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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Natwest Group Plc | LSE:NWG | London | Ordinary Share | GB00BM8PJY71 | ORD 107.69P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 6.10 | 2.18% | 285.80 | 285.20 | 285.40 | 286.20 | 281.30 | 282.00 | 27,743,054 | 16:35:28 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Commercial Banks, Nec | 14.77B | 4.64B | 0.5271 | 5.41 | 25.09B |
From Apr 2019 to Apr 2024
TIDMRBS
RNS Number : 7507F
Royal Bank of Scotland Group PLC
23 February 2018
The Royal Bank of Scotland Group plc
2017 RBS performance summary
Highlights
RBS reported its first 'bottom-line' profit in ten years
Hot Features
Premium
-- 2017 operating profit of GBP2,239 million, an increase of GBP6,321
million compared with 2016.
-- Adjusted operating profit(1)(2) increased by 31.1% to GBP4,818
million.
-- 2017 attributable profit of GBP752 million.
-- Q4 2017 operating loss before tax of GBP583 million and an
attributable loss of GBP579 million.
-- 4.0% increase in adjusted income(1) and an 8.1% reduction in
adjusted operating expenses(2) driving a 12.1% improvement
in operating leverage.
-- Net interest margin (NIM) reduced by 5 basis points to 2.13%
compared with 2016.
-- Supported the UK economy through a GBP6.0 billion, or 2.2%,(3)
increase in net lending across PBB, CPB and RBSI. Whilst behind
our 3% target, this represents strong growth in a competitive
environment.
Continued track record of delivery against our stated objectives
-- Grow income: Adjusted income increased by GBP490 million, or
4.0%.(1)
-- Cut costs: Excluding VAT recoveries, adjusted operating expenses
reduced by GBP810 million,(2) or 9.6%.
-- Reduce capital usage: Excluding volume growth, RWAs reduced
by GBP20.8 billion across PBB (GBP0.6 billion), CPB (GBP12.9
billion), RBSI (GBP4.4 billion) and NatWest Markets core (GBP2.9
billion), already achieving our 2018 target.
-- Resolve legacy issues; during 2017, RBS:
* Wound up the former Capital Resolution business.
Legacy RWAs now represent around 11% of total;
* Received formal approval from the European Commission
for its alternative remedies package in respect of
the business previously described as Williams & Glyn;
and
* Reached settlement with the Federal Housing Finance
Agency (FHFA) and the California State Attorney
General in the US and resolved the 2008 rights issue
shareholder litigation.
Significant capital build throughout 2017
-- CET1 ratio increased by 250 basis points to 15.9%, despite
absorbing significant additional legacy costs.
-- IFRS 9 adoption on 1 January 2018 increased CET1 by a further
30 basis points.
Prioritising transformation acceleration
-- Increased investment and innovation spend focused on achieving
higher levels of digitisation and automation.
-- Faster repositioning of the bank's existing distribution network
and technology platforms towards mobile, cloud based platforms
and virtualisation.
Delivery against our 2017 targets
Strategy
goal 2017 target 2017
------------------- ---------------------------------- -------------------------------
Strength Maintain bank CET1 ratio of 13% CET1 ratio of 15.9%; up 250
and sustainability basis points from Q4 2016
------------------- ---------------------------------- -------------------------------
Customer Significantly increase NPS or We have achieved target in
experience maintain No.1 in chosen customer half our key customer segments
segments and Commercial Banking remains
ahead of its main competitors.
Trust has improved for both
NatWest and Royal Bank of
Scotland
------------------- ---------------------------------- -------------------------------
Simplifying Reduce adjusted operating expenses Adjusted operating expenses
the bank by at least GBP750 million down GBP810 million, or 9.6%,
excluding VAT recoveries
------------------- ---------------------------------- -------------------------------
Supporting Net 3% growth on total PBB, CPB Net customer loans in PBB,
growth and RBSI loans to customers CPB and RBSI up 2.2%(3)
------------------- ---------------------------------- -------------------------------
Employee Improve employee engagement Employee engagement improved
engagement by 7 basis points to 83,
1 point above the GFS norm
------------------- ---------------------------------- -------------------------------
Notes:
(1) Income excluding own credit adjustments GBP69 million loss (2016
- GBP180 million gain), loss on redemption of own debt GBP7 million
(2016 - GBP126 million), and strategic disposals GBP347 million
(2016 - GBP164 million).
(2) Operating expenses excluding litigation and conduct costs GBP1,285
million (2016 - GBP5,868 million), restructuring costs GBP1,565
million (2016 - GBP2,106 million), and VAT recoveries of GBP86 million
(2016 - GBP227 million).
(3) Excluding transfers. See notes on page 4 for further details.
Highlights
Year ended Quarter ended
======================== ========================================
31 December 31 December 31 December 30 September 31 December
Performance key metrics
and ratios 2017 2016 2017 2017 2016
----------------------------- ----------- ----------- ----------- ------------ -------------
Operating profit 2,239 (4,082) (583) 871 (4,063)
Operating profit - adjusted
(1,2) 4,818 3,674 512 1,245 1,185
Profit/(loss) attributable
to ordinary shareholders 752 (6,955) (579) 392 (4,441)
Net interest margin 2.13% 2.18% 2.04% 2.12% 2.19%
Average interest earning
assets GBP422,337m GBP399,598m GBP430,902m GBP430,962m GBP401,548m
Cost:income ratio (3) 79.0% 129.0% 111.5% 67.5% 230.2%
Cost:income ratio - adjusted
(1,2,3) 58.2% 66.0% 73.6% 55.6% 66.3%
Earnings per share
- basic 6.3p (59.5p) (4.9p) 3.3p (37.7p)
- basic fully diluted 6.3p (59.5p) (4.9p) 3.3p (37.7p)
- adjusted basic (1,2) 25.2p 5.2p 3.0p 5.9p 7.0p
- adjusted fully diluted
(1,2,4) 25.2p 5.2p 3.0p 5.9p 7.0p
Return on tangible equity 2.2% (17.9%) (6.7%) 4.5% (48.2%)
Return on tangible equity
- adjusted (1,2) 8.8% 1.6% 4.0% 8.2% 8.6%
Average tangible equity GBP34,053m GBP38,791m GBP34,403m GBP34,465m GBP36,855m
Average number of ordinary
shares
outstanding during the
period (millions)
- basic 11,867 11,692 11,944 11,886 11,766
- fully diluted (4) 11,936 11,743 12,003 11,943 11,846
----------------------------- ----------- ----------- ----------- ------------ -------------
Period ended
======================================
31 December 30 September 31 December
Balance sheet related key metrics and ratios 2017 2017 2016
======================================================= =========== ============ ===========
Total assets GBP738.1bn GBP751.8bn GBP798.7bn
Funded assets GBP577.2bn GBP580.0bn GBP551.7bn
Loans and advances to customers (excludes
reverse repos) GBP323.2bn GBP324.7bn GBP323.0bn
Customer deposits (excludes repos) GBP367.0bn GBP359.9bn GBP353.9bn
Liquidity coverage ratio (LCR) 152% 147% 123%
Liquidity portfolio GBP186bn GBP177bn GBP164bn
Net stable funding ratio (NSFR) 132% 126% 121%
Loan:deposit ratio 88% 90% 91%
Risk elements in lending GBP8.9bn GBP9.0bn GBP10.3bn
Impairment provisions GBP3.8bn GBP3.9bn GBP4.5bn
Short-term wholesale funding GBP18bn GBP21bn GBP14bn
Wholesale funding GBP70bn GBP69bn GBP59bn
Common Equity Tier 1 (CET1) ratio 15.9% 15.5% 13.4%
Total capital ratio 21.3% 20.6% 19.2%
Risk-weighted assets (RWAs) GBP200.9bn GBP210.6bn GBP228.2bn
CRR leverage ratio 5.3% 5.3% 5.1%
UK leverage ratio 6.1% 6.0% 5.6% Tangible net asset value (TNAV) per ordinary share 294p 299p 296p Tangible net asset value (TNAV) per ordinary share - fully diluted 292p 298p 294p Tangible equity GBP35,164m GBP35,621m GBP34,982m Number of ordinary shares in issue (millions) 11,965 11,905 11,823 Number of ordinary shares in issue (millions) - fully diluted (4,5) 12,031 11,950 11,906 ======================================================= =========== ============ ===========
Notes:
(1) Excluding own credit adjustments, (loss)/gain on redemption of own debt
and strategic disposals.
(2) Excluding restructuring costs and litigation and conduct costs.
(3) Operating lease depreciation included in income (year ended 31 December
2017 - GBP142 million, year ended December 2016 - GBP152 million, Q4 2017
- GBP35 million, Q3 2017 - GBP35 million; Q4 2016 - GBP37 million).
(4) Includes the effect of dilutive share options and convertible
securities. Dilutive shares on an average basis for Q4 2017
were 59 million shares and for the twelve months ended 31 December
2017 were 69 million shares (year ended 31 December 2016 51
million shares; Q3 2017 - 57 million shares; Q4 2016 - 80 million
shares) and as at 31 December 2017 were 66 million shares (30
September 2017 - 45 million shares, 31 December 2016 - 83 million
shares)
(5) Includes 16 million treasury shares (30 September 2017 - 17
million shares; 31 December 2016 - 39 million shares).
Business performance summary
Personal & Business Banking
UK Personal & Business Banking (UK PBB)
UK PBB now includes the business previously described as Williams and Glyn. Adjusted operating profit of GBP3,084 million was 18.4% higher than in 2016, including a GBP185 million debt sale gain. Income increased by 5.7% to GBP6,477 million supported by a 5.9% increase in net loans and advances, which more than offset margin contraction. Adjusted operating expenses were 7.1% lower than 2016 reflecting reduced headcount and lower back-office operations costs. Adjusted return on equity increased to 30.7% in 2017 from 25.1% in 2016. There are a range of variables that could impact near to medium term returns, including RWA inflation as a result of a change in Bank of England mortgage risk weighting.
Gross new mortgage lending was GBP31.0 billion, with market share of new mortgages at approximately 12%, supporting growth in stock share to approximately 10%. Mortgage approval share in Q4 2017 decreased to approximately 12%, from around 14% in Q3 2017, and mortgage new business margins were 14 basis points lower in the quarter, in part reflecting intense price competition in the market. UK PBB continues to invest in its digital offering and now has 5.5 million customers regularly using its mobile app, 20% higher than December 2016, and in 2017 was the first bank to launch a paperless mortgage journey.
Ulster Bank RoI
Ulster Bank RoI reported an adjusted operating profit of EUR109 million and an adjusted return on equity of 3.6% in 2017. Adjusted income decreased by EUR8 million, or 1.1%, primarily reflecting a reduction in income on free funds, partially offset by one-off items, higher lending income and reduced funding costs. Gross new lending increased by 3.4% from EUR2.5 billion in 2016 to EUR2.6 billion. Further cost efficiencies have been achieved, with adjusted expenses reducing by EUR43 million in 2017. Ulster Bank RoI was amongst the first banks in Ireland to introduce Apple Pay and Android Pay and now over 70% of our customers are actively using our digital proposition, increased from 58% of our active customer base in 2016. We continue to reposition capital, with REILs down by 9.8% to EUR3.7 billion, representing 15.9% of gross customer loans, compared with 17.5% in 2016.
Commercial & Private Banking
Commercial Banking
Commercial Banking includes selected assets from the former Capital Resolution business from 1 October 2017. Adjusted operating profit of GBP1,308 million was 2.7% higher than 2016 and adjusted return on equity remained broadly stable at 8.2%. Income increased by 2.0% due to increased volumes in targeted segments and deposit re-pricing benefits. Adjusted operating expenses reduced by 6.3% reflecting operating model simplification and productivity improvements, including a 16.4% reduction in front office headcount. Commercial Banking net impairment losses of GBP362 million increased by GBP156 million, reflecting a small number of single name impairments.
Adjusting for transfers(1) , net lending decreased by GBP4.9 billion in 2017, as growth in targeted segments has been more than offset by active management of the lending book, achieving gross RWA reductions of GBP12.5 billion. With the successful launch of our entrepreneur accelerator hub in London we now have 12 business accelerators throughout the UK. Across these hubs, over 3,800 start ups have benefitted from our support, which has helped them raise GBP255 million of investment while creating over 8,000 jobs.
Private Banking
Private Banking now includes the Collective Investment Funds business transferred from UK PBB on 1 October 2017. Adjusted operating profit increased by GBP78 million, or 52.3%, to GBP227 million and adjusted return on equity increased to 11.3% from 7.8%. Adjusting for transfers, income increased by GBP12 million due to higher lending volumes and an GBP8 million gain on a property sale, partially offset by margin pressure. A 12.9% reduction in adjusted operating expenses was supported by an 11.8% reduction in front office headcount. Net loans and advances increased by 10.7% to GBP13.5 billion and assets under management increased by 14.4%, adjusting for transfers(2) . We continue to focus on delivering the best customer experience, including investing in digital by launching Coutts Invest and an enhanced mobile experience, and we were awarded Best Private Bank in the UK at the Global Private Banking Awards 2017.
For notes refer to the following page.
Business performance summary
RBS International
RBSI reported an adjusted operating profit of GBP184 million, 5.6% lower than 2016. Income increased by 4.0% driven by increased lending and deposit volumes and re-pricing actions on the deposit book. Adjusted operating expenses increased by 19.5% reflecting increased operational costs associated with becoming a non ring-fenced bank. Despite this, adjusted return on equity remained robust at 12.6%. RWAs of GBP5.1 billion reduced by GBP4.4 billion compared with 2016 reflecting the benefit of receiving regulatory approval for RBSI to adopt an advanced internal ratings based approach on the wholesale corporate book.
NatWest Markets
Following the closure of the former Capital Resolution business in Q4 2017, NatWest Markets now includes legacy run-off assets alongside its core businesses. An operating loss of GBP977 million was reported in 2017, including a profit of GBP41 million in the core business. Adjusted operating loss of GBP264 million, compared with GBP1,231 million in 2016. Adjusted income in the core business increased by 9.5% to GBP1,665 million, largely driven by Rates as the business navigated markets well. Legacy disposal losses, other adjustments and impairments of GBP513 million were incurred in 2017, compared with GBP825 million in 2016. Adjusted operating expenses reduced by 26.7% reflecting a significant reduction in the legacy business, as it moved towards closure, and cost reductions in the core business. RWAs decreased by GBP15.3 billion, adjusting for transfers, to GBP52.9 billion primarily reflecting legacy business reductions. At the end of 2017 the legacy business within NatWest Markets had RWAs of GBP14.0 billion, excluding RBS's stake in Alawwal Bank, a reduction of GBP10.9 billion, adjusting for transfers(3) , over the course of the year.
Notes:
(1) Shipping and other activities which were formerly in Capital
Resolution, were transferred from NatWest Markets on 1 October
2017, including net loans and advances to customers of GBP2.6
billion and RWAs of GBP2.1 billion. Commercial Banking transferred
whole business securitisations and relevant financial institution's
(RFI) to NatWest Markets during December 2017, including net
loans and advances to customers of GBP0.8 billion and RWAs of
GBP0.6 billion. Comparatives were not re-presented for these
transfers.
(2) UK PBB Collective Investment Funds (CIFL) business was transferred
from UK PBB on 1 October 2017, including total income in Q4 2017
of GBP11 million and assets under management of GBP3.3 billion.
Private Banking transferred Coutts Crown Dependency (CCD) to
NatWest Markets during Q4 2017, including total income of GBP2
million and assets under management of GBP1.3 billion. Comparatives
were not re-presented for these transfers.
(3) Shipping and other activities which were formerly in Capital
Resolution, were transferred to Commercial Banking on 1 October
2017, including RWAs of GBP2.1 billion. Whole business securitisations
and relevant financial institutions (RFI) were transferred from
Commercial Banking during December 2017, including RWAs of GBP0.6
billion. Comparatives were not re-presented for these transfers.
(4) Transfers include GBP0.4 billion loans and advances transferred
from Commercial Banking to UK PBB during 2017 to better align
Business banking customers. Comparatives were not re-presented
for these transfers
Outlook
2018 Outlook(1)
We reiterate our medium term outlook on both return on tangible equity and cost:income ratio. We also now intend to accelerate the transformation of the bank which necessitates increased investment and innovation spend together with additional restructuring costs. As a result operating costs, excluding restructuring and litigation and conduct costs, will reduce compared with 2017, but the rate of cost reduction will be materially lower than in 2017. We expect to incur restructuring charges of around GBP2.5 billion across 2018 to 2019 cumulatively, of which c.GBP0.3 billion relates to the completion of the State Aid remedy and reintegration of the former Williams & Glyn (W&G) business into UK PBB. This is compared to previous guidance of around GBP1 billion excluding the impact of W&G, with around two thirds of the remaining c.GBP1.2 billion increase being driven by costs associated with the accelerated transformation.
RBS continues to deal with a range of significant risks and uncertainties in the external economic, political and regulatory environment and manage both conduct-related investigations and litigation, including relating to RMBS. Substantial additional charges and costs may be recognised in the coming quarters.
With the introduction of IFRS9, impairments are expected to be more volatile and we continue to remain mindful of potential downside risks, particularly from single name and sector driven events. The consensus view of Brexit suggests a weaker UK economy in the short to medium term. With the current high level of UK household debt and real wage compression, any increases in unemployment and interest rates present a threat to retail impairment rates. In wholesale portfolios further softening of GDP growth would be expected to impact credit losses negatively. We retain our guidance that through the cycle losses would be in the range of 30-40bps.
By the end of 2018, we expect bank RWAs to be lower by GBP5-10 billion. This is despite model uplifts in Commercial Banking in 2018 which are expected to drive some RWA inflation. The majority of the gross RWA reductions will be within NatWest Markets legacy assets, including the benefit of the anticipated merger between Alawwal Bank and Saudi British Bank, and Commercial Banking.
RBS Group capital and funding issuance plans for 2018 focus on issuing GBP4-6 billion MREL-compliant securities. We do not currently anticipate the need for either AT1 or Tier 2 issuances. As in 2017, we will continue to target other funding markets to diversify our funding structure. In support of the ring-fencing requirements and to build up RBS Plc (to be renamed NatWest Markets Plc) as a standalone non ring-fenced bank, we anticipate issuing GBP2-4 billion of senior unsecured issuance from this entity in addition to continued reliance on short term funding.
In the near to medium term, we would expect the Bank to maintain a CET1 ratio in excess of our 13% target given a range of variables that are likely to impact us over the coming years. These include:
-- potential final costs of a resolution with the US Department of Justice;
-- future potential pension contributions and the interplay with capital buffers for the bank for investment risk being run in the pension plan;
-- RWA inflation as a result of IFRS 16, Bank of England mortgage floors and Basel 3 amendments;
-- expected increased and pro-cyclical impairment volatility as a result of IFRS 9; and -- the collective impact of these items on our stress test results
We remain committed to restarting capital distributions when permitted, with resolution with the US Department of Justice being a key milestone to enable this.
Note:
(1) The targets, expectations and trends discussed in this section
represent management's current expectations and are subject to
change, including as a result of the factors
described in this document and in the "Risk Factors" on pages
372 to 402 of the 2017 Annual Report and Accounts. These statements
constitute forward looking
statements, refer to Forward Looking Statements on pages 46 and
47 of this announcement.
Outlook
Medium term outlook
We retain our target of achieving a sub 50% cost:income ratio and above 12% return on equity by 2020.
While we expect operating costs to reduce each year from 2018 to 2020, given the increased level of investment and innovation spend expected over the coming years we are no longer guiding to an absolute 2020 cost base.
The NatWest Markets segment balance sheet as at end 2017 is broadly similar to the expected target balance sheet of NatWest Markets Plc (currently RBS Plc) after the ring-fence transfer schemes to be carried out during 2018. In preparation for the UK ring-fencing regime, the previously reported operating segments were realigned in Q4 2017 and a number of business transfers completed. These changes included the NatWest Markets segment absorbing the former Capital Resolution segment (other than for certain shipping and portfolio assets). Notwithstanding a planned capital reduction exercise in July 2018, by 2020 this entity is targeting a capital base with a consolidated end state CET1 ratio of 14%, a leverage ratio greater than 4% and a total capital ratio of at least twice the CET1 ratio, including the benefit of downstreamed internal MREL. By 2020, NatWest Markets targets a RWA position of c.GBP35 billion including legacy assets, with the legacy assets generating minimal associated income, and an overall cost base of around GBP1 billion.
Trading update
Overall, RBS has had a positive start to 2018.
2017 RBS performance summary
Customer
In 2017 we made it our goal to significantly increase NPS or maintain number one in our chosen customer segments. This strategy was implemented to support the overall aim of being the number one bank for customer service, trust and advocacy by 2020.
We use independent surveys to track the progress we are making to achieve our goals in each of our markets and to also measure our customers' experience.
To measure advocacy, customers are asked how likely they would be to recommend their bank to a friend or colleague, and respond based on a 0-10 scale with 10 indicating 'extremely likely' and 0 indicating 'not at all likely'. Customers scoring 0 to 6 are termed detractors and customers scoring 9 to 10 are termed promoters. The net-promoter score (NPS) is established by subtracting the proportion of detractors from the proportion of promoters.
We also use independent experts to measure our customers' trust in the bank. Each quarter we ask customers to what extent they trust or distrust their bank to do the right thing. The score is a net measure of those customers that trust their bank (a lot or somewhat) minus those that distrust their bank (a lot or somewhat).
Our Commercial Banking NPS has remained stable during 2017 and remains ahead of its main competitors. In England & Wales, NPS for NatWest Personal Banking has also remained stable and we have met our target for customer trust. In Scotland, while we have not met our target for customer trust for Royal Bank of Scotland, it has increased strongly year on year. We do recognise that significant work is required to improve our customer experience and we continue our work to resolve the ongoing reputational and legacy issues.
Q4 2016 Q3 2017 Q4 2017
-------------- ---------------------------------- ------- ------- -------
NPS: Personal
Banking NatWest (England & Wales)(1) 13 12 12
-------------- ---------------------------------- ------- ------- -------
Royal Bank of Scotland
(Scotland)(1) (4) (13) (6)
------------------------------------------------- ------- ------- -------
Ulster Bank (Northern Ireland)(2) (16) (4) (5)
------------------------------------------------- ------- ------- -------
Ulster Bank (Republic of
Ireland)(2) (7) (6) (7)
------------------------------------------------- ------- ------- -------
NPS: Business
Banking NatWest (England & Wales)(3) (2) (10) (7)
-------------- ---------------------------------- ------- ------- -------
Royal Bank of Scotland
(Scotland)(3) (5) (14) (15)
------------------------------------------------- ------- ------- -------
NPS: Commercial Banking(4) 20 21 21
-------------------------------------------------- ------- ------- -------
Trust(5) NatWest (England & Wales) 55% 59% 57%
-------------- ---------------------------------- ------- ------- -------
Royal Bank of Scotland
(Scotland) 13% 22% 27%
------------------------------------------------- ------- ------- -------
Notes:
(1) Source: GfK FRS 6 month rolling data. Latest base sizes: NatWest
(England & Wales) (3361) Royal Bank of Scotland (Scotland) (440).
Based on the question: "How likely is it that you would recommend
(brand) to a relative, friend or colleague in the next 12 months
for current account banking?" Base: Claimed main banked current
account customers.
(2) Source: Coyne Research 12 month rolling data. Latest base sizes:
Ulster Bank NI (294) Ulster Bank RoI (275) Question: "Please
indicate to what extent you would be likely to recommend (brand)
to your friends or family using a scale of 0 to 10 where 0 is
not at all likely and 10 is extremely likely".
(3) Source: Charterhouse Research Business Banking Survey, YE Q4
2017. Based on interviews with businesses with an annual turnover
up to GBP2 million. Latest base sizes: NatWest England & Wales
(1245), RBS Scotland (437). Question: "How likely would you
be to recommend (bank)". Base: Claimed main bank. Data weighted
by region and turnover to be representative of businesses in
Great Britain.
(4) Source: Charterhouse Research Business Banking Survey, YE Q4
2017. Commercial GBP2m+ in GB (RBSG sample size, excluding don't
knows: (904). Question: "How likely would you be to recommend
(bank)". Base: Claimed main bank. Data weighted by region and
turnover to be representative of businesses in Great Britain.
(5) Source: Populus. Latest quarter's data. Measured as a net of
those that trust RBS/NatWest to do the right thing, less those
that do not. Latest base sizes: NatWest,
England & Wales (948), RBS Scotland (203).
Chief Executive's message
Putting the past behind us. Investing for the future
In 2017 we continued to make good progress in building a simpler, safer and more customer focused bank. I am pleased to report to shareholders that the bank made an operating profit before tax of GBP2,239 million in 2017, and for the first time in ten years we have delivered a bottom Iine profit of GBP752 million.
We have achieved profitability through delivering on the strategic plan that was set out in 2014. The first part of this plan was focused on building financial strength by reducing risk and building a more sustainable cost base. So far, we have reduced our risk-weighted assets by GBP228 billion and today can report a Common Equity Tier 1 ratio of 15.9% up from 8.6% in 2013. Our financial strength is now much clearer. Over the same period we have reduced operating costs by GBP3.9 billion. We still have more to do on cost reduction, however this reflects the progress we have made in making the bank more efficient.
A clear indication of the outstanding progress we have made is that from the first quarter of 2018, we will no longer report adjusted financials.
At the same time as building financial strength, we have also made progress with the legacy of our past and improving our core bank. We have delivered on this by resolving a number of our litigation and conduct issues. This includes reaching settlements last year with FHFA in respect of our historical at Retail Mortgage Backed Securities (RMBS) activities and with claimants in relation to our 2008 Rights Issue. In 2017 we also continued to run down our legacy assets. The wind-up of our non-core division, Capital Resolution in 2017, was an important moment.
As part of the support we received in 2008 and 2009, the bank was mandated to meet certain requirements under a State Aid restructuring plan. In 2017, we received approval for an alternative remedies package, which replaced our original plan to divest of the business formally known as Williams & Glyn. This is a good solution, both for improving competition in the UK SME banking market, and for shareholders.
With this solution in place and currently being implemented, the number of legacy issues the bank faces has reduced. However, we have one major legacy issue that we have yet to resolve which is with the US Department of Justice. The timing of the resolution of this issue is not in our control.
The bank has received significant media attention for its treatment of some small business customers between 2008 and 2013. To those customers who did not receive the experience they should have done while in GRG we have apologised. We accept that we got a lot wrong in how we treated customers in GRG during the crisis. However, these were complex and subjective cases with each case having unique facts about what was the right thing to do. The bank welcomes the FCA's confirmation that the most serious allegations made against the bank have not been upheld and that the steps the bank announced in November 2016 to put things right for customers are appropriate.
We have made significant progress in improving our culture since then.
Today this bank is a simpler and safer organisation, with colleagues now fully focused on our customers.
I want to thank our colleagues for their commitment and resolve during what has been a difficult chapter in the bank's history. Our most recent colleague survey, Our View, reported the highest engagement levels in ten years. We also recently won the 'Employee Engagement Company of the Year' at the UK Employee Engagement Awards. This shows that our culture is improving. This bank is now more open, less hierarchical and more focused on our customers. Our colleagues serve and support millions of customers across the UK and Republic of Ireland every day, it is vital to our success that they feel engaged and motivated.
Chief Executive's message
Investing to transform our business
When I started as CEO in 2014 the bank was far too complex. We operated in 38 countries, with over 5,000 systems supporting hundreds of different products. In our credit card business alone we offered 55 different card designs, as the organisation had grown we had added complexity which distracted us from our key stakeholder, the customer. Our customers want a bank which protects their safety and security, and is also responsive to their needs.
Today we have exited 26 countries and now have a more focused product set, underpinned by almost half the number of systems we previously had. Simplification will continue to be a key focus for the organisation in 2018. We are going through all of our end-to-end customer processes to ensure they are fit for purpose.
Our mortgage application journey is experienced by thousands of customers every day. With one of our strategic aims being to grow in this market, the benefits of simplification and automation in this area are vast. Given this, in 2017 NatWest was the first UK bank to offer paperless mortgages. Customers can now apply for a completely digital mortgage which uses the latest technology to securely share and verify documents online. With this new proposition, mortgage offers can now be made within 11 days, down from 23 days before. The process also eliminates close to 4.3 million sheets of paper a year, reducing our impact on the environment.
The opportunities created by greater simplification and automation, in terms of improved controls, cost reduction and a better customer experience, are significant for this bank.
As well as transforming our processes and products, in 2017 we continued to reap the benefits of refocusing our main customer-facing brands. With each now speaking to a unique constituency of customers, we are better placed to differentiate ourselves from our competitors. With NatWest for England and Wales, Royal Bank of Scotland, for Scotland and Ulster Bank for the island of Ireland - we truly are a bank of brands in the UK and the Republic of Ireland.
Customer driven change
Listening and responding to our customers is helping us to get closer to meeting our goal to be No.1. In light of this we have continued with the roll out of Closed Loop Feedback in 2017. Today, within 24 hours of an interaction taking place, customers can provide specific, actionable feedback directly to the teams that serve them, empowering colleagues to listen, learn from and act on what our customers are telling us. With our complaints volumes down 9% on the previous year, and our Net Promoter scores improving in half of our chosen customer segments, we continue to see the benefits of customer driven change in this bank. We still have a lot of work to do to meet our 2020 ambition of being the number one bank for customer service, trust and advocacy.
Listening to our customers is not only reducing complaints, it's also driving product and service improvements. In our commercial bank for instance, in response to customers' demand for greater speed and efficiency, we have developed self service account opening. Through this channel more than 90% of our new to bank commercial customers are able to initiate account openings themselves and, crucially, are doing it 30 minutes faster than if they used telephony. Customers told us this was a pain point for them and we have responded.
Listening to our customers and investing to simplifying our processes is helping us build a bank which is lower cost, and competitive in our target markets - improving outcomes for both customers and shareholders.
We are committed to running the bank as a more sustainable business, serving today's customers in a way that also helps future generations. As technological, social and environmental changes shape the world, it's important to stay connected with evolving customer needs, our shareholders and the wider expectations of society. One of the ways in which we are doing this is through our Board-level stakeholder engagement programme where we proactively listen, learn and engage with our stakeholders to improve the way we do business.
Chief Executive's message
Supporting the UK economy
While transforming the bank, we have continued to support the UK economy. In 2017 we extended GBP33.9 billion in new mortgage lending, helping grow our mortgage market share for the fifth consecutive year. We continue to target growth in our mortgage market share in 2018.
We are also the biggest supporter of UK business. Our commercial bank grew lending in our target markets, this commitment supported both recognised household names and fledgling start-ups. Our commitment to business goes beyond simple financing, our Entrepreneurial Spark programme continued to grow in 2017 and has supported over 3,800 new businesses since 2012 with award-winning facilities and an outstanding support network. Our work is also being recognised externally. In 2017 NatWest was awarded Best Business Bank in the UK by the National Association of Commercial and Finance Brokers.
Throughout 2017 NatWest Markets has continued to deepen its customer relationships by providing global market access and innovative and tailored solutions. As well as increasing employee engagement and improving the control environment, the business has made material progress to realise cost and operating efficiencies.
Responding to technological change
The financial services industry is going through one of the most significant periods of change we have seen in many years, and we are responding.
Like other industries, the digital revolution has naturally led to lower footfall in our branches. Branch transactions are down 40% on 2013, as increasingly our customers prefer the convenience and ease of digital banking. Given this we have made some difficult, but necessary, decisions around the scale of our branch network in 2017. This does not mean we are not supporting our customers. In fact we are providing customers more ways to bank than ever before, be that through a visit to their local Post Office, a visit from one of our 39 mobile branches, which visit over 600 towns and villages on a weekly basis, meeting one of our 100 community bankers, a digital appointment with one of our video bankers, logging on to internet banking platform, or banking on the go with our market leading mobile app. Our customers have never had as many channels through which to undertake their banking.
For the first time we now have more active mobile users than users online, a clear indication of the direction of travel of our customers' banking preferences.
Our ambition is for the standard of service we provide to always be outstanding, no matter how our customers choose to interact with us. In 2018 our branches will increasingly focus providing specialised expertise and advice as well as on helping customers tap into the wealth of ease and efficiency they can experience through using our digital channels.
In our commercial bank, we are supporting customers shift to mobile through building our online service Bankline service into an app. Currently, 90,000 commercial customers are active on Bankline. In the future we expect this to move increasingly to mobile. In 2018, we will also launch Bankline mobile for our larger commercial customers. This new service will act as a companion to our current Bankline on-line technology. Initially, customers will be able to view transactions and send payments with biometric approval. In the coming quarters we will further expand the scope of what Bankline Mobile offers.
Chief Executive's message
Embracing the latest in digital innovation
We know that we cannot stand still on innovation as our competitors certainly are not. Over the last few years we have invested in building our partnerships and scouting networks across the globe to ensure we are at the cutting edge of technology. We have developed some excellent partnerships and one area we have advanced significantly in is Artificial Intelligence (AI).
By harnessing the latest in computer learning and speech recognition, in partnership with IBM, we have built an AI chatbot, called Cora. Cora is helping our customers with many of their most common queries. Crucially Cora is available 24/7, has no 'wait-time' to serve a customer and can handle an unlimited number of queries at the same time. Since Q1 2017 Cora has handled over four hundred thousand conversations responding to over two hundred different questions.
In partnership with Soul Machines, we are investing now to build an evolution of Cora for 2018, giving her a visual avatar acting as the interface with our customers. Initial trials are proving a success with customers telling us that using Cora made them less concerned about converting to our other digital channels. While many customers felt empowered to be more direct in their questioning of Cora, as they felt much safer and more secure with her.
Through digital innovation we will serve customers more efficiently, be more responsive to their needs and at the same reduce costs in the business and build a more solid control environment.
Looking forward
In the past our legacy has dominated our corporate story. In 2017 our financial strength improved and we continued to put the past behind us. We are entering a new phase of transforming the core bank through technology innovation and end-to-end process re-engineering. Our future will be high tech and high touch, which means lower cost, high quality digital services with human expertise available when required.
Conclusion
I would like to thank shareholders for their continued support. We welcome the indication in the Chancellor's budget statement about the potential to restart share sales during the fiscal year 2018/2019, again this is a further proof of the progress we have made.
We recognise our responsibility towards the society we serve and operate in. It is only by supporting our customers and communities to succeed that we will be become a more sustainable bank. I, together with my management team, view this as a core part of our ambition to be No.1 for customer service, trust and advocacy.
As the number of our legacy issues reduces, and our business performance improves, the investment case for this bank is clearer, and the prospect of us rewarding our shareholders is getting closer.
Analysis of results
Summary consolidated income statement for the period ended 31 December
2017
Year ended Quarter ended
======================== ======================================
31 December 31 December 31 December 30 September 31 December
2017 2016 2017 2017 2016
GBPm GBPm GBPm GBPm GBPm
================================ =========== =========== =========== ============ ===========
Net interest income 8,987 8,708 2,211 2,304 2,208
================================ =========== =========== =========== ============ ===========
Own credit adjustments (69) 180 9 (5) (114)
(Loss)/gain on redemption of
own debt (7) (126) - - 1
Strategic disposals 347 164 191 - -
Other non-interest income 3,875 3,664 646 858 1,121
================================ =========== =========== =========== ============ ===========
Non-interest income 4,146 3,882 846 853 1,008
================================ =========== =========== =========== ============ ===========
Total income 13,133 12,590 3,057 3,157 3,216
================================ =========== =========== =========== ============ ===========
Litigation and conduct costs (1,285) (5,868) (764) (125) (4,128)
Restructuring costs (1,565) (2,106) (531) (244) (1,007)
Other expenses (7,551) (8,220) (2,111) (1,774) (2,219)
Operating expenses (10,401) (16,194) (3,406) (2,143) (7,354)
================================ =========== =========== =========== ============ ===========
Profit/(loss) before impairment
(losses)/releases 2,732 (3,604) (349) 1,014 (4,138)
Impairment (losses)/releases (493) (478) (234) (143) 75
================================ =========== =========== =========== ============ ===========
Operating profit/(loss) before
tax 2,239 (4,082) (583) 871 (4,063)
Tax (charge)/credit (824) (1,166) 168 (265) (244)
================================ =========== =========== =========== ============ ===========
Profit/(loss) for the period 1,415 (5,248) (415) 606 (4,307)
================================ =========== =========== =========== ============ ===========
Attributable to:
Non-controlling interests 35 10 14 (8) (27)
Other owners 628 504 150 222 161
Dividend access share - 1,193 - - -
Ordinary shareholders 752 (6,955) (579) 392 (4,441)
-------------------------------- =========== ----------- =========== ------------ -----------
Total income
================================ ====== ====== ===== ===== =====
Statutory total income 13,133 12,590 3,057 3,157 3,216
Adjusted for
Own credit adjustments 69 (180) (9) 5 114
Loss/(gain) on redemption of
own debt 7 126 - - (1)
Strategic disposals (347) (164) (191) - -
Adjusted total income 12,862 12,372 2,857 3,162 3,329
================================ ====== ====== ===== ===== =====
Notable items within adjusted
total income
IFRS volatility in Central
items(1) 2 (510) (173) 21 308
UK PBB debt sale gain 185 19 9 168 15
Commercial Banking disposal
gain/(loss) 6 - (46) 52 -
FX (losses)/gains in Central
items (183) 446 (8) (67) 140
NatWest Markets legacy business
disposal losses (712) (491) (163) (446) (325)
================================ ====== ====== ===== ===== =====
Analysis of results
Year ended Quarter ended
------------------------ --------------------------------------
31 December 31 December 31 December 30 September 31 December
2017 2016 2017 2017 2016
Net interest income GBPm GBPm GBPm GBPm GBPm
------------------------------------- ----------- ----------- ----------- ------------ -----------
Net interest income
RBS 8,987 8,708 2,211 2,304 2,208
- UK Personal & Business Banking 5,130 4,945 1,272 1,294 1,263
- Ulster Bank RoI 421 409 111 104 105
- Commercial Banking 2,286 2,143 575 570 542
- Private Banking 464 449 122 116 111
- RBS International 325 303 81 83 77
- NatWest Markets 203 343 38 99 73
- Central items & other 158 116 12 38 37
Average interest earning assets
(IEA)
RBS 422,337 399,598 430,902 430,962 401,548
- UK Personal & Business Banking 179,453 166,778 182,614 181,131 172,849
- Ulster Bank RoI 25,214 25,193 25,056 26,073 26,259
- Commercial Banking 131,177 121,677 130,055 130,047 128,174
- Private Banking 18,799 16,887 19,796 19,242 17,679
- RBS International 23,930 22,254 24,062 23,667 22,793
- NatWest Markets 31,231 37,856 27,442 32,592 33,780
- Central items & other 12,533 8,953 21,877 18,210 14
------------------------------------- =========== ----------- =========== ------------ -------------
Yields, spreads and margins
of the banking business
------------------------------------- ----------- ----------- ----------- ------------ -------------
Gross yield on interest-earning
assets of the
banking business (1,2) 2.57% 2.80% 2.49% 2.55% 2.72%
Cost of interest-bearing liabilities
of banking business (1) (0.69%) (0.94%) (0.76%) (0.66%) (0.82%)
===================================== ----------- ----------- ----------- ------------ -------------
Interest spread of the banking
business (1,3) 1.88% 1.86% 1.73% 1.89% 1.90%
Benefit from interest-free
funds 0.25% 0.32% 0.31% 0.23% 0.29%
Net interest margin (4)
RBS 2.13% 2.18% 2.04% 2.12% 2.19%
- UK Personal & Business Banking 2.86% 2.97% 2.76% 2.83% 2.91%
- Ulster Bank RoI 1.67% 1.62% 1.76% 1.58% 1.59%
- Commercial Banking 1.74% 1.76% 1.75% 1.74% 1.68%
- Private Banking 2.47% 2.66% 2.44% 2.39% 2.50%
- RBS International 1.36% 1.36% 1.34% 1.39% 1.34%
- NatWest Markets 0.65% 0.91% 0.55% 1.24% 0.86%
===================================== =========== =========== =========== ============ =============
Third party customer rates
(5)
================================== ======= ======= ======= ======= =======
Third party asset rates
- UK Personal & Business Banking 3.47% 3.83% 3.38% 3.45% 3.64%
- Ulster Bank RoI (6) 2.38% 2.19% 2.47% 2.29% 2.20%
- Commercial Banking 2.73% 2.77% 2.77% 2.68% 2.65%
- Private Banking 2.71% 2.90% 2.76% 2.67% 2.76%
- RBS International 2.71% 3.04% 2.59% 2.77% 2.93%
Third party customer funding
rate
- UK Personal & Business Banking (0.16%) (0.45%) (0.21%) (0.15%) (0.28%)
- Ulster Bank RoI (6) (0.31%) (0.50%) (0.24%) (0.28%) (0.42%)
- Commercial Banking (0.15%) (0.33%) (0.20%) (0.10%) (0.27%)
- Private Banking (0.09%) (0.18%) (0.11%) (0.10%) (0.12%)
- RBS International (0.02%) (0.14%) (0.03%) (0.01%) (0.08%)
================================== ------- ------- ------- ------- -------
Notes:
(1) For the purpose of calculating gross yields and interest spread, both interest
receivable and payable has decreased by GBP182 million (2016 - GBP76 million)
and by GBP55 million for Q4 2017 (Q4 2016 - GBP20 million) in respect of
negative interest.
(2) Gross yield is the interest earned on average interest-earning assets as
a percentage of average interest-earning assets.
(3) Interest spread is the difference between the gross yield and interest paid
on average interest-bearing liabilities as a percentage of average interest-bearing
liabilities.
(4) Net interest margin is net interest income as a percentage of average interest-earning
assets.
(5) Net interest margin includes Treasury allocations and interest on intercompany
borrowings, which are excluded from third party customer rates.
(6) Ulster Bank Ireland DAC manages its funding and liquidity requirements locally.
Its liquid asset portfolios and non-customer related funding sources are
included within its net interest margin, but excluded from its third party
asset and liability rates.
Analysis of results
2017 compared with 2016
-- Net interest income of GBP8,987 million increased by GBP279
million compared with 2016. The movement was principally driven
by higher mortgage volumes in UK PBB, up GBP185 million or
3.7%, and deposit re-pricing benefits in Commercial Banking,
up GBP143 million or 6.7%, partially offset by planned balance
sheet reductions in NatWest Markets.
-- The net interest margin (NIM) was 2.13% for 2017, 5 basis
points lower than 2016 reflecting increased liquidity, mix
impacts and competitive pressures on margin.
-- UK PBB NIM of 2.86% was 11 basis points lower than 2016 reflecting
lower mortgage margins, asset mix and reduced current account
hedge yield, partially offset by savings re-pricing benefits
from actions taken in 2016 and following the Q4 2017 base
rate increase.
-- Ulster Bank RoI NIM increased by 5 basis points to 1.67% driven
by a combination of improved deposit and loan margins, one-off
income adjustments and successful deleveraging measures in
2016 which have reduced the concentration of low yielding
loans.
-- Commercial Banking NIM decreased by 2 basis points as active
re-pricing of assets and deposits has been more than offset
by asset margin pressure in a low rate environment.
-- Private Banking NIM decreased by 19 basis points to 2.47%
reflecting the competitive market and low rate environment,
partially offset by higher funding benefits on deposits following
the Q4 2017 base rate increase.
-- RBSI NIM remained stable at 1.36% as active re-pricing of
deposits has been offset by the low rate environment.
-- Structural hedges of GBP129 billion generated a benefit of
GBP1.3 billion through net interest income for the year.
Q4 2017 compared with Q3 2017
-- Net interest income of GBP2,211 million decreased by GBP93
million compared with Q3 2017 principally driven by one-off
income releases in Q3 2017 relating to NatWest Markets.
-- NIM for Q4 2017 was 2.04%, 8 basis points lower than Q3 2017
driven by one-off income releases in Q3 2017 and a Q4 2017
charge in UK PBB associated with an annual review of mortgage
customer repayment behaviour. Excluding the impact of one-off
adjustments, NIM was broadly stable.
Q4 2017 compared with Q4 2016
-- Net interest income of GBP2,211 million remained broadly stable
compared with Q4 2016 as higher volumes and re-pricing benefits
have been offset by planned balance sheet reductions in NatWest
Markets.
-- NIM was 2.04% for Q4 2017, 15 basis points lower than Q4 2016
reflecting increased liquidity, mix impacts and competitive
pressures on margin.
-- Average interest earning assets increased by GBP29,354 million,
or 7.3%, compared with Q4 2016 reflecting increased asset
volumes in UK PBB, 5.6% higher, and a GBP21,863 million increase
in Central items associated with a build-up in liquidity.
Analysis of results
Year ended Quarter ended
========================
31 December 31 December 31 December 30 September 31 December
2017 2016 2017 2017 2016
Operating expenses GBPm GBPm GBPm GBPm GBPm
=================================== =========== =========== =========== ============ ===========
Statutory operating expenses 10,401 16,194 3,406 2,143 7,354
Adjusted for
Litigation and conduct costs (1,285) (5,868) (764) (125) (4,128)
Restructuring costs (1,565) (2,106) (531) (244) (1,007)
Adjusted operating expenses 7,551 8,220 2,111 1,774 2,219
=================================== =========== =========== =========== ============ ===========
Notable items within adjusted
operating expenses
VAT recovery in Central items 86 227 6 29 -
Notable items within restructuring
costs
Property exit costs (303) - (100) 14 -
=================================== =========== =========== =========== ============ ===========
Employee numbers (FTE-thousands) 71.2 77.8 71.2 73.6 77.8
=================================== =========== =========== =========== ============ ===========
Year ended
=========================
31 December 31 December
2017 2016
UK Bank levy segmental allocations GBPm GBPm
========================================================================== ============ ===========
UK Personal & Business Banking 33 34
Ulster Bank RoI 1 3
Commercial Banking 91 90
Private Banking 18 19
RBS International 14 19
NatWest Markets 28 35
Central items 30 (10)
Total UK Bank levy 215 190
========================================================================== ============ ===========
Analysis of results
2017 compared with 2016
-- Total operating expenses of GBP10,401 million were GBP5,793
million, or 35.8%, lower than 2016 reflecting a GBP4,583 million
reduction in litigation and conduct costs, a GBP669 million,
or 8.1%, reduction in adjusted operating expenses and a GBP541
million reduction in restructuring costs.
-- Excluding VAT recoveries, adjusted operating expenses have
reduced by GBP810 million for the year, ahead of our GBP750
million targeted reduction, with approximately 45% of the
cost reduction delivered across PBB, CPB, RBSI and the NatWest
Markets core business, adjusting for transfers.
-- Staff costs of GBP3,923 million were GBP559 million, or 12.5%,
lower than 2016 underpinned by a 6,600, or 8.5%, reduction
in FTEs.
-- Restructuring costs of GBP1,565 million included: a GBP303
million charge relating to the reduction in our property portfolio;
a GBP319 million charge in NatWest Markets principally relating
to the run-down and closure of the legacy business; GBP221
million relating to the business previously described as Williams
& Glyn; GBP194 million in respect of implementing ring-fencing
requirements; and a GBP73 million net settlement relating
to the RBS Netherlands pension scheme.
-- Litigation and conduct costs of GBP1,285 million included:
additional charges in respect of settlement with Federal Housing
Finance Agency (FHFA) and the California State Attorney General
and additional RMBS related provisions in the US; a further
provision in relation to settling the 2008 rights issue shareholder
litigation; an additional GBP175 million PPI provision; and
a GBP169 million provision in Ulster Bank RoI for customer
remediation and project costs relating to tracker mortgages
and other legacy business issues.
Q4 2017 compared with Q3 2017
-- Total operating expenses of GBP3,406 million were GBP1,263
million higher than Q3 2017 reflecting a GBP639 million increase
in litigation and conduct costs, a GBP337 million increase
in adjusted operating expenses and a GBP287 million increase
in restructuring costs.
-- Adjusted operating expenses of GBP2,111 million were GBP337
million higher than Q3 2017 reflecting the UK bank levy charge
of GBP215 million, the non-repeat of GBP55 million of VAT
and other releases in Q3 2016 and the timing of innovation
and marketing spend in the quarter.
-- Restructuring costs of GBP531 million included: a GBP97 million
charge relating to the reduction in our property portfolio;
a GBP129 million charge in NatWest Markets including costs
relating to the run-down and closure of the legacy business
and back office restructuring activity in the core business;
GBP147 million relating to the business previously described
as Williams & Glyn; and GBP59 million in respect of implementing
ring-fencing requirements.
-- Litigation and conduct costs of GBP764 million included: GBP442
million of additional US RMBS related provisions; an additional
GBP175 million PPI provision and a GBP135 million provision
in Ulster Bank RoI for customer remediation and project costs
relating to tracker mortgages and other legacy business issues.
Q4 2017 compared with Q4 2016
-- Total operating expenses of GBP3,406 million were GBP3,948
million lower than Q4 2016 reflecting a GBP3,364 million reduction
in litigation and conduct costs, a GBP476 million reduction
in restructuring costs and a GBP108 million reduction in adjusted
operating expenses.
-- Adjusted operating expenses of GBP2,111 million were GBP108
million, or 4.9%, lower than Q4 2016 reflecting cost efficiencies
and reduced headcount.
Analysis of results
Year ended Quarter ended
======================== ======================================
31 December 31 December 31 December 30 September 31 December
2017 2016 2017 2017 2016
Impairment (releases)/losses GBPm GBPm GBPm GBPm GBPm
================================ =========== =========== =========== ============ ===========
Impairment losses 493 478 234 143 (75)
Notable items within impairment
losses
Ulster Bank RoI impairment
losses/(releases) 60 (113) 81 (10) (47)
Commercial Banking impairment
losses 362 206 117 151 83
NatWest Markets impairment
(releases)/losses (174) 253 (26) (71) (130)
================================ =========== =========== =========== ============ ===========
31 December 30 September 31 December
Credit metrics 2017 2017 2016
========================================== =========== ============ ===========
Gross customer loans GBP326,998m GBP328,504m GBP327,478m
Loan impairment provisions GBP3,814m GBP3,854m GBP4,455m
Risk elements in lending (REIL) GBP8,904m GBP9,019m GBP10,310m
Provisions as a % of REIL 43% 43% 43%
REIL as a % of gross customer loans 2.7% 2.7% 3.1%
Provisions as a % of gross customer loans 1.2% 1.2% 1.4%
========================================== =========== ============ ===========
2017 compared with 2016
-- A net impairment loss of GBP493 million, 15 basis points of gross customer
loans, compared with GBP478 million in 2016.
-- UK PBB reported a net impairment charge of GBP235 million, or 14 basis points
of gross customer loans, reflecting continued benign credit conditions.
-- Ulster Bank RoI reported a net impairment loss of EUR68 million compared
with a EUR138 million release in 2016. The charge for the year included
a provision relating to a change in the non performing loan strategy to
allow for further portfolio sales whilst 2016 included gains arising from
the impact of asset disposals.
-- Commercial Banking net impairment losses of GBP362 million were GBP156 million
higher than 2016, reflecting a small number of single name impairments.
-- NatWest Markets net impairment release of GBP174 million compared with a
net impairment loss of GBP253 million in 2016 and mainly comprised releases
relating to the legacy business.
-- REIL reduced by GBP1,406 million during 2017 to GBP8,904 million principally
reflecting reductions in NatWest Markets, as legacy portfolios are run-down,
and reductions across UK PBB and Ulster Bank RoI. REIL represented 2.7%
of gross customer loans, compared with 3.1% in 2016.
Q4 2017 compared with Q3 2017
-- A net impairment loss of GBP234 million, or 29 basis points of gross customer
loans, compared with GBP143 million in Q3 2017.
-- Ulster Bank RoI reported a net impairment charge of EUR92 million, compared
with a release of EUR11 million in Q3 2017, which included a provision relating
to a change in the non performing loan strategy to allow for further portfolio
sales.
-- Commercial Banking net impairment losses of GBP117 million were GBP34 million
lower than Q3 2017.
Q4 2017 compared with Q4 2016
-- A net impairment loss of GBP234 million, compared with a net impairment
release of GBP75 million in Q4 2016.
Analysis of results
End-point CRR basis
======================================
31 December 30 September 31 December
2017 2017 2016
Risk asset ratios % % %
============================================ =========== ============ ===========
CET1 15.9 15.5 13.4
Tier 1 17.9 17.4 15.2
Total 21.3 20.6 19.2
Capital
============================================ =========== ============ ===========
Tangible equity 35,164 35,621 34,982
Expected loss less impairment provisions (1,286) (1,197) (1,371)
Prudential valuation adjustment (496) (459) (532)
Deferred tax assets (849) (865) (906)
Own credit adjustments (90) (110) (304)
Pension fund assets (287) (185) (208)
Cash flow hedging reserve (227) (298) (1,030)
Other adjustments for regulatory purposes 28 51 (8)
Total deductions (3,207) (3,063) (4,359)
============================================ =========== ============ ===========
CET1 capital 31,957 32,558 30,623
AT1 capital 4,041 4,041 4,041
============================================ =========== ============ ===========
Tier 1 capital 35,998 36,599 34,664
Tier 2 capital 6,765 6,841 9,161
============================================ =========== ============ ===========
Total regulatory capital 42,763 43,440 43,825
============================================ =========== ============ ===========
Risk-weighted assets
============================================ =========== ============ ===========
Credit risk
- non-counterparty 144,700 154,400 162,200
- counterparty 15,400 16,000 22,900
Market risk 17,000 16,400 17,400
Operational risk 23,800 23,800 25,700
============================================ ----------- ------------ -----------
Total RWAs 200,900 210,600 228,200
============================================ =========== ============ ===========
Leverage (1)
Cash and balances at central banks 98,300 88,200 74,200
Derivatives 160,800 171,700 247,000
Loans and advances 339,400 341,500 340,300
Reverse repos 40,700 36,700 41,800
Other assets 98,900 113,700 95,400
============================================ ----------- ------------ -----------
Total assets 738,100 751,800 798,700
Derivatives
- netting and variation margin (161,700) 169,500 (241,700)
- potential future exposures 49,400 54,100 65,300
Securities financing transactions gross
up 2,300 2,300 2,300
Undrawn commitments 53,100 52,600 58,600
Regulatory deductions and other adjustments (2,100) 200 100
============================================ ----------- ------------ -----------
CRR Leverage exposure 679,100 691,500 683,300
============================================ =========== ============ ===========
CRR leverage ratio% 5.3 5.3 5.1
============================================ =========== ============ ===========
UK leverage exposure (2) 587,100 609,400 614,600
============================================ =========== ============ ===========
UK leverage ratio% (2) 6.1 6.0 5.6
============================================ =========== ============ ===========
Notes:
(1) Based on end-point CRR Tier 1 capital and leverage exposure under the CRR
Delegated Act.
(2) Based on end-point CRR Tier 1 capital and UK leverage exposures reflecting
the post EU referendum measures announced by the Bank of England in the
third quarter of 2016.
Segment performance
Year ended 31 December 2017
===============================================================================
PBB CPB Central
=============== ===================
items
Ulster Commercial Private RBS NatWest & Total
Bank
UK PBB RoI Banking Banking International Markets other RBS
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
========================================= ======= ====== ========== ======= ============= ======= ======= ========
Income statement
Net interest income 5,130 421 2,286 464 325 203 158 8,987
Other non-interest income 1,347 186 1,198 214 64 887 (21) 3,875
========================================= ======= ====== ========== ======= ============= ======= ======= ========
Total income - adjusted (2) 6,477 607 3,484 678 389 1,090 137 12,862
Own credit adjustments - (3) - - - (66) - (69)
Loss on redemption of own debt - - - - - - (7) (7)
Strategic disposals - - - - - 26 321 347
========================================= ======= ====== ========== ======= ============= ======= ======= ========
Total income 6,477 604 3,484 678 389 1,050 451 13,133
========================================= ======= ====== ========== ======= ============= ======= ======= ========
Direct expenses - staff costs (773) (191) (467) (145) (61) (677) (1,609) (3,923)
- other costs (259) (66) (232) (32) (25) (287) (2,727) (3,628)
Indirect expenses (2,126) (194) (1,115) (268) (116) (564) 4,383 -
========================================= ======= ====== ========== ======= ============= ======= ======= ========
Operating expenses - adjusted (4) (3,158) (451) (1,814) (445) (202) (1,528) 47 (7,551)
Restructuring costs - direct (79) (27) (48) (20) (5) (319) (1,067) (1,565)
-
indirect (382) (29) (119) (25) (4) (117) 676 -
Litigation and conduct costs (210) (169) (33) (39) (8) (237) (589) (1,285)
Operating expenses (3,829) (676) (2,014) (529) (219) (2,201) (933) (10,401)
========================================= ======= ====== ========== ======= ============= ======= ======= ======== Operating profit/(loss) before impairment (losses)/releases 2,648 (72) 1,470 149 170 (1,151) (482) 2,732 Impairment (losses)/releases (235) (60) (362) (6) (3) 174 (1) (493) ========================================= ======= ====== ========== ======= ============= ======= ======= ======== Operating profit/(loss) 2,413 (132) 1,108 143 167 (977) (483) 2,239 ========================================= ======= ====== ========== ======= ============= ======= ======= ======== Operating profit/(loss) - adjusted (2,4) 3,084 96 1,308 227 184 (264) 183 4,818 ========================================= ======= ====== ========== ======= ============= ======= ======= ======== Additional information Return on equity (5) 23.7% (5.0%) 6.6% 6.4% 11.2% (9.0%) nm 2.2% Return on equity - adjusted (2,4,5) 30.7% 3.6% 8.2% 11.3% 12.6% (3.7%) nm 8.8% Cost:income ratio (3) 59.1% 111.9% 56.0% 78.0% 56.3% nm nm 79.0% Cost:income ratio - adjusted (2,3,4) 48.8% 74.3% 50.0% 65.6% 51.9% 140.2% nm 58.2% Total assets (GBPbn) 190.6 24.6 149.5 20.3 25.9 277.9 49.3 738.1 Funded assets (GBPbn) (6) 190.6 24.5 149.5 20.3 25.9 118.7 47.7 577.2 Net loans and advances to customers (GBPbn) 161.7 19.5 97.0 13.5 8.7 22.7 0.1 323.2 Risk elements in lending (GBPbn) 2.0 3.3 3.2 0.1 0.1 0.3 (0.1) 8.9 Impairment provisions (GBPbn) (1.3) (1.1) (1.2) - - (0.2) - (3.8) Customer deposits (GBPbn) 180.6 17.5 98.0 26.9 29.0 14.8 0.2 367.0 Risk-weighted assets (RWAs) (GBPbn) 43.0 18.0 71.8 9.1 5.1 52.9 1.0 200.9 RWA equivalent (GBPbn) (5) 46.7 18.9 76.8 9.1 5.2 56.4 1.1 214.2 Employee numbers (FTEs - thousands) (7) 19.8 2.7 4.6 1.5 1.6 5.7 35.3 71.2 ========================================= ------- ------ ---------- ------- ------------- ------- ------- -------- For the notes to this table refer to page 23. nm = not meaningful
Segment performance
Quarter ended 31 December 2017
================================================================================
PBB CPB Central
================= ===================
items
Ulster Commercial Private RBS NatWest & Total
UK PBB Bank RoI Banking Banking International Markets other RBS
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================================ ======= ======== ========== ======= ============= ======= ======= =======
Income statement
Net interest income 1,272 111 575 122 81 38 12 2,211
Other non-interest income 276 50 231 69 16 127 (123) 646
================================ ======= ======== ========== ======= ============= ======= ======= =======
Total income adjusted (2) 1,548 161 806 191 97 165 (111) 2,857
Own credit adjustments - - - - - 9 - 9
Strategic disposals - - - - - 26 165 191
================================ ======= ======== ========== ======= ============= ======= ======= =======
Total income 1,548 161 806 191 97 200 54 3,057
================================ ======= ======== ========== ======= ============= ======= ======= =======
Direct expenses - staff costs (189) (45) (109) (35) (25) (153) (372) (928)
-
other
costs (73) (25) (66) (14) (15) (83) (907) (1,183)
Indirect expenses (554) (45) (344) (78) (23) (154) 1,198 -
================================ ======= ======== ========== ======= ============= ======= ======= =======
Operating expenses - adjusted
(4) (816) (115) (519) (127) (63) (390) (81) (2,111)
Restructuring costs - direct (55) (2) (6) (19) (3) (129) (317) (531)
- indirect (198) (2) (23) (9) - (13) 245 -
Litigation and conduct costs (197) (135) (27) (39) - (51) (315) (764)
================================ ======= ======== ========== ======= ============= ======= ======= =======
Operating expenses (1,266) (254) (575) (194) (66) (583) (468) (3,406)
================================ ======= ======== ========== ======= ============= ======= ======= =======
Operating profit/(loss) before
impairment
(losses)/releases 282 (93) 231 (3) 31 (383) (414) (349)
Impairment (losses)/releases (60) (81) (117) (2) - 26 - (234)
================================ ======= ======== ========== ======= ============= ======= ======= =======
Operating profit/(loss) 222 (174) 114 (5) 31 (357) (414) (583)
================================ ======= ======== ========== ======= ============= ======= ======= =======
Operating profit/(loss) -
adjusted (2,4) 672 (35) 170 62 34 (199) (192) 512
================================ ======= ======== ========== ======= ============= ======= ======= =======
Additional information
Return on equity (5) 7.8% (26.5%) 1.3% (2.9%) 9.2% (14.0%) nm (6.7%)
Return on equity - adjusted
(2,4,5) 26.2% (5.3%) 3.1% 12.1% 10.4% (8.7%) nm 4.0%
Cost:income ratio (6) 81.8% 157.8% 70.0% 101.6% 68.0% nm nm 111.5%
Cost:income ratio - adjusted
(2,3,4) 52.7% 71.4% 62.8% 66.5% 64.9% nm nm 73.6%
Total assets (GBPbn) 190.6 24.6 149.5 20.3 25.9 277.9 49.3 738.1
Funded assets (GBPbn) (6) 190.6 24.5 149.5 20.3 25.9 118.7 47.7 577.2
Net loans and advances to
customers (GBPbn) 161.7 19.5 97.0 13.5 8.7 22.7 0.1 323.2
Risk elements in lending (GBPbn) 2.0 3.3 3.2 0.1 0.1 0.3 (0.1) 8.9
Impairment provisions (GBPbn) (1.3) (1.1) (1.2) - - (0.2) - (3.8)
Customer deposits (GBPbn) 180.6 17.5 98.0 26.9 29.0 14.8 0.2 367.0
Risk-weighted assets (RWAs)
(GBPbn) 43.0 18.0 71.8 9.1 5.1 52.9 1.0 200.9
RWA equivalent (GBPbn) (5) 46.7 18.9 76.8 9.1 5.2 56.4 1.1 214.2
Employee numbers (FTEs -
thousands) (7) 19.8 2.7 4.6 1.5 1.6 5.7 35.3 71.2
================================ ======= ======== ========== ======= ============= ======= ======= =======
For the notes to this table refer to page
23. nm
= not meaningful.
Segment performance
Year ended 31 December 2016
===============================================================================
PBB CPB Central
=============== ===================
items
Ulster Commercial Private RBS NatWest & Total
Bank other
UK PBB RoI Banking Banking International Markets (1) RBS
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
======================================== ======= ====== ========== ======= ============= ======= ======= ========
Income statement
Net interest income 4,945 409 2,143 449 303 343 116 8,708
Other non-interest income 1,182 164 1,272 208 71 763 4 3,664
======================================== ======= ====== ========== ======= ============= ======= ======= ========
Total income - adjusted (2) 6,127 573 3,415 657 374 1,106 120 12,372
Own credit adjustments - 3 - - - 187 (10) 180
Loss on redemption of own debt - - - - - - (126) (126)
Strategic disposals - - - - - (81) 245 164
======================================== ======= ====== ========== ======= ============= ======= ======= ========
Total income 6,127 576 3,415 657 374 1,212 229 12,590
======================================== ======= ====== ========== ======= ============= ======= ======= ========
Direct expenses - staff costs (832) (207) (522) (154) (45) (358) (2,364) (4,482)
- other costs (320) (55) (235) (44) (17) (119) (2,948) (3,738)
Indirect expenses (2,246) (195) (1,179) (313) (107) (1,607) 5,647 -
======================================== ======= ====== ========== ======= ============= ======= ======= ========
Operating expenses - adjusted (4) (3,398) (457) (1,936) (511) (169) (2,084) 335 (8,220)
Restructuring costs - direct (46) (38) (25) (7) (2) (75) (1,913) (2,106)
-
indirect (198) (2) (83) (30) (3) (115) 431 -
Litigation and conduct costs (634) (172) (423) (1) - (550) (4,088) (5,868)
======================================== ======= ====== ========== ======= ============= ======= ======= ========
Operating expenses (4,276) (669) (2,467) (549) (174) (2,824) (5,235) (16,194)
======================================== ======= ====== ========== ======= ============= ======= ======= ========
Operating profit/(loss) before
impairment
(losses)/releases 1,851 (93) 948 108 200 (1,612) (5,006) (3,604)
Impairment (losses)/releases (125) 113 (206) 3 (10) (253) - (478)
======================================== ======= ====== ========== ======= ============= ======= ======= ========
Operating profit/(loss) 1,726 20 742 111 190 (1,865) (5,006) (4,082)
======================================== ======= ====== ========== ======= ============= ======= ======= ========
Operating profit/(loss) - adjusted (2,4) 2,604 229 1,273 149 195 (1,231) 455 3,674
======================================== ======= ====== ========== ======= ============= ======= ======= ========
Additional information
Return on equity (5) 16.2% 0.7% 4.1% 5.6% 13.8% (12.5%) nm (17.9%)
Return on equity - adjusted (2,4,5) 25.1% 8.4% 8.4% 7.8% 14.2% (8.7%) nm 1.6%
Cost:income ratio (3) 69.8% 116.1% 71.0% 83.6% 46.5% nm nm 129.0%
Cost:income ratio - adjusted (2,3,4) 55.5% 79.8% 54.8% 77.8% 45.2% 188.4% nm 66.0%
Total assets (GBPbn) 181.4 24.1 150.5 18.6 23.4 372.5 28.2 798.7
Funded assets (GBPbn) (6) 181.4 24.0 150.5 18.5 23.4 128.5 25.4 551.7
Net loans and advances to customers
(GBPbn) 152.7 18.9 100.1 12.2 8.8 30.2 0.1 323.0
Risk elements in lending (GBPbn) 2.4 3.5 1.9 0.1 0.1 2.3 - 10.3
Impairment provisions (GBPbn) (1.5) (1.2) (0.8) - - (0.8) (0.2) (4.5)
Customer deposits (GBPbn) 170.0 16.1 97.9 26.6 25.2 17.9 0.2 353.9
Risk-weighted assets (RWAs) (GBPbn) 42.3 18.1 78.5 8.6 9.5 69.7 1.5 228.2
RWA equivalent (GBPbn) (5) 45.8 19.5 82.6 8.6 9.5 74.7 1.7 242.4
Employee numbers (FTEs - thousands) 21.6 3.1 5.5 1.7 0.8 1.6 43.5 77.8
======================================== ======= ====== ========== ======= ============= ======= ======= ========
For the notes to this table please refer to page 23. nm = not meaningful.
Segment performance
Quarter ended 30 September 2017
===============================================================================
PBB CPB Central
================ ===================
items
Ulster Commercial Private RBS NatWest & Total
UK PBB Bank RoI Banking Banking International Markets other RBS
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================================= ====== ======== ========== ======= ============= ======= ======= =======
Income statement
Net interest income 1,294 104 570 116 83 99 38 2,304
Other non-interest income 463 46 358 50 14 (74) 1 858
================================= ====== ======== ========== ======= ============= ======= ======= =======
Total income - adjusted (2) 1,757 150 928 166 97 25 39 3,162
Own credit adjustments - - - - - (5) - (5)
Total income 1,757 150 928 166 97 20 39 3,157
================================= ====== ======== ========== ======= ============= ======= ======= =======
Direct expenses - staff costs (191) (50) (113) (36) (13) (163) (388) (954)
-
other
costs (55) (17) (55) (6) (3) (72) (612) (820)
Indirect expenses (525) (52) (252) (58) (33) (132) 1,052 -
Operating expenses - adjusted (4) (771) (119) (420) (100) (49) (367) 52 (1,774)
Restructuring costs - direct (1) (1) (2) (1) (2) (29) (208) (244)
- indirect (47) (8) (19) (2) - (28) 104 -
Litigation and conduct costs - (1) (2) - (8) (102) (12) (125)
================================= ====== ======== ========== ======= ============= ======= ======= =======
Operating expenses (819) (129) (443) (103) (59) (526) (64) (2,143)
================================= ====== ======== ========== ======= ============= ======= ======= =======
Operating profit/(loss) before
impairment
(losses)/releases 938 21 485 63 38 (506) (25) 1,014
Impairment (losses)/releases (78) 10 (151) 3 2 71 - (143)
================================= ====== ======== ========== ======= ============= ======= ======= =======
Operating profit/(loss) 860 31 334 66 40 (435) (25) 871
================================= ====== ======== ========== ======= ============= ======= ======= =======
Operating profit/(loss) -
adjusted (2,4) 908 41 357 69 50 (271) 91 1,245
================================= ====== ======== ========== ======= ============= ======= ======= =======
Additional information
Return on equity (5) 34.2% 4.6% 8.6% 13.2% 10.4% (15.4%) nm 4.5%
Return on equity - adjusted
(2,4,5) 36.2% 6.1% 9.3% 13.8% 13.6% (10.3%) nm 8.2%
Cost:income ratio (3) 46.6% 86.0% 45.7% 62.0% 60.8% nm nm 67.5%
Cost:income ratio - adjusted
(2,3,4) 43.9% 79.3% 43.1% 60.2% 50.5% nm nm 55.6%
Total assets (GBPbn) 190.1 25.1 147.3 19.9 24.3 305.0 40.1 751.8
Funded assets (GBPbn) (6) 190.1 25.1 147.3 19.9 24.3 134.9 38.4 580.0 Net loans and advances to customers (GBPbn) 160.8 19.5 96.6 13.3 9.3 25.1 0.1 324.7 Risk elements in lending (GBPbn) 2.0 3.4 1.7 0.1 0.1 1.6 0.1 9.0 Impairment provisions (GBPbn) (1.3) (1.1) (0.8) - - (0.5) (0.2) (3.9) Customer deposits (GBPbn) 178.6 17.3 98.2 27.0 24.9 13.7 0.2 359.9 Risk-weighted assets (RWAs) (GBPbn) 43.3 17.9 74.6 9.2 9.6 54.9 1.1 210.6 RWA equivalent (GBPbn) (5) 47.0 18.9 77.4 9.2 9.6 59.1 1.3 222.5 Employee numbers (FTEs - thousands) (7) 20.5 2.8 4.9 1.6 0.8 6.0 37.0 73.6 ================================= ====== ======== ========== ======= ============= ======= ======= ======= For the notes to this table refer to page 23. nm = not meaningful.
Segment performance
Quarter ended 31 December 2016
==============================================================================
PBB CPB Central
=============== ===================
items
Ulster Commercial Private RBS NatWest & Total
Bank
UK PBB RoI Banking Banking International Markets other RBS
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================================== ======= ====== ========== ======= ============= ======= ======= =======
Income statement
Net interest income 1,263 105 542 111 77 73 37 2,208
Other non-interest income 293 32 325 50 19 (44) 446 1,121
================================== ======= ====== ========== ======= ============= ======= ======= =======
Total income - adjusted (2) 1,556 137 867 161 96 29 483 3,329
Own credit adjustments - - - - - (37) (77) (114)
Gain on redemption of own debt - - - - - - 1 1
Total income 1,556 137 867 161 96 (8) 407 3,216
================================== ======= ====== ========== ======= ============= ======= ======= =======
Direct expenses - staff costs (196) (57) (130) (39) (12) (87) (504) (1,025)
-
other
costs (76) (23) (69) (12) (4) (10) (1,000) (1,194)
Indirect expenses (602) (65) (357) (95) (45) (417) 1,581 -
Operating expenses - adjusted (4) (874) (145) (556) (146) (61) (514) 77 (2,219)
Restructuring costs - direct (1) (6) (12) (6) (1) (24) (957) (1,007)
- indirect (50) 2 (34) (8) (1) (30) 121 -
Litigation and conduct costs (214) (77) (407) 1 (1) (581) (2,849) (4,128)
================================== ======= ====== ========== ======= ============= ======= ======= =======
Operating expenses (1,139) (226) (1,009) (159) (64) (1,149) (3,608) (7,354)
================================== ======= ====== ========== ======= ============= ======= ======= =======
Operating profit/(loss) before
impairment
(losses)/releases 417 (89) (142) 2 32 (1,157) (3,201) (4,138)
Impairment (losses)/releases (27) 47 (83) 8 1 130 (1) 75
================================== ======= ====== ========== ======= ============= ======= ======= =======
Operating profit/(loss) 390 (42) (225) 10 33 (1,027) (3,202) (4,063)
================================== ======= ====== ========== ======= ============= ======= ======= =======
Operating profit/(loss) - adjusted
(2,4) 655 39 228 23 36 (355) 559 1,185
================================== ======= ====== ========== ======= ============= ======= ======= =======
Additional information
Return on equity (5) 15.1% (5.8%) (9.1%) 1.6% 8.8% (27.0%) nm (48.2%)
Return on equity - adjusted
(2,4,5) 26.2% 5.4% 5.3% 4.5% 9.8% (10.3%) nm 8.6%
Cost:income ratio (3) 73.2% 165.0% 117.1% 98.8% 66.7% nm nm 230.2%
Cost:income ratio - adjusted
(2,3,4) 56.2% 105.8% 62.6% 90.7% 63.5% nm nm 66.3%
Total assets (GBPbn) 181.4 24.1 150.5 18.6 23.4 372.5 28.2 798.7
Funded assets (GBPbn) (6) 181.4 24.0 150.5 18.5 23.4 128.5 25.4 551.7
Net loans and advances to
customers (GBPbn) 152.7 18.9 100.1 12.2 8.8 30.2 0.1 323.0
Risk elements in lending (GBPbn) 2.4 3.5 1.9 0.1 0.1 2.3 - 10.3
Impairment provisions (GBPbn) (1.5) (1.2) (0.8) - - (0.8) (0.2) (4.5)
Customer deposits (GBPbn) 170.0 16.1 97.9 26.6 25.2 17.9 0.2 353.9
Risk-weighted assets (RWAs)
(GBPbn) 42.3 18.1 78.5 8.6 9.5 69.7 1.5 228.2
RWA equivalent (GBPbn) (5) 45.8 19.5 82.6 8.6 9.5 74.7 1.7 242.4
Employee numbers (FTEs -
thousands) 21.6 3.1 5.5 1.7 0.8 1.6 43.5 77.8
================================== ======= ====== ========== ======= ============= ======= ======= =======
Notes:
Central items include unallocated transactions which principally
comprise volatile items under IFRS and balances in relation to
(1) international private banking for Q1 2016.
(2) Excluding own credit adjustments, (loss)/gain on redemption of
own debt and strategic disposals.
(3) Operating lease depreciation included in income (year ended December
2017 - GBP142 million; Q4 2017 - GBP35 million; year ended 31
December 2016 - GBP152 million, Q3 2017 - GBP35 million and Q4
2016 - GBP37 million).
(4) Excluding restructuring costs and litigation and conduct costs.
(5) RBS's CET 1 target is 13% but for the purposes of computing segmental
return on equity (ROE), to better reflect the differential drivers
of capital usage, segmental operating profit after tax and adjusted
for preference dividends is divided by average notional equity
allocated at different rates of 14% (Ulster Bank RoI - 11% prior
to Q1 2017), 11% (Commercial Banking), 14% (Private Banking -
15% prior to Q1 2017), 16% (RBS International - 12% prior to
November 2017) and 15% for all other segments, of the monthly
average of segmental risk-weighted assets incorporating the effect
of capital deductions (RWAes). RBS's Return on equity is calculated
using profit/(loss) for the period attributable to ordinary shareholders.
(6) Funded assets exclude derivative assets.
(7) On 1 January 2017 4.5 thousand employees on a FTE basis were
transferred from Central items to NatWest Markets in preparation
for ring-fencing. On 1 October 2017 0.8 thousand employees on
a FTE basis were transferred from Central Items to RBS International,
also in preparation for ring-fencing.
Segment performance
Year ended Quarter ended
======================== ======================================
31 December 31 December 31 December 30 September 31 December
2017 2016 2017 2017 2016
Total income by segment GBPm GBPm GBPm GBPm GBPm
============================ =========== =========== =========== ============ ===========
UK PBB
Personal advances 998 1,010 247 251 260
Personal deposits 841 732 198 207 184
Mortgages 2,641 2,560 657 674 658
Cards 743 653 145 310 159
Business banking 781 737 197 198 185
Commercial (1) 417 415 108 103 104
Other 56 20 (4) 14 6
============================ =========== =========== =========== ============ =========== Total 6,477 6,127 1,548 1,757 1,556 ============================ =========== =========== =========== ============ =========== Ulster Bank RoI Corporate 187 176 54 45 34 Retail 415 392 107 104 101 Other 2 8 - 1 2 ============================ =========== =========== =========== ============ =========== Total 604 576 161 150 137 ============================ =========== =========== =========== ============ =========== Commercial Banking Commercial lending 1,880 1,875 404 515 503 Deposits 508 474 133 127 109 Asset and invoice finance 662 712 158 169 175 Other 434 354 111 117 80 ============================ =========== =========== =========== ============ =========== Total 3,484 3,415 806 928 867 ============================ =========== =========== =========== ============ =========== Private Banking Investments 119 97 39 29 23 Banking 559 560 152 137 138 ============================ =========== =========== =========== ============ =========== Total 678 657 191 166 161 ============================ =========== =========== =========== ============ =========== RBS International 389 374 97 97 96 ============================ =========== =========== =========== ============ =========== NatWest Markets Rates 985 837 144 236 125 Currencies 470 551 102 112 157 Financing 456 344 99 119 89 Revenue share paid to other segments (246) (211) (61) (66) (57) Core income excluding OCA 1,665 1,521 284 401 314 Legacy (575) (415) (119) (376) (285) ============================ =========== =========== =========== ============ =========== Total income - adjusted 1,090 1,106 165 25 29 Own credit adjustments (66) 187 9 (5) (37) Strategic disposals 26 (81) 26 - - ============================ =========== =========== =========== ============ =========== Total income 1,050 1,212 200 20 (8) ============================ =========== =========== =========== ============ =========== Central items & other 451 229 54 39 407 ============================ =========== =========== =========== ============ =========== Total RBS 13,133 12,590 3,057 3,157 3,216 ============================ =========== =========== =========== ============ ===========
Notes:
Commercial income relating to business previously described as
(1) Williams & Glyn.
Segment performance
Year ended Quarter ended
======================== ======================================
31 December 31 December 31 December 30 September 31 December
Impairment losses/(releases)
by 2017 2016 2017 2017 2016
segment GBPm GBPm GBPm GBPm GBPm
=============================== =========== =========== =========== ============ ===========
UK PBB
Personal advances 167 105 40 47 46
Mortgages (42) (20) (8) (1) (41)
Cards 82 36 23 26 21
Business banking 4 (11) (6) 3 (3)
Commercial 24 15 11 3 4
Total 235 125 60 78 27
=============================== =========== =========== =========== ============ ===========
Ulster Bank RoI
Mortgages 72 29 83 (12) (30)
Commercial real estate
Investment (6) (24) (6) (2) (1)
Development (3) (20) - 3 (1)
Other lending (3) (98) 4 1 (15)
=============================== =========== =========== =========== ============ ===========
Total 60 (113) 81 (10) (47)
=============================== =========== =========== =========== ============ ===========
Commercial Banking
Commercial real estate 29 4 29 1 8
Asset and invoice finance 57 35 19 10 21
Private sector services
(education,
health etc) 22 8 8 - 7
Banks & financial institutions - 2 - (1) -
Wholesale and retail trade
repairs 59 15 48 - 6
Hotels and restaurants 1 27 (1) - 7
Manufacturing 5 3 - 1 1
Construction 187 18 35 152 13
Other 2 94 (21) (12) 20
=============================== =========== =========== =========== ============ ===========
Total 362 206 117 151 83
=============================== =========== =========== =========== ============ ===========
Private Banking 6 (3) 2 (3) (8)
=============================== =========== =========== =========== ============ ===========
RBS International 3 10 - (2) (1)
=============================== =========== =========== =========== ============ ===========
NatWest Markets (174) 253 (26) (71) (130)
=============================== =========== =========== =========== ============ ===========
Central items & other 1 - - - 1
=============================== =========== =========== =========== ============ ===========
Total RBS 493 478 234 143 (75)
=============================== =========== =========== =========== ============ ===========
Segment Performance
31 December 30 September 31 December
2017 2017 2016
Loans and advances to customers (gross)
by segment GBPbn GBPbn GBPbn
=========================================== =========== ============ ===========
UK PBB
Personal advances 7.1 7.0 6.9
Mortgages 136.8 135.7 128.0
Cards 4.0 3.9 4.2
Business banking 6.8 6.9 6.3
Commercial 8.3 8.6 8.8
Total 163.0 162.1 154.2
=========================================== =========== ============ ===========
Ulster Bank RoI
Mortgages 15.4 15.4 15.3
Commercial real estate
Investment 0.9 0.9 0.7
Development 0.1 0.1 0.2
Other lending 4.2 4.2 3.9
=========================================== =========== ============ ===========
Total 20.6 20.6 20.1
=========================================== =========== ============ ===========
Commercial Banking
Commercial real estate 15.4 15.7 16.9
Asset and invoice finance 16.1 15.0 14.1
Private sector services (education, health
etc) 6.9 7.0 6.9
Banks & financial institutions 7.1 8.3 8.9
Wholesale and retail trade repairs 7.8 7.9 8.4
Hotels and restaurants 3.5 3.6 3.7
Manufacturing 5.6 5.8 6.6
Construction 2.0 2.1 2.1
Other 33.8 32.0 33.3
=========================================== =========== ============ ===========
Total 98.2 97.4 100.9
=========================================== =========== ============ ===========
Private Banking
Personal advances 2.3 2.2 2.3
Mortgages 8.2 8.0 7.0
Other 3.0 3.1 2.9
=========================================== =========== ============ ===========
Total 13.5 13.3 12.2
=========================================== =========== ============ ===========
RBS International
Corporate 5.7 6.6 6.2
Mortgages 2.7 2.7 2.6
Other 0.3 - -
=========================================== ----------- ------------ -----------
Total 8.7 9.3 8.8
=========================================== =========== ============ ===========
NatWest Markets 22.9 25.6 31.0
=========================================== =========== ============ ===========
Central items & other 0.1 0.3 0.3
=========================================== =========== ============ ===========
31 December 30 September 31 December
2017 2017 2016
Analysis of NatWest Markets RWAs GBPbn GBPbn GBPbn
================================= =========== ============ ===========
Total risk-weighted assets 52.9 54.9 69.7
Of which:
Core RWAs 32.3 31.8 35.2
Legacy RWAs ex Alawwal 14.0 16.1 26.6
Alawwal 6.6 7.0 7.9
================================= =========== ============ ===========
Segment performance
UK Personal & Business Banking
2017 compared with 2016
-- Operating profit was GBP2,413 million compared with GBP1,726
million in 2016. The increase was driven by higher income, lower
adjusted operating expenses and lower litigation and conduct
charges, partially offset by higher restructuring costs, largely
relating to the reduction in our property portfolio and costs
associated with the business previously described as Williams
& Glyn, and higher impairments. Return on equity increased to
23.7% from 16.2% in 2016.
-- Total income of GBP6,477 million was GBP350 million, or 5.7%,
higher than 2016, principally reflecting strong balance growth,
savings re-pricing benefits and a GBP185 million debt sale gain.
Net interest margin declined by 11 basis points to 2.86% driven
by lower mortgage margins, asset mix and reduced current account
hedge yield, partially offset by savings re-pricing benefits
from actions taken in 2016 and following the Q4 2017 base rate
increase.
-- Adjusted operating expenses decreased by GBP240 million, or
7.1%, to GBP3,158 million compared with 2016 driven by a GBP59
million, or 7.1%, reduction in staff costs, with headcount down
8.3%, and a GBP181 million reduction in operational costs following
process and productivity improvements in service operations
and re-integration benefits in respect of the business previously
described as Williams & Glyn(1) . Adjusted cost:income ratio
improved to 48.8% in 2017 compared with 55.5% in 2016.
-- The net impairment charge of GBP235 million, or 14 basis points
of gross customer loans, reflected continued benign credit conditions.
2017 had lower recoveries partly as a result of the debt sales
undertaken, compared with 2016. Defaults remained at very low
levels across all portfolios compared to historic trends, although
slightly higher than in 2016.
-- Net loans and advances increased by GBP9.0 billion, or 5.9%,
to GBP161.7 billion as UK PBB continued to deliver support for
both personal and business banking customers. Gross new mortgage
lending in 2017 was GBP31.0 billion with market share of new
mortgages at approximately 12%, resulting in stock share of
approximately 10% at 31 December 2017 compared with 9.7% at
31 December 2016. Positive momentum continued across business
banking lending, with net balances up 3.0% compared with 31
December 2016, adjusting for transfers(3) .
-- Customer deposits increased by GBP10.6 billion, or 6.2%, to
GBP180.6 billion, driven by strong personal current account
and business deposit growth.
-- UK PBB includes commercial income from the business previously
described as Williams & Glyn of approximately GBP417 million,
gross loans and advances of GBP8.3 billion and deposits of GBP14.3
billion. An estimated GBP70 million of the commercial income,
GBP1.7 billion of gross loans and advances and GBP1.8 billion
of deposits relates to mid-corporate customers not subject to
the European Commission alternative remedies package. 120,000
of the remaining approximately 220,000 customers will be subject
to the remedies package.
Q4 2017 compared with Q3 2017
-- Operating profit decreased by GBP638 million compared with Q3
2017 principally driven by higher restructuring and litigation
and conduct costs and lower income, as Q3 2017 included a GBP168
million debt sale gain whilst Q4 2017 included a charge of GBP16
million following an annual review of mortgage customer repayment
behaviour.
-- Gross new mortgage lending in the quarter was GBP8.0 billion
with market share of new mortgages at approximately 12%. Mortgage
approval share decreased to approximately 12%, from around 14%
in Q3 2017, in part reflecting intense price competition in
the market.
-- Net interest margin decreased by 7 basis points to 2.76% driven
by the charge associated with the annual review of mortgage
customer repayment behaviour, asset mix and lower mortgage new
business margins, which were 14 basis points lower in the quarter
as a result of intense market price competition. Current account
hedge returns are now stable.
-- Adjusted operating expenses increased by GBP45 million principally
due to the annual UK bank levy charge, GBP33 million, and other
timing and seasonal factors.
-- An impairment charge of GBP60 million was GBP18 million lower
than Q3 2017 mainly due to higher portfolio provision releases.
Default levels remained stable.
Segment performance
Q4 2017 compared with Q4 2016
-- Operating profit decreased by GBP168 million compared with Q4
2016 primarily due to an increase in restructuring costs and
lower impairment write backs, partially offset by lower litigation
and conduct costs.
-- Net interest margin decreased 15 basis points driven by reduced
mortgage margins and lower deposit hedge income, partially offset
by savings re-pricing benefits and higher funding benefits on
savings, following the base rate increase in Q4 2017.
-- Adjusted operating expenses decreased by GBP58 million, or 6.6%,
to GBP816 million compared with Q4 2016 driven by a GBP51 million
reduction in operational costs reflecting continued operations
and re-integrations benefits in respect of the business previously
described as Williams & Glyn. Staff costs were GBP7 million,
or 3.6%, lower with headcount 8.3% lower.
Ulster Bank RoI
2017 compared with 2016
-- An operating loss of EUR151 million compared with a EUR24 million
profit in 2016 primarily reflecting a EUR206 million increase
in impairment losses, largely relating to a change in the non
performing loan strategy to allow for further portfolio sales.
Adjusted return on equity was 3.6% compared with 8.4% in 2016.
-- Adjusted income of EUR693 million was EUR8 million, or 1.1%,
lower than 2016 primarily reflecting a EUR53 million reduction
in income on free funds, partially offset by one off items,
higher lending income and reduced funding costs. Net interest
margin of 1.67% was 5 basis points higher than 2016 reflecting
a combination of improved deposit and loan margins, one-off
income adjustments and successful deleveraging measures in 2016
which have reduced the concentration of low yielding loans.
-- Adjusted operating expenses of EUR516 million were 7.7% lower
than 2016 primarily due to continued progress in the delivery
of cost saving initiatives, as evidenced by a 12.9% reduction
in headcount, and lower pension costs.
Adjusted cost:income ratio of 74.3% compared with 79.8% in 2016.
-- A litigation and conduct provision of EUR192 million related
to customer remediation and project costs associated with legacy
business issues.
-- A net impairment loss of EUR68 million compared with a EUR138
million release in 2016. The movement was driven by a provision
relating to a change in the non performing loan strategy to
allow for further portfolio sales, gains associated with asset
disposals in 2016 and refinements to the mortgage provision
models in 2017. REILs were EUR3.7 billion, 9.8% lower than 2016
reflecting credit quality improvements.
-- Ulster Bank RoI gross new lending was EUR2.6 billion in 2017,
up 3.4% compared with 2016.
-- RWAs of EUR20.2 billion reduced by EUR0.9 billion, or 4.3%,
compared with 2016.
Q4 2017 compared with Q3 2017
-- An operating loss of EUR199 million compared with a profit of
EUR36 million in Q3 2017. An impairment charge of EUR92 million,
compared with a release of EUR11 million in Q3 2017, included
a provision for a change in the non performing loan strategy,
partially offset by releases relating to improvements in the
housing market. In addition Ulster Bank RoI recognised a EUR153
million conduct and litigation provision in Q4 2017 for customer
remediation and project costs associated with legacy business
issues.
-- Net interest margin increased by 18 basis points to 1.76% primarily
driven by one off income gains in Q4 2017.
Q4 2017 compared with Q4 2016
-- An operating loss of EUR199 million was EUR145 million higher
than Q4 2016 primarily due to a provision for a change in the
non performing loan strategy and a EUR60 million increase in
litigation and conduct costs, relating to legacy business issues.
-- Adjusted operating expenses reduced by 21.9% driven by one off
charges in Q4 2016 and the benefit of transformation activity
and lower pension costs.
Notes:
(1) The business previously described as Williams & Glyn was integrated
in to the reportable operating segment UK PBB in Q4 2017 and
prior year comparatives re-presented.
(2) UK PBB Collective Investment Funds (CIFL) business was transferred
to Private Banking on 1 October 2017. CIFL Business transfer
included total income of GBP33 million and total expenses of
GBP9 million. Comparatives were not re-presented.
(3) Transfers include GBP0.4 billion loans and advances transferred
from Commercial Banking to UK PBB during 2017 to better align
Business banking customers. Comparatives were not re-presented.
Segment performance
Commercial Banking
2017 compared with 2016
-- Operating profit of GBP1,108 million compared with GBP742 million
in 2016, primarily reflecting a reduction in litigation and
conduct costs. Adjusted operating profit of GBP1,308 million
was GBP35 million, or 2.7%, higher than 2016 reflecting lower
adjusted operating expenses and higher income, partially offset
by higher impairments. Adjusted return on equity remained broadly
stable at 8.2%.
-- Total income increased by GBP69 million, or 2.0%, to GBP3,484
million primarily reflecting increased volumes in targeted segments
and re-pricing benefits on deposits. Net interest margin decreased
by 2 basis points as active re-pricing of assets and deposits
has been more than offset by wider asset margin pressure in
a low rate environment.
-- Adjusted operating expenses of GBP1,814 million were GBP122
million, or 6.3%, lower than 2016, reflecting operating model
simplification and productivity improvements, including a 16.4%
reduction in front office headcount, and a GBP25 million intangible
asset write-down in 2016. Adjusted cost:income ratio improved
to 50.0% compared with 54.8% in 2016.
-- Net impairment losses of GBP362 million were GBP156 million
higher than 2016, reflecting a small number of single name impairments.
-- Adjusting for transfers(1) , net loans and advances decreased
by GBP4.9 billion to GBP97.0 billion, compared with 2016, as
growth in targeted segments has been more than offset by active
capital management of the lending book.
-- Adjusting for transfers(1) , RWAs decreased by GBP8.2 billion,
or 10.4%, to GBP71.8 billion compared with 2016 reflecting active
capital management of the lending book, achieving GBP12.5 billion
of gross RWA reductions.
Q4 2017 compared with Q3 2017
-- Operating profit of GBP114 million was GBP220 million lower
than Q3 2017 principally reflecting increased operating expenses,
largely due to the annual UK bank levy charge, GBP91 million,
and lower income.
-- Total income decreased by GBP122 million to GBP806 million compared
with Q3 2017 reflecting asset disposal and fair value losses
of GBP46 million, compared with an asset disposal gain of GBP52
million in Q3 2017, and lower lending volumes.
-- Adjusting for transfers(1) , RWAs decreased by GBP4.3 billion
to GBP71.8 billion compared with Q3 2017 reflecting active capital
management of the lending book.
Q4 2017 compared with Q4 2016
-- Operating profit of GBP114 million compared with a loss of GBP225
million in Q4 2016, primarily reflecting lower conduct and litigation
costs.
-- Total income decreased by GBP61 million, or 7.0%, to GBP806
million compared with Q4 2016, principally reflecting asset
disposal and fair value losses of GBP46 million and lower lending
volumes. Net interest margin increased by 7 basis points to
1.75% primarily due to asset and deposit re-pricing activity.
-- Adjusted operating expenses decreased by GBP37 million, or 6.7%,
to GBP519 million reflecting cost efficiencies and reduced headcount.
Note:
(1) Shipping and other activities which were formerly in Capital Resolution,
were transferred from NatWest Markets on 1 October 2017, including
net loans and advances to
customers of GBP2.6 billion and RWAs of GBP2.1 billion. Commercial
Banking transferred whole business securitisations and relevant
financial institution's (RFI) to NatWest Markets
during December 2017, including net loans and advances to customers
of GBP0.8 billion and RWAs of GBP0.6 billion. Comparatives were
not re-presented for these transfers.
Segment performance
Private Banking
2017 compared with 2016
-- Operating profit increased by GBP32 million, or 28.8%, to GBP143
million compared with 2016 and return on equity increased from
5.6% to 6.4%. Adjusted operating profit of GBP227 million was
GBP78 million, or 52.3%, higher than 2016 primarily reflecting
lower adjusted operating expenses and higher income. Adjusted
return on equity increased to 11.3% from 7.8% in 2016.
-- Adjusting for transfers(1) ,total income increased by GBP12
million to GBP678 million due to increased lending volumes and
an GBP8 million gain on a property sale, partially offset by
ongoing margin pressure. Net interest margin fell 19 basis points
to 2.47% reflecting the competitive market and low rate environment.
-- Adjusted operating expenses of GBP445 million decreased by GBP66
million, or 12.9%, compared with 2016 largely reflecting management
actions to reduce costs, including an 11.8% reduction in front
office headcount. Adjusted cost:income ratio improved to 65.6%
compared with 77.8% in 2016.
-- Net loans and advances of GBP13.5 billion were GBP1.3 billion,
or 10.7%, higher than 2016 principally driven by growth in mortgages.
-- Adjusting for transfers(1) , assets under management were GBP2.4
billion, or 14.4%, higher than 2016 at GBP21.5 billion, reflecting
both organic growth and favourable market conditions.
-- RWAs of GBP9.1 billion were GBP0.5 billion, or 5.8%, higher
than 2016 primarily due to increased mortgage lending.
Q4 2017 compared with Q3 2017
-- An operating loss of GBP5 million in Q4 2017, compared with
a profit of GBP66 million in Q3 2017, principally due to increased
litigation and conduct costs and increased restructuring costs.
Adjusted operating profit of GBP62 million decreased by GBP7
million compared with Q3 2017, primarily reflecting higher adjusted
operating expenses partially offset by higher income.
-- Adjusting for transfers(1) , total income increased by GBP16
million to GBP191 million, compared with Q3 2017, reflecting
improved margins and an GBP8 million gain on a property sale.
Net interest margin increased by 5 basis points to 2.44% due
to re-pricing benefits and higher funding benefits on deposits
following the Q4 2017 base rate increase.
-- Adjusted operating expenses increased by GBP27 million to GBP127
million principally due to the annual UK bank levy charge, GBP18
million.
Q4 2017 compared with Q4 2016
-- An operating loss of GBP5 million in Q4 2017 compared with a
profit of GBP10 million in Q4 2016, reflecting increased litigation
and conduct costs and increased restructuring costs, partially
offset by increased income. Adjusted operating profit of GBP62
million was GBP39 million higher than Q4 2016 principally due
to higher income and lower adjusted expenses.
-- Adjusting for transfers(1) , total income increased by GBP21
million to GBP191 million compared with Q4 2016 reflecting higher
lending volumes, re-pricing benefits and an GBP8 million gain
on a property sale, partially offset by margin pressures.
-- Adjusted operating expenses decreased by GBP19 million, or 13.0%,
to GBP127 million reflecting cost efficiencies and reduced headcount.
Note:
(1) UK PBB Collective Investment Funds (CIFL) business was transferred
from UK PBB on 1 October 2017, including total income in Q4 2017of
GBP11 million and assets under management of GBP3.3 billion.
Private Banking transferred Coutts Crown Dependencies (CCD) to
RBS International during Q4 2017, including total income of GBP2
million and assets under management of GBP1.2 billion. Comparatives
were not re-presented for these transfers.
Segment performance
RBS International
2017 compared with 2016
-- Operating profit of GBP167 million decreased by GBP23 million,
or 12.1%, compared with 2016 and return on equity decreased
to 11.2% from 13.8%, reflecting increased operational costs
associated with the creation of a bank outside the ring-fence,
partially offset by higher income. Adjusted return on equity
decreased to 12.6% from 14.2% in 2016 and adjusted cost:income
ratio of 51.9% increased from 45.2% in 2016.
-- Total income increased by GBP15 million, or 4.0%, to GBP389
million driven by increased average lending balances in 2017
and re-pricing benefits on the deposit book.
-- Net loans and advances were broadly stable compared with 2016
and customer deposits increased by GBP3.8 billion to GBP29.0
billion primarily reflecting increased short term placements
in the Funds sector.
-- RWAs of GBP5.1 billion reduced by GBP4.4 billion, or 46.3%,
compared with 2016, reflecting the benefit of receiving the
Advanced Internal Rating Based Waiver on the wholesale corporate
book in November 2017, in advance of becoming a bank outside
the ring-fence.
-- From 1st Jan 2018 RBS International will include the funds and
trustee depositary business transferred from Commercial Banking,
which generated around GBP150 million of income and GBP60 million
of costs in 2017.
Q4 2017 compared with Q3 2017
-- Operating profit of GBP31 million was GBP9 million lower than
Q3 2017 principally reflecting the Q4 2017 bank levy charge
of GBP14 million.
-- RWAs were GBP5.1 billion, a decrease of GBP4.5 billion compared
with Q3 2017 reflecting the benefit of receiving the Advanced
Internal Rating Based Waiver on the wholesale corporate book
in November 2017, in advance of becoming a bank outside the
ring-fence.
Q4 2017 compared with Q4 2016
-- Adjusted operating expenses increased by GBP2 million, or 3.3%,
to GBP63 million reflecting increased operational costs associated
with the creation of a bank outside the ring-fence.
NatWest Markets
2017 compared with 2016
-- An operating loss of GBP977 million compared with GBP1,865 million
in 2016. The core business operating profit increased by GBP427
million to GBP41 million reflecting lower litigation and conduct
costs, lower adjusted costs and higher income, partially offset
by increased restructuring costs reflecting back office restructuring
activity. Adjusted operating loss of GBP264 million, compared
with GBP1,231 million in 2016, reflecting lower adjusted costs
and a net impairment release of GBP174 million in 2017, compared
with a charge of GBP253 million in 2016.
-- Total income of GBP1,050 million compared with GBP1,212 million
in 2016. In the core business, adjusted income increased by
GBP144 million, or 9.5%, to GBP1,665 million, principally driven
by Rates as the business navigated markets well despite a lower
level of customer activity than in 2016, which benefited from
favourable market conditions following the EU referendum.
-- Adjusted operating expenses of GBP1,528 million were GBP556
million, or 26.7%, lower than 2016. In the legacy business,
adjusted operating expenses decreased significantly reflecting
a 77.7% reduction in headcount as the business moved towards
closure. In the core business, adjusted operating expenses reduced
as the business continues to drive cost reductions. NatWest
Markets adjusted costs, excluding costs associated with the
legacy business, were GBP1,268 million compared to GBP1,320
million in 2016.
-- RWAs decreased by GBP15.3 billion, adjusting for transfers(1)
, to GBP52.9 billion primarily reflecting reductions in the
legacy business. In the core business RWAs decreased by GBP3.1
billion to GBP32.3 billion reflecting lower counterparty credit
risk through mitigation activities and business initiatives.
At the end of 2017 the legacy business within NatWest Markets
had RWAs of GBP14.0 billion, excluding RBS's stake in Alawwal
Bank, a reduction of GBP10.9 billion, adjusting for transfers(1)
, over the course of the year.
-- Funded assets fell to GBP118.7 billion, a reduction of GBP7.3
billion, adjusting for transfers(1) , mainly reflecting disposal
activity.
Note:
(1) Shipping and other activities which were formerly in Capital
Resolution, were transferred to Commercial Banking on 1 October
2017, including total funded assets of GBP3.3 billion, net loans
and advances to customers of GBP2.6 billion, and RWAs of GBP2.1
billion. Whole business securitisations and relevant financial
institutions (RFI) were transferred from Commercial Banking during
December 2017, including net loans and advances to customers
of GBP0.8 billion, and RWAs of GBP0.6 billion. Comparatives were
not re-presented for these transfers.
Segment performance
Q4 2017 compared with Q3 2017
-- An operating loss of GBP357 million compared with GBP435 million
in Q3 2017 reflecting higher income partially offset by higher
restructuring costs. Adjusted income in the core business decreased
by GBP117 million to GBP284 million, reflecting seasonally lower
customer activity and more challenging market conditions in
Q4 2017.
-- Adjusted operating expenses increased by GBP23 million to GBP390
million principally due to the annual UK bank levy charge, GBP28
million.
-- Adjusting for transfers(1) , RWAs decreased by GBP0.5 billion
to GBP52.9 billion and funded assets decreased by GBP13.7 billion
to GBP118.7 billion principally reflecting ongoing reductions
in the legacy business and seasonally lower balances in the
core business.
Q4 2017 compared with Q4 2016
-- Adjusted income of GBP165 million was GBP136 million higher
than Q4 2016 largely reflecting lower legacy business disposal
losses. In the core business, adjusted income of GBP284 million
was GBP30 million, or 9.6%, lower than Q4 2016 primarily due
to lower levels of customer activity.
-- Legacy disposal losses, other adjustments and impairments decreased
by GBP83 million to GBP112 million.
-- Adjusted expenses decreased by GBP124 million to GBP390 million
driven by headcount reductions in the legacy business.
Central items
2017 compared with 2016
-- Central items not allocated represented a charge of GBP483 million
in 2017, compared with a GBP5,006 million charge in 2016, and
included litigation and conduct costs of GBP589 million, compared
with GBP4,088 million in 2016. Treasury funding costs were a
charge of GBP58 million, compared with a charge of GBP94 million
in 2016. Restructuring costs in the year included GBP94 million
relating to the former Williams & Glyn business, compared with
GBP1,399 million in 2016. In addition to a VAT recovery of GBP86
million, compared with GBP227 million in 2016, a GBP156 million
gain on the sale of Vocalink and a GBP135 million gain in relation
to the sale of EuroClear(2) .
Q4 2017 compared with Q3 2017
-- Central items not allocated represented a charge of GBP414 million
in the quarter, compared with a GBP25 million charge in Q3 2017,
and included litigation and conduct costs of GBP315 million,
compared with GBP12 million in Q3 2017. Q4 2017 Treasury funding
costs were a charge of GBP129 million, compared with GBP61 million
in Q3 2017, and included a GBP173 million IFRS volatility charge.
Q4 2017 compared with Q4 2016
-- Central items not allocated represented a charge of GBP414 million
in the quarter, compared with a GBP3,202 million charge in Q4
2016, and included litigation and conduct costs of GBP315 million,
compared with GBP2,849 million in 2016. Q4 2017 Treasury funding
costs were a charge of GBP129 million, compared with a gain
of GBP465 million in Q4 2016, and included a GBP173 million
IFRS volatility charge and an FX loss of GBP8 million, compared
with a GBP308 million IFRS volatility gain and a GBP140 million
FX gain in Q4 2016.
Note:
(1) Shipping and other activities which were formerly in Capital
Resolution, were transferred to Commercial Banking on 1 October
2017, including total funded assets of GBP3.3 billion, net loans
and advances to customers of GBP2.6 billion, and RWAs of GBP2.1
billion. Whole business securitisations and relevant financial
institutions (RFI) were transferred from Commercial Banking during
December 2017, including net loans and advances to customers
of GBP0.8 billion, and RWAs of GBP0.6 billion. Comparatives were
not re-presented for these transfers.
(2) The total gain in relation to the sale of Euroclear was GBP161
million, of which GBP135 million central items and GBP26 million
NatWest Markets.
Condensed consolidated income statement for the period ended 31 December 2017
Year ended Quarter ended
======================== ======================================
31 December 31 December 31 December 30 September 31 December
2017 2016 2017 2017 2016
GBPm GBPm GBPm GBPm GBPm
================================ =========== =========== =========== ============ ===========
Interest receivable 11,034 11,258 2,754 2,818 2,770
Interest payable (2,047) (2,550) (543) (514) (562)
================================ =========== =========== =========== ============ ===========
Net interest income (1) 8,987 8,708 2,211 2,304 2,208
================================ =========== =========== =========== ============ ===========
Fees and commissions receivable 3,338 3,340 846 826 821
Fees and commissions payable (883) (805) (231) (204) (213)
Income from trading activities 634 974 (198) (52) 590
(Loss)/gain on redemption
of own debt (7) (126) - - 1
Other operating income 1,064 499 429 283 (191)
================================ =========== =========== =========== ============ ===========
Non-interest income 4,146 3,882 846 853 1,008
================================ =========== =========== =========== ============ ===========
Total income 13,133 12,590 3,057 3,157 3,216
================================ =========== =========== =========== ============ ===========
Staff costs (4,676) (5,124) (1,100) (1,129) (1,142)
Premises and equipment (1,565) (1,388) (524) (363) (382)
Other administrative expenses (3,323) (8,745) (1,587) (528) (5,511)
Depreciation and amortisation (808) (778) (178) (119) (249)
Write down of other intangible
assets (29) (159) (17) (4) (70)
================================ =========== =========== =========== ============ ===========
Operating expenses (10,401) (16,194) (3,406) (2,143) (7,354)
================================ =========== =========== =========== ============ ===========
Profit/(loss) before impairment
(losses)/releases 2,732 (3,604) (349) 1,014 (4,138)
Impairment (losses)/releases (493) (478) (234) (143) 75
================================ =========== =========== =========== ============ ===========
Operating profit/(loss)
before tax 2,239 (4,082) (583) 871 (4,063)
Tax (charge)/credit (824) (1,166) 168 (265) (244)
================================ =========== =========== =========== ============ ===========
Profit/(loss) for the
period 1,415 (5,248) (415) 606 (4,307)
================================ =========== =========== =========== ============ ===========
Attributable to:
Non-controlling interests 35 10 14 (8) (27)
Preference share and other
dividends 628 504 150 222 161
Dividend access share - 1,193 - - -
Ordinary shareholders 752 (6,955) (579) 392 (4,441)
================================ =========== =========== =========== ============ ===========
Earnings/(loss) per ordinary
share (EPS)
Earnings/(loss) per ordinary
share (2) 6.3p (59.5p) (4.9p) 3.3p (37.7p)
================================ =========== =========== =========== ============ ===========
Notes:
(1) Negative interest on loans and advances is classed as interest
payable. Negative interest on customer deposits is classed as
interest receivable.
(2) There is no dilutive impact in any period.
Condensed consolidated statement of comprehensive income for the period ended 31 December 2017
Year ended Quarter ended
======================== ======================================
31 December 31 December 31 December 30 September 31 December
2017 2016 2017 2017 2016
GBPm GBPm GBPm GBPm GBPm
=========================================== =========== =========== =========== ============ ===========
Profit/(loss) for the period 1,415 (5,248) (415) 606 (4,307)
=========================================== =========== =========== =========== ============ ===========
Items that do not qualify for
reclassification
Gain/(loss) on remeasurement
of retirement benefit schemes 90 (1,049) 116 - (2)
Loss on fair value of credit
in financial liabilities
designated at fair value through
profit or loss
due to own credit risk (126) - (19) (30) -
Tax (10) 288 (5) 3 3
=========================================== =========== =========== =========== ============ ===========
(46) (761) 92 (27) 1
=========================================== =========== =========== =========== ============ ===========
Items that do qualify for reclassification
Available-for-sale financial
assets 26 (94) (11) 8 68
Cash flow hedges (1,069) 765 (86) (372) (750)
Currency translation 100 1,263 18 (21) (13)
Tax 256 (106) 19 76 191
=========================================== =========== =========== =========== ============ ===========
(687) 1,828 (60) (309) (504)
=========================================== =========== =========== =========== ============ ===========
Other comprehensive (loss)/income
after tax (733) 1,067 32 (336) (503)
=========================================== =========== =========== =========== ============ ===========
Total comprehensive income/(loss)
for the period 682 (4,181) (383) 270 (4,810)
=========================================== =========== =========== =========== ============ ===========
Total comprehensive income/(loss)
is attributable to:
Non-controlling interests 52 121 22 (19) (36)
Preference shareholders 234 260 79 70 68
Paid-in equity holders 394 244 71 152 93
Dividend access share - 1,193 - - -
Ordinary shareholders 2 (5,999) (555) 67 (4,935)
=========================================== =========== =========== =========== ============ ===========
682 (4,181) (383) 270 (4,810)
=========================================== =========== =========== =========== ============ ===========
Condensed consolidated balance sheet as at 31 December 2017
31 December 30 September 31 December
2017 2017 2016
GBPm GBPm GBPm
======================================== =========== ============ ===========
Assets
Cash and balances at central banks 98,337 88,210 74,250
======================================== =========== ============ ===========
Net loans and advances to banks 16,254 16,671 17,278
Reverse repurchase agreements and stock
borrowing 13,997 12,905 12,860
======================================== =========== ============ ===========
Loans and advances to banks 30,251 29,576 30,138
======================================== =========== ============ ===========
Net loans and advances to customers 323,184 324,650 323,023
Reverse repurchase agreements and stock
borrowing 26,735 23,767 28,927
======================================== =========== ============ ===========
Loans and advances to customers 349,919 348,417 351,950
Debt securities 78,933 87,860 72,522
Equity shares 450 507 703
Settlement balances 2,517 8,528 5,526
Derivatives 160,843 171,720 246,981
Intangible assets 6,543 6,484 6,480
Property, plant and equipment 4,602 4,777 4,590
Deferred tax 1,740 1,637 1,803
Prepayments, accrued income and other
assets 3,921 4,046 3,713
======================================== =========== ============ ===========
Total assets 738,056 751,762 798,656
======================================== =========== ============ ===========
Liabilities
======================================== =========== ============ ===========
Bank deposits 39,479 36,186 33,317
Repurchase agreements and stock lending 7,419 7,047 5,239
======================================== =========== ============ ===========
Deposits by banks 46,898 43,233 38,556
======================================== =========== ============ ===========
Customer deposits 367,034 359,879 353,872
Repurchase agreements and stock lending 31,002 33,245 27,096
======================================== =========== ============ ===========
Customer accounts 398,036 393,124 380,968
Debt securities in issue 30,559 31,700 27,245
Settlement balances 2,844 9,094 3,645
Short positions 28,527 31,793 22,077
Derivatives 154,506 164,394 236,475
Provisions for liabilities and charges 7,757 7,109 12,836
Accruals and other liabilities 6,402 6,925 7,006
Retirement benefit liabilities 129 152 363
Deferred tax 583 516 662
Subordinated liabilities 12,722 14,248 19,419
======================================== =========== ============ ===========
Total liabilities 688,963 702,288 749,252
Equity
======================================== =========== ============ ===========
Non-controlling interests 763 746 795
Owners' equity*
Called up share capital 11,965 11,906 11,823
Reserves 36,365 36,822 36,786
======================================== =========== ============ ===========
Total equity 49,093 49,474 49,404
======================================== =========== ============ ===========
Total liabilities and equity 738,056 751,762 798,656
======================================== =========== ============ ===========
*Owners' equity attributable to:
Ordinary shareholders 41,707 42,105 41,462
Other equity owners 6,623 6,623 7,147
======================================== =========== ============ ===========
48,330 48,728 48,609
======================================== =========== ============ ===========
Condensed consolidated statement of changes in equity for the period ended 31 December 2017
Year ended Quarter ended
======================== ======================================
31 December 31 December 31 December 30 September 31 December
================================
2017 2016 2017 2017 2016
GBPm GBPm GBPm GBPm GBPm
================================= =========== =========== =========== ============ ===========
Called-up share capital
At beginning of period 11,823 11,625 11,906 11,876 11,792
Ordinary shares issued 142 198 59 30 31
At end of period 11,965 11,823 11,965 11,906 11,823
================================= =========== =========== =========== ============ ===========
Paid-in equity
At beginning of period 4,582 2,646 4,058 4,491 4,582
Redeemed/reclassified (1) (524) (110) - (433) -
Additional Tier 1 capital
(2) - 2,046 - - -
At end of period 4,058 4,582 4,058 4,058 4,582
================================= =========== =========== =========== ============ ===========
Share premium account
At beginning of period 25,693 25,425 739 - 25,663
Ordinary shares issued 235 268 92 47 30
Redemption of debt preference
shares (5) 748 - 56 692 -
Capital reduction (3) (25,789) - - - -
================================= =========== =========== =========== ============ ===========
At end of period 887 25,693 887 739 25,693
================================= =========== =========== =========== ============ ===========
Merger reserve
At the beginning and end
of period 10,881 10,881 10,881 10,881 10,881
================================= =========== =========== =========== ============ ===========
Available-for-sale reserve
At beginning of period 238 307 260 259 188
Unrealised gains 202 282 53 49 69
Realised gains (176) (376) (64) (41) (1)
Tax (9) 25 6 (7) (18)
At end of period 255 238 255 260 238
================================= =========== =========== =========== ============ ===========
Cash flow hedging reserve
At beginning of period 1,030 458 298 575 1,565
Amount recognised in equity (277) 1,867 141 (178) (471)
Amount transferred from equity
to earnings (792) (1,102) (227) (194) (279)
Tax 266 (193) 15 95 215
At end of period 227 1,030 227 298 1,030
================================= =========== =========== =========== ============ ===========
Foreign exchange reserve
At beginning of period 2,888 1,674 2,962 2,984 2,898
Retranslation of net assets 111 1,470 13 (26) (40)
Foreign currency (losses)/gains
on hedges
of net assets (6) (278) (2) 4 35
Tax (1) 62 (2) (12) (6)
Recycled to profit or loss
on disposal of businesses
(4) (22) (40) (1) 12 1
=========== =========== =========== ============ ===========
At end of period 2,970 2,888 2,970 2,962 2,888
================================= =========== =========== =========== ============ ===========
Capital redemption reserve
At the beginning of period 4,542 4,542 - - 4,542
Capital reduction (3) (4,542) - - - -
================================= =========== =========== =========== ============ ===========
At end of period - 4,542 - - 4,542
================================= =========== =========== =========== ============ ===========
For the notes to this table refer to
the notes on page 38.
Condensed consolidated statement of changes in equity for the period ended 31 December 2017
Year ended Quarter ended
======================== ======================================
31 December 31 December 31 December 30 September 31 December
2017 2016 2017 2017 2016
GBPm GBPm GBPm GBPm GBPm
================================ =========== =========== =========== ============ ===========
Retained earnings
At beginning of period (12,936) (4,020) 17,669 18,184 (8,500)
Profit/(loss) attributable
to ordinary shareholders
and other equity owners 1,380 (5,258) (429) 614 (4,280)
Equity preference dividends
paid (234) (260) (79) (70) (68)
Paid-in equity dividends paid,
net of tax (394) (244) (71) (152) (93)
Capital reduction (3) 30,331 - - - -
Dividend access share dividend - (1,193) - - -
Redemption of debt preference
shares (5) (748) (56) (692) -
Redemption of equity preference
shares (5) - (1,160) - - -
Gain/(loss) on remeasurement
of the retirement
benefit schemes
- gross 90 (1,049) 116 - (2)
- tax (28) 288 (8) - 3
Changes in fair value of credit
in financial liabilities
designated at fair value
through profit or loss
- gross (126) - (19) (30) -
- tax 18 - 3 3 -
Shares issued under employee
share schemes (5) (10) - - -
Share-based payments
- gross (22) (9) 4 8 4
Redemption/reclassification
of paid-in equity (196) (21) - (196) -
================================ =========== =========== =========== ============ ===========
At end of period 17,130 (12,936) 17,130 17,669 (12,936)
================================ =========== =========== =========== ============ ===========
Own shares held
At beginning of period (132) (107) (45) (45) (136)
Shares utilised for employee
share schemes 161 41 5 - 7
Own shares acquired (72) (66) (3) - (3)
================================ =========== =========== =========== ============ ===========
At end of period (43) (132) (43) (45) (132)
================================ =========== =========== =========== ============ ===========
Owners' equity at end of period 48,330 48,609 48,330 48,728 48,609
================================ =========== =========== =========== ============ ===========
Condensed consolidated statement of changes in equity for the period ended 31 December 2017
Year ended Quarter ended
======================== ======================================
31 December 31 December 31 December 30 September 31 December
2017 2016 2017 2017 2016
GBPm GBPm GBPm GBPm GBPm
================================= =========== =========== =========== ============ ===========
Non-controlling interests
At beginning of period 795 716 746 844 853
Currency translation adjustments
and other
movements 17 111 8 (11) (9)
Profit/(loss) attributable
to non-controlling interests 35 10 14 (8) (27)
Dividends paid (25) - (5) (20) -
Equity withdrawn and disposals (59) (42) - (59) (22)
At end of period 763 795 763 746 795
================================= =========== =========== =========== ============ ===========
Total equity at end of period 49,093 49,404 49,093 49,474 49,404
================================= =========== =========== =========== ============ ===========
Total equity is attributable
to:
Non-controlling interests 763 795 763 746 795
Preference shareholders 2,565 2,565 2,565 2,565 2,565
Paid-in equity holders 4,058 4,582 4,058 4,058 4,582
Ordinary shareholders 41,707 41,462 41,707 42,105 41,462
================================= =========== =========== =========== ============ ===========
49,093 49,404 49,093 49,474 49,404
================================= =========== =========== =========== ============ ===========
Notes:
(1) Paid-in equity reclassified to liabilities as a result of the call of RBS
Capital Trust D in March 2017 (redeemed in June 2017) and the call of US$564
million and CAD321 million EMTN notes in August 2017 (redeemed in October
2017).
(2) AT1 capital notes totalling GBP2.0 billion issued in August 2016.
(3) On 15 June 2017, the Court of Session approved a reduction of RBSG plc capital
so that the amounts which stood to the credit of share premium account and
capital redemption reserve were transferred to retained earnings.
(4) Nil tax impact.
(5) During 2017, non-cumulative US dollar preference shares recorded as debt
were redeemed at their original issue price of US$1.1 billion. The nominal
value of GBP0.3 million has been credited to the capital redemption reserve;
share premium increased by GBP0.7 billion in respect of the premium received
on issue, with a corresponding decrease in retained earnings. During 2016,
non-cumulative US dollar preference shares were redeemed at their original
price of US$1.5 billion. The nominal value of GBP0.3 million was transferred
from share capital to capital redemption reserve and ordinary owners equity
was reduced by GBP0.4 billion in respect of the movement in exchange rates
since issue.
Condensed consolidated cash flow statement for the period ended 31 December 2017
Year ended
========================
31 December 31 December
2017 2016
GBPm GBPm
===================================================== =========== ===========
Operating activities
Operating profit/(loss) before tax 2,239 (4,082)
Adjustments for non-cash items (5,125) (7,810)
===================================================== =========== ===========
Net cash outflow from trading activities (2,886) (11,892)
Changes in operating assets and liabilities 42,147 8,413
===================================================== =========== ===========
Net cash flows from operating activities before
tax 39,261 (3,479)
Income taxes paid (520) (171)
===================================================== =========== ===========
Net cash flows from operating activities 38,741 (3,650)
Net cash flows from investing activities (6,482) (4,359)
Net cash flows from financing activities (8,208) (5,107)
Effects of exchange rate changes on cash and cash
equivalents (16) 8,094
===================================================== =========== ===========
Net increase/(decrease) in cash and cash equivalents 24,035 (5,022)
Cash and cash equivalents at beginning of year 98,570 103,592
===================================================== =========== ===========
Cash and cash equivalents at end of year 122,605 98,570
===================================================== =========== ===========
Notes
1. Basis of preparation
The condensed consolidated financial statements should be read in conjunction with RBS's 2017 Annual Report and Accounts which were prepared in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board (IASB) and interpretations issued by the IFRS Interpretations Committee of the IASB as adopted by the European Union (EU) (together IFRS).
Accounting policies
Ahead of adopting IFRS 9 Financial Instruments from 1 January 2018 RBS has adopted the provisions in respect of the presentation of gains and losses on financial liabilities designated as at fair value through profit or loss from 1 January 2017. Accordingly, a loss of GBP126 million has been reported in the consolidated statement of other comprehensive income in 2017 instead of in the consolidated income statement. Comparatives have not been restated, however, in 2016 a gain of GBP154 million was included in the consolidated income statement. Own credit adjustments on financial liabilities held-for-trading will continue to be recognised in the consolidated income statement, a loss of GBP69 million was reported in 2017 (2016 - gain of GBP26 million).
Apart from the above RBS's principal accounting policies are as set out on pages 251 to 259 of the 2017 Annual Report and Accounts. Other amendments to IFRS effective for 2017 have not had a material effect on RBS's 2017 results.
Critical accounting policies and key sources of estimation uncertainty
The judgements and assumptions that are considered to be the most important to the portrayal of RBS's financial condition are those relating to goodwill, provisions for liabilities, deferred tax, loan impairment provisions and fair value of financial instruments. These critical accounting policies and judgements are described on pages 259 to 261 of RBS's 2017 Annual Report and Accounts.
Going concern
Having reviewed RBS's forecasts, projections and other relevant evidence, the directors have a reasonable expectation that RBS will continue in operational existence for the foreseeable future. Accordingly, the results for the period ended 31 December 2017 have been prepared on a going concern basis.
2. Pensions
As at 31 December 2017, the Main scheme had an unrecognised surplus reflected by a ratio of assets to liabilities of c.120% under IAS 19 valuation principles. The surplus is unrecognised because the trustee's power to enhance member benefits could consume that surplus meaning that RBS does not control its ability to realise an asset. The existence of the asset, albeit unrecognised, limits RBS's exposure to changes in actuarial assumptions and investment performance. See Note 4 on the 2017 Annual Report and Accounts for further details.
Notes
3. Provisions for liabilities and charges
Payment Other Residential Litigation
protection customer mortgage and other
insurance Other
(1) redress backed securities regulatory (2) Total
GBPm GBPm GBPm GBPm GBPm GBPm
============================= ========== ========= ================= ========== ===== =======
At 1 January 2017 1,253 1,105 6,752 1,918 1,808 12,836
Currency translation
and other movements - (1) (114) (13) 10 (118)
Charge to income statement - - - 32 204 236
Releases to income statement - (2) - (3) (39) (44)
Provisions utilised (78) (99) - (950) (164) (1,291)
============================= ========== ========= ================= ========== ===== =======
At 31 March 2017 1,175 1,003 6,638 984 1,819 11,619
============================= ========== ========= ================= ========== ===== =======
Currency translation
and other movements - 5 (237) (17) 38 (211)
Charge to income statement - 55 222 59 182 518
Releases to income statement - (38) - (4) (96) (138)
Provisions utilised (81) (114) (44) (113) (209) (561)
============================= ========== ========= ================= ========== ===== =======
At 30 June 2017 1,094 911 6,579 909 1,734 11,227
============================= ========== ========= ================= ========== ===== =======
Currency translation
and other movements - 1 (159) (4) (14) (176)
Charge to income statement - 1 - 105 118 224
Releases to income statement - (1) - (2) (1) (4)
Provisions utilised
(3) (115) (84) (3,588) (221) (154) (4,162)
============================= ========== ========= ================= ========== ===== =======
At 30 September 2017 979 828 2,832 787 1,683 7,109
============================= ========== ========= ================= ========== ===== =======
Currency translation
and other movements - (1) (31) 3 1 (28)
Charge to income statement 175 172 492 84 499 1,422
Releases to income statement - (13) (50) (147) (73) (283)
Provisions utilised (101) (116) - (86) (160) (463)
============================= ========== ========= ================= ========== ===== =======
At 31 December 2017 1,053 870 3,243 641 1,950 7,757
============================= ========== ========= ================= ========== ===== =======
Notes:
(1) To reflect the increased volume of complaints following the
FCA's introduction of an August 2019 PPI timebar as outlined
in FCA announcement CP17/3 and the introduction of new Plevin
(unfair commission) complaint handling rules, RBS increased
its provision for PPI by GBP175m in 2017.
(2) The Group recognised a GBP750 million provision in 2016 as
a consequence of the announcement that HM Treasury is seeking
a revised package of remedies that would conclude its remaining
State Aid commitments. An additional charge of GBP50 million
was taken in Q2 2017 following further revisions to the package,
taking the total provision to GBP800 million.
(3) Q3 2017 utilisation includes the $4.75 billion payment made
following the settlement reached between RBS and the Federal
Housing Finance Agency in relation to RBS's issuance and underwriting
of RMBS in the US.
There are uncertainties as to the eventual cost of redress in relation to certain of the provisions contained in the table above. Assumptions relating to these are inherently uncertain and the ultimate financial impact may be different from the amount provided.
Notes
4. Material developments in litigation, investigations and reviews
RBS and certain members of the Group are party to legal proceedings and the subject of investigation and other regulatory and governmental action ("Matters") in the United Kingdom (UK), the United States (US), the European Union (EU) and other jurisdictions. Note 31 in the RBS 2017 Annual Report and Accounts, issued on 23 February 2018 and available at rbs.com/results ("Note 31"), discusses the Matters in which RBS is currently involved and developments to those matters. Other than the Matters discussed in Note 31, no member of the Group is or has been involved in governmental, legal, or regulatory proceedings (including those which are pending or threatened) that are expected to be material, individually or in aggregate. Recent developments in the Matters identified in Note 31 that have occurred since the Q3 2017 results were issued on 27 October 2017, include, but are not limited to, those set out below.
Litigation
Interest rate hedging products litigation
As previously disclosed, RBS is dealing with a large number of active litigation claims in relation to the sale of interest rate hedging products (IRHPs). In general claimants allege that the relevant interest rate hedging products were mis-sold to them, with some also alleging RBS made misrepresentations in relation to LIBOR. Property Alliance Group (PAG) v The Royal Bank of Scotland plc was the leading case before the English High Court involving both IRHP mis-selling and LIBOR misconduct allegations. The amount claimed was GBP34.8 million and the trial ended in October 2016. In December 2016, the court dismissed all of PAG's claims. PAG appealed that decision, and the appeal hearing closed on 8 February 2018. The judgment is awaited. The decision (subject to the appeal by PAG) may have significance to other similar LIBOR-related cases currently pending in the English courts, some of which involve substantial amounts.
The case of London Bridge Holdings Ltd and others v RBS plc remains stayed pending the outcome of the PAG appeal. The sum claimed in that case is GBP446.7 million.
As previously disclosed, In addition to claims alleging that IRHPs were mis-sold, RBS has received a number of claims involving allegations that it breached a legal duty of care in its conduct of the FCA redress programme. These claims have been brought by customers who are dissatisfied with redress offers made to them through the FCA redress programme. The claims followed a preliminary decision against another UK bank. RBS has since been successful in opposing an application by a customer to amend its pleadings to include similar claims against RBS, on the basis that the bank does not owe a legal duty of care to customers in carrying out the FCA review. An appeal of that decision was dismissed in July 2017 and permission to further appeal was refused by the UK Supreme Court in December 2017.
Investigations and reviews
RMBS and other securitised products investigations
As previously disclosed and as noted in Note 31 in the 2017 RBS Annual Report and Accounts, in the US, RBS is involved in reviews, investigations and proceedings by federal and state governmental law enforcement and other agencies and self-regulatory organisations, including, among others, ongoing active investigations by the US Department of Justice and several state attorneys general relating primarily to due diligence on and disclosure related to loans purchased for, or otherwise included in, securitisations and related disclosures.
As at 31 December 2017, the total aggregate of provisions in relation to certain of the RMBS investigations and RMBS litigation matters (set out under "Litigation, investigations and reviews" in Note 31) was GBP3.2 billion (US$4.4 billion).
RBS continues to cooperate with the DOJ and with certain state attorneys general in their investigations of RMBS matters. The duration, timing for resolution and outcome of these investigations and RMBS litigation matters remain uncertain, including in respect of whether settlements for all or any of such matters may be reached. Further substantial provisions and costs may be recognised and, depending on the final outcome, other adverse consequences may occur as described above and in the Risk Factor relating to legal, regulatory and governmental actions and investigations set out on page 372 of the Annual Report and Accounts.
In December 2017, RBS Financial Products Inc. agreed to pay US$125 million to settle the RMBS investigation of the California Attorney General. Payment has been made from a previously established provision. RBS is in advanced discussions with the New York Attorney General to resolve its investigation, although there is no certainty that any settlement will be reached.
Notes
4. Material developments in litigation, investigations and reviews continued
FCA review of RBS's treatment of SMEs
As previously disclosed, the FCA is conducting a review into the treatment of small and medium enterprise (SME) customers in RBS's former Global Restructuring Group (GRG) between 2008 and 2013.
The FCA published its final summary of the Skilled Person's report on 28 November 2017. The UK House of Commons Treasury Select Committee, seeking to rely on Parliamentary powers, published the full version of the Skilled Person's report on 20 February 2018.
FCA investigation into RBS plc's compliance with the Money Laundering Regulations 2007
As previously disclosed, on 21 July 2017, the FCA notified RBS that it was undertaking an investigation into RBS plc's compliance with the Money Laundering Regulations 2007 in relation to certain customers. Following amendment to the scope of the investigation, there are currently three areas under review: (1) compliance with Money Laundering Regulations in respect of Money Service Business customers; (2) compliance with the Terrorism Act 2000 in relation to sanctions screening; and (3) the Suspicious Transactions regime in relation to the events surrounding a particular customer. The investigations in all three areas are assessing both criminal and civil culpability. RBS is cooperating with the investigations.
UK retail banking
On 19 December 2017, the UK Competition & Markets Authority (CMA) published directions for RBS and other four other banks, which set out revised implementation dates for the delivery of certain obligations relating to open banking under the Retail Banking Market Investigation Order 2017. On 29 January 2018 the CMA published separate directions for RBS, which set out revised implementation dates for the delivery of certain obligations requiring personal current account overdraft alerts to be sent to customers under the Order.
Notes
5. Related party transactions
UK Government
The UK Government and bodies controlled or jointly controlled by the UK Government and bodies over which it has significant influence are related parties of the Group. The Group enters into transactions with many of these bodies on an arm's length basis.
Bank of England facilities
In the ordinary course of business, the Group may from time to time access market-wide facilities provided by the Bank of England.
The Group's other transactions with the UK Government include the payment of taxes, principally UK corporation tax and value added tax; national insurance contributions; local authority rates; and regulatory fees and levies (including the bank levy and FSCS levies).
Interests in associates
Transactions with associates have given rise to the following:
2017 2016
GBPm GBPm
-------------------- ----- -----
Loans and advances 130 156
Customer deposits 111 64
Total income 28 30
Operating expenses 23 8
-------------------- ----- -----
Other related parties
(a) In their roles as providers of finance, Group companies provide development and other types of capital support to businesses. These investments are made in the normal course of business and on arm's length terms. In some instances, the investment may extend to ownership or control over 20% or more of the voting rights of the investee company. However, these investments are not considered to give rise to transactions of a materiality requiring disclosure under IAS 24.
(b) The Group recharges The Royal Bank of Scotland Group Pension Fund with the cost of administration services incurred by it. The amounts involved are not material to the Group.
Full details of the Group's related party transactions for the year ended 31 December 2017 are included in the 2017 Annual Report and Accounts.
6. Post balance sheet events
Other than matters disclosed, there have been no further significant events between 31 December 2017 and the date of approval of this announcement.
Statement of directors' responsibilities
The responsibility statement below has been prepared in connection with the Group's full Annual Report and Accounts for the year ended 31 December 2017.
We, the directors listed below, confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and
-- the Strategic Report and Directors' report (incorporating the Business review) include a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
By order of the Board
Howard Davies Ross McEwan Ewen Stevenson Chairman Chief Executive Chief Financial Officer
22 February 2018
Board of directors
Chairman Executive directors Non-executive directors
Howard Davies Ross McEwan Frank Dangeard
Ewen Stevenson Alison Davis
Morten Friis
Robert Gillespie
John Hughes
Penny Hughes
Yasmin Jetha
Brendan Nelson
Sheila Noakes
Mike Rogers
Mark Seligman
Dr Lena Wilson
Forward-looking statements
Cautionary statement regarding forward-looking statements
Certain sections in this document contain 'forward-looking statements' as that term is defined in the United States Private Securities Litigation Reform Act of 1995, such as statements that include the words 'expect', 'estimate', 'project', 'anticipate', 'commit', 'believe', 'should', 'intend', 'plan', 'could', 'probability', 'risk', 'Value-at-Risk (VaR)', 'target', 'goal', 'objective', 'may', 'endeavour', 'outlook', 'optimistic', 'prospects' and similar expressions or variations on these expressions.
In particular, this document includes forward-looking statements relating, but not limited to: future profitability and performance, including financial performance targets such as return on tangible equity; cost savings and targets, including cost:income ratios; litigation and government and regulatory investigations, including the timing and financial and other impacts thereof; structural reform and the implementation of the UK ring-fencing regime; the implementation of RBS's transformation programme, including the further restructuring of the NatWest Markets franchise; the satisfaction of the Group's residual EU State Aid obligations; the continuation of RBS's balance sheet reduction programme, including the reduction of risk-weighted assets (RWAs) and the timing thereof; capital and strategic plans and targets; capital, liquidity and leverage ratios and requirements, including CET1 Ratio, RWA equivalents (RWAe), Pillar 2 and other regulatory buffer requirements, minimum requirement for own funds and eligible liabilities, and other funding plans; funding and credit risk profile; capitalisation; portfolios; net interest margin; customer loan and income growth; the level and extent of future impairments and write-downs, including with respect to goodwill; restructuring and remediation costs and charges; future pension contributions; RBS's exposure to political risks, operational risk, conduct risk, cyber and IT risk and credit rating risk and to various types of market risks, including as interest rate risk, foreign exchange rate risk and commodity and equity price risk; customer experience including our Net Promoter Score (NPS); employee engagement and gender balance in leadership positions.
Limitations inherent to forward-looking statements
These statements are based on current plans, estimates, targets and projections, and are subject to significant inherent risks, uncertainties and other factors, both external and relating to the Group's strategy or operations, which may result in the Group being unable to achieve the current targets, predictions, expectations and other anticipated outcomes expressed or implied by such forward-looking statements. In addition certain of these disclosures are dependent on choices relying on key model characteristics and assumptions and are subject to various limitations, including assumptions and estimates made by management. By their nature, certain of these disclosures are only estimates and, as a result, actual future gains and losses could differ materially from those that have been estimated. Accordingly, undue reliance should not be placed on these statements. Forward-looking statements speak only as of the date we make them and we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Group's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
Important factors that could affect the actual outcome of the forward-looking statements
We caution you that a large number of important factors could adversely affect our results or our ability to implement our strategy, cause us to fail to meet our targets, predictions, expectations and other anticipated outcomes or affect the accuracy of forward-looking statements we describe in this document, including in the risk factors and other uncertainties set out in the Group's 2017 Annual Report and other risk factors and uncertainties discussed in this document. These include the significant risks for RBS presented by the outcomes of the legal, regulatory and governmental actions and investigations that RBS is or may be subject to and any resulting material adverse effect on RBS of unfavourable outcomes and the timing thereof (including where resolved by settlement); economic, regulatory and political risks, including as may result from the uncertainty arising from Brexit and from the outcome of general elections in the UK and changes in government policies; RBS's ability to satisfy its residual EU State Aid obligations and the timing thereof; RBS's ability to successfully implement the significant and complex restructuring required to be undertaken in order to implement the UK ring-fencing regime and related costs; RBS's ability to successfully implement the various initiatives that are comprised in its restructuring and transformation programme, particularly the proposed further restructuring of the NatWest Markets franchise, the balance sheet reduction programme and its significant cost-saving initiatives and whether RBS will be a viable, competitive, customer focused and profitable bank especially after its restructuring and the implementation of the UK ring-fencing regime; the dependence of the Group's operations on its IT systems; the exposure of RBS to cyber-attacks and its ability to defend against such attacks; RBS's ability to achieve its capital, funding, liquidity and leverage requirements or targets which will depend in part on RBS's success in reducing the size of its business and future profitability as well as developments which may impact its CET1 capital including additional litigation or conduct costs, additional pension contributions, further impairments or accounting changes; ineffective management of capital or changes to regulatory requirements relating to capital adequacy and liquidity or failure to pass mandatory stress tests; RBS's ability to access sufficient sources of capital, liquidity and funding when required; changes in the credit ratings of RBS, RBS entities or the UK government; declining revenues resulting from lower customer retention and revenue generation in light of RBS's strategic refocus on the UK; as well as increasing competition from new incumbents and disruptive technologies.
Forward-looking statements
In addition, there are other risks and uncertainties that could adversely affect our results, ability to implement our strategy, cause us to fail to meet our targets or the accuracy of forward-looking statements in this document. These include operational risks that are inherent to RBS's business and will increase as a result of RBS's significant restructuring and transformation initiatives being concurrently implemented; the potential negative impact on RBS's business of global economic and financial market conditions and other global risks, including risks arising out of geopolitical events and political developments; the impact of a prolonged period of low interest rates or unanticipated turbulence in interest rates, yield curves, foreign currency exchange rates, credit spreads, bond prices, commodity prices, equity prices; basis, volatility and correlation risks; the extent of future write-downs and impairment charges caused by depressed asset valuations; deteriorations in borrower and counterparty credit quality; heightened regulatory and governmental scrutiny (including by competition authorities) and the increasingly regulated environment in which RBS operates as well as divergences in regulatory requirements in the jurisdictions in which RBS operates; the risks relating to RBS's IT systems or a failure to protect itself and its customers against cyber threats, reputational risks; risks relating to increased pension liabilities and the impact of pension risk on RBS's capital position, including on any requisite management buffer; risks relating to the failure to embed and maintain a robust conduct and risk culture across the organisation or if its risk management framework is ineffective; RBS's ability to attract and retain qualified personnel; limitations on, or additional requirements imposed on, RBS's activities as a result of HM Treasury's investment in RBS; the value and effectiveness of any credit protection purchased by RBS; risks relating to the reliance on valuation, capital and stress test models and any inaccuracies resulting therefrom or failure to accurately reflect changes in the micro and macroeconomic environment in which RBS operates, risks relating to changes in applicable accounting policies or rules which may impact the preparation of RBS's financial statements or adversely impact its capital position; the impact of the recovery and resolution framework and other prudential rules to which RBS is subject; the application of stabilisation or resolution powers in significant stress situations; contribution to relevant compensation schemes; the execution of the run-down and/or sale of certain portfolios and assets; the recoverability of deferred tax assets by the Group; and the success of RBS in managing the risks involved in the foregoing.
The forward-looking statements contained in this document speak only as at the date hereof, and RBS does not assume or undertake any obligation or responsibility to update any forward-looking statement to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
The information, statements and opinions contained in this document do not constitute a public offer under any applicable legislation or an offer to sell or solicit of any offer to buy any securities or financial instruments or any advice or recommendation with respect to such securities or other financial instruments.
Presentation of information
In this document, 'RBSG plc' or the 'parent company' refers to The Royal Bank of Scotland Group plc, and 'RBS' or the 'Group' refers to RBSG plc and its subsidiaries.
Financial information contained in this document does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006 ('the Act'). The statutory accounts for the year ended 31 December 2016 have been filed with the Registrar of Companies and those for the year ended 31 December 2017 will be filed with the Registrar of Companies following the company's Annual General Meeting. The report of the auditor on those statutory accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Act.
The condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed consolidated balance sheet, condensed consolidated statement of changes in equity, condensed consolidated cash flow statement and related notes presented on pages 33 to 44 inclusive are presented on a statutory basis as described in Note 1.
Key operating indicators
As described in Note 1 on 4 40, RBS prepares its financial statements in accordance with IFRS as issued by the IASB which constitutes a body of generally accepted accounting principles (GAAP). This document contains a number of adjusted or alternative performance measures, also known as non-GAAP financial measures. These measures exclude certain items which management believe are not representative of the underlying performance of the business and which distort period-on-period comparison. These measures include:
-- 'Adjusted' measures of financial performance, principally operating
performance before: own credit adjustments; gain or loss on
redemption of own debt; strategic disposals; restructuring costs
and litigation and conduct costs;
-- Performance, funding and credit metrics such as 'return on tangible
equity', 'adjusted return on tangible equity' and related RWA
equivalents incorporating the effect of capital deductions (RWAes),
total assets excluding derivatives (funded assets), net interest
margin (NIM) adjusted for items designated at fair value through
profit or loss (non-statutory NIM), cost:income ratio, loan:deposit
ratio and REIL/impairment provision ratios. These are internal
metrics used to measure business performance;
-- Personal & Business Banking (PBB) franchise results, combining
the reportable segments of UK Personal & Business Banking (UK
PBB) and Ulster Bank RoI, Commercial & Private Banking (CPB)
franchise results, combining the reportable segments of Commercial
Banking and Private Banking and 'core businesses' results combining
PBB, CPB, RBS International (RBSI) and NatWest Markets results
which are presented to provide investors with a summary of the
Group's business performance; and
-- Cost savings progress and 2017 target calculated using operating
expenses excluding litigation and conduct costs, restructuring
costs and the VAT recoveries.
Presentation of operating performance from Q1 2018
As previously indicated, and reflecting the progress RBS has made in resolving its legacy issues and becoming a simpler bank, from Q1 2018 financial performance and key performance indicators will no longer be reported on an 'adjusted' basis. We will continue to provide detail of notable items on memorandum lines where they materially distort comparisons with prior periods.
Segmental reorganisation and business transfers
RBS continues to deliver on its plan to build a strong, simple and fair bank for both customers and shareholders. To support this, and in preparation for the UK ring-fencing regime, the previously reported operating segments were realigned in Q4 2017 and a number of business transfers completed.
Segmental reorganisation
The previously reported operating segments are now realigned and comparatives have been re-presented as follows:
-- The former Williams & Glyn reportable operating segment has been integrated into the UK PBB reportable segment;
-- The former Capital Resolution reportable operating segment has been integrated into the NatWest Markets reportable segment, with the exception of the costs in relation to the RMBS claims, which have been transferred to the Central items & other reportable segment;
-- The RBSI reportable operating segment is no longer presented within the CPB franchise.
Business transfers
Unless otherwise stated on 1 October 2017 the following changes were made to RBS's businesses, which impacts its financial reporting but where comparatives have not been re-presented:
-- Shipping and other activities, which were formerly in the Capital Resolution reportable operating segment, were transferred from the NatWest Markets reportable operating segment to the Commercial Banking reportable operating segment.
-- UK PBB Collective Investment Funds (CIFL) business was transferred to the Private Banking reportable operating segment in order to better serve customers.
-- The RBS International (RBSI) reportable operating segment was aligned to the legal entity The Royal Bank of Scotland International (Holdings) Limited. This predominantly involved transfers from the Private Banking reportable operating segment, and Services and Functions within Central items & other in preparation for the implementation of the UK ring-fencing regime.
-- Commercial Banking whole business securitisations and relevant financial institutions (RFI) were transferred to NatWest Markets during December 2017. RFIs are prohibited from being within the ring-fence due to their nature and exposure to global financial markets. The move is in preparation for the implementation of the UK ring-fencing regime.
Presentation of information
Segmental reorganisation and business transfers continued
Reportable operating segments
Following the changes above the reportable operating segments are as follows, for full business descriptions see page 110 of the Report of the directors and Note 37 in the 2017 Annual Report and Accounts:
Franchise Reportable operating segment
----------------------------------- -------------------------------
Personal & Business Banking (PBB) UK Personal & Business Banking
(UK PBB)
-----------------------------------
Ulster Bank RoI
----------------------------------- -------------------------------
Commercial & Private Banking (CPB) Commercial Banking
-----------------------------------
Private Banking
----------------------------------- -------------------------------
Other reportable segments RBS International (RBSI)
-----------------------------------
NatWest Markets
-----------------------------------
Central items & other
----------------------------------- -------------------------------
Contacts
Analyst enquiries: Matt Waymark Investor Relations +44 (0) 207 672 1758
Media enquiries: RBS Press Office +44 (0) 131 523 4205
Analyst and investor presentation Fixed Income Web cast and dial in details
-------------- --------------------------------- ----------------------- ------------------------------------------
Date: Friday 23 February 2018 Friday 23 February 2018 www.rbs.com/results
Time: 9:30 am UK time 1:30 pm UK time International - +44 (0) 20 3009 5755
Conference ID: 3294479 8735879 UK Free Call - 0800 279 6637
US Local Dial-In, New York - 1 646 517
5063
-------------- --------------------------------- ----------------------- ------------------------------------------
Available on www.rbs.com/results
-- Announcement and slides
-- Annual Report and Accounts 2017
-- A financial supplement containing income statement, balance sheet
and segment performance for the nine quarters ended 31 December
2017
-- Pillar 3 Report 2017
-- IFRS 9 Transition Report
Appendix
Segmental income statement reconciliations
Segmental income statement reconciliations
PBB CPB Central
================= ===================
items
Ulster Commercial Private RBS Natwest & Total
UK PBB Bank RoI Banking Banking International Markets other RBS
Year ended 31 December 2017 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=============================== ======= ======== ========== ======= ============= ======= ======= ========
Income statement
Total income - statutory 6,477 604 3,484 678 389 1,050 451 13,133
Own credit adjustments - 3 - - - 66 - 69
Loss on redemption of own debt - - - - - - 7 7
Strategic disposals - - - - - (26) (321) (347)
=============================== ======= ======== ========== ======= ============= ======= ======= ========
Total income - adjusted 6,477 607 3,484 678 389 1,090 137 12,862
=============================== ======= ======== ========== ======= ============= ======= ======= ========
Operating expenses - statutory (3,829) (676) (2,014) (529) (219) (2,201) (933) (10,401) Restructuring costs - direct 79 27 48 20 5 319 1,067 1,565 - indirect 382 29 119 25 4 117 (676) - Litigation and conduct costs 210 169 33 39 8 237 589 1,285 =============================== ======= ======== ========== ======= ============= ======= ======= ======== Operating expenses - adjusted (3,158) (451) (1,814) (445) (202) (1,528) 47 (7,551) =============================== ======= ======== ========== ======= ============= ======= ======= ======== Impairment (losses)/releases (235) (60) (362) (6) (3) 174 (1) (493) =============================== ======= ======== ========== ======= ============= ======= ======= ======== Operating profit/(loss) - statutory 2,413 (132) 1,108 143 167 (977) (483) 2,239 =============================== ======= ======== ========== ======= ============= ======= ======= ======== Operating profit/(loss) - adjusted 3,084 96 1,308 227 184 (264) 183 4,818 =============================== ======= ======== ========== ======= ============= ======= ======= ======== Additional information Return on equity (1) 23.7% (5.0%) 6.6% 6.4% 11.2% (9.0%) nm 2.2% Return on equity - adjusted (1,2) 30.7% 3.6% 8.2% 11.3% 12.6% (3.7%) nm 8.8% Cost:income ratio (3) 59.1% 111.9% 56.0% 78.0% 56.3% nm nm 79.0% Cost:income ratio - adjusted (2,3) 48.8% 74.3% 50.0% 65.6% 51.9% 140.2% nm 58.2% =============================== ======= ======== ========== ======= ============= ======= ======= ======== Year ended 31 December 2016 =============================== ======= ======== ========== ======= ============= ======= ======= ======== Income statement Total income - statutory 6,127 576 3,415 657 374 1,212 229 12,590 Own credit adjustments - (3) - - - (187) 10 (180) Loss on redemption of own debt - - - - - - 126 126 Strategic disposals - - - - - 81 (245) (164) =============================== ======= ======== ========== ======= ============= ======= ======= ======== Total income - adjusted 6,127 573 3,415 657 374 1,106 120 12,372 =============================== ======= ======== ========== ======= ============= ======= ======= ======== Operating expenses - statutory (4,276) (669) (2,467) (549) (174) (2,824) (5,235) (16,194) Restructuring costs - direct 46 38 25 7 2 75 1,913 2,106 - indirect 198 2 83 30 3 115 (431) - Litigation and conduct costs 634 172 423 1 - 550 4,088 5,868 Operating expenses - adjusted (3,398) (457) (1,936) (511) (169) (2,084) 335 (8,220) =============================== ======= ======== ========== ======= ============= ======= ======= ======== Impairment (losses)/releases (125) 113 (206) 3 (10) (253) - (478) =============================== ======= ======== ========== ======= ============= ======= ======= ======== Operating profit/(loss) - statutory 1,726 20 742 111 190 (1,865) (5,006) (4,082) =============================== ======= ======== ========== ======= ============= ======= ======= ======== Operating profit/(loss) - adjusted 2,604 229 1,273 149 195 (1,231) 455 3,674 =============================== ======= ======== ========== ======= ============= ======= ======= ======== Additional information Return on equity (1) 16.2% 0.7% 4.1% 5.6% 13.8% (12.5%) nm (17.9%) Return on equity - adjusted (1,2) 25.1% 8.4% 8.4% 7.8% 14.2% (8.7%) nm 1.6% Cost:income ratio (3) 69.8% 116.1% 71.0% 83.6% 46.5% nm nm 129.0% Cost:income ratio - adjusted (2,3) 55.5% 79.8% 54.8% 77.8% 45.2% 188.4% nm 66.0% =============================== ======= ======== ========== ======= ============= ======= ======= ======== For notes refer to page 3 of this appendix.
Segmental income statement reconciliations
PBB CPB Central
================= ===================
items
Ulster Commercial Private RBS NatWest & Total
UK PBB Bank RoI Banking Banking International Markets other RBS
Quarter ended 31 December 2017 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================================ ======= ======== ========== ======= ============= ======= ======= =======
Income statement
Total income - statutory 1,548 161 806 191 97 200 54 3,057
Own credit adjustments - - - - - (9) - (9)
Strategic disposals - - - - - (26) (165) (191)
================================ ======= ======== ========== ======= ============= ======= ======= =======
Total income - adjusted 1,548 161 806 191 97 165 (111) 2,857
================================ ======= ======== ========== ======= ============= ======= ======= =======
Operating expenses - statutory (1,266) (254) (575) (194) (66) (583) (468) (3,406)
Restructuring costs - direct 55 2 6 19 3 129 317 531
- indirect 198 2 23 9 - 13 (245) -
Litigation and conduct costs 197 135 27 39 - 51 315 764
================================ ======= ======== ========== ======= ============= ======= ======= =======
Operating expenses - adjusted (816) (115) (519) (127) (63) (390) (81) (2,111)
================================ ======= ======== ========== ======= ============= ======= ======= =======
Impairment (losses)/releases (60) (81) (117) (2) - 26 - (234)
================================ ======= ======== ========== ======= ============= ======= ======= =======
Operating profit/(loss) -
statutory 222 (174) 114 (5) 31 (357) (414) (583)
================================ ======= ======== ========== ======= ============= ======= ======= =======
Operating profit/(loss) -
adjusted 672 (35) 170 62 34 (199) (192) 512
================================ ======= ======== ========== ======= ============= ======= ======= =======
Additional information
Return on equity (1) 7.8% (26.5%) 1.3% (2.9%) 9.2% (14.0%) nm (6.7%)
Return on equity - adjusted
(1,2) 26.2% (5.3%) 3.1% 12.1% 10.4% (8.7%) nm 4.0%
Cost:income ratio (3) 81.8% 157.8% 70.0% 101.6% 68.0% nm nm 111.5%
Cost:income ratio - adjusted
(2,3) 52.7% 71.4% 62.8% 66.5% 64.9% nm nm 73.6%
================================ ======= ======== ========== ======= ============= ======= ======= =======
Quarter ended 30 September 2017
================================ ======= ======== ========== ======= ============= ======= ======= =======
Income statement
Total income - statutory 1,757 150 928 166 97 20 39 3,157
Own credit adjustments - - - - - 5 - 5
================================ ======= ======== ========== ======= ============= ======= ======= =======
Total income - adjusted 1,757 150 928 166 97 25 39 3,162
================================ ======= ======== ========== ======= ============= ======= ======= =======
Operating expenses - statutory (819) (129) (443) (103) (59) (526) (64) (2,143)
Restructuring costs - direct 1 1 2 1 2 29 208 244
- indirect 47 8 19 2 - 28 (104) -
Litigation and conduct costs - 1 2 - 8 102 12 125 Operating expenses - adjusted (771) (119) (420) (100) (49) (367) 52 (1,774) ================================ ======= ======== ========== ======= ============= ======= ======= ======= Impairment (losses)/releases (78) 10 (151) 3 2 71 - (143) ================================ ======= ======== ========== ======= ============= ======= ======= ======= Operating profit/(loss) - statutory 860 31 334 66 40 (435) (25) 871 ================================ ======= ======== ========== ======= ============= ======= ======= ======= Operating profit/(loss) - adjusted 908 41 357 69 50 (271) 91 1,245 ================================ ======= ======== ========== ======= ============= ======= ======= ======= Additional information Return on equity (1) 34.2% 4.6% 8.6% 13.2% 10.4% (15.4%) nm 4.5% Return on equity - adjusted (1,2) 36.2% 6.1% 9.3% 13.8% 13.6% (10.3%) nm 8.2% Cost:income ratio (3) 46.6% 86.0% 45.7% 62.0% 60.8% nm nm 67.5% Cost:income ratio - adjusted (2,3) 43.9% 79.3% 43.1% 60.2% 50.5% nm nm 55.6% ================================ ======= ======== ========== ======= ============= ======= ======= ======= For notes refer to next page.
Segmental income statement reconciliations
PBB CPB Central
================= ===================
items
Ulster Commercial Private RBS NatWest & Total
UK PBB Bank RoI Banking Banking International Markets other RBS
Quarter ended 31 December 2016 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================================== ======= ======== ========== ======= ============= ======= ======= =======
Income statement
Total income - statutory 1,556 137 867 161 96 (8) 407 3,216
Own credit adjustments - - - - - 37 77 114
Gain on redemption of own debt - - - - - - (1) (1)
================================== ======= ======== ========== ======= ============= ======= ======= =======
Total income - adjusted 1,556 137 867 161 96 29 483 3,329
================================== ======= ======== ========== ======= ============= ======= ======= =======
Operating expenses - statutory (1,139) (226) (1,009) (159) (64) (1,149) (3,608) (7,354)
Restructuring costs - direct 1 6 12 6 1 24 957 1,007
- indirect 50 (2) 34 8 1 30 (121) -
Litigation and conduct costs 214 77 407 (1) 1 581 2,849 4,128
================================== ======= ======== ========== ======= ============= ======= ======= =======
Operating expenses - adjusted (874) (145) (556) (146) (61) (514) 77 (2,219)
================================== ======= ======== ========== ======= ============= ======= ======= =======
Impairment (losses)/releases (27) 47 (83) 8 1 130 (1) 75
================================== ======= ======== ========== ======= ============= ======= ======= =======
Operating profit/(loss) -
statutory 390 (42) (225) 10 33 (1,027) (3,202) (4,063)
================================== ======= ======== ========== ======= ============= ======= ======= =======
Operating profit/(loss) - adjusted 655 39 228 23 36 (355) 559 1,185
================================== ======= ======== ========== ======= ============= ======= ======= =======
Additional information
Return on equity (1) 15.1% (5.8%) (9.1%) 1.6% 8.8% (27.0%) nm (48.2%)
Return on equity - adjusted (1,2) 26.2% 5.4% 5.3% 4.5% 9.8% (10.3%) nm 8.6%
Cost income ratio (3) 73.2% 165.0% 117.1% 98.8% 66.7% nm nm 230.2%
Cost income ratio - adjusted (2,3) 56.2% 105.8% 62.6% 90.7% 63.5% nm nm 66.3%
================================== ======= ======== ========== ======= ============= ======= ======= =======
Notes:
(1) RBS's CET1 target is 13% but for the purposes of computing segmental return on equity (ROE),
to better reflect the differential drivers of capital usage, segmental operating profit after
tax and adjusted for preference dividends is divided by notional equity allocated at different
rates of 14% (Ulster Bank RoI - 11% prior to Q1 2017), 11% (Commercial Banking), 14% (Private
Banking - 15% prior to Q1 2017), 16% (RBS International - 12% prior to November 2017) and 15%
for all other segments, of the monthly average of segmental risk-weighted assets incorporating
the effect of capital deductions (RWAes). RBS Return on equity is calculated using profit for
the period attributable to ordinary shareholders.
(2) Excluding own credit adjustments, (loss)/gain on redemption of own debt, strategic disposals,
restructuring costs and litigation and conduct costs.
(3) Operating lease depreciation included in income (year ended 31 December 2017 - GBP142 million;
year ended December 2016 - GBP152 million; Q4 2017 - GBP35 million; Q3 2017 - GBP35 million;
Q4 2016 - GBP37 million).
Legal Entity Identifier: 2138005O9XJIJN4JPN90
This information is provided by RNS
The company news service from the London Stock Exchange
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