rbs201105066k5.htm
 
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 May 6, 2011
 
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:

 
 

 
 
 

 
Risk and balance sheet management
 
Balance sheet management
 
Capital
The Group aims to maintain an appropriate level of capital to meet its business needs and regulatory requirements as capital adequacy and risk management are closely aligned. The Group's regulatory capital resources and risk asset ratios calculated in accordance with FSA definitions are set out below.
 
 
31 March 
2011 
31 December 
2010 
Risk-weighted assets (RWAs)
£bn 
£bn 
     
Credit risk
367.9 
385.9 
Counterparty risk
62.8 
68.1 
Market risk
69.5 
80.0 
Operational risk
37.9 
37.1 
     
 
538.1 
571.1 
Benefit of Asset Protection Scheme
(98.4)
(105.6)
     
 
439.7 
465.5 
 
Risk asset ratio
% 
% 
     
Core Tier 1
11.2 
10.7 
Tier 1
13.5 
12.9 
Total
14.5 
14.0 
 
Key points
·
Credit and counterparty RWAs fell by £23.3 billion principally driven by asset run-off, disposals and restructurings, and a reclassification of certain trades in Non-Core.
   
·
Market risk decreased by £10.5 billion reflecting a lower event risk charge and reductions in VaR.
   
·
The reduction in APS RWA benefit reflects the run-off of covered assets.
   
·
The benefit of the APS to the Core Tier 1 was 1.3% compared with 1.2% at 31 December 2010.
 
 

 
Risk and balance sheet management (continued)
 
Balance sheet management: Capital(continued)
 
 
31 March 
2011 
31 December 
2010 
Composition of regulatory capital
£m 
£m 
     
Tier 1
    
Ordinary and B shareholders' equity
69,332 
70,388 
Non-controlling interests
1,710 
1,719 
Adjustments for:
    
  - goodwill and other intangible assets - continuing businesses
(14,409)
(14,448)
  - unrealised losses on available-for-sale (AFS) debt securities
2,125 
2,061 
  - reserves arising on revaluation of property and unrealised gains on AFS equities
(62)
(25)
  - reallocation of preference shares and innovative securities
(548)
(548)
  - other regulatory adjustments*
(379)
(1,097)
Less excess of expected losses over provisions net of tax
(2,385)
(1,900)
Less securitisation positions
(2,410)
(2,321)
Less APS first loss
(3,936)
(4,225)
     
Core Tier 1 capital
49,038 
49,604 
Preference shares
5,380 
5,410 
Innovative Tier 1 securities
4,561 
4,662 
Tax on the excess of expected losses over provisions
860 
758 
Less material holdings
(291)
(310)
     
Total Tier 1 capital
59,548 
60,124 
     
Tier 2
    
Reserves arising on revaluation of property and unrealised gains on AFS equities
62 
25 
Collective impairment provisions
750 
778 
Perpetual subordinated debt
1,845 
1,852 
Term subordinated debt
16,334 
16,745 
Non-controlling and other interests in Tier 2 capital
11 
11 
Less excess of expected losses over provisions
(3,245)
(2,658)
Less securitisation positions
(2,410)
(2,321)
Less material holdings
(291)
(310)
Less APS first loss
(3,936)
(4,225)
     
Total Tier 2 capital
9,120 
9,897 
     
Supervisory deductions
    
Unconsolidated investments
    
  - RBS Insurance
(3,988)
(3,962)
  - other investments
(330)
(318)
Other deductions
(422)
(452)
     
Deductions from total capital
(4,740)
(4,732)
     
Total regulatory capital
63,928 
65,289 
     
* Includes reduction for own liabilities carried at fair value
(863)
(1,182)
 


 
Risk and balance sheet management (continued)
 
Balance sheet management: Capital (continued)
 
Movement in Core Tier 1 capital
£m 
   
At 1 January 2011
49,604 
Attributable loss net of movement in fair value of own debt
(209)
Foreign currency reserves
(384)
Issue of ordinary shares
31 
Increase in capital deductions including APS first loss
(285)
Other movements
281 
   
At 31 March 2011
49,038 
 
Risk-weighted assets by division
Risk-weighted assets by risk category and division are set out below.
 
 
Credit 
risk 
Counterparty 
risk 
Market 
risk 
Operational 
risk 
Gross 
total 
APS 
relief 
Net 
total 
31 March 2011
£bn 
£bn 
£bn 
£bn 
£bn 
£bn 
£bn 
               
UK Retail
43.0 
- 
- 
7.3 
50.3 
(11.4)
38.9 
UK Corporate
72.6 
- 
- 
6.7 
79.3 
(21.5)
57.8 
Wealth
10.6 
- 
0.1 
1.9 
12.6 
- 
12.6 
Global Transaction Services
13.3 
- 
- 
4.9 
18.2 
- 
18.2 
Ulster Bank
29.4 
0.4 
0.1 
1.8 
31.7 
(7.4)
24.3 
US Retail & Commercial
48.4 
0.8 
- 
4.4 
53.6 
- 
53.6 
               
Retail & Commercial
217.3 
1.2 
0.2 
27.0 
245.7 
(40.3)
205.4 
Global Banking & Markets
51.0 
32.0 
48.0 
15.5 
146.5 
(11.1)
135.4 
Other
13.3 
0.5 
- 
0.7 
14.5 
- 
14.5 
               
Core
281.6 
33.7 
48.2 
43.2 
406.7 
(51.4)
355.3 
Non-Core
83.6 
29.1 
21.3 
(5.5)
128.5 
(47.0)
81.5 
               
Group before RFS MI
365.2 
62.8 
69.5 
37.7 
535.2 
(98.4)
436.8 
RFS MI
2.7 
- 
- 
0.2 
2.9 
- 
2.9 
               
Group
367.9 
62.8 
69.5 
37.9 
538.1 
(98.4)
439.7 
               
31 December 2010
              
               
UK Retail
41.7 
- 
- 
7.1 
48.8 
(12.4)
36.4 
UK Corporate
74.8 
- 
- 
6.6 
81.4 
(22.9)
58.5 
Wealth
10.4 
- 
0.1 
2.0 
12.5 
- 
12.5 
Global Transaction Services
13.7 
- 
- 
4.6 
18.3 
- 
18.3 
Ulster Bank
29.2 
0.5 
0.1 
1.8 
31.6 
(7.9)
23.7 
US Retail & Commercial
52.0 
0.9 
- 
4.1 
57.0 
- 
57.0 
               
Retail & Commercial
221.8 
1.4 
0.2 
26.2 
249.6 
(43.2)
206.4 
Global Banking & Markets
53.5 
34.5 
44.7 
14.2 
146.9 
(11.5)
135.4 
Other
16.4 
0.4 
0.2 
1.0 
18.0 
- 
18.0 
               
Core
291.7 
36.3 
45.1 
41.4 
414.5 
(54.7)
359.8 
Non-Core
91.3 
31.8 
34.9 
(4.3)
153.7 
(50.9)
102.8 
               
Group before RFS MI
383.0 
68.1 
80.0 
37.1 
568.2 
(105.6)
462.6 
RFS MI
2.9 
- 
- 
- 
2.9 
- 
2.9 
               
Group
385.9 
68.1 
80.0 
37.1 
571.1 
(105.6)
465.5 

 
 
 

 
Risk and balance sheet management (continued)
 
Balance sheet management: Funding and liquidity risk
 
The Group's balance sheet composition is a function of the broad array of product offerings and diverse markets served by its Core divisions. The structural composition of the balance sheet is augmented as needed through active management of both asset and liability portfolios. The objective of these activities is to optimise liquidity transformation in normal business environments while ensuring adequate coverage of all cash requirements under extreme stress conditions.
 
Diversification of the Group's funding base is central to its liquidity management strategy. The Group's businesses have developed large customer franchises based on strong relationship management and high quality service. These customer franchises are strongest in the UK, US and Ireland but extend into Europe, Asia and Latin America. Customer deposits provide large pools of stable funding to support the majority of the Group's lending. It is a strategic objective to improve the Group's loan to deposit ratio to 100%, or better, by 2013.
 
The Group also accesses professional markets funding by way of public and private debt issuances on an unsecured and secured basis. These debt issuance programmes are spread across multiple currencies and maturities to appeal to a broad range of investor types and preferences around the world. This market based funding supplements the Group's structural liquidity needs and in some cases achieves certain capital objectives.
 
The table below shows the Group's primary funding sources, excluding repurchase agreements.
 
 
31 March 2011
  
31 December 2010
 
£m 
% 
  
£m 
% 
           
Deposits by banks
          
  - central banks
13,773 
1.9 
  
11,612 
1.6 
  - cash collateral
23,594 
3.2 
  
28,074 
3.8 
  - other
26,462 
3.6 
  
26,365 
3.6 
           
 
63,829 
8.7 
  
66,051 
9.0 
           
Debt securities in issue
          
  - commercial paper
24,216 
3.3 
  
26,235 
3.5 
  - certificates of deposits
35,967 
4.9 
  
37,855 
5.1 
  - medium-term notes and other bonds
130,230 
17.7 
  
131,026 
17.7 
  - covered bonds
6,850 
0.9 
  
4,100 
0.6 
  - other securitisations
18,705 
2.6 
  
19,156 
2.6 
           
 
215,968 
29.4 
  
218,372 
29.5 
           
Subordinated liabilities
26,515 
3.6 
  
27,053 
3.6 
           
Total wholesale funding
306,312 
41.7 
  
311,476 
42.1 
           
Customer deposits
          
  - cash collateral
8,673 
1.2 
  
10,433 
1.4 
  - other
419,801 
57.1 
  
418,166 
56.5 
           
Total customer deposits
428,474 
58.3 
  
428,599 
57.9 
           
Total funding
734,786 
100.0 
  
740,075 
100.0 


 
Risk and balance sheet management (continued)
 
Balance sheet management: Funding and liquidity risk (continued)
 
The table below shows the Group's debt securities in issue and subordinated liabilities by remaining maturity.
 
 
31 March 2011
  
31 December 2010
 
Debt 
securities 
 in issue 
Subordinated 
liabilities 
Total 
    
Debt 
 securities 
 in issue 
Subordinated 
liabilities 
Total 
  
 
£m 
£m 
£m 
% 
  
£m 
£m 
£m 
% 
                   
Less than 1 year
107,110 
826 
107,936 
44.5 
  
94,048 
964 
95,012 
38.7 
1-3 years
35,801 
2,247 
38,048 
15.7 
  
49,149 
754 
49,903 
20.3 
3-5 years
23,613 
7,217 
30,830 
12.7 
  
22,806 
8,476 
31,282 
12.8 
More than 5 years
49,444 
16,225 
65,669 
27.1 
  
52,369 
16,859 
69,228 
28.2 
                   
 
215,968 
26,515 
242,483 
100.0 
  
218,372 
27,053 
245,425 
100.0 
 
Key points
·
The proportion of funding from customer deposits, excluding cash collateral, improved marginally from 56.5% to 57.1%.
   
·
Short-term wholesale funding excluding derivative collateral increased from £129.4 billion to £144.7 billion during the first quarter of 2011 due to the inclusion of £15.6 billion of medium-term notes issued under the Credit Guarantee Scheme which will mature in Q1 2012. Short-term wholesale instruments (excluding repos and cash collateral) declined by £1.6 billion in Q1 2011.
 

 
 
 

 
Risk and balance sheet management (continued)
 
Balance sheet management: Funding and liquidity risk (continued)
 
Long-term debt issuances
The table below shows debt securities issued by the Group with an original maturity of one year or more. The Group also executes other long-term funding arrangements (predominately term repos) not reflected in the tables below.
 
 
Quarter ended
Year ended 
31 December 
2010 
 
31 March 
2011 
31 December 
2010 
30 September 
2010 
30 June 
2010 
31 March 
2010 
 
£m 
£m 
£m 
£m 
£m 
£m 
             
Public
            
  - unsecured
3,277 
775 
6,254 
1,882 
3,976 
12,887 
  - secured
2,652 
1,725 
5,286 
1,030 
- 
8,041 
Private
            
  - unsecured
4,251 
4,623 
6,299 
2,370 
4,158 
17,450 
             
Gross issuance
10,180 
7,123 
17,839 
5,282 
8,134 
38,378 
 
The table below shows the original maturity and currency breakdown of long-term debt securities issued in Q1 2011 and Q4 2010.
 
 
Quarter ended
 
31 March 2011
  
31 December 2010
 
£m 
% 
  
£m 
% 
           
Original maturity
          
1-2 years
438 
4.3 
  
433 
6.1 
2-3 years 
184 
1.8 
  
618 
8.6 
3-4 years
2,474 
24.3 
  
697 
9.8 
4-5 years
248 
2.5 
  
290 
4.1 
5-10 years
5,001 
49.1 
  
2,321 
32.6 
> 10 years
1,835 
18.0 
  
2,764 
38.8 
           
 
10,180 
100.0 
  
7,123 
100.0 
 
Currency
          
           
GBP
483 
4.7 
  
264 
3.7 
EUR
4,069 
40.0 
  
3,935 
55.2 
USD
3,310 
32.5 
  
1,280 
18.0 
Other
2,318 
22.8 
  
1,644 
23.1 
           
 
10,180 
100.0 
  
7,123 
100.0 
 
Key points
·
Term issuances in Q1 2011 were £10.2 billion, including £2.7 billion of euro denominated covered bonds, of which £0.9 billion had original maturity of 7 years and the balance had original maturity of 5 years.
   
·
Issuances in Q1 2011 were £3.1 billion higher than in Q4 2010, of which £2.0 billion related to US dollar denominated instruments.
   
·
The Group issued a further £3.8 billion of term debt in April 2011.
 


 
Risk and balance sheet management (continued)
 
Balance sheet management: Funding and liquidity risk (continued)
 
Liquidity portfolio
The table below shows the composition of the Group's liquidity portfolio.
 
 
31 March 
2011 
31 December 
2010 
Liquidity portfolio
£m 
£m 
     
Cash and balances at central banks
58,936 
53,661 
Treasury bills
9,859 
14,529 
Central and local government bonds (1)
    
  - AAA rated governments (2)
40,199 
41,435 
  - AA- to AA+ rated governments
1,408 
3,744 
  - governments rated below AA
1,052 
1,029 
  - local government
4,771 
5,672 
 
47,430 
51,880 
Unencumbered collateral (3)
    
  - AAA rated
21,328 
17,836 
  - below AAA rated and other high quality assets
13,637 
16,693 
 
34,965 
34,529 
     
Total liquidity portfolio
151,190 
154,599 
 
Notes:
(1)
Includes FSA eligible government bonds of £30.1 billion at 31 March 2011 (31 December 2010 - £34.7 billion).
(2)
Includes AAA rated US government guaranteed agencies.
(3)
Includes secured assets eligible for discounting at central banks, comprising loans and advances and debt securities.
 
Key points
·
The Group's liquidity portfolio was £151.2 billion, a decline of £3.4 billion from 31 December 2010.
   
·
The strategic target of £150 billion is unchanged.
   
·
The liquidity portfolio is actively managed and as such its composition varies over time. Actions initiated in March 2011 to alter the maturity and currency mix resulted in a higher proportion of cash and central bank balances at the end of the quarter.
 


 
Risk and balance sheet management (continued)
 
Balance sheet management: Funding and liquidity risk (continued)
 
Net stable funding
The table below shows the Group's net stable funding ratio estimated by applying the Basel III guidance issued in December 2010. This measure seeks to show the proportion of structural term assets which are funded by stable funding including customer deposits, long-term wholesale funding, and equity. The Group's net stable funding ratio calculation will continue to be refined over time in line with regulatory developments.
 
31 March 2011
  
31 December 2010
  
   
ASF (1)
    
ASF (1)
Weighting 
 
£bn 
£bn 
  
£bn 
£bn 
% 
             
Equity
76 
76 
  
76 
76 
100 
Wholesale funding > 1 year
138 
138 
  
154 
154 
100 
Wholesale funding < 1 year
168 
- 
  
157 
- 
- 
Derivatives
361 
- 
  
424 
- 
- 
Repurchase agreements
130 
- 
  
115 
- 
- 
Deposits
            
  - Retail and SME - more stable
171 
154 
  
172 
155 
90 
  - Retail and SME - less stable
26 
21 
  
51 
41 
80 
  - Other
231 
116 
  
206 
103 
50 
Other (2)
112 
- 
  
98 
- 
- 
             
Total liabilities and equity
1,413 
505 
  
1,453 
529 
  
             
Cash
60 
- 
  
57 
- 
- 
Inter bank lending
59 
- 
  
58 
- 
- 
Debt securities > 1 year
            
  - central and local governments AAA to AA-
83 
4 
  
89 
4 
5 
  - other eligible bonds
79 
16 
  
75 
15 
20 
  - other bonds
16 
16 
  
10 
10 
100 
Debt securities < 1 year
53 
- 
  
43 
- 
- 
Derivatives
361 
- 
  
427 
- 
- 
Reverse repurchase agreements
106 
- 
  
95 
- 
- 
Customer loans and advances > 1 year
            
  - residential mortgages
143 
93 
  
145 
94 
65 
  - other
200 
200 
  
211 
211 
100 
Customer loans and advances < 1 year
            
  - retail loans
19 
16 
  
22 
19 
85 
  - other
132 
66 
  
125 
63 
50 
Other (3)
102 
102 
  
96 
96 
100 
             
Total assets
1,413 
513 
  
1,453 
512 
  
             
Undrawn commitments
255 
13 
  
267 
13 
5 
             
Total assets and undrawn commitments
1,668 
526 
  
1,720 
525 
  
             
Net stable funding ratio
  
96% 
    
101% 
  
 
Notes:
(1)
Available stable funding.
(2)
Deferred tax, insurance liabilities and other liabilities.
(3)
Prepayments, accrued income, deferred tax and other assets.
 
Key point
·
The Group's net stable funding ratio reduced to 96% at 31 March 2011, from 101% at 31 December 2010, primarily due to an increase in the wholesale funding with maturity of less than one year arising from the inclusion of £15.6 billion medium-term notes issued under the Credit Guarantee Scheme maturing during Q1 2012.
 
Risk and balance sheet management (continued)
 
Balance sheet management: Funding and liquidity risk (continued)
 
Loan deposit ratio and funding gap
The table below shows quarterly trends in the loan to deposit ratio and customer funding gap. 
 
 
Loan to
deposit ratio (1)
  
Customer 
 funding gap (1)
 
Group 
Core 
  
Group 
 
% 
% 
  
£bn 
         
31 March 2011
115 
96 
  
66 
31 December 2010
117 
96 
  
74 
30 September 2010
126 
101 
  
107 
30 June 2010
128 
102 
  
118 
31 March 2010
131 
102 
  
131 
31 December 2009
135 
104 
  
142 
 
Note:
(1)
Excludes repurchase agreements and bancassurance deposits to 31 March 2010 and loans are net of provisions.
 
Key points
·
The Group's loan to deposit ratio improved by 200 basis points in Q1 2011 to 115%. The customer funding gap narrowed by £8 billion to £66 billion in Q1 2011, primarily due to a reduction in Non-Core customer loans.
   
·
The loan to deposit ratio for the Group's Core business at 31 March 2011 remained stable at 96%.
 
Sensitivity of net interest income
The Group seeks to mitigate the effect of prospective interest rate movements which could reduce future net interest income through its management of market risk in the Group's businesses, whilst balancing the cost of such hedging activities on the current net revenue stream. Hedging activities also consider the impact on market value sensitivity under stress.
 
The following table shows the sensitivity of net interest income over the next twelve months to an immediate up and down 100 basis points change to all interest rates.
 
 
31 March 
2011 
31 December 
2010 
 
£m 
£m 
     
+ 100bp shift in yield curves
266 
232 
- 100bp shift in yield curves
(302)
(352)
 
Key points
·
In aggregate, the Group's interest rate exposure continues to reflect a slight asset sensitive bias in Q1 2011.
   
·
There were no material actions taken to alter the position during the quarter. Certain assumptions used for modelling customer pricing have been modified to show greater opportunity for margin expansion as and when short-term interest rates begin to rise.


 
 
 

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:  6 May 2011
 
THE ROYAL BANK OF SCOTLAND GROUP plc (Registrant)
 
 
 
By:
/s/ Jan Cargill
 
 
Name:
Title:
Jan Cargill
Deputy Secretary