopolitical instability, historically depressed oil and commodity prices, concerns around global growth and liquidity, uncertainty relating to the scope and timing of interest rate rises against a backdrop of historically high sovereign and household borrowing levels and stagnant inflation or deflation. In particular, slowing growth and high debt levels in emerging market economies to which the
The PRA will also use the stress test results to inform its determination of whether individual banks’ current capital positions are adequate or need strengthening. For some banks, their individual stress-test results might imply that the capital conservation buffer and countercyclical rates set for all banks is not consistent with the impact of the stress on them. In that case, the PRA can increase regulatory capital buffers for individual banks by adjusting their PRA buffers. In addition, if the stress tests reveal that a bank’s existing regulatory capital buffers are not sufficient to absorb the impact of the stress, it is possible that it will need to take action to strengthen its capital position. There is a strong presumption that the PRA would require a bank to take action if, at any point during the stress, a bank were projected to breach any of its minimum CET1 capital or leverage ratio requirements.
requirements for each UK bank, building society and certain investment firms in consultation with the PRA and the FCA, and such requirement will be set depending on the resolution strategy of the financial institution.
The Bank of England is currently consulting on the approach to be adopted in setting MREL, including, with respect to GSIBs, in line with the FSB’s TLAC standards. GSIBs will be expected to meet their MREL requirements from 1 January 2019 and other financial institutions by 1 January 2020, subject to transitional arrangements. Until that time, MREL will be set equal to applicable minimum capital requirements, unless the Bank of
and Group entity ratings as a result of the implementation of the
ring-fencing regime may also impact the Group’s funding strategy and the cost of funding may increase for certain Group entities which will be required to manage their own funding and liquidity strategy, in particular those entities outside the ring-fence which will no longer be able to rely on retail deposit funding.
infrastructure while the separation work is ongoing. Any failure by the Group to realise the benefits of its IT investment programme, whether on time or at all, could have a material adverse effect on the Group’s business, results of operations and its ability to retain or grow its customer business.
Brand damage can be detrimental to the business of the Group in a number of ways, including its ability to build or sustain business relationships with customers, low staff morale, regulatory censure or reduced access to, or an increase in the cost of, funding. In particular, negative public opinion resulting from the actual or perceived manner in which the Group conducts its business activities and operations, the Group’s financial performance, ongoing investigations and proceedings and the settlement of any such investigations and proceedings, IT failures or cyberattacks resulting in the loss or publication of confidential customer data or other sensitive information, the level of direct and indirect government support, or actual or perceived practices in the banking and financial industry may adversely affect the
Group’s ability to keep and attract customers and, in particular, corporate and retail depositors.
Group takes to prevent and detect this activity may not always be effective.
The Group has agreed in principle with the Main Scheme pension trustee to make an accelerated cash payment of the outstanding committed future contributions (£4.2 billion) to the Main Scheme
The markets for UK financial services, and the other markets within which the Group operates, are very competitive, and management expects such competition to continue or intensify in response to customer behaviour, technological changes
The competitive landscape for banks and other financial institutions in the UK, the rest of Europe and the US is changing rapidly. Recent regulatory and legal changes have and may continue to result in new market participants and changed competitive dynamics in certain key areas, such as in retail banking in the UK where the introduction of new entrants is being actively encouraged by the UK Government. The competitive landscape in the UK is also likely to be affected by the UK
Implementation of the Group’s strategic programme and its future success depend on its ability to attract, retain and remunerate highly skilled and qualified personnel, including senior management (which includes directors and other key employees), in a highly competitive labour market. This cannot be guaranteed, particularly in light of heightened regulatory oversight of banks and the increasing scrutiny of, and (in some cases) restrictions placed upon, employee compensation arrangements, in particular those of banks in receipt of
UK, for example, as a result of higher interest rates or increased unemployment, could also lead to higher impairment.
In the UK, the BRRD came into effect in January 2015, subject to certain secondary rules being finalised by the European authorities, and therefore the requirements to which the Group is subject may continue to evolve to ensure compliance with these rules or following the publication of review reports produced by the European Parliament and the Council of the EU relating to certain topics set out by the BRRD. Such further amendments to the BRRD or the implementing rules in the EU may also be necessary to ensure continued consistency with the FSB
in the UK replaces the previous regime and has imposed and is expected to impose in the near-to medium-term future, additional compliance and reporting obligations on the Group which may result in increased costs, including as a result of the Group’s mandatory participation in resolution funds, and heightened compliance risks and the Group may not be in a position to comply with all such requirements within the prescribed deadlines or at all. The implementation of this new regime has required and will continue to require the Group to work with its regulators towards putting in place adequate resolution plans, the outcome of which may impact the Group’s operations or structure.
The Group may become subject to the application of stabilisation or resolution powers in certain significant stress situations, which may result in various actions being taken in relation to the Group and any securities of the Group, including the write-off, writedown or conversion of the Group’s securities.
In the context of the recovery and resolution framework set out above, as the parent company of a UK bank, RBSG is subject to the “Special Resolution Regime” under the Banking Act 2009, that gives wide powers to HM Treasury, the Bank of England, the
Reform Act 2013 and amendments made subsequently to implement the relevant provisions of the BRRD, the Banking Act 2009 was amended to insert a bail-in power as part of the powers available to the UK resolution authority. The bail-in power includes both a capital instruments write-down and conversion power applicable to Tier 1 and Tier 2 instruments and triggered at the point of non-viability of a financial institution and a bail-in tool applicable to eligible liabilities (including the senior unsecured debt securities issued by the Group) and available in resolution.
was established under the FSMA and is the UK’s statutory fund of last resort for customers of authorised financial services firms.
The FSCS is funded by levies on firms authorised by the FCA, including the Group. In the event that the FSCS raises funds from the authorised firms, raises those funds more frequently or significantly increases the levies to be paid by such firms, the associated costs to the Group may have an adverse impact on its results of operations and financial condition.
Government Sponsored Enterprises (GSEs) - a group of financial services corporations created by the US Congress. Their function is to improve the efficiency of capital markets and to overcome statutory and other market imperfections which otherwise prevent funds from moving easily from suppliers of funds to areas of high loan demand. They include the Federal Home Loan Mortgage
Pillar 2 - Pillar 2 is intended to ensure that firms have adequate capital to support all the relevant risks in their business and is divided into capital held against risks not captured or not fully captured by the Pillar 1 regulations (Pillar 2A) and risks to which a firm may become exposed over a forward-looking planning horizon (Pillar 2B). Capital held under Pillar 2A, in addition to the