FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549


Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934

For February 25, 2010

Commission File Number: 001-10306

The Royal Bank of Scotland Group plc

RBS, Gogarburn, PO Box 1000
Edinburgh EH12 1HQ

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F    X     Form 40-F        

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):_________

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):_________

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes           No    X  

If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ________




The following information was issued as a Company announcement in London, England and is furnished pursuant to General Instruction B to the General Instructions to Form 6-K:

 

 
 
 
 
Appendix 3
 
The Asset Protection Scheme
 
 


 
Appendix 3  The Asset Protection Scheme
 



Page
1.
Key aspects of the Scheme
2



2.
Basis of asset selection
3



3.
Covered assets


3.1 Roll forward to 31 December 2009
4

3.2 Credit impairments and write downs
5

3.3 First loss utilisation
6

3.4 Risk-weighted assets
7

3.5 Divisional analysis
8

3.6 Asset classes
9

3.7 Sector analysis
12

3.8 Geographical breakdown
13

3.9 Currency breakdown
13

3.10 Risk elements in lending and potential problem loans
14

3.11 Credit quality of loans
14


1

 
 
 
 


 
Appendix 3  The Asset Protection Scheme
 
1. Key aspects of the Scheme
 
On 22 December 2009, the Group acceded to the Asset Protection Scheme ('APS' or 'the Scheme') with HM Treasury acting on behalf of the UK Government. Under the Scheme, the Group purchased credit protection over a portfolio of specified assets and exposures ("covered assets") from HM Treasury. The portfolio of covered assets had a par value of approximately £282 billion as at 31 December 2008 and .the protection is subject to a first loss of £60 billion and covers 90% of,  subsequent losses. Once through the first loss, when a covered asset has experienced a trigger event(1) losses and recoveries in respect of that asset are included in the balance receivable under the APS. Receipts from HM Treasury will, over time, amount to 90% of cumulative losses (net of cumulative recoveries) on the portfolio of covered assets less the first loss amount.
 
The Group has the right to terminate the Scheme at any time provided that the Financial Services Authority has confirmed in writing to HM Treasury that it has no objection to the proposed termination. On termination, the Group is liable to pay HM Treasury a termination fee. The termination fee would be the difference between £2.5 billion (or, if higher, a sum related to the economic benefit of regulatory capital relief obtained as a result of having entered APS) and the aggregate fees paid. In addition, the Group would have to repay any amounts received from HM Treasury under the terms of the APS (or as otherwise agreed with HM Treasury). In consideration for the protection provided by the APS, the Group paid an initial premium of £1.4 billion on 31 December 2009 for the years 2009 and 2010. A further premium of £700 million is payable on 1 January 2011 and subsequently annual premiums of £500 million until the earlier of 31 December 2099 or the termination of the agreement.
 
The APS is a single contract providing credit protection in respect of a portfolio of financial assets: the unit of account is the contract as a whole.  Under IFRS, credit protection is either treated as a financial guarantee contract ('FGC') or a derivative depending on the terms of the agreement and the nature of the protected assets and exposures. The portfolio contains more than an insignificant element of derivatives and limited recourse assets, and hence the contract does not meet the definition of an FGC. The APS contract is therefore treated as a derivative and is recognised at fair value, with changes in fair value recognised in profit or loss. The APS derivative did not have any effect on the Group's 2009 income statement; however in future period's changes in value of the APS derivative will have an effect on the Group's profit or loss.
 
There is no change in the recognition and measurement of the covered assets as a result of the APS. Impairment provisions on covered assets measured at amortised cost are assessed and charged in accordance with the Group's accounting policy; held-for-trading assets, assets designated at fair value and available-for-sale assets within the APS portfolio continue to be measured at fair value with no adjustments to reflect the protection provided by the APS. There is no change in how gains and losses on the covered assets are recognised in the income statement or in other comprehensive income.
 

·
Trigger events (subject to specific rules detailed in the terms of the APS) comprise:

·
failure to pay: the counterparty to the covered asset has (subject to specified grace periods) failed to pay an amount due under the terms of its agreement with the Group.

·
bankruptcy: the counterparty is subject to a specified insolvency or bankruptcy-related event.

·
restructuring: a covered asset which is individually impaired and is subject to a restructuring.

2
 
Appendix 3  The Asset Protection Scheme
 
2. Basis of asset selection
 
The selection of assets was carried out primarily between February and April 2009 and was driven by three principal criteria:
 

(1)
Risk and degree of impairment in base case and stressed scenarios;


(2)
Liquidity of exposure; and


(3)
Capital intensity under procyclicality.


 
The approach for high volume commercial and retail exposures was on a portfolio basis.  Selection for large corporates and GBM was at the counterparty/asset level.
Set out below are the selection criteria for the contributing divisions.
 



Global Banking & Markets (GBM)*
 
Banking book:
  selection by individual asset pool (corporate loans, real estate finance, and leveraged finance), Global Restructuring Group work-out unit counterparties/assets and high risk counterparties/assets. Additional counterparties/assets were selected through an individual risk review of the total portfolio.
Trading book:
  selection by individual assets (monolines, derivatives, mortgage trading).


UK Corporate*
 
Commercial & Corporate real estate:
  all defaulted assets in the work-out/restructuring unit or in high risk bands.
Corporate:
  all defaulted assets in the work-out/restructuring unit.  Corporate banking clients in high risk sectors or with high concentration risk.
Business Banking:
  portfolios in the work out/restructuring unit or in high risk bands.


UK Retail*
 
Mortgages:
  assets with a higher loan-to-value (LTV) and in higher risk segments (e.g. LTV >97% on general book, LTV >85% on buy-to-let book), and those assets in arrears (at 31 December 2008).
Loans and overdrafts:
  higher risk customers based on internal bandings, and those assets in arrears (at 31 December 2008).


Ulster Bank*
(Corporate & Retail)
 
Mortgages:
  assets with a greater than 85% LTV, broker mortgages and interest only with a higher probability of default.
Retail:
  portfolios of accounts in default, >1 month arrears, <2 years old and a higher probability of default.
Corporate:
  counterparties/assets in work-out/restructuring groups or in high risk bands, and other assets identified as part of an individual review of cases.


* including assets transferred to Non-Core division
 
3
 
 
 
Appendix 3  The Asset Protection Scheme
 
3. Covered assets
 
3.1 Roll forward to 31 December 2009
 
The table below details the movement in covered assets in the year.
 


£bn 


Covered assets at 31 December 2008 - at accession to the Scheme
282.0 
Disposals
(3.0)
Non-contractual early repayments
(8.9)
Amortisations
(9.4)
Maturities
(16.7)
Rollovers and covered amount cap adjustments
(1.7)
Effect of foreign currency movements
(11.8)


Covered assets at 31 December 2009
230.5 


 
Note:

(1)
The covered amount at 31 December 2009 above includes approximately £2.1 billion of assets in the derivatives and structured finance asset classes which, for technical reasons, do not currently satisfy, or are anticipated at some stage not to satisfy, the eligibility requirements of the Scheme.  HMT and the Group continue to negotiate in good faith whether (and, if so, to what extent) coverage should extend to these assets. Also, the Group and HMT are in discussion over the HMT classifications of some structured credit assets and this may result in adjustments to amounts for some asset classes; however underlying risks will be unchanged.


 
 
Key point

·
The majority of the reduction (68%) in the covered assets reflects repayments by customers.

·
Additionally the Group took advantage of market conditions and executed a number of loan sales.


4

 


 
Appendix 3  The Asset Protection Scheme
 
3. Covered assets
(continued)
 
3.2 Credit impairments and write downs
 
The table below analyses the cumulative credit impairment losses and adjustments to par value (including AFS reserves) relating to covered assets:
 


2009 
2008

£m 
£m



Loans and advances
14,240 
7,705
Debt securities
7,816 
7,942
Derivatives
6,834 
6,575




28,890 
22,222



By division:


UK Retail
2,431 
1,492
UK Corporate
1,007 
285
Global Banking & Markets
1,628 
1,640
Ulster Bank
486 
234
Non-Core
23,338 
18,571




28,890 
22,222


 
Note:

(1)
Total available-for-sale reserves on debt securities of £1,113 million at 31 December 2009 (£1,315 million as at 31 December 2008 was previously included in undrawn commitments and other adjustments).


 
Key point
 

·
Of the increase in cumulative losses of £6,668 million, the largest was loan impairments in Non-Core.


5
 
Appendix 3  The Asset Protection Scheme
 
3. Covered assets
(continued)
 
3.3 First loss utilisation
 
The triggered amount is equivalent to the aggregate outstanding principal amount on the trigger date excluding interest, fees, premium or any other non-principal sum that is accrued or payable, except where it was capitalised on or before 31 December 2008.  At trigger date, in economic terms, there is an exchange of assets, with the Group receiving a two year interest bearing government receivable in exchange for the asset.
 
APS recoveries include any return of value on a triggered asset, although these are only recognised for Scheme reporting purposes when they are realised in cash.  The net triggered amount at any point in time, therefore, only takes into account cash recoveries to date. The capturing of triggered amounts has required extensive new processes and controls to be put in place. These continue to be work in progress. Additionally,  as with any bespoke and highly complex legal agreement there are various areas of interpretation which still need to be clarified and agreed between the Group and the Asset Protection Agency ('APA'), some of which could have a material impact on the triggered amount identified to date. Also as part of the APS terms and conditions it was agreed to re-characterise certain assets and their closely related hedges under the scheme and the Group continues to negotiate with APA in good faith to finalise this.
 
The Scheme Rules are designed to allow for data correction over the life of the scheme, and the Group has a grace period during 2010 to implement processes to capture triggers and restate quarterly claims statements to HMT retrospectively.
 
The table below summarises the total triggered amount and related cash recoveries by division at 31 December 2009.
 


Triggered 
 amount  
Cash recoveries 
 to date 
Net triggered 
 amount 

£m 
£m 
£m 




UK Retail
3,340
129
3,211
UK Corporate
3,570
604
2,966
Global Banking & Markets
1,748
108
1,640
Ulster Bank
704
47
657
Non-Core
18,905
777
18,128





28,267
1,665


26,602


 
Note:

(1)
The triggered amount on a covered asset is calculated when an asset is triggered (due to bankruptcy, failure to pay after a grace period, and restructuring with an impairment) and is the lower of the covered amount and the outstanding amount for each covered asset. Given the grace period for triggering assets, the Group expects additional assets to trigger based on the current risk rating and level of impairments on covered assets.


6

 


 
Appendix 3  The Asset Protection Scheme
 
3. Covered assets
(continued)
 
3.3 First loss utilisation
(continued)
 
Key points
 

·
APS recoveries include almost any return of value on a triggered asset but are only recognised when they are realised in cash, hence there will be a time lag for the realisation of recoveries.

·
The Group expects recoveries on triggered amounts to be approximately 45% over the life of the relevant assets.

·
On this basis, expected loss on triggered assets at 31 December 2009 is approximately £15 billion (25%) of the £60 billion first loss threshold under the APS.

·
In case the net triggered amount exceeds a specified threshold level for each covered asset class, HMT retains step-in rights as defined in the Scheme rules.


 
3.4 Risk weighted assets
 
Risk-weighted assets were as follows:
 


2009 

2008

£m 

£m




APS
127.6

158.7
Non-APS
438.2

419.1




Group before APS benefit
565.8

577.8


 
 


31 December 2009

APS 
Non APS 
Total 
Risk-weighted assets by division:
£m 
£m 
£m 




UK Retail
16.3
35.0
51.3
UK Corporate
31.0
59.2
90.2
Global Banking & Markets
19.9
103.8
123.7
Ulster
8.9
21.0
29.9
Non-Core
51.5
119.8
171.3
Other divisions
n/a
99.4
99.4




Group before APS benefit
127.6
438.2
565.8


 
Key points
 

·
Over the year RWAs covered by APS declined overall due to the restructuring of certain exposures,, including monoline related assets, and decrease in covered amount partly off-set by credit downgrade and procyclicality,


7
Appendix 3  The Asset Protection Scheme
 
3. Covered assets
(continued)
 
3.5 Divisional analysis
The following table analyses covered assets by the asset classes defined by the Scheme conditions and by division:


UK 
Retail 
UK 
Corporate 
Global 
 Banking & 
 Markets 
Ulster 
Bank 
Non-Core 
Covered 
 amount 

£m 
£m 
£m 
£m 
£m 
£m 







2009






Residential mortgages
9,646 
- 
113 
2,512 
1,934 
14,205 
Consumer finance
11,596 
24,818 
- 
5,538 
11,309 
53,261 
Commercial real estate finance
- 
9,143 
- 
1,073 
21,921 
32,137 
Leveraged finance
- 
4,899 
621 
291 
17,465 
23,276 
Lease finance
- 
449 
- 
- 
1,080 
1,529 
Project finance
- 
- 
255 
- 
1,562 
1,817 
Structured finance
- 
- 
4,114
 
- 
11,061 
15,175 
Loans
- 
9,918 
25,815 
2,237 
16,972 
54,942 
Bonds
- 
- 
153 
- 
545 
698 
Derivatives
- 
- 
12,946 
218 
20,326 
33,490 








21,242 
49,227 
44,017 
11,869 
104,175 
230,530 







2008






Residential mortgages
10,280 
- 
128 
2,837 
2,182 
15,427 
Consumer finance
11,609 
25,031 
- 
5,776 
12,127 
54,543 
Commercial real estate finance
- 
12,436 
- 
1,268 
26,146 
39,850 
Leveraged finance
- 
4,978 
993 
329 
21,434 
27,734 
Lease finance
- 
594 
- 
- 
1,844 
2,438 
Project finance
- 
- 
425 
- 
1,818 
2,243 
Structured finance
- 
- 
6,897 
 - 
12,294 
19,191 
Loans
- 
9,097 
45,610 
2,663 
22,607 
79,977 
Bonds
- 
- 
455 
- 
1,108 
1,563 
Derivatives
- 
- 
16,349 
229 
22,415 
38,993 








21,889 
52,136 
70,857 
13,102 
123,975 
281,959 







Movements






Residential mortgages
(634)
- 
(15)
(325)
(248)
(1,222)
Consumer finance
(13)
(213)
- 
(238)
(818)
(1,282)
Commercial real estate finance
- 
(3,293)
- 
(195)
(4,225)
(7,713)
Leveraged finance
- 
(79)
(372)
(38)
(3,969)
(4,458)
Lease finance
- 
(145)
- 
- 
(764)
(909)
Project finance
- 
- 
(170)
- 
(256)
(426)
Structured finance
- 
- 
(2,783)
- 
(1,233)
(4,016)
Loans
- 
821
(19,795)
(426)
(5,635)
(25,035)
Bonds
- 
- 
(302)
- 
(563)
(865)
Derivatives
- 
- 
(3,403)
(11)
(2,089)
(5,503)








(647)
(2,909)
(26,840)
(1,233)
(19,800)
(51,429)


 
Notes:

(1)
Per the Scheme rules, the definition of consumer finance includes personal loans, as well as business and commercial loans to SMEs
(2)
UK Corporate leveraged finance does not include lending to sponsors but, reflects certain loans to corporate customers per Scheme rules.
(3)
The net increase in UK Corporate loans reflects transfers of shipping assets from GBM.
(4)
There have been some minor divisional refinements to 31 December 2008 data, primarily between Core businesses and Non-Core division.

 

8

 
 
Appendix 3  The Asset Protection Scheme
 
3. Covered assets
(continued)
 
3.6 Asset classes
The following tables detail the balances by asset classes, as defined by the Scheme, with underlying product categories, at 31 December 2009 and 31 December 2008.
 


Carrying 
 value (2) 
Provisions and 
 adjustments to 
 par value (3) 
Par value (4) 
Undrawn 
 commitments 
 and other 
 adjustments (5) 
Covered 
 Amount 

£m 
£m 
£m 
£m 
£m 
2009
(a) 
(b) 
(a)+(b)=(c)
(d)
(c)+(d)=(e)






Residential mortgages
14,092
253
14,345
(140)
14,205






Consumer finance
38,101
4,574
42,675
10,586
53,261
- personal loans
7,986
2,610
10,596
2,613
13,209
- business and commercial loans
30,115
1,964
32,079
7,973
40,052






Commercial real estate finance
28,777
1,656
30,433
1,704
32,137






Leveraged finance
16,045
4,425
20,470
2,806
23,276






Lease finance
1,229
232
1,461
68
1,529






Project finance
1,601
44
1,645
172
1,817






Structured finance
6,884
7,677
14,561
614
15,175
- structured loans
625
17
642
29
671
- RMBS
1,251
1,657
2,908
55
2,963
- CMBS
1,281
466
1,747
(6)
1,741
- CDOs & CLOs
1,568
4,641
6,209
119
6,328
- other ABS
2,159
896
3,055
417
3,472






Loans
34,375
3,039
37,414
17,528
54,942






Bonds (6)
545
156
701
(3)
698






Derivatives
12,510
6,834
19,344
14,146
33,490
- monoline insurers
2,607
6,335
8,942
10,852
19,794
- other counterparties
9,903
499
10,402
3,294
13,696







154,159
28,890
183,049
47,481
230,530












Further analysed:





Loans and advances
134,845
14,240
149,085
32,753
181,838
Debt securities
6,804
7,816
14,620
582
15,202
Derivatives
12,510
6,834
19,344
14,146
33,490







154,159
28,890
183,049
47,481
230,530






By division:





UK Retail
16,599
2,431
19,030
2,212
21,242
UK Corporate
37,710
1,007
38,717
10,510
49,227
Global Banking & Markets
26,141
1,628
27,769
16,248
44,017
Ulster Bank
10,152
486
10,638
1,231
11,869
Non-Core
63,557
23,338
86,895
17,280
104,175







154,159
28,890
183,049
47,481
230,530


9
 
Appendix 3  The Asset Protection Scheme
 
3. Covered assets
(continued)
 
3.6 Asset classes
(continued)
 


Carrying 
 value (2) 
Provisions and 
 adjustments to 
 par value (3) 
Par value (4) 
Undrawn 
Commitments 
 and other 
adjustments (5) 
Covered 
 amount 

£m 
£m 
£m 
£m 
£m 
2008
(a)
(b)
(a)+(b)=(c)
(d)
(c)+(d)=(e)






Residential mortgages
15,283
144
15,427
-
15,427






Consumer finance
45,691
2,346
48,037
6,506
54,543
- personal loans
10,267
1,687
11,954
1,440
13,394
- business and commercial loans
35,424
659
36,083
5,066
41,149






Commercial real estate finance
32,131
847
32,978
6,872
39,850






Leveraged finance
19,792
2,875
22,667
5,067
27,734






Lease finance
2,012
138
2,150
288
2,438






Project finance
1,761
58
1,819
424
2,243






Structured finance
10,370
8,012
18,382
809
19,191
- structured loans
2,761
155
2,916
597
3,513
- RMBS
1,232
1,547
2,779
-
2,779
- CMBS
1,481
371
1,852
-
1,852
- CDOs & CLOs
2,390
5,168
7,558
212
7,770
- other ABS
2,506
771
3,277
-
3,277






Loans
50,563
1,142
51,705
28,272
79,977






Bonds (6)
1,467
85
1,552
11
1,563






Derivatives
21,093
6,575
27,668
11,325
38,993
- monoline insurers
5,620
5,892
11,512
10,758
22,270
- other counterparties
15,473
683
16,156
567
16,723







200,163
22,222
222,385
59,574
281,959












Further analysed:





Loans and advances
169,994
7,705
177,699
48,026
225,725
Debt securities
9,076
7942
17,018
223
17,241
Derivatives
21,093
6,575
27,668
11,325
38,993







200,163
22,222
222,385
59,574
281,959






By division:





UK Retail
18,982
1,492
20,474
1,415
21,889
UK Corporate
39,608
285
39,893
12,243
52,136
Global Banking & Markets
47,230
1,640
48,870
21,987
70,857
Ulster Bank
11,705
234
11,939
1,163
13,102
Non-Core
82,638
18,571
101,209
22,766
123,975







200,163
22,222
222,385
59,574
281,959


10

 


 
Appendix 3  The Asset Protection Scheme
 
3. Covered assets
(continued)
 
3.6 Asset classes
(continued)
 
Notes:

(1)
The balances at 31 December 2008 and 31 December 2009 within specific asset classes reflect the Group's application of the asset class definitions in the Scheme rules, particularly in relation to consumer finance, commercial real estate finance and loans.


(2)
Carrying value represents the amounts recorded on the balance sheet and includes assets classified as loans and receivables (LAR), fair valued through profit or loss (FVTPL) and available-for-sale (AFS).


(3)
Provisions and adjustments to par value comprises:



·
impairments on LAR and AFS debt securities;




·
credit valuation adjustments relating to derivatives;




·
adjustment to par value on other FVTPL assets;




·
add-back of write-offs of £6,079 million, as these are covered by the Scheme rules; and




·
available-for-sale reserves on debt securities of £1,113 million (2008 - £1,315 million).


(4)
Undrawn commitments and other adjustments include:



·
undrawn commitments and other contingent liabilities;




·
potential future exposures and other adjustments to covered amount relating to derivative contracts; and




·
adjustments to covered amount in accordance with the Scheme rules (restriction of cover for rollovers (loans and commercial real estate), maintenance of covered amount as at 31 December 2008 for two years (consumer finance).



(5)
Comprises non asset-backed securities.


11
 
Appendix 3  The Asset Protection Scheme
 
3. Covered assets
(continued)
 
3.7 Sector analysis
 
The tables below analyse covered assets by sector and division; and by sector and HMT asset class at 31 December 2009 and 31 December 2008.
 


2009



UK Retail 
UK 
 Corporate 
GBM 
Ulster 
 Bank 
Non-Core 
Covered 
 amount 

2008 

£m 
£m 
£m 
£m 
£m 
£m 

£m 









Financial institutions
 - 
1,427 
11,303 
35 
35,985 
48,750 

64,027 
Manufacturing
 - 
1,673 
6,849 
230 
8,127 
16,879 

20,053 
Natural resources
 - 
629 
2,530 
45 
2,117 
5,321 

8,122 
Property
 - 
9,990 
8,349 
1,550 
27,931 
47,820 

60,217 
Retail and leisure
 - 
4,292 
4,608 
964 
4,305 
14,169 

17,975 
Services
 - 
1,885 
1,159 
324 
2,689 
6,057 

8,484 
TMT
 - 
608 
3,985 
263 
5,852 
10,708 

14,535 
Transport
 - 
3,962 
5,118 
116 
3,579 
12,775 

15,726 
Personal and SME
21,242 
24,761 
116 
8,342 
13,590 
68,051 

72,820 










21,242 
49,227 
44,017 
11,869 
104,175 
230,530 

281,959 


 

 



 

Residential 
mortgage

 Consumer

finance 

  Commercial

real estate

  Leveraged

finance

    Lease

finance

  Project

finance

  Structured

finance

   Loan

   Bonds

   Derivative

Covered

   amount
                       
 

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m
                       

2009

                      

Financial institutions

-

-

818

1,620

18

-

13,769

9,741

337

22,447

48,750

Manufacturing

-

-

-

5,906

120

6

6

9,782

48

1,011

16,879

cNatural resources

-

-

-

1,260

41

1,065

9

2,458

46

442

5,321

Property

-

-

30,636

1,810

564

298

486

9,058

53

4,915

47,820

Retail and leisure

-

-

616

3,510

40

142

369

7,819

74

1,599

14,169

Services

-

-

29

3,213

320

104

191

1,572

6

622

6,057

TMT

-

-

-

5,490

9

-

3

3,908

11

1,287

10,708

Transport

-

-

35

465

273

202

342

10,171

123

1,164

12,775

Personal and SME

14,205

53,261

3

2

144

-

-

433

-

3

68,051

                       
 

14,205

53,261

32,137

23,276

1,529

1,817

15,175

54,942

698

33,490

230,530

                       

2008

                      

Financial Institutions

-

-

638

4,196

28

138

17,288

15,478

514

25,747

64,027

Manufacturing

-

-

-

4,895

196

14

7

13,233

60

1,648

20,053

Natural resources

-

-

-

1,484

60

1,261

11

4,699

53

554

8,122

Property

-

-

38,467

2,188

876

388

550

12,289

128

5,331

60,217

Retail and leisure

-

-

679

4,067

63

151

443

10,417

165

1,990

17,975

Services

-

-

31

3,773

556

66

519

2,832

13

694

8,484

TMT

-

-

-

6,591

13

-

3

5,918

406

1,604

14,535

Transport

-

-

35

537

369

225

370

12,619

149

1,422

15,726

Personal and SME

15,427

54,543

-

3

277

-

-

2,492

75

3

72,820
                       
 

15,427

54,543

39,850

27,734

2,438

2,243

19,191

79,977

1,563

38,993

281,959

 

12

 
Appendix 3 Asset Protection Scheme
 
3. Covered assets
(continued)
 
3.8 Geographical breakdown
 
The table below provides a geographical breakdown of covered assets, based on the country of domicile or incorporation of the obligor, and by HM Treasury asset class.
 

 

Residential

mortgage

   Consumer

finance

   Commercial

real estate

   Leveraged

finance

   Lease

finance

    Project

finance

   Structured

finance

   Loan

   Bonds

   Derivative

  Covered

amount
                       
 

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m
                       

2009

                      

United Kingdom

10,102

46,027

15,285

8,406

997

167

2,433

15,879

53

8,379

107,728

Western Europe

3,971

6,814

12,080

9,448

485

904

2,963

21,273

105

2,369

60,412

North America

118

46

1,702

4,039

2

228

3,406

8,019

25

17,325

34,910

Latin America

1

282

2,042

476

17

40

5,628

2,593

7

4,068

15,154

Other

13

92

1,028

907

28

478

745

7,178

508

1,349

12,326

                       
 

14,205

53,261

32,137

23,276

1,529

1,817

15,175

54,942

698

33,490

230,530

                       

2008

                      

United Kingdom

10,799

46,459

20,127

9,617

1,537

264

2,778

21,050

115

10,074

122,820

Western Europe

4,468

7,654

13,848

11,685

845

1,004

4,226

31,461

370

3,231

78,792

North America

139

46

2,381

4,880

4

261

4,187

12,493

499

19,567

44,457

Latin America

1

287

2,201

601

19

45

6,550

4,365

18

4,486

18,573

Other

20

97

1,293

951

33

669

1,450

10,608

561

1,635

17,317

                       
 

15,427

54,543

39,850

27,734

2,438

2,243

19,191

79,977

1,563

38,993

281,959


 

 
3.9 Currency breakdown
 


2009 
2008

£m 
£m



GBP
107,731 
121,440
Euro
56,586 
72,989
USD
58,489 
77,298
AUD
3,276 
3,981
JPY
1,725 
2,157
Other
2,723 
4,094




230,530 
281,959


 
This analysis by currency does not reflect any hedges that the Group may have in place.
 
 
13

 
Appendix 3 Asset Protection Scheme
 
3. Covered assets
(continued)
 
3.10 Risk elements in lending and potential problem loans
Risk elements in lending (REIL) and potential problem loans (PPL) for the Group and the amount relating to assets in the Scheme are set out below.


2009

2008

Group 
APS 

Group 
APS 

£m 
£m 

£m 
£m 






Non-performing loans
             31,811 
22,335 

17,082 
12,679 
Other REIL
               3,178 
2,092 

1,709 
1,498 






Total REIL
             34,989 
24,427 

18,791 
14,177 
PPL
                  924 
580 

226 
187 






REIL and PPL
35,913 
25,007 

19,017 
14,364 




 
 
Core
12,361 
7,170 

 
 
Non-Core
23,552 
17,837 

 
 




 
 
REIL and PPL
35,913 
25,007 





 
Key point
 

·
Approximately 70% of the Group and 76% of Non-Core REIL and PPL loans are covered by the scheme.


 
3.11 Credit quality of loans
 
The table below analyses the credit quality of the Group's credit risk assets by risk bands and the proportion relating to assets in the Scheme.



2009

2008
Asset quality band
Probability of default
Group 
% relating to assets in scheme

Group 
% relating to  assets in scheme







AQ1
0% -   0.034%
95 
2%

127 
3%
AQ2
0.034% -   0.048%
                      12 
9%

26 
16%
AQ3
0.048% -   0.095%
                      29 
7%

38 
17%
AQ4
0.095% -   0.381%
97 
12%

150 
15%
AQ5
0.381% -   1.076%
130 
24%

148 
28%
AQ6
1.076% -   2.153%
95 
28%

103 
36%
AQ7
2.153% -   6.089%
55 
37%

46 
52%
AQ8
6.089% -  17.222%
23 
44%

26 
46%
AQ9
17.222% -  100%
15 
66%

12 
69%
AQ10
100%
38 
76%

18 
72%
Other
(1)

41 
5%

41 
8%









630 
23%

735 
24%


 
Note:

(1)
'Other' largely comprises assets covered by the standardised approach for which a probability of default (PD) equivalent to those assigned to assets covered by the internal ratings based approach is not available.
Reverse repurchase agreements, carrying value relating to net derivative positions and debt securities are excluded from both Group numbers and APS covered assets above.


14

 

Signatures



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



Date: 25 February 2010

  THE ROYAL BANK OF SCOTLAND GROUP plc (Registrant)


  By: /s/ A N Taylor

  Name:
Title:		 A N Taylor
Head of Group Secretariat