rbs201205046k5.htm
 
FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549

 
 
Report of Foreign Private Issuer
 
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
 
For May 4, 2012
 
Commission File Number: 001-10306

 
The Royal Bank of Scotland Group plc

 
RBS, Gogarburn, PO Box 1000
Edinburgh EH12 1HQ

 
(Address of principal executive offices)
 
 
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
 
Form 20-F X
  
Form 40-F ___
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):_________

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


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


Yes
   ___
No X
 
 
If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ________

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

 
 
 


Risk and balance sheet management
Balance sheet management
 
Capital
The Group aims to maintain an appropriate level of capital to meet its business needs and regulatory requirements. Capital adequacy and risk management are closely aligned. The Group's risk-weighted assets and risk asset ratios, calculated in accordance with Financial Services Authority (FSA) definitions, are set out below.
 
 
 
31 March 
2012 
31 December 
2011 
Risk-weighted assets (RWAs) by risk
£bn 
£bn 
     
Credit risk
332.9 
344.3 
Counterparty risk
56.8 
61.9 
Market risk
61.0 
64.0 
Operational risk
45.8 
37.9 
     
 
496.5 
508.1 
Asset Protection Scheme (APS) relief
(62.2)
(69.1)
     
 
434.3 
439.0 
 
 
Risk asset ratios
% 
% 
     
Core Tier 1
10.8 
10.6 
Tier 1
13.2 
13.0 
Total
14.0 
13.8 
 
 
Key points
 
·
RWAs excluding the effect of APS relief fell by £11.6 billion, largely reflecting the impact of large corporate portfolio deleveraging on credit risk RWAs in UK Corporate and International Banking and continued risk reduction in Non-Core.
   
·
The decreases in counterparty risk (£5.1 billion) and market risk (£3.0 billion) RWAs were primarily in the Markets portfolios in Core and Non-Core.
   
·
Operational risk RWAs, which are based on Group income for the three prior years, increased by £7.9 billion as 2008, when the Group recorded a substantial reduction in income, dropped out of the calculation.
   
·
APS RWA relief declined by £6.9 billion, principally reflecting the £11.0 billion decrease in covered assets to £120.8 billion at 31 March 2012, mainly due to maturities, repayments and run-off.
   
·
The Core Tier 1 APS benefit declined marginally from 90bp to 85bp at 31 March 2012.
 
 


 
Risk and balance sheet management (continued)
Balance sheet management: Capital (continued)
The Group's regulatory capital resources in accordance with FSA definitions were as follows:
 
 
 
31 March 
2012 
£m 
31 December 
2011 
£m 
     
Shareholders' equity (excluding non-controlling interests)
    
Shareholders' equity per balance sheet
73,416 
74,819 
Preference shares - equity
(4,313)
(4,313)
Other equity instruments
(431)
(431)
 
68,672 
70,075 
     
Non-controlling interests
    
Non-controlling interests per balance sheet
1,215 
1,234 
Non-controlling preference shares
(548)
(548)
Other adjustments to non-controlling interests for regulatory purposes
(259)
(259)
 
408 
427 
     
Regulatory adjustments and deductions
    
Own credit
(845)
(2,634)
Unrealised losses on AFS debt securities
547 
1,065 
Unrealised gains on AFS equity shares
(108)
(108)
Cash flow hedging reserve
(921)
(879)
Other adjustments for regulatory purposes
630 
571 
Goodwill and other intangible assets
(14,771)
(14,858)
50% excess of expected losses over impairment provisions (net of tax)
(2,791)
(2,536)
50% of securitisation positions
(1,530)
(2,019)
50% of APS first loss
(2,489)
(2,763)
 
(22,278)
(24,161)
     
Core Tier 1 capital
46,802 
46,341 
     
Other Tier 1 capital
    
Preference shares - equity
4,313 
4,313 
Preference shares - debt
1,064 
1,094 
Innovative/hybrid Tier 1 securities
4,557 
4,667 
 
9,934 
10,074 
     
Tier 1 deductions
    
50% of material holdings
(300)
(340)
Tax on excess of expected losses over impairment provisions
906 
915 
 
606 
575 
     
Total Tier 1 capital
57,342 
56,990 
 


 
Risk and balance sheet management (continued)
Balance sheet management: Capital (continued)
 
 
 
31 March 
2012 
£m 
31 December 
2011 
£m 
     
Qualifying Tier 2 capital
    
Undated subordinated debt
1,817 
1,838 
Dated subordinated debt - net of amortisation
13,561 
14,527 
Unrealised gains on AFS equity shares
108 
108 
Collectively assessed impairment provisions
571 
635 
Non-controlling Tier 2 capital
11 
11 
 
16,068 
17,119 
     
Tier 2 deductions
    
50% of securitisation positions
(1,530)
(2,019)
50% excess of expected losses over impairment provisions
(3,697)
(3,451)
50% of material holdings
(300)
(340)
50% of APS first loss
(2,489)
(2,763)
 
(8,016)
(8,573)
     
Total Tier 2 capital
8,052 
8,546 
     
Supervisory deductions
    
Unconsolidated investments
    
  - Direct Line Group
(4,130)
(4,354)
  - Other investments
(248)
(239)
Other deductions
(212)
(235)
 
(4,590)
(4,828)
     
Total regulatory capital
60,804 
60,708 
 
 
Movement in Core Tier 1 capital
31 March 
2012 
£m 
   
At beginning of the quarter
46,341 
Attributable profit net of movements in fair value of own debt
265 
Foreign currency reserves
(548)
Decrease in non-controlling interests
(19)
Decrease in capital deductions including APS first loss
508 
Decrease in goodwill and other intangible assets
87 
Other movements
168 
   
At end of the quarter
46,802 
 


 
Risk and balance sheet management (continued)
Balance sheet management: Capital: Risk-weighted assets by division
Risk-weighted assets by risk category and division are set out below.
 
 
 
Credit 
risk 
Counterparty 
risk 
Market 
risk 
Operational 
risk 
Gross 
RWAs 
31 March 2012
£bn 
£bn 
£bn 
£bn 
£bn 
           
UK Retail
40.4 
- 
- 
7.8 
48.2 
UK Corporate
68.3 
- 
- 
8.6 
76.9 
Wealth
10.9 
- 
0.1 
1.9 
12.9 
International Banking
37.0 
- 
- 
4.8 
41.8 
Ulster Bank
35.9 
0.7 
0.1 
1.7 
38.4 
US Retail & Commercial
52.8 
0.9 
- 
4.9 
58.6 
           
Retail & Commercial
245.3 
1.6 
0.2 
29.7 
276.8 
Markets
15.0 
36.5 
48.4 
15.7 
115.6 
Other
9.0 
0.2 
- 
1.8 
11.0 
           
Core
269.3 
38.3 
48.6 
47.2 
403.4 
Non-Core
60.6 
18.5 
12.4 
(1.6)
89.9 
           
Group before RFS Holdings MI
329.9 
56.8 
61.0 
45.6 
493.3 
RFS Holdings MI
3.0 
- 
- 
0.2 
3.2 
           
Group
332.9 
56.8 
61.0 
45.8 
496.5 
APS relief
(53.9)
(8.3)
- 
- 
(62.2)
           
Net RWAs
279.0 
48.5 
61.0 
45.8 
434.3 
           
31 December 2011
          
           
UK Retail
41.1 
- 
- 
7.3 
48.4 
UK Corporate
71.2 
- 
- 
8.1 
79.3 
Wealth
10.9 
- 
0.1 
1.9 
12.9 
International Banking
38.9 
- 
- 
4.3 
43.2 
Ulster Bank
33.6 
0.6 
0.3 
1.8 
36.3 
US Retail & Commercial
53.6 
1.0 
- 
4.7 
59.3 
           
Retail & Commercial
249.3 
1.6 
0.4 
28.1 
279.4 
Markets
16.7 
39.9 
50.6 
13.1 
120.3 
Other
9.8 
0.2 
- 
2.0 
12.0 
           
Core
275.8 
41.7 
51.0 
43.2 
411.7 
Non-Core
65.6 
20.2 
13.0 
(5.5)
93.3 
           
Group before RFS Holdings MI
341.4 
61.9 
64.0 
37.7 
505.0 
RFS Holdings MI
2.9 
- 
- 
0.2 
3.1 
           
Group
344.3 
61.9 
64.0 
37.9 
508.1 
APS relief
(59.6)
(9.5)
- 
- 
(69.1)
           
Net RWAs
284.7 
52.4 
64.0 
37.9 
439.0 
 
 


 
Risk and balance sheet management (continued)
Balance sheet management: Liquidity and funding risk
 
Summary
The Group continued to strengthen and de-risk its balance sheet, the benefits of which are reflected in improvements in its strong liquidity and funding metrics.
 
 
·
Short-term wholesale funding excluding derivative collateral declined by £22.7 billion to £79.7 billion, 8% of the funded balance sheet, meeting the Group's medium-term target of less than 10%.
   
·
In light of continued economic uncertainty, the Group has taken a prudent view and maintained a liquidity portfolio of £152.7 billion which is nearly twice short-term wholesale funding. This includes £69.5 billion of central bank cash balances, more than 2.5 times the Group's outstanding commercial paper and certificates of deposit.
   
·
UK Retail deposits, both current and savings accounts, grew strongly, up 2% in Q1 2012. This growth was offset by a seasonal drop-off in deposits across other divisions. As a result, Group customer deposits decreased by 1%.
   
·
The Group loan:deposit ratio improved due to deleveraging and stood at 106% at 31 March 2012 compared with 108% at 31 December 2011 and 116% at 31 March 2011.
 
Funding sources
The table below shows the Group's primary funding sources including deposits in disposal groups and excluding repurchase agreements.
 
 
31 March 2012
  
31 December 2011
 
£m 
% 
  
£m 
% 
           
Deposits by banks
          
  - derivative cash collateral
29,390 
4.4 
  
31,807 
4.6 
  - other deposits
36,428 
5.5 
  
37,307 
5.3 
           
 
65,818 
9.9 
  
69,114 
9.9 
           
Debt securities in issue
          
  - conduit asset backed commercial paper (ABCP)
9,354 
1.4 
  
11,164 
1.6 
  - other commercial paper (CP)
3,253 
0.5 
  
5,310 
0.8 
  - certificates of deposit (CDs)
14,575 
2.2 
  
16,367 
2.4 
  - medium-term notes (MTNs)
90,674 
13.6 
  
105,709 
15.2 
  - covered bonds
10,107 
1.5 
  
9,107 
1.3 
  - securitisations
14,980 
2.2 
  
14,964 
2.1 
           
 
142,943 
21.4 
  
162,621 
23.4 
Subordinated liabilities
25,513 
3.9 
  
26,319 
3.8 
           
Notes issued
168,456 
25.3 
  
188,940 
27.2 
           
Wholesale funding
234,274 
35.2 
  
258,054 
37.1 
           
Customer deposits
          
  - cash collateral
8,829 
1.3 
  
9,242 
1.4 
  - other deposits
423,659 
63.5 
  
427,511 
61.5 
           
Total customer deposits
432,488 
64.8 
  
436,753 
62.9 
           
Total funding
666,762 
100.0 
  
694,807 
100.0 
           
Disposal group deposits included above
          
  - banks
83 
    
1 
  
  - customers
22,281 
    
22,610 
  
           
 
22,364 
    
22,611 
  


 
Risk and balance sheet management (continued)
Balance sheet management: Liquidity and funding risk: Funding sources (continued)
 
 
 
31 March 
2012 
31 December 
2011 
Short-term wholesale funding (STWF) (1)
£bn 
£bn 
     
Bank deposits
32.7 
32.9 
Notes issued (2)
47.0 
69.5 
     
STWF excluding derivative collateral
79.7 
102.4 
Derivative collateral
29.4 
31.8 
     
STWF including derivative collateral
109.1 
134.2 
     
Interbank funding excluding derivative collateral (3)
    
  - bank deposits
36.4 
37.3 
  - bank loans
(19.7)
(24.3)
     
Net interbank funding
16.7 
13.0 
 
Notes:
 
(1)
Short-term balances denote those with a residual maturity of less than one year and includes longer-term instruments that mature within twelve months of the reporting date.
(2)
See page 97 for details.
(3)
Deposits and loans include all maturities.
 
Key points
 
·
Short-term wholesale funding excluding derivative collateral declined by £22.7 billion from £102.4 billion to £79.7 billion, primarily due to the maturity of £15.6 billion of notes issued under the UK Government Credit Guarantee Scheme (CGS). The remaining CGS notes of £5.7 billion will be repaid by May 2012.
   
·
Commercial paper and certificates of deposit declined by £5.7 billion in the quarter and this trend is expected to continue in light of the Group's funding strategy.
   
·
The Group continues to actively diversify its wholesale funding sources through access to both the secured and unsecured wholesale debt markets. During the quarter, the Group raised £2.3 billion of net term wholesale funding. It is not anticipated that there will be any further need to access the public debt markets for term wholesale funding during the remainder of 2012 due to the continuing deleveraging of the Group's balance sheet, growth in deposit balances and robust liquidity and funding position. The Group will continue to monitor market conditions and may selectively take advantage of opportunities in order to bring forward any future term wholesale funding refinancing needs where such issuance would improve the Group's overall wholesale funding costs.
   
·
To further diversify its funding sources, the Group issued its first sterling denominated covered bond of £1 billion with a 12 year maturity and a US$1.2 billion credit card securitisation.
   
·
The Group accessed €10 billion from the European Central Bank's long-term refinancing operation facility to extend the term of the facilities funding euro denominated assets.
 


 
Risk and balance sheet management (continued)
Balance sheet management: Liquidity and funding risk: Funding sources (continued)
The table below shows the Group's debt securities in issue and subordinated liabilities by remaining maturity.
 
 
Debt securities in issue
      
 
Conduit 
ABCP 
Other 
CP and 
CDs 
MTNs 
Covered 
bonds 
Securitisations 
Total 
Subordinated 
liabilities 
Total 
notes 
issued 
Total 
notes 
issued 
 
£m 
£m 
£m 
£m 
£m 
£m 
£m 
£m 
% 
                   
31 March 2012
                  
Less than 1 year
9,354 
17,532 
19,686 
- 
22 
46,594 
454 
47,048 
28 
1-3 years
- 
290 
30,795 
2,787 
1,231 
35,103 
4,693 
39,796 
24 
3-5 years
- 
1 
16,416 
3,666 
- 
20,083 
4,998 
25,081 
15 
More than 5 years
- 
5 
23,777 
3,654 
13,727 
41,163 
15,368 
56,531 
33 
                   
 
9,354 
17,828 
90,674 
10,107 
14,980 
142,943 
25,513 
168,456 
100 
                   
31 December 2011
                  
Less than 1 year
11,164 
21,396 
36,302 
- 
27 
68,889 
624 
69,513 
37 
1-3 years
- 
278 
26,595 
2,760 
479 
30,112 
3,338 
33,450 
18 
3-5 years
- 
2 
16,627 
3,673 
- 
20,302 
7,232 
27,534 
14 
More than 5 years
- 
1 
26,185 
2,674 
14,458 
43,318 
15,125 
58,443 
31 
                   
 
11,164 
21,677 
105,709 
9,107 
14,964 
162,621 
26,319 
188,940 
100 
 
Term debt issuances
The table below shows debt securities with an original maturity of one year or more issued by the Group during the last two quarters.
 
 
 
Quarter ended
 
31 March 
2012 
31 December 
2011 
 
£m 
£m 
     
Public
    
  - secured
1,784 
3,223 
Private
    
  - unsecured
1,676 
911 
  - secured
- 
500 
     
Gross issuance
3,460 
4,634 
Buybacks
(1,129)
(1,270)
     
Net issuance
2,331 
3,364 
 
In addition, the Group issued £2.8 billion of new ten year lower tier 2 securities as part of a liability management exercise.


 
Risk and balance sheet management (continued)
Balance sheet management: Liquidity and funding risk (continued)
 
Liquidity portfolio
The table below shows the composition of the Group's liquidity portfolio (at estimated liquidity value). All assets within the liquidity portfolio are unencumbered.
 
 
 
31 March 2012
  
31 December 2011
 
Quarterly 
average 
Period end 
  
Quarterly 
average 
Period end 
 
£m 
£m 
  
£m 
£m 
           
Cash and balances at central banks
91,287 
69,489 
  
89,377 
69,932 
Treasury bills
- 
- 
  
444 
- 
Central and local government bonds (1)
          
  - AAA rated governments and US agencies
19,085 
29,639 
  
30,421 
29,632 
  - AA- to AA+ rated governments (2)
8,924 
14,903 
  
5,056 
14,102 
  - governments rated below AA
797 
544 
  
1,011 
955 
  - local government
3,980 
2,933 
  
4,517 
4,302 
           
 
32,786 
48,019 
  
41,005 
48,991 
Other assets (3)
          
  - AAA rated
26,435 
24,243 
  
25,083 
25,202 
  - below AAA rated and other high quality assets
9,194 
10,972 
  
11,400 
11,205 
           
 
35,629 
35,215 
  
36,483 
36,407 
           
Total liquidity portfolio
159,702 
152,723 
  
167,309 
155,330 
 
Notes:
 
(1)
Includes FSA eligible government bonds of £30.5 billion at 31 March 2012 (31 December 2011 - £36.7 billion).
(2)
Includes AAA rated US government guaranteed and US government sponsored agencies.
(3)
Includes assets eligible for discounting at central banks.
 
Key points
 
·
The liquidity portfolio has consistently covered STWF by a wide margin. The £152.7 billion liquidity portfolio equates to 16% of the funded balance sheet and covers STWF by 1.9 times.
   
·
The cash and balances at central banks of £69.5 billion are more than 2.5 times the amount of commercial paper and certificates of deposit outstanding at 31 March 2012.
 
 
 


 
Risk and balance sheet management (continued)
Balance sheet management: Liquidity and funding risk (continued)
 
Loan:deposit ratio and customer funding gap
The table below shows the quarterly trends in the Group's loan:deposit ratio and customer funding gap, including disposal groups.
 
 
 
Loan:deposit ratio
  
Customer 
funding gap 
 
Group 
Core 
  
Group 
 
% 
% 
  
£bn 
         
31 March 2012
106 
93 
  
27 
31 December 2011
108 
94 
  
37 
30 September 2011
112 
95 
  
52 
30 June 2011
114 
96 
  
60 
31 March 2011
116 
96 
  
67 
 
Note:
 
(1)
Loans are net of provisions and exclude repurchase agreements.
 
Key points
 
·
The Group's loan:deposit ratio improved by 2% to 106% in the first quarter, driven by the continuing run-off of Non-Core and accelerated deleveraging in International Banking. It improved 10 percentage points from 116% in Q1 2011.
   
·
The Core loan:deposit ratio improved 100 basis points to 93%.
 


 
Risk and balance sheet management (continued)
Balance sheet management: Liquidity and funding risk (continued)
 
Net stable funding ratio
The table below shows the Group's net stable funding ratio (NSFR), estimated by applying the Basel III guidance issued in December 2010.
 
 
31 March 2012
  
31 December 2011
    
   
ASF (1)
    
ASF (1)
  
Weighting 
 
£bn 
£bn 
  
£bn 
£bn 
  
% 
               
Equity
75 
75 
  
76 
76 
  
100 
Wholesale funding > 1 year
125 
125 
  
124 
124 
  
100 
Wholesale funding < 1 year
109 
- 
  
134 
- 
  
- 
Derivatives
447 
- 
  
524 
- 
  
- 
Repurchase agreements
129 
- 
  
129 
- 
  
- 
Deposits
              
  - Retail and SME - more stable
230 
207 
  
227 
204 
  
90 
  - Retail and SME - less stable
30 
24 
  
31 
25 
  
80 
  - Other
173 
87 
  
179 
89 
  
50 
Other (2)
85 
- 
  
83 
- 
  
- 
               
Total liabilities and equity
1,403 
518 
  
1,507 
518 
    
               
Cash
82 
- 
  
79 
- 
  
- 
Inter-bank lending
36 
- 
  
44 
- 
  
- 
Debt securities > 1 year
              
  - central and local governments AAA to AA-
70 
3 
  
77 
4 
  
5 
  - other eligible bonds
64 
13 
  
73 
15 
  
20 
  - other bonds
20 
20 
  
14 
14 
  
100 
Debt securities < 1 year
42 
- 
  
45 
- 
  
- 
Derivatives
453 
- 
  
530 
- 
  
- 
Reverse repurchase agreements
91 
- 
  
101 
- 
  
- 
Customer loans and advances > 1 year
              
  - residential mortgages
145 
94 
  
145 
94 
  
65 
  - other
167 
167 
  
173 
173 
  
100 
Customer loans and advances < 1 year
              
  - retail loans
19 
16 
  
19 
16 
  
85 
  - other
129 
65 
  
137 
69 
  
50 
Other (3)
85 
85 
  
70 
70 
  
100 
               
Total assets
1,403 
463 
  
1,507 
455 
    
Undrawn commitments
237 
12 
  
240 
12 
  
5 
               
Total assets and undrawn commitments
1,640 
475 
  
1,747 
467 
    
               
Net stable funding ratio
  
109%
    
111% 
    
 
Notes:
 
(1)
Available stable funding.
(2)
Deferred tax, insurance liabilities and other liabilities.
(3)
Prepayments, accrued income, deferred tax, settlement balances and other assets.
 
Key points
 
·
The NSFR remained broadly stable at 109% despite an £8 billion increase in term assets.
   
·
Equity and long-term wholesale funding remained unchanged in the quarter resulting in available stable funding being maintained at £518 billion.
   
·
Term assets increased by £8 billion in the quarter reflecting an increase in the seasonal settlement balances (£16 billion) and higher ineligible debt securities (£6 billion) due to some eurozone country downgrades. This was partially offset by reductions in both customer loans and advances (£10 billion) and eligible debt securities (£3 billion).
 


 
Risk and balance sheet management (continued)
Risk management: Credit risk
Credit risk is the risk of financial loss due to the failure of a customer to meet its obligation to settle outstanding amounts. The quantum and nature of credit risk assumed across the Group's different businesses vary considerably, while the overall credit risk outcome usually exhibits a high degree of correlation with the macroeconomic environment.
 
Loans and advances to customers by sector
In the table below loans and advances exclude disposal groups and repurchase agreements. Totals including disposal groups are also presented. Non-Core includes amounts relating to RFS MI of £0.5 billion at 31 March 2012 (31 December 2011 - £0.4 billion).
 
 
 
31 March 2012
  
31 December 2011
 
Core 
Non-Core 
Total 
  
Core 
Non-Core 
Total 
 
£m 
£m 
£m 
  
£m 
£m 
£m 
               
Central and local government
8,577 
1,397 
9,974 
  
8,359 
1,383 
9,742 
Finance
42,035 
3,442 
45,477 
  
46,452 
3,229 
49,681 
Residential mortgages
139,784 
3,438 
143,222 
  
138,509 
5,102 
143,611 
Personal lending
31,209 
1,297 
32,506 
  
31,067 
1,556 
32,623 
Property
38,355 
36,346 
74,701 
  
38,704 
38,064 
76,768 
Construction
6,065 
2,434 
8,499 
  
6,781 
2,672 
9,453 
Manufacturing
22,587 
4,207 
26,794 
  
23,201 
4,931 
28,132 
Service industries and business activities
              
  - retail, wholesale and repairs
20,528 
1,981 
22,509 
  
21,314 
2,339 
23,653 
  - transport and storage
15,760 
4,525 
20,285 
  
16,454 
5,477 
21,931 
  - health, education and recreation
13,294 
1,304 
14,598 
  
13,273 
1,419 
14,692 
  - hotels and restaurants
7,072 
1,013 
8,085 
  
7,143 
1,161 
8,304 
  - utilities
6,355 
1,777 
8,132 
  
6,543 
1,849 
8,392 
  - other
23,660 
3,663 
27,323 
  
24,228 
3,772 
28,000 
Agriculture, forestry and fishing
3,497 
83 
3,580 
  
3,471 
129 
3,600 
Finance leases and instalment credit
8,534 
5,596 
14,130 
  
8,440 
6,059 
14,499 
Interest accruals
551 
116 
667 
  
675 
116 
791 
               
Gross loans
387,863 
72,619 
460,482 
  
394,614 
79,258 
473,872 
Loan impairment provisions
(8,663)
(11,413)
(20,076)
  
(8,292)
(11,468)
(19,760)
               
Net loans
379,200 
61,206 
440,406 
  
386,322 
67,790 
454,112 
               
Gross loans including disposal groups
407,178 
73,364 
480,542 
  
414,063 
80,005 
494,068 
Loan impairment provisions including disposal
  groups
(9,443)
(11,429)
(20,872)
  
(9,065)
(11,486)
(20,551)
               
Net loans including disposal groups
397,735 
61,935 
459,670 
  
404,998 
68,519 
473,517 
 
Key points
 
·
Gross loans and advances excluding disposal groups decreased by £13.4 billion primarily driven by the managed run-off of Non-Core, which contracted by 8%. Other than UK Retail, lending declined in all Core businesses, most notably International Banking and Markets, reflecting both management action and weak customer demand.
   
·
Despite a challenging environment, UK Retail lending to customers was up £1.8 billion as the business continues to focus on building its franchise.
   
·
In International Banking, the portfolio loan book decreased by £4.7 billion across various sectors, reflecting capital management discipline and accelerated repayments.
   
·
Markets' lending decreased by £2.6 billion, mainly to non-bank financial institutions reflecting lower collateral requirements.
   
·
Property and construction lending decreased by £3.0 billion, principally due to Non-Core run-off and disposals.


 
Risk and balance sheet management (continued)
Risk management: Credit risk: Risk elements in lending
The table below analyses the Group's risk elements in lending (REIL). REIL are stated without giving effect to any security held which could reduce the eventual loss should it occur, nor any provision marked.
 
 
 
31 March 2012
  
31 December 2011
 
Core 
Non- 
Core 
Total 
  
Core 
Non- 
Core 
Total 
 
£m 
£m 
£m 
  
£m 
£m 
£m 
               
Impaired loans (1)
15,007 
23,023 
38,030 
  
15,306 
23,441 
38,747 
Accruing loans past due 90 days or more (2)
1,323 
447 
1,770 
  
1,556 
542 
2,098 
               
Total REIL
16,330 
23,470 
39,800 
  
16,862 
23,983 
40,845 
               
REIL including disposal groups
    
41,330 
      
42,394 
               
REIL as a % of gross loans and advances (3)
4.3% 
32.2% 
8.6% 
  
4.4% 
30.1% 
8.6% 
Provisions as a % of REIL
54% 
49% 
51% 
  
50% 
48% 
49% 
 
Notes:
 
(1)
All loans against which an impairment provision is held.
(2)
Loans where an impairment event has taken place but no impairment provision recognised. This category is used for fully collateralised non-revolving credit facilities.
(3)
Includes disposal groups and excludes reverse repos.
 
Key points
 
·
Whilst overall Group REIL remained relatively stable at 8.6% of gross loans, provision coverage increased to 51% from 49%.
   
·
Core REIL declined marginally and provision coverage increased to 54% from 50% which included increased coverage in Ulster Bank to 53% from 50%.
   
·
The increase in Non-Core's REIL to gross loans ratio to 32.2% from 30.1% reflects a contraction in gross loans (8%), due to the continuing progress in managing down the Non-Core portfolio.
 


 
Risk and balance sheet management (continued)
Risk management: Credit risk: Risk elements in lending (continued)
The table below details the movements in REIL for the quarter ended 31 March 2012.
 
 
 
Impaired loans
  
Other loans (1)
  
REIL
 
Core 
Non- 
Core 
Total 
  
Core 
Non- 
Core 
Total 
  
Core 
Non- 
Core 
Total 
 
£m 
£m 
£m 
  
£m 
£m 
£m 
  
£m 
£m 
£m 
                       
At 1 January 2012
15,306 
23,441 
38,747 
  
1,556 
542 
2,098 
  
16,862 
23,983 
40,845 
Currency translation and
  other adjustments
(31)
(136)
(167)
  
10 
(6)
4 
  
(21)
(142)
(163)
Additions
1,627 
981 
2,608 
  
637 
74 
711 
  
2,264 
1,055 
3,319 
Transfers
(92)
17 
(75)
  
(10)
(22)
(32)
  
(102)
(5)
(107)
Disposals and
  restructurings
(597)
(123)
(720)
  
(93)
(6)
(99)
  
(690)
(129)
(819)
Repayments
(801)
(717)
(1,518)
  
(777)
(135)
(912)
  
(1,578)
(852)
(2,430)
Amounts written-off
(405)
(440)
(845)
  
- 
- 
- 
  
(405)
(440)
(845)
                       
At 31 March 2012
15,007 
23,023 
38,030 
  
1,323 
447 
1,770 
  
16,330 
23,470 
39,800 
 
Note:
 
(1)
Accruing loans past due 90 days or more.
 
Key points
 
·
REIL decreased by £1 billion, or 3% in the quarter, split equally between Core and Non-Core. Transfers to the performing book and disposals (£0.8 billion), debt repayments (£2.4 billion) and write-offs (£0.8 billion) were partially offset by additions (£3.3 billion).
   
·
Ulster Bank (Core and Non-Core) REIL increased by £0.4 billion largely reflecting the challenging market conditions.
 


 
Risk and balance sheet management (continued)
Risk management: Credit risk: Loans, REIL and impairments by division
The table below analyses loans and advances to banks and customers (excluding reverse repos) and related REIL, provisions, impairments, write-offs and coverage ratios by division.
 
 
 
Gross 
loans 
to banks 
Gross 
loans to 
customers 
REIL 
Provisions 
REIL as a 
% of gross 
loans to 
customers 
Provisions 
as a % 
of REIL 
Impairment 
charge 
Amounts 
written-off 
31 March 2012
£m 
£m 
£m 
£m 
% 
% 
£m 
£m 
                 
UK Retail
942 
105,196 
4,120 
2,364 
3.9 
57 
155 
155 
UK Corporate
926 
97,702 
3,929 
1,698 
4.0 
43 
176 
98 
Wealth
2,028 
16,967 
228 
87 
1.3 
38 
10 
3 
International Banking
4,045 
53,060 
873 
845 
1.6 
97 
35 
31 
Ulster Bank
1,555 
33,932 
5,874 
3,101 
17.3 
53 
394 
14 
US Retail & Commercial
185 
50,949 
910 
391 
1.8 
43 
16 
87 
                 
Retail & Commercial
9,681 
357,806 
15,934 
8,486 
4.5 
53 
786 
388 
Markets
21,963 
28,848 
396 
311 
1.4 
79 
10 
17 
Direct Line Group and other
4,129 
1,209 
-  
- 
- 
 - 
- 
- 
                 
Core
35,773 
387,863 
16,330 
8,797 
4.2 
54 
796 
405 
Non-Core
426 
72,619 
23,470 
11,414 
32.3 
49 
499 
440 
                 
Group
36,199 
460,482 
39,800 
20,211 
8.6 
51 
1,295 
845 
                 
Total including disposal groups
36,311 
480,542 
41,330 
21,007 
8.6 
51 
1,295 
845 
                 
31 December 2011
                
                 
UK Retail
628 
103,377 
4,087 
2,344 
4.0 
57 
191 
165 
UK Corporate
806 
98,563 
3,988 
1,623 
4.0 
41 
236 
156 
Wealth
2,422 
16,913 
211 
81 
1.2 
38 
13 
3 
International Banking
3,411 
57,728 
1,632 
851 
2.8 
52 
56 
20 
Ulster Bank
2,079 
34,052 
5,523 
2,749 
16.2 
50 
327 
61 
US Retail & Commercial
208 
51,562 
1,007 
455 
2.0 
45 
53 
105 
                 
Retail & Commercial
9,554 
362,195 
16,448 
8,103 
4.5 
49 
876 
510 
Markets
29,991 
31,490 
414 
311 
1.3 
75 
48 
16 
Direct Line Group and other
3,829 
929 
- 
- 
- 
- 
- 
- 
                 
Core
43,374 
394,614 
16,862 
8,414 
4.3 
50 
924 
526 
Non-Core
619 
79,258 
23,983 
11,469 
30.3 
48 
730 
981 
                 
Group
43,993 
473,872 
40,845 
19,883 
8.6 
49 
1,654 
1,507 
                 
Total including disposal
  groups
44,080 
494,068 
42,394 
20,674 
8.6 
49 
1,654 
1,507 
                 
31 March 2011
                
                 
UK Retail
448 
110,045 
4,641 
2,652 
4.2 
57 
194 
274 
UK Corporate
101 
114,840 
4,618 
1,929 
4.0 
42 
107 
107 
Wealth
2,200 
16,475 
214 
64 
1.3 
30 
5 
5 
International Banking
3,822 
63,320 
1,531 
802 
2.4 
52 
(6)
19 
Ulster Bank
2,689 
37,167 
4,638 
2,111 
12.5 
46 
461 
11 
US Retail & Commercial
186 
46,960 
972 
499 
2.1 
51 
84 
96 
                 
Retail & Commercial
9,446 
388,807 
16,614 
8,057 
4.3 
48 
845 
512 
Markets
46,931 
22,473 
404 
359 
1.8 
89 
7 
2 
Direct Line Group and other
2,057 
1,217 
- 
- 
- 
- 
- 
- 
                 
Core
58,434 
412,497 
17,018 
8,416 
4.1 
49 
852 
514 
Non-Core
999 
100,779 
24,023 
10,842 
23.8 
45 
1,046 
438 
                 
Group
59,433 
513,276 
41,041 
19,258 
8.0 
47 
1,898 
952 
                 
Total including disposal
  groups
60,046 
516,886 
41,087 
19,289 
7.9 
47 
1,898 
952 


 
Risk and balance sheet management (continued)
Risk management: Credit risk: Loan impairment provisions
 
The table below analyses impairment provisions in respect of loans and advances to banks and customers.
 
 
 
31 March 2012
  
31 December 2011
 
Core 
Non-Core 
Total 
  
Core 
Non-Core 
Total 
 
£m 
£m 
£m 
  
£m 
£m 
£m 
               
Individually assessed
2,829 
9,998 
12,827 
  
2,674 
9,960 
12,634 
Collectively assessed
4,543 
792 
5,335 
  
4,279 
861 
5,140 
Latent loss
1,291 
623 
1,914 
  
1,339 
647 
1,986 
               
Loans to customers
8,663 
11,413 
20,076 
  
8,292 
11,468 
19,760 
Loans to banks
134 
1 
135 
  
122 
1 
123 
               
Total provisions
8,797 
11,414 
20,211 
  
8,414 
11,469 
19,883 
               
Provisions as a % of REIL
54% 
49% 
51% 
  
50% 
48% 
49% 
Customer provisions as a % of customer loans  (1)
2.3% 
15.7% 
4.4% 
  
2.2% 
14.4% 
4.2% 
 
Note:
 
(1)
Includes disposal groups and excludes reverse repos.
 
Key points
 
·
Group customer provisions remained relatively stable, although coverage of loans increased from 4.2% to 4.4%.
   
·
Impairment provisions increased by £0.3 billion in the quarter predominately in Ulster Bank Core  where continued elevated impairment charges on mortgages more than offset write-offs.
   
·
Non-Core provisions remained at 2011 year end levels, with Ulster Bank contributing approximately 60% of the total, provision coverage increased to 15.7% from 14.4%.
 


 
Risk and balance sheet management (continued)
Risk management: Credit risk: Impairment charge
The table below analyses the impairment charge for loans and securities.
 
 
 
Quarter ended
 
31 March 2012
  
31 December 2011
  
31 March 2011
 
Core 
Non- 
Core 
Total 
  
Core 
Non- 
Core 
RFS MI 
Total 
  
Core 
Non- 
Core 
Total 
 
£m 
£m 
£m 
  
£m 
£m 
£m 
£m 
  
£m 
£m 
£m 
                         
Individually assessed
294 
451 
745 
  
533 
720 
- 
1,253 
  
384 
901 
1,285 
Collectively assessed
530 
65 
595 
  
478 
113 
- 
591 
  
584 
136 
720 
Latent loss
(40)
(17)
(57)
  
(87)
(103)
- 
(190)
  
(116)
9 
(107)
                         
Loans to customers
784 
499 
1,283 
  
924 
730 
- 
1,654 
  
852 
1,046 
1,898 
Loans to banks
12 
- 
12 
  
- 
- 
- 
- 
  
- 
- 
- 
Securities - sovereign debt (1)
- 
- 
- 
  
224 
- 
- 
224 
  
- 
- 
- 
  - other
29 
(10)
19 
  
17 
21 
2 
40 
  
20 
29 
49 
                         
Charge to income statement
825 
489 
1,314 
  
1,165 
751 
2 
1,918 
  
872 
1,075 
1,947 
                         
Charge as a % of gross loans (2)
0.8% 
2.7% 
1.1% 
  
0.9% 
3.7% 
- 
1.3% 
  
0.8%
4.0%
1.5% 
 
Notes:
 
(1)
Sovereign debt impairment and related interest rate hedge adjustments.
(2)
Customer loan impairment charge as a percentage of gross customer loans including disposal groups and excluding reverse repurchase agreements.
 
Key points
 
·
Group loan impairment losses of £1.3 billion fell by £0.4 billion or 22%, driven by lower individual charges in Non-Core and improvement across Retail & Commercial businesses, with the exception of Ulster Bank. Ulster Bank continues to face challenging credit conditions.
   
·
Total Ulster Bank Group impairments were £0.7 billion compared with £0.6 billion in Q4 2011, primarily due to further deterioration in asset quality in the Core residential mortgage portfolio.
   
·
The Group's customer loan impairment charge as a percentage of customer loans and advances was 1.1% compared with 1.3% in Q4 2011 and 1.5% in Q1 2011.
   
·
In Q1 2012, as part of private sector involvement in the Greek government bail-out, the vast majority of the Group's available-for-sale portfolio of Greek government debt was exchanged for Greek government debt and European Financial Stability Facility notes. The Greek government debt received in the exchange was sold. During April 2012, the remaining Greek government debt that had not been exchanged in Q1 2012 was exchanged and the bonds received were also sold.
 
For more details on Ulster Bank (Core and Non-Core) loans, REIL, provisions and related coverage ratios, refer to pages 110 and 111.


 
Risk and balance sheet management (continued)
Risk management: Credit risk: Debt securities
The table below analyses debt securities by issuer and measurement classification.
 
 
 
Central and local government
Banks 
Other 
financial 
institutions 
Corporate 
Total 
Of which 
ABS 
UK 
US 
Other 
31 March 2012
£m 
£m 
£m 
£m 
£m 
£m 
£m 
£m 
                 
Held-for-trading
6,855 
17,079 
37,552 
2,986 
24,726 
3,052 
92,250 
22,422 
Designated as at fair value
1 
- 
132 
97 
581 
7 
818 
556 
Available-for-sale
11,871 
20,547 
20,012 
12,214 
30,509 
2,228 
97,381 
38,759 
Loans and receivables
10 
- 
4 
368 
4,638 
462 
5,482 
4,630 
                 
Long positions
18,737 
37,626 
57,700 
15,665 
60,454 
5,749 
195,931 
66,367 
                 
- Of which US agencies
- 
4,778 
- 
- 
27,221 
- 
31,999 
30,185 
                 
Short positions (HFT)
(2,133)
(8,855)
(18,613)
(1,997)
(2,125)
(903)
(34,626)
(213)
                 
Available-for-sale
                
Gross unrealised gains
1,141 
1,083 
1,071 
88 
658 
93 
4,134 
747 
Gross unrealised losses
- 
- 
(63)
(603)
(1,601)
(9)
(2,276)
(2,179)
                 
31 December 2011
                
                 
Held-for-trading
9,004 
19,636 
36,928 
3,400 
23,160 
2,948 
95,076 
20,816 
Designated as at fair value
1 
- 
127 
53 
457 
9 
647 
558 
Available-for-sale
13,436 
20,848 
25,552 
13,175 
31,752 
2,535 
107,298 
40,735 
Loans and receivables
10 
- 
1 
312 
5,259 
477 
6,059 
5,200 
                 
Long positions
22,451 
40,484 
62,608 
16,940 
60,628 
5,969 
209,080 
67,309 
                 
- Of which US agencies
- 
4,896 
- 
- 
25,924 
- 
30,820 
28,558 
                 
Short positions (HFT)
(3,098)
(10,661)
(19,136)
(2,556)
(2,854)
(754)
(39,059)
(352)
                 
Available-for-sale
                
Gross unrealised gains
1,428 
1,311 
1,180 
52 
913 
94 
4,978 
1,001 
Gross unrealised losses
- 
- 
(171)
(838)
(2,386)
(13)
(3,408)
(3,158)
 
Key points
 
·
Debt securities decreased by £13.1 billion or 6% in the first quarter, of which £9.9 billion were available-for-sale securities across the Group and £2.8 billion related to held-for-trading positions in Markets.
   
·
Held-for-trading: decreased by £2.8 billion primarily in government bonds. The decrease in UK and US central and local government long positions was due to disposals, along with an increase in netting opportunities. Other government bonds included £21.2 billion long and £13.4 billion short positions relating to eurozone countries, of which £5.0 billion and £5.3 billion respectively related to eurozone periphery countries. The increase in financial institutions mainly relates to US agency residential mortgage-backed securities, as markets picked up.
   
·
Available-for-sale: decreased by £9.9 billion, comprising £7.4 billion central and local government and £2.2 billion financial institutions. UK government bonds fell by £1.6 billion due to additional netting benefits (£1.1 billion) and a change in Direct Line Group investment strategy. Disposals from the RBS N.V. liquidity portfolio resulted in lower government bonds (£3.3 billion), primarily German and French. Non-Core disposals led to a £1.0 billion net reduction in ABS issued by non-bank financial institutions.


 
Risk and balance sheet management (continued)
Risk management: Credit risk: Debt securities (continued)
The table below analyses debt securities by issuer and external ratings. Ratings are based on the lowest of S&P, Moody's and Fitch.
 
 
 
Central and local  government
Banks 
Other 
financial 
institutions 
Corporate 
Total 
% of 
total 
Of which 
ABS 
UK 
US 
Other 
31 March 2012
£m 
£m 
£m 
£m 
£m 
£m 
£m 
£m 
                   
AAA
18,737 
12 
22,792 
2,651 
14,460 
156 
58,808 
30 
12,982 
AA to AA+
- 
37,609 
9,432 
3,553 
31,988 
702 
83,284 
43 
36,532 
A to AA-
- 
-   
17,285 
5,978 
4,032 
1,496 
28,791 
15 
5,761 
BBB- to A-
- 
5 
7,569 
2,719 
4,616 
1,411 
16,320 
8 
6,306 
Non-investment grade
- 
- 
620 
421 
3,876 
1,247 
6,164 
3 
3,837 
Unrated
- 
- 
2 
343 
1,482 
737 
2,564 
1 
949 
                   
 
18,737 
37,626 
57,700 
15,665 
60,454 
5,749 
195,931 
100 
66,367 
                   
31 December 2011
                  
                   
AAA
22,451 
45 
32,522 
5,155 
15,908 
452 
76,533 
37 
17,156 
AA to AA+
- 
40,435 
2,000 
2,497 
30,403 
639 
75,974 
36 
33,615 
A to AA-
- 
1 
24,966 
6,387 
4,979 
1,746 
38,079 
18 
6,331 
BBB- to A-
- 
- 
2,194 
2,287 
2,916 
1,446 
8,843 
4 
4,480 
Non-investment grade
- 
- 
924 
575 
5,042 
1,275 
7,816 
4 
4,492 
Unrated
- 
3 
2 
39 
1,380 
411 
1,835 
1 
1,235 
                   
 
22,451 
40,484 
62,608 
16,940 
60,628 
5,969 
209,080 
100 
67,309 
                   
 
Key points
 
·
The decrease in AAA rated debt securities related to the downgrading of France and Austria to AA+ and a decrease in UK government debt securities. Additionally, certain Spanish covered bonds and the Dutch bond portfolio were downgraded during the quarter.
   
·
The decrease in A to AA- debt securities related to the further downgrade of Italy to BBB+ and a decrease in Japanese debt securities.
   
·
Non-investment grade and unrated debt securities now account for 4% of the debt securities portfolio, down from 5% at the start of the year.
 
The table below analyses available-for-sale debt securities and related reserves, gross of tax.
 
 
 
31 March 2012
  
31 December 2011
 
US 
UK 
Other (1)
Total 
  
US 
UK 
Other (1)
Total 
 
£m 
£m 
£m 
£m 
  
£m 
£m 
£m 
£m 
                   
Central and local
  Government
20,547 
11,871 
20,012 
52,430 
  
20,848 
13,436 
25,552 
59,836 
Banks
326 
1,207 
10,681 
12,214 
  
376 
1,391 
11,408 
13,175 
Other financial institutions
15,858 
3,129 
11,522 
30,509 
  
17,453 
3,100 
11,199 
31,752 
Corporate
191 
1,060 
977 
2,228 
  
131 
1,105 
1,299 
2,535 
                   
Total
36,922 
17,267 
43,192 
97,381 
  
38,808 
19,032 
49,458 
107,298 
                   
Of which ABS
18,547 
3,848 
16,364 
38,759 
  
20,256 
3,659 
16,820 
40,735 
                   
AFS reserves (gross)
616 
723 
(1,315)
24 
  
486 
845 
(1,815)
(484)
 
Note:
 
(1)
Includes eurozone countries that are detailed on pages 116 to 127.


 
Risk and balance sheet management (continued)
Risk management: Credit risk: Ulster Bank Group (Core and Non-Core)
 
Overview
At 31 March 2012, Ulster Bank Group accounted for 10% of the Group's total gross customer loans and 9% of the Group's Core gross customer loans. The impairment charge of £654 million for Q1 2012 was £84 million higher than the charge for Q4 2011. The Q1 2012 charge was mainly driven by the residential mortgage and commercial real estate portfolios as high unemployment, austerity measures and economic uncertainty have reduced incomes and, together with limited liquidity, have depressed the property market.
 
Core
The impairment charge for Q1 2012 of £394 million was £67 million higher than the Q4 2011 charge. The mortgage sector accounted for £215 million (55%) of the Q1 2012 impairment charge (Q4 2011 - 41%). High unemployment, lower incomes and falling house prices have driven increases in mortgage impairments. An increase in the mortgage default portfolio in the quarter accounted for 75% of the rise in Q1 2012 REIL.
 
REIL increased by £351 million in the quarter, largely due to the continuing difficult conditions in residential mortgages.
 
Non-Core
The impairment charge for Q1 2012 was £260 million (Q4 2011 - £243 million), with the commercial real estate sector accounting for £226 million (87%) of the Q1 2012 charge. At 31 March 2012, 67% of REIL was in Non-Core (Q4 2011 - 68%). The majority of the Non-Core commercial real estate development portfolio (94%) is REIL, with 58% provision coverage.
 


 
Risk and balance sheet management (continued)
Risk management: Credit risk: Ulster Bank Group (Core and Non-Core) (continued)
 
Loans, risk elements in lending (REIL) and impairments by sector
 
 
 
Gross 
loans 
REIL 
Provisions 
REIL 
as a % of 
gross loans 
Provisions 
as a % of 
REIL 
Provisions 
as a % of 
gross loans 
Impairment 
charge 
 
Amounts 
written-off 
31 March 2012
£m 
£m 
£m 
% 
% 
% 
£m 
£m 
                 
Core
                
Mortgages
19,814 
2,449 
1,144 
12.4 
47 
5.8 
215 
6 
Personal unsecured
1,317 
203 
188 
15.4 
93 
14.3 
11 
7 
Commercial real estate
                
  - investment
3,835 
976 
448 
25.4 
46 
11.7 
40 
-   
  - development
825 
325 
158 
39.4 
49 
19.2 
14 
- 
Other corporate
8,141 
1,921 
1,163 
23.6 
61 
14.3 
114 
1 
                 
 
33,932 
5,874 
3,101 
17.3 
53 
9.1 
394 
14 
                 
Non-Core
                
Commercial real estate
                
  - investment
3,719 
3,010 
1,429 
80.9 
47 
38.4 
84 
- 
  - development
7,969 
7,492 
4,382 
94.0 
58 
55.0 
142 
20 
Other corporate
1,696 
1,170 
664 
69.0 
57 
39.2 
34 
5 
                 
 
13,384 
11,672 
6,475 
87.2 
55 
48.4 
260 
25 
                 
Ulster Bank Group
                
Mortgages
19,814 
2,449 
1,144 
12.4 
47 
5.8 
215 
6 
Personal unsecured
1,317 
203 
188 
15.4 
93 
14.3 
11 
7 
Commercial real estate
                
  - investment
7,554 
3,986 
1,877 
52.8 
47 
24.8 
124 
- 
  - development
8,794 
7,817 
4,540 
88.9 
58 
51.6 
156 
20 
Other corporate
9,837 
3,091 
1,827 
31.4 
59 
18.6 
148 
6 
                 
 
47,316 
17,546 
9,576 
37.1 
55 
20.2 
654 
39 
                 
31 December 2011
                
                 
Core
                
Mortgages
20,020 
2,184 
945 
10.9 
43 
4.7 
133 
7 
Personal unsecured
1,533 
201 
184 
13.1 
92 
12.0 
11 
6 
Commercial real estate
                
  - investment
3,882 
1,014 
413 
26.1 
41 
10.6 
51 
- 
  - development
881 
290 
145 
32.9 
50 
16.5 
32 
16 
Other corporate
7,736 
1,834 
1,062 
23.7 
58 
13.7 
100 
33 
                 
 
34,052 
5,523 
2,749 
16.2 
50 
8.1 
327 
62 
                 
Non-Core
                
Commercial real estate
                
  - investment
3,860 
2,916 
1,364 
75.5 
47 
35.3 
151 
- 
  - development
8,490 
7,536 
4,295 
88.8 
57 
50.6 
77 
31 
Other corporate
1,630 
1,159 
642 
71.1 
55 
39.4 
15 
5 
                 
 
13,980 
11,611 
6,301 
83.1 
54 
45.1 
243 
36 
                 
Ulster Bank Group
                
Mortgages
20,020 
2,184 
945 
10.9 
43 
4.7 
133 
7 
Personal unsecured
1,533 
201 
184 
13.1 
92 
12.0 
11 
6 
Commercial real estate
                
  - investment
7,742 
3,930 
1,777 
50.8 
45 
23.0 
202 
- 
  - development
9,371 
7,826 
4,440 
83.5 
57 
47.4 
109 
47 
Other corporate
9,366 
2,993 
1,704 
32.0 
57 
18.2 
115 
38 
                 
 
48,032 
17,134 
9,050 
35.7 
53 
18.8 
570 
98 


 
Risk and balance sheet management (continued)
Risk management: Credit risk: Ulster Bank Group (Core and Non-Core) (continued)
 
Loans, REIL and impairments by sector (continued)
 
 
 
Gross 
 loans 
REIL 
Provisions 
REIL 
as a % of 
gross loans 
Provisions 
 as a % of 
 REIL 
Provisions 
 as a % of 
 gross loans 
Impairment 
charge 
Amounts 
 written-off 
31 March 2011
£m 
£m 
£m 
% 
% 
% 
£m 
£m 
                 
Core
                
Mortgages
21,495 
1,780 
676 
8.3 
38 
3.1 
233 
2 
Personal unsecured
1,499 
193 
164 
12.9 
85 
10.9 
11 
8 
Commercial real estate
                
  - investment
4,272 
773 
282 
18.1 
36 
6.6 
73 
- 
  - development
1,015 
210 
99 
20.7 
47 
9.8 
24 
- 
Other corporate
8,886 
1,682 
890 
18.9 
53 
10.0 
120 
1 
                 
 
37,167 
4,638 
2,111 
12.5 
46 
5.7 
461 
11 
                 
Non-Core
                
Commercial real estate
                
  - investment
3,947 
2,449 
1,060 
62.0 
43 
26.9 
223 
- 
  - development
8,881 
7,588 
3,524 
85.4 
46 
39.7 
503 
- 
Other corporate
1,995 
1,186 
658 
59.4 
55 
33.0 
107 
- 
                 
 
14,823 
11,223 
5,242 
75.7 
47 
35.4 
833 
- 
                 
Ulster Bank Group
                
Mortgages
21,495 
1,780 
676 
8.3 
38 
3.1 
233 
2 
Personal unsecured
1,499 
193 
164 
12.9 
85 
10.9 
11 
8 
Commercial real estate
                
  - investment
8,219 
3,222 
1,342 
39.2 
42 
16.3 
296 
- 
  - development
9,896 
7,798 
3,623 
78.8 
46 
36.6 
527 
- 
Other corporate
10,881 
2,868 
1,548 
26.4 
54 
14.2 
227 
1 
                 
 
51,990 
15,861 
7,353 
30.5 
46 
14.1 
1,294 
11 
 
 
 
 


 
Risk and balance sheet management (continued)
Risk management: Credit risk: Ulster Bank Group (Core and Non-Core) (continued)
 
Residential mortgages
The table below shows how the continued decrease in property values has affected the distribution of residential mortgages by indexed loan-to-value (LTV). LTV is based upon gross loan amounts and, whilst including defaulted loans, does not take account of provisions made.
 
 
 
LTV distribution calculated on a value basis
31 March 
2012 
£m 
31 December 
2011 
£m 
     
<= 70%
4,393 
4,526 
> 70% and <= 90%
2,275 
2,501 
> 90% and <= 110%
2,806 
3,086 
> 110% and <= 130%
2,850 
3,072 
> 130%
7,486 
6,517 
     
Total portfolio average LTV at quarter end
112.5% 
106.1% 
     
Average LTV on new originations during the year
69.8% 
73.9% 
 
 
Key points
 
·
The residential mortgage portfolio across Ulster Bank Group totalled £19.8 billion at 31 March 2012, with 89% in the Republic of Ireland and 11% in Northern Ireland. At constant exchange rates, the portfolio decreased by 1% from Q4 2011, as a result of natural amortisation and limited growth due to low market demand. The deterioration in the house price index during Q1 2012 contributed to an increase in the average indexed LTV.
   
·
The mortgage REIL continued to increase as a result of the continued challenging economic environment. At 31 March 2012, REIL as a percentage of gross mortgages was 12.4% (by value) compared with 8.3% at 31 March 2011. The impairment charge for Q1 2012 was £215 million compared with £233 million for Q1 2011. Repossession levels were higher than in Q1 2011, with a total of 46 properties repossessed during Q1 2012 (compared with 37 during Q1 2011). 50% of repossessions during Q1 2012 were through voluntary surrender or abandonment of the property.
   
·
Ulster Bank Group is assisting customers in this difficult environment. Mortgage forbearance policies, which are deployed through the 'Flex' initiative, are aimed at assisting customers in financial difficulty. At 31 March 2012, 9.4% (by value) of the mortgage book (£1.9 billion) was on a forbearance arrangement compared with 9.1% (£1.8 billion) at 31 December 2011. The majority of these forbearance arrangements are in the performing book (75%) and not 90 days past due.
 


 
Risk and balance sheet management (continued)
Risk management: Credit risk: Ulster Bank Group (Core and Non-Core) (continued)
 
Commercial real estate
The commercial real estate lending portfolio for Ulster Bank Group totalled £16.3 billion at 31 March 2012, of which £11.7 billion or 71% is Non-Core. The geographic split of the total Ulster Bank Group commercial real estate portfolio remained similar to 2011, with 26% in Northern Ireland, 63% in the Republic of Ireland and 11% in the UK excluding Northern Ireland.
 
 
 
Development
  
Investment
    
 
Commercial  
Residential 
  
Commercial 
Residential 
  
Total 
Exposure by geography
£m 
£m 
  
£m 
£m 
  
£m 
               
31 March 2012
              
Ireland (ROI & NI)
2,472 
5,897 
  
4,965 
1,106 
  
14,440 
UK (excluding NI)
72 
315 
  
1,353 
100 
  
1,840 
RoW
6 
32 
  
25 
5 
  
68 
               
 
2,550 
6,244 
  
6,343 
1,211 
  
16,348 
               
31 December 2011
              
Ireland (ROI & NI)
2,591 
6,317 
  
5,097 
1,132 
  
15,137 
UK (excluding NI)
95 
336 
  
1,371 
111 
  
1,913 
RoW
- 
32 
  
27 
4 
  
63 
               
 
2,686 
6,685 
  
6,495 
1,247 
  
17,113 
 
Key points
 
·
The outlook for commercial real estate remains challenging, with limited liquidity in the marketplace to support sales or refinancing. The decline in asset valuations continues to place pressure on the portfolio.
   
·
Ulster Bank Group remains focused on proactive management, debt reduction and de-risking of its commercial real estate portfolio while maintaining and responsibly servicing the Core client base through the cycle.
 
 
 
 

 
 

 
 
Risk and balance sheet management (continued)
Risk management: Country risk
Country risk is the risk of material losses arising from significant country-specific events such as sovereign events (default or restructuring); economic events (contagion of sovereign default to other parts of the economy, cyclical economic shock); political events (transfer or convertibility restrictions and expropriation or nationalisation); and natural disaster or conflict. Such events have the potential to affect elements of the Group's credit portfolio that are directly or indirectly linked to the country in question and can also give rise to market, liquidity, operational and franchise risk related losses.
 
For further details of the Group's approach to country risk management, refer to pages 208 to 210 of the Group's 2011 Annual Report and Accounts.
 
The following tables show the Group's exposures by country of incorporation of the counterparty at 31 March 2012. Countries shown are those where the Group's balance sheet exposure to counterparties incorporated in the country exceeded £1 billion and the country had an external rating of A+ or below from S&P, Moody's or Fitch at 31 March 2012, as well as selected eurozone countries. The numbers are stated before taking into account the impact of mitigants, such as collateral (with the exception of repos), insurance or guarantees, which may have been taken to reduce or eliminate exposure to country risk events. Exposures relating to ocean-going vessels are not included due to their multinational nature.
 
Definitions of headings in the following tables:
 
Lending comprises gross loans and advances to: central and local government; central banks, including cash balances; other banks and financial institutions, incorporating overdraft and other short-term facilities; corporates, in large part loans and leases; and individuals, comprising mortgages, personal loans and credit card balances. Lending includes impaired loans and loans where an impairment event has taken place but no impairment provision is recognised.
 
Debt securities comprise securities classified as available-for-sale (AFS), loans and receivables (LAR), held-for-trading (HFT) and designated as at fair value through profit or loss (DFV). All debt securities other than LAR securities are carried at fair value. LAR debt securities are carried at amortised cost less impairment. HFT debt securities are presented as gross long positions (including DFV securities) and short positions per country. Impairment losses and exchange differences relating to AFS debt securities, together with interest are recognised in the income statement; other changes in the fair value of AFS securities are reported within AFS reserves, which are presented gross of tax.
 
Derivatives comprise the mark-to-market (mtm) value of such contracts after the effect of legally enforceable netting agreements, but gross of collateral. Reverse repurchase agreements (repos) comprise the mtm value of counterparty exposure arising from repo transactions net of collateral.
 
Balance sheet exposures comprise lending exposures, debt securities and derivatives and repo exposures.
 


 
Risk and balance sheet management (continued)
Risk management: Country risk (continued)
 
Contingent liabilities and commitments comprise contingent liabilities, including guarantees, and committed undrawn facilities.
 
Asset quality (AQ) - for the probability of default range relating to each internal asset quality band, refer to page 172 of the Group's 2011 Annual Report and Accounts.
 
Credit default swaps (CDSs) - under a CDS contract, the credit risk on the reference entity is transferred from the buyer to the seller. The fair value, or mtm, represents the balance sheet carrying value. The mtm value of CDSs is included within derivatives against the counterparty of the trade, as opposed to the reference entity. The notional is the par amount of the credit protection bought or sold and is included against the reference entity of the CDS contract.
 
The column CDS notional less fair value represents the notional less fair value amounts arising from sold positions netted against those arising from bought positions, and represents the net change in exposure for a given reference entity should the CDS contract be triggered by a credit event, assuming there is zero recovery rate. However, in most cases, the Group expects the recovery rate to be greater than zero and the change in exposure to be less than this amount.
 
Other eurozone - comprises Austria, Cyprus, Estonia, Finland, Malta, Slovakia and Slovenia.
 
 
 
 

 
 

 
 
Risk and balance sheet management (continued)
Risk management: Country risk: Summary
 
 
 
31 March 2012
 
Lending
                            
 
Central 
and local 
government 
Central 
banks 
Other 
banks 
 
Other 
financial 
institutions 
Corporate 
Personal 
Total 
lending 
  
Of which 
Non-Core 
  
Debt 
securities 
  
Derivatives 
(gross of 
collateral)
and repos 
  
 
Balance 
sheet 
exposures 
  
Contingent 
liabilities and 
commitments 
  
Total 
  
CDS 
notional 
less fair 
value 
 
£m 
£m 
£m 
£m 
£m 
£m 
£m 
  
£m 
  
£m 
  
£m 
  
£m 
  
£m 
  
£m 
  
£m 
                                           
Eurozone
                                          
Ireland
45 
1,068 
41 
435 
18,690 
18,631 
38,910 
  
10,113 
  
773 
  
2,577 
  
42,260 
  
3,048 
  
45,308 
  
(138)
Spain
9 
- 
277 
122 
5,340 
353 
6,101 
  
3,502 
  
6,363 
  
2,148 
  
14,612 
  
2,008 
  
16,620 
  
(875)
Italy
- 
40 
200 
344 
1,709 
22 
2,315 
  
1,127 
  
1,065 
  
2,174 
  
5,554 
  
2,757 
  
8,311 
  
(425)
Portugal
- 
- 
1 
- 
422 
4 
427 
  
262 
  
204 
  
544 
  
1,175 
  
228 
  
1,403 
  
1 
Greece
3 
5 
1 
31 
395 
14 
449 
  
90 
  
38 
  
322 
  
809 
  
75 
  
884 
  
(7)
Germany
10 
20,471 
473 
325 
5,939 
148 
27,366 
  
4,819 
  
17,395 
  
15,496 
  
60,257 
  
8,287 
  
68,544 
  
(2,779)
Netherlands
2,582 
9,842 
967 
1,556 
4,691 
22 
19,660 
  
2,440 
  
10,287 
  
10,063 
  
40,010 
  
13,019 
  
53,029 
  
(1,389)
France
517 
4 
1,254 
346 
3,266 
74 
5,461 
  
2,268 
  
5,486 
  
8,729 
  
19,676 
  
10,218 
  
29,894 
  
(2,669)
Luxembourg
- 
- 
20 
1,416 
2,222 
3 
3,661 
  
1,379 
  
125 
  
2,260 
  
6,046 
  
1,880 
  
7,926 
  
(382)
Belgium
286 
55 
177 
271 
741 
21 
1,551 
  
409 
  
1,125 
  
2,844 
  
5,520 
  
1,308 
  
6,828 
  
(120)
Other eurozone
117 
- 
22 
111 
1,465 
26 
1,741 
  
322 
  
835 
  
1,860 
  
4,436 
  
1,306 
  
5,742 
  
(157)
                                           
Total eurozone
3,569 
31,485 
3,433 
4,957 
44,880 
19,318 
107,642 
  
26,731 
  
43,696 
  
49,017 
  
200,355 
  
44,134 
  
244,489 
  
(8,940)
                                           
Other countries
                                        
India
- 
142 
739 
42 
3,132 
114 
4,169 
  
328 
  
1,403 
  
100 
  
5,672 
  
1,280 
  
6,952 
  
(76)
China
239 
172 
1,503 
34 
764 
28 
2,740 
  
234 
  
479 
  
383 
  
3,602 
  
1,464 
  
5,066 
  
53 
South Korea
- 
20 
716 
1 
543 
1 
1,281 
  
3 
  
792 
  
423 
  
2,496 
  
642 
  
3,138 
  
(119)
Turkey
152 
56 
263 
45 
1,059 
23 
1,598 
  
342 
  
278 
  
98 
  
1,974 
  
474 
  
2,448 
  
17 
Brazil
- 
- 
775 
- 
200 
3 
978 
  
64 
  
790 
  
90 
  
1,858 
  
270 
  
2,128 
  
403 
Russia
- 
24 
900 
7 
580 
59 
1,570 
  
74 
  
223 
  
23 
  
1,816 
  
725 
  
2,541 
  
(349)
Romania
25 
136 
14 
4 
446 
381 
1,006 
  
1,005 
  
311 
  
5 
  
1,322 
  
118 
  
1,440 
  
(23)


 
Risk and balance sheet management (continued)
Risk management: Country risk: Summary (continued)
 
 
 
31 December 2011
 
Lending
                            
 
Central 
and local 
 government 
Central 
 banks 
Other 
 banks 
 
Other 
financial 
institutions 
Corporate 
Personal 
Total 
lending 
  
Of which 
Non-Core 
  
Debt 
securities 
  
Derivatives 
(gross of 
collateral)
 and repos 
  
 
Balance 
sheet 
exposures 
  
Contingent 
liabilities and 
commitments 
  
Total 
  
CDS 
notional 
less fair 
value 
 
£m 
£m 
£m 
£m 
£m 
£m 
£m 
  
£m 
  
£m 
  
£m 
  
£m 
  
£m 
  
£m 
  
£m 
                                           
Eurozone
                                          
Ireland
45 
1,467 
136 
336 
18,994 
18,858 
39,836 
  
10,156 
  
886 
  
2,824 
  
43,546 
  
2,928 
  
46,474 
  
53 
Spain
9 
3 
206 
154 
5,775 
362 
6,509 
  
3,735 
  
6,155 
  
2,393 
  
15,057 
  
2,630 
  
17,687 
  
(1,013)
Italy
- 
73 
233 
299 
2,444 
23 
3,072 
  
1,155 
  
1,258 
  
2,314 
  
6,644 
  
3,150 
  
9,794 
  
(452)
Portugal
- 
- 
10 
- 
495 
5 
510 
  
341 
  
113 
  
519 
  
1,142 
  
268 
  
1,410 
  
55 
Greece
7 
6 
- 
31 
427 
14 
485 
  
94 
  
409 
  
355 
  
1,249 
  
52 
  
1,301 
  
1 
Germany
- 
18,068 
653 
305 
6,608 
155 
25,789 
  
5,402 
  
15,767 
  
16,037 
  
57,593 
  
7,527 
  
65,120 
  
(2,401)
Netherlands
2,567 
7,654 
623 
1,575 
4,827 
20 
17,266 
  
2,498 
  
9,893 
  
10,285 
  
37,444 
  
13,561 
  
51,005 
  
(1,295)
France
481 
3 
1,273 
437 
3,761 
79 
6,034 
  
2,317 
  
7,794 
  
9,058 
  
22,886 
  
10,217 
  
33,103 
  
(2,846)
Luxembourg
- 
- 
101 
1,779 
2,228 
2 
4,110 
  
1,497 
  
130 
  
3,689 
  
7,929 
  
2,007 
  
9,936 
  
(404)
Belgium
213 
8 
287 
354 
588 
20 
1,470 
  
480 
  
652 
  
3,010 
  
5,132 
  
1,359 
  
6,491 
  
(99)
Other eurozone
121 
- 
28 
115 
1,375 
26 
1,665 
  
324 
  
710 
  
1,971 
  
4,346 
  
1,365 
  
5,711 
  
(25)
                                           
Total eurozone
3,443 
27,282 
3,550 
5,385 
47,522 
19,564 
106,746 
  
27,999 
  
43,767 
  
52,455 
  
202,968 
  
45,064 
  
248,032 
  
(8,426)
                                           
Other countries
                                        
India
- 
275 
610 
35 
2,949 
127 
3,996 
  
350 
  
1,530 
  
218 
  
5,744 
  
1,280 
  
7,024 
  
(105)
China
74 
178 
1,237 
17 
654 
30 
2,190 
  
50 
  
597 
  
413 
  
3,200 
  
1,559 
  
4,759 
  
(62)
South Korea
- 
5 
812 
3 
576 
1 
1,397 
  
3 
  
845 
  
404 
  
2,646 
  
627 
  
3,273 
  
(22)
Turkey
215 
193 
253 
66 
1,072 
16 
1,815 
  
423 
  
361 
  
94 
  
2,270 
  
437 
  
2,707 
  
10 
Brazil
- 
- 
936 
- 
227 
4 
1,167 
  
70 
  
790 
  
24 
  
1,981 
  
319 
  
2,300 
  
164 
Russia
- 
36 
970 
8 
659 
62 
1,735 
  
76 
  
186 
  
66 
  
1,987 
  
356 
  
2,343 
  
(343)
Romania
66 
145 
30 
8 
413 
392 
1,054 
  
1,054 
  
220 
  
6 
  
1,280 
  
160 
  
1,440 
  
8 
 
 
 

 
 

 
 
Risk and balance sheet management (continued)
Risk management: Country risk (continued)
 
Key points
Exposures are affected by currency movements. Over the first quarter of 2012, sterling appreciated 3.4% against the US dollar and 0.4% against the euro.
 
 
·
Balance sheet and off-balance sheet exposures to most countries declined in the first quarter of 2012 as the Group maintained a cautious stance and many clients reduced debt levels. The reductions were seen in all broad product categories and in all client groups, with a few exceptions as noted below. Non-Core exposure declined in most countries, particularly Germany and Spain, as a result of sales and repayments.
   
·
Eurozone periphery (Ireland, Spain, Italy, Portugal and Greece) - Exposure decreased in all five countries, in part caused by significant reductions in available-for-sale debt securities. Most of the Group's exposure arises from the activities of Markets, International Banking, Ulster Bank (with respect to Ireland), and Group Treasury. The Group has large holdings of Spanish bank and financial institution mortgage-backed securities bonds and smaller quantities of Italian bonds. International Banking provides trade finance facilities to clients across Europe including the eurozone periphery.
   
·
Ireland - The Group's exposure to Ireland is driven by Ulster Bank Group (88% of the Group's Irish exposure at 31 March 2012). The largest components of the Group's exposure are corporate lending of £18.7 billion (more than half of these loans being to the property sector - mainly commercial real estate, plus construction and building materials) and personal lending of £18.6 billion (mainly mortgages). In addition, the Group has cash and derivatives exposure to the Central Bank of Ireland (CBI), financial institutions and large international clients with funding subsidiaries based in Ireland.
   
 
Exposure to the central bank declined by £0.3 billion; this reduction was driven by a change in CBI regulatory requirements. Commercial real estate lending amounted to £10.8 billion at 31 March 2012, only slightly down from the 31 December 2011 level as adverse market conditions hampered asset disposals and refinancing. The commercial real estate lending exposure is largely in Ulster Bank Non-Core and includes REIL of £7.9 billion and loan provisions of £4.2 billion. In personal lending, residential mortgage loans amounted to £17.6 billion, including REIL of £2.4 billion and loan provisions of £1.1 billion. The residential housing market continues to suffer from weak domestic demand, with house prices now approximately 50% below their 2007 peak.
   
·
Spain - The Group maintains strong relationships with selected banks, other financial institutions and large corporate clients. The exposure to Spain is driven by corporate lending and a sizeable ABS portfolio of £6.5 billion, including £6.1 billion of residential mortgage-backed securities covered bonds. The latter portfolio, which is the Group's largest exposure to the financial sector, continues to perform satisfactorily. The Group continues to monitor the situation closely, including undertaking stress analyses of this AFS portfolio.
   
 
Corporate lending decreased by £0.4 billion, due to reductions mostly in the natural resources and property sectors. Commercial real estate lending amounted to £2.3 billion at 31 March 2012, nearly all in Non-Core, and includes REIL of £1.0 billion and loan provisions of £0.3 billion.


 
 
Risk and balance sheet management (continued)
Risk management: Country risk (continued)
 
Key points (continued)
 
·
Italy - The Group maintains strong relationships with Italian government entities, banks, other financial institutions and large corporate clients. In addition, the Group is an active market-maker in Italian government bonds, resulting in large gross long and short positions in held-for-trading securities.
   
 
Corporate lending declined by £0.7 billion largely to manufacturing companies. AFS government and private sector bond exposure was significantly reduced through sales.
   
·
Portugal - Exposure was stable during the first quarter of 2012, as reductions in lending and a sale of some Group Treasury available-for-sale bonds were offset by a significant recovery in market prices.
   
·
Greece - The Group recognised an impairment charge in respect of AFS Greek government bonds in 2011. It participated in the restructuring of the Greek government debt in March 2012, which resulted in new bonds, most of which were sold in March (the remainder were sold in April), and in £0.2 billion of AFS bonds issued by the European Financial Stability Facility incorporated in Luxembourg. The Group now has no exposure to AFS bonds issued by the Greek government.
   
 
Remaining exposure to Greece at the end of the first quarter was £0.8 billion. This largely comprised corporate lending (part of this being exposure to local subsidiaries of international companies) and also included some partly collateralised derivative and repo exposure to banks.
   
·
Germany and the Netherlands - The Group holds significant short-term surplus liquidity with central banks given credit risk and capital considerations and limited alternative investment opportunities; this exposure also fluctuates as part of the Group's asset and liability management. In addition, net long held-for-trading positions in German and Dutch bonds in Markets increased driven by market opportunities; concurrently, German AFS bond positions in Group Treasury were reduced in line with internal liquidity management strategies.
   
·
France - During the first quarter of 2012, in anticipation of widening credit spreads and as part of general risk management, the Group reduced its holdings in French bonds, both available-for-sale in Group Treasury and held-for-trading in Markets.


 
Risk and balance sheet management (continued)
Risk management: Country risk (continued)
 
Key points (continued)
 
·
CDS protection bought and sold - The Group uses CDS contracts to manage both country and counterparty exposures.
   
 
During the first quarter of 2012, gross notional CDS contracts, bought and sold, decreased significantly. This was caused by maturing of contracts and by efforts to reduce counterparty credit exposures and risk-weighted assets through derivative compression trades and other means. In addition, the decrease in gross notional CDS positions contributed to a decrease in the fair value of bought and sold CDS contracts, which also declined due to a general narrowing of eurozone CDS spreads. However, spreads generally widened in April, reflecting renewed eurozone concerns.
   
 
Greek sovereign CDS positions were minimal at 31 March 2012 and were fully closed out in April, as the use of the collective action clause in the Greek debt swap resulted in a credit event occurring, which triggered Greek sovereign CDS contracts.
   
 
The Group primarily transacts these CDS contracts with investment-grade global financial institutions that are active participants in the CDS market. These transactions are subject to regular margining. For European peripheral sovereigns, credit protection has been purchased from a number of major European banks, predominantly outside the country of the reference entity. In a few cases where protection was bought from banks in the country of the reference entity, giving rise to wrong-way risk, the risk is mitigated through specific collateralisation.
   
 
Due to their bespoke nature, exposures relating to CDPCs and associated hedges have not been included as they cannot be meaningfully attributed to a particular country or reference entity. Nth-to-default basket swaps have also been excluded as they cannot be meaningfully attributed to a particular reference entity.
 
 
 

 
 

 
 
Risk and balance sheet management (continued)
Risk management: Country risk: Eurozone
 
 
Lending 
REIL 
Provisions 
  
AFS and 
LAR debt 
securities 
AFS 
 reserves 
  
HFT
debt securities
Total debt 
securities 
  
Derivatives 
(gross of 
collateral) and repos 
  
 
Balance 
sheet 
exposures 
  
CDS by reference entity
Notional
  
Fair value
Long 
Short 
Bought 
Sold 
  
Bought 
Sold 
31 March 2012
£m 
£m 
£m 
  
£m 
£m 
  
£m 
£m 
£m 
  
£m 
  
£m 
  
£m 
£m 
  
£m 
£m 
                                         
Central and local
  government
3,569 
- 
- 
  
14,710 
212 
  
21,221 
13,391 
22,540 
  
1,739 
  
27,848 
  
36,127 
34,979 
  
3,765 
(3,484)
Central banks
31,485 
- 
- 
  
- 
- 
  
7 
- 
7 
  
5,664 
  
37,156 
  
- 
- 
  
- 
- 
Other banks
3,433 
- 
- 
  
8,126 
(542)
  
1,175 
1,189 
8,112 
  
29,338 
  
40,883 
  
16,333 
15,944 
  
1,047 
(975)
Other financial
  institutions
4,957 
- 
- 
  
10,283 
(1,007)
  
1,967 
533 
11,717 
  
8,621 
  
25,295 
  
13,122 
11,634 
  
326 
(255)
Corporate
44,880 
14,468 
7,394 
  
859 
27 
  
643 
182 
1,320 
  
3,655 
  
49,855 
  
59,568 
52,869 
  
540 
(180)
Personal
19,318 
2,548 
1,272 
  
- 
- 
  
- 
- 
- 
  
- 
  
19,318 
  
- 
- 
  
- 
- 
                                         
 
107,642 
17,016 
8,666 
  
33,978 
(1,310)
  
25,013 
15,295 
43,696 
  
49,017 
  
200,355 
  
125,150 
115,426 
  
5,678 
(4,894)
                                         
31 December 2011
                                        
Central and local
  government
3,443 
- 
- 
  
18,406 
81 
  
19,597 
15,049 
22,954 
  
1,925 
  
28,322 
  
37,080 
36,759 
  
6,488 
(6,376)
Central banks
27,282 
- 
- 
  
20 
- 
  
6 
- 
26 
  
5,770 
  
33,078 
  
- 
- 
  
- 
- 
Other banks
3,550 
- 
- 
  
8,423 
(752)
  
1,272 
1,502 
8,193 
  
29,685 
  
41,428 
  
19,736 
19,232 
  
2,303 
(2,225)
Other financial
  institutions
5,385 
- 
- 
  
10,494 
(1,129)
  
1,138 
471 
11,161 
  
10,956 
  
27,502 
  
17,949 
16,608 
  
693 
(620)
Corporate
47,522 
14,152 
7,267 
  
964 
23 
  
528 
59 
1,433 
  
4,118 
  
53,073 
  
76,966 
70,119 
  
2,241 
(1,917)
Personal
19,564 
2,280 
1,069 
  
- 
- 
  
- 
- 
- 
  
1 
  
19,565 
  
- 
- 
  
- 
- 
                                         
 
106,746 
16,432 
8,336 
  
38,307 
(1,777)
  
22,541 
17,081 
43,767 
  
52,455 
  
202,968 
  
151,731 
142,718 
  
11,725 
(11,138)
 
CDS bought protection: counterparty analysis by internal asset quality band
 
 
 
AQ1
  
AQ2-AQ3
  
AQ4-AQ9
  
AQ10
  
Total
 
Notional 
Fair value 
  
Notional 
Fair value 
  
Notional 
Fair value 
  
Notional 
Fair value 
  
Notional 
Fair value 
31 March 2012 
£m 
£m 
  
£m 
£m 
  
£m 
£m 
  
£m 
£m 
  
£m 
£m 
                             
Banks
62,327 
2,949 
  
1,475 
120 
  
198 
18 
  
- 
- 
  
64,000 
3,087 
Other financial Institutions
57,670 
2,210 
  
596 
85 
  
2,674 
223 
  
210 
73 
  
61,150 
2,591 
                             
Total
119,997 
5,159 
  
2,071 
205 
  
2,872 
241 
  
210 
73 
  
125,150 
5,678 
                             
31 December 2011
147,448 
11,190 
  
1,844 
220 
  
2,292 
301 
  
147 
14 
  
151,731 
11,725 
 

 
 

 
 
Risk and balance sheet management (continued)
Risk management: Country risk: Eurozone periphery
 
 
Lending 
REIL 
Provisions 
  
AFS and 
LAR debt 
securities 
AFS 
 reserves 
  
HFT
debt securities
Total debt 
securities 
  
Derivatives 
(gross of 
collateral) and repos 
  
Balance 
sheet 
exposures 
  
CDS by reference entity
Notional
  
Fair value
Long 
Short 
Bought 
Sold 
  
Bought 
Sold 
31 March 2012
£m 
£m 
£m 
  
£m 
£m 
  
£m 
£m 
£m 
  
£m 
  
£m 
  
£m 
£m 
  
£m 
£m 
                                         
Central and local
  government
57 
- 
- 
  
562 
(177)
  
4,977 
5,285 
254 
  
135 
  
446 
  
23,858 
23,869 
  
3,428 
(3,180)
Central banks
1,113 
- 
- 
  
- 
- 
  
- 
- 
- 
  
101 
  
1,214 
  
- 
- 
  
- 
- 
Other banks
520 
- 
- 
  
5,270 
(755)
  
276 
227 
5,319 
  
4,713 
  
10,552 
  
7,610 
7,436 
  
721 
(684)
Other financial
  institutions
932 
- 
- 
  
2,276 
(593)
  
312 
139 
2,449 
  
1,354 
  
4,735 
  
3,102 
2,723 
  
186 
(151)
Corporate
26,556 
12,296 
6,581 
  
176 
- 
  
276 
31 
421 
  
1,462 
  
28,439 
  
8,811 
7,464 
  
480 
(355)
Personal
19,024 
2,522 
1,247 
  
- 
- 
  
- 
- 
- 
  
- 
  
19,024 
  
- 
- 
  
- 
- 
                                         
 
48,202 
14,818 
7,828 
  
8,284 
(1,525)
  
5,841 
5,682 
8,443 
  
7,765 
  
64,410 
  
43,381 
41,492 
  
4,815 
(4,370)
                                         
31 December 2011
                                        
Central and local
  government
61 
- 
- 
  
1,207 
(339) 
  
4,854 
5,652 
409 
  
236 
  
706 
  
25,883 
26,174 
  
5,979 
(5,926)
Central banks
1,549 
- 
- 
  
- 
- 
  
- 
- 
- 
  
- 
  
1,549 
  
- 
- 
  
- 
- 
Other banks
585 
- 
- 
  
5,279 
(956) 
  
436 
318 
5,397 
  
4,824 
  
10,806 
  
9,372 
9,159 
  
1,657 
(1,623)
Other financial
  institutions
820 
- 
- 
  
2,331 
(654) 
  
228 
56 
2,503 
  
1,855 
  
5,178 
  
3,854 
3,635 
  
290 
(262)
Corporate
28,135 
12,103 
6,527 
  
274 
4 
  
238 
- 
512 
  
1,489 
  
30,136 
  
10,798 
9,329 
  
999 
(860)
Personal
19,262 
2,258 
1,048 
  
- 
- 
  
- 
- 
- 
  
1 
  
19,263 
  
- 
- 
  
- 
- 
                                         
 
50,412 
14,361 
7,575 
  
9,091 
(1,945) 
  
5,756 
6,026 
8,821 
  
8,405 
  
67,638 
  
49,907 
48,297 
  
8,925 
(8,671)
 
CDS bought protection: counterparty analysis by internal asset quality band
 
 
 
AQ1
  
AQ2-AQ3
  
AQ4-AQ9
  
AQ10
  
Total
 
Notional 
Fair value 
  
Notional 
Fair value 
  
Notional 
Fair value 
  
Notional 
Fair value 
  
Notional 
Fair value 
31 March 2012 
£m 
£m 
  
£m 
£m 
  
£m 
£m 
  
£m 
£m 
  
£m 
£m 
                             
Banks
23,823 
2,598 
  
978 
111 
  
93 
11 
  
- 
- 
  
24,894 
2,720 
Other financial Institutions
17,423 
1,859 
  
236 
50 
  
765 
123 
  
63 
63 
  
18,487 
2,095 
                             
Total
41,246 
4,457 
  
1,214 
161 
  
858 
134 
  
63 
63 
  
43,381 
4,815 
                             
31 December 2011
48,090 
8,586 
  
998 
163 
  
819 
176 
  
- 
- 
  
49,907 
8,925 


 
Risk and balance sheet management (continued)
Risk management: Country risk: Ireland
 
 
Lending 
REIL 
Provisions 
  
AFS and 
LAR debt 
securities 
AFS 
reserves 
  
HFT
debt securities
Total debt 
securities 
  
Derivatives 
(gross of 
collateral) and repos 
  
Balance 
sheet 
exposures 
  
CDS by reference entity
Notional
  
Fair value
Long 
Short 
Bought 
Sold 
  
Bought 
Sold 
31 March 2012
£m 
£m 
£m 
  
£m 
£m 
  
£m 
£m 
£m 
  
£m 
  
£m 
  
£m 
£m 
  
£m 
£m 
                                         
Central and local
  government
45 
- 
- 
  
115 
(34)
  
7 
13 
109 
  
11 
  
165 
  
2,276 
2,281 
  
364 
(357)
Central banks
1,068 
- 
- 
  
- 
- 
  
- 
- 
- 
  
101 
  
1,169 
  
- 
- 
  
- 
- 
Other banks
41 
- 
- 
  
183 
(24)
  
156 
- 
339 
  
1,220 
  
1,600 
  
128 
125 
  
11 
(11)
Other financial
  institutions
435 
- 
- 
  
54 
- 
  
142 
63 
133 
  
809 
  
1,377 
  
742 
677 
  
54 
(54)
Corporate
18,690 
10,624 
5,784 
  
60 
- 
  
133 
1 
192 
  
436 
  
19,318 
  
369 
286 
  
(21)
22 
Personal
18,631 
2,522 
1,247 
  
- 
- 
  
- 
- 
- 
  
- 
  
18,631 
  
- 
- 
  
- 
- 
                                         
 
38,910 
13,146 
7,031 
  
412 
(58)
  
438 
77 
773 
  
2,577 
  
42,260 
  
3,515 
3,369 
  
408 
(400)
                                         
31 December 2011
                                        
Central and local
  government
45 
- 
- 
  
102 
(46)
  
20 
19 
103 
  
92 
  
240 
  
2,145 
2,223 
  
466 
(481)
Central banks
1,467 
- 
- 
  
- 
- 
  
- 
- 
- 
  
- 
  
1,467 
  
- 
- 
  
- 
- 
Other banks
136 
- 
- 
  
177 
(39)
  
195 
14 
358 
  
1,459 
  
1,953 
  
110 
107 
  
21 
(21)
Other financial
  institutions
336 
- 
- 
  
61 
- 
  
116 
35 
142 
  
855 
  
1,333 
  
523 
630 
  
64 
(74)
Corporate
18,994 
10,269 
5,689 
  
148 
3 
  
135 
- 
283 
  
417 
  
19,694 
  
425 
322 
  
(11)
10 
Personal
18,858 
2,258 
1,048 
  
- 
- 
  
- 
- 
- 
  
1 
  
18,859 
  
- 
- 
  
- 
- 
                                         
 
39,836 
12,527 
6,737 
  
488 
(82)
  
466 
68 
886 
  
2,824 
  
43,546 
  
3,203 
3,282 
  
540 
(566)
 
CDS bought protection: counterparty analysis by internal asset quality band
 
 
 
AQ1
  
AQ2-AQ3
  
AQ4-AQ9
  
AQ10
  
Total
 
Notional 
Fair value 
  
Notional 
Fair value 
  
Notional 
Fair value 
  
Notional 
Fair value 
  
Notional 
Fair value 
31 March 2012 
£m 
£m 
  
£m 
£m 
  
£m 
£m 
  
£m 
£m 
  
£m 
£m 
                             
Banks
1,692 
233 
  
9 
1 
  
- 
- 
  
- 
- 
  
1,701 
234 
Other financial Institutions
1,443 
165 
  
161 
- 
  
210 
9 
  
- 
- 
  
1,814 
174 
                             
Total
3,135 
398 
  
170 
1 
  
210 
9 
  
- 
- 
  
3,515 
408 
                             
31 December 2011
2,911 
532 
  
163 
1 
  
129 
7 
  
- 
- 
  
3,203 
540 
 

 
 

 
 
Risk and balance sheet management (continued)
Risk management: Country risk: Spain
 
 
Lending 
REIL 
Provisions 
  
AFS and 
LAR debt 
securities 
AFS 
reserves 
  
HFT
debt securities
Total debt 
 securities 
  
Derivatives 
(gross of 
collateral) and repos 
  
Balance 
sheet 
exposures 
  
CDS by reference entity
Notional
  
Fair value
Long 
Short 
Bought 
Sold 
  
Bought 
Sold 
31 March 2012
£m 
£m 
£m 
  
£m 
£m 
  
£m 
£m 
£m 
  
£m 
  
£m 
  
£m 
£m 
  
£m 
£m 
                                         
Central and local
  government
9 
- 
- 
  
35 
(13)
  
677 
899 
(187)
  
29 
  
(149)
  
5,839 
5,876 
  
687 
(669)
Central banks
- 
- 
- 
  
- 
- 
  
- 
- 
- 
  
- 
  
- 
  
- 
- 
  
- 
- 
Other banks
277 
- 
- 
  
4,860 
(698)
  
104 
156 
4,808 
  
1,317 
  
6,402 
  
1,974 
1,973 
  
128 
(119)
Other financial
  institutions
122 
- 
- 
  
1,632 
(583)
  
112 
45 
1,699 
  
366 
  
2,187 
  
1,427 
1,214 
  
95 
(66)
Corporate
5,340 
1,040 
357 
  
- 
- 
  
59 
16 
43 
  
436 
  
5,819 
  
3,886 
3,084 
  
196 
(148)
Personal
353 
- 
- 
  
- 
- 
  
- 
- 
- 
  
- 
  
353 
  
- 
- 
  
- 
- 
                                         
 
6,101 
1,040 
357 
  
6,527 
(1,294)
  
952 
1,116 
6,363 
  
2,148 
  
14,612 
  
13,126 
12,147 
  
1,106 
(1,002)
                                         
31 December 2011
                                        
Central and local
  government
9 
- 
- 
  
33 
(15)
  
360 
751 
(358)
  
35 
  
(314)
  
5,151 
5,155 
  
538 
(522)
Central banks
3 
- 
- 
  
- 
- 
  
- 
- 
- 
  
- 
  
3 
  
- 
- 
  
- 
- 
Other banks
206 
- 
- 
  
4,892 
(867)
  
162 
214 
4,840 
  
1,622 
  
6,668 
  
1,965 
1,937 
  
154 
(152)
Other financial
  institutions
154 
- 
- 
  
1,580 
(639)
  
65 
8 
1,637 
  
282 
  
2,073 
  
2,417 
2,204 
  
157 
(128)
Corporate
5,775 
1,190 
442 
  
9 
- 
  
27 
- 
36 
  
454 
  
6,265 
  
4,831 
3,959 
  
448 
(399)
Personal
362 
- 
- 
  
- 
- 
  
- 
- 
- 
  
- 
  
362 
  
- 
- 
  
- 
- 
                                         
 
6,509 
1,190 
442 
  
6,514  
(1,521)
  
614  
973 
6,155 
  
2,393 
  
15,057 
  
14,364 
13,225 
  
1,297 
(1,201)
 
CDS bought protection: counterparty analysis by internal asset quality band
 
 
 
AQ1
  
AQ2-AQ3
  
AQ4-AQ9
  
AQ10
  
Total
 
Notional 
Fair value 
  
Notional 
Fair value 
  
Notional 
Fair value 
  
Notional 
Fair value 
  
Notional 
Fair value 
31 March 2012 
£m 
£m 
  
£m 
£m 
  
£m 
£m 
  
£m 
£m 
  
£m 
£m 
                             
Banks
6,748 
532 
  
67 
5 
  
32 
3 
  
- 
- 
  
6,847 
540 
Other financial Institutions
6,045 
510 
  
21 
3 
  
213 
53 
  
- 
- 
  
6,279 
566 
                             
Total
12,793 
1,042 
  
88 
8 
  
245 
56 
  
- 
- 
  
13,126 
1,106 
                             
31 December 2011
13,833 
1,235 
  
230 
8 
  
301 
54 
  
- 
- 
  
14,364 
1,297 
 

 
 

 
 
Risk and balance sheet management (continued)
Risk management: Country risk: Italy
 
 
Lending 
REIL 
Provisions 
  
AFS and 
LAR debt 
securities 
AFS 
 reserves 
  
HFT
debt securities
Total debt 
securities 
  
Derivatives 
(gross of 
collateral) and repos 
  
Balance 
sheet 
exposures 
  
CDS by reference entity
Notional
  
Fair value
Long 
Short 
Bought 
Sold 
  
Bought 
Sold 
31 March 2012
£m 
£m 
£m 
  
£m 
£m 
  
£m 
£m 
£m 
  
£m 
  
£m 
  
£m 
£m 
  
£m 
£m 
                                         
Central and local
  government
- 
- 
- 
  
348 
(87)
  
4,247 
4,341 
254 
  
77 
  
331 
  
12,341 
12,385 
  
1,330 
(1,210)
Central banks
40 
- 
- 
  
- 
- 
  
- 
- 
- 
  
- 
  
40 
  
- 
- 
  
- 
- 
Other banks
200 
- 
- 
  
119 
(14)
  
15 
69 
65 
  
1,509 
  
1,774 
  
4,357 
4,199 
  
429 
(403)
Other financial
  institutions
344 
- 
- 
  
585 
(10)
  
39 
18 
606 
  
133 
  
1,083 
  
891 
793 
  
29 
(23)
Corporate
1,709 
281 
98 
  
74 
- 
  
80 
14 
140 
  
455 
  
2,304 
  
3,809 
3,387 
  
160 
(103)
Personal
22 
- 
- 
  
- 
- 
  
- 
- 
- 
  
- 
  
22 
  
- 
- 
  
- 
- 
                                         
 
2,315 
281 
98 
  
1,126 
(111)
  
4,381 
4,442 
1,065 
  
2,174 
  
5,554 
  
21,398 
20,764 
  
1,948 
(1,739)
                                         
31 December 2011
                                        
Central and local
  government
- 
- 
- 
  
704 
(220)
  
4,336 
4,725 
315 
  
90 
  
405 
  
12,125 
12,218 
  
1,750 
(1,708)
Central banks
73 
- 
- 
  
- 
- 
  
- 
- 
- 
  
- 
  
73 
  
- 
- 
  
- 
- 
Other banks
233 
- 
- 
  
119 
(14)
  
67 
88 
98 
  
1,064 
  
1,395 
  
6,078 
5,938 
  
1,215 
(1,187)
Other financial
  institutions
299 
- 
- 
  
685 
(15)
  
40 
13 
712 
  
686 
  
1,697 
  
872 
762 
  
60 
(51)
Corporate
2,444 
361 
113 
  
75 
- 
  
58 
- 
133 
  
474 
  
3,051 
  
4,742 
4,299 
  
350 
(281)
Personal
23 
- 
- 
  
- 
- 
  
- 
- 
- 
  
- 
  
23 
  
- 
- 
  
- 
- 
                                         
 
3,072 
361 
113 
  
1,583 
(249)
  
4,501 
4,826 
1,258 
  
2,314 
  
6,644 
  
23,817 
23,217 
  
3,375 
(3,227)
 
CDS bought protection: counterparty analysis by internal asset quality band
 
 
 
AQ1
  
AQ2-AQ3
  
AQ4-AQ9
  
AQ10
  
Total
 
Notional 
Fair value 
  
Notional 
Fair value 
  
Notional 
Fair value 
  
Notional 
Fair value 
  
Notional 
Fair value 
31 March 2012 
£m 
£m 
  
£m 
£m 
  
£m 
£m 
  
£m 
£m 
  
£m 
£m 
                             
Banks
12,448 
1,096 
  
857 
97 
  
61 
8 
  
- 
- 
  
13,366 
1,201 
Other financial Institutions
7,703 
658 
  
54 
47 
  
275 
42 
  
- 
- 
  
8,032 
747 
                             
Total
20,151 
1,754 
  
911 
144 
  
336 
50 
  
- 
- 
  
21,398 
1,948 
                             
31 December 2011
23,042 
3,226 
  
495 
96 
  
280 
53 
  
- 
- 
  
23,817 
3,375 


 
Risk and balance sheet management (continued)
Risk management: Country risk: Portugal
 
 
Lending 
REIL 
Provisions 
  
AFS and 
LAR debt 
securities 
AFS 
reserves 
  
HFT
debt securities
Total debt 
securities 
  
Derivatives 
(gross of 
collateral) and repos 
  
Balance 
sheet 
exposures 
  
CDS by reference entity
Notional
  
Fair value
Long 
Short 
Bought 
Sold 
  
Bought 
Sold 
31 March 2012
£m 
£m 
£m 
  
£m 
£m 
  
£m 
£m 
£m 
  
£m 
  
£m 
  
£m 
£m 
  
£m 
£m 
                                         
Central and local
  government
- 
- 
- 
  
51 
(43)
  
21 
32 
40 
  
18 
  
58 
  
3,277 
3,264 
  
922 
(881)
Other banks
1 
- 
- 
  
108 
(19)
  
1 
2 
107 
  
402 
  
510 
  
1,146 
1,134 
  
152 
(149)
Other financial
  institutions
- 
- 
- 
  
5 
- 
  
19 
13 
11 
  
44 
  
55 
  
8 
5 
  
1 
(1)
Corporate
422 
42 
34 
  
42 
- 
  
4 
- 
46 
  
80 
  
548 
  
350 
316 
  
56 
(37)
Personal
4 
- 
- 
  
- 
- 
  
- 
- 
- 
  
- 
  
4 
  
- 
- 
  
- 
- 
                                         
 
427 
42 
34 
  
206 
(62)
  
45 
47 
204 
  
544 
  
1,175 
  
4,781 
4,719 
  
1,131 
(1,068)
                                         
31 December 2011
                                        
Central and local
  government
- 
- 
- 
  
56 
(58)
  
36 
152 
(60)
  
19 
  
(41)
  
3,304 
3,413 
  
997 
(985)
Other banks
10 
- 
- 
  
91 
(36)
  
12 
2 
101 
  
389 
  
500 
  
1,197 
1,155 
  
264 
(260)
Other financial
  institutions
- 
- 
- 
  
5 
- 
  
7 
- 
12 
  
30 
  
42 
  
8 
5 
  
1 
(1)
Corporate
495 
27 
27 
  
42 
- 
  
18 
- 
60 
  
81 
  
636 
  
366 
321 
  
68 
(48)
Personal
5 
- 
- 
  
- 
- 
  
- 
- 
- 
  
- 
  
5 
  
- 
- 
  
- 
- 
                                         
 
510 
27 
27 
  
194 
(94)
  
73 
154 
113 
  
519 
  
1,142 
  
4,875 
4,894 
  
1,330 
(1,294)
 
CDS bought protection: counterparty analysis by internal asset quality band
 
 
 
AQ1
  
AQ2-AQ3
  
AQ4-AQ9
  
AQ10
  
Total
 
Notional 
Fair value 
  
Notional 
Fair value 
  
Notional 
Fair value 
  
Notional 
Fair value 
  
Notional 
Fair value 
31 March 2012 
£m 
£m 
  
£m 
£m 
  
£m 
£m 
  
£m 
£m 
  
£m 
£m 
                             
Banks
2,747 
644 
  
45 
8 
  
- 
- 
  
- 
- 
  
2,792 
652 
Other financial Institutions
1,956 
466 
  
- 
- 
  
33 
13 
  
- 
- 
  
1,989 
479 
                             
Total
4,703 
1,110 
  
45 
8 
  
33 
13 
  
- 
- 
  
4,781 
1,131 
                             
31 December 2011
4,796 
1,303 
  
46 
12 
  
33 
15 
  
- 
- 
  
4,875 
1,330 
 
 
 

 
 

 
 
Risk and balance sheet management (continued)
Risk management: Country risk: Greece
 
 
Lending 
REIL 
Provisions 
  
AFS and 
LAR debt 
securities 
AFS 
 reserves 
  
HFT
debt securities
Total debt 
securities 
  
Derivatives 
(gross of 
collateral) and repos 
  
Balance 
sheet 
exposures 
  
CDS by reference entity
Notional
  
Fair value
Long 
Short 
Bought 
Sold 
  
Bought 
Sold 
31 March 2012
£m 
£m 
£m 
  
£m 
£m 
  
£m 
£m 
£m 
  
£m 
  
£m 
  
£m 
£m 
  
£m 
£m 
                                         
Central and local
  government
3 
- 
- 
  
13 
- 
  
25 
- 
38 
  
- 
  
41 
  
125 
63 
  
125 
(63)
Central banks
5 
- 
- 
  
- 
- 
  
- 
- 
- 
  
- 
  
5 
  
- 
- 
  
- 
- 
Other banks
1 
- 
- 
  
- 
- 
  
- 
- 
- 
  
265 
  
266 
  
5 
5 
  
1 
(2)
Other financial
  institutions
31 
- 
- 
  
- 
- 
  
- 
- 
- 
  
2 
  
33 
  
34 
34 
  
7 
(7)
Corporate
395 
309 
308 
  
- 
- 
  
- 
- 
- 
  
55 
  
450 
  
397 
391 
  
89 
(89)
Personal
14 
- 
- 
  
- 
- 
  
- 
- 
- 
  
- 
  
14 
  
- 
- 
  
- 
- 
                                         
 
449 
309 
308 
  
13 
- 
  
25 
- 
38 
  
322 
  
809 
  
561 
493 
  
222 
(161)
                                         
31 December 2011
                                        
Central and local
  government
7 
- 
- 
  
312 
- 
  
102 
5 
409 
  
- 
  
416 
  
3,158 
3,165 
  
2,228 
(2,230)
Central banks
6 
- 
- 
  
- 
- 
  
- 
- 
- 
  
- 
  
6 
  
- 
- 
  
- 
- 
Other banks
- 
- 
- 
  
- 
- 
  
- 
- 
- 
  
290 
  
290 
  
22 
22 
  
3 
(3)
Other financial
  institutions
31 
- 
- 
  
- 
- 
  
- 
- 
- 
  
2 
  
33 
  
34 
34 
  
8 
(8)
Corporate
427 
256 
256 
  
- 
- 
  
- 
- 
- 
  
63 
  
490 
  
434 
428 
  
144 
(142)
Personal
14 
- 
- 
  
- 
- 
  
- 
- 
- 
  
- 
  
14 
  
- 
- 
  
- 
- 
                                         
 
485 
256 
256 
  
312 
- 
  
102 
5 
409 
  
355 
  
1,249 
  
3,648 
3,649 
  
2,383 
(2,383)
 
CDS bought protection: counterparty analysis by internal asset quality band
 
 
 
AQ1
  
AQ2-AQ3
  
AQ4-AQ9
  
AQ10
  
Total
 
Notional 
Fair value 
  
Notional 
Fair value 
  
Notional 
Fair value 
  
Notional 
Fair value 
  
Notional 
Fair value 
31 March 2012 
£m 
£m 
  
£m 
£m 
  
£m 
£m 
  
£m 
£m 
  
£m 
£m 
                             
Banks
188 
93 
  
- 
- 
  
- 
- 
  
- 
- 
  
188 
93 
Other financial Institutions
276 
60 
  
- 
- 
  
34 
6 
  
63 
63 
  
373 
129 
                             
Total
464 
153 
  
- 
- 
  
34 
6 
  
63 
63 
  
561 
222 
                             
31 December 2011
3,508 
2,290 
  
64 
46 
  
76 
47 
  
- 
- 
  
3,648 
2,383 
 
 

 
 
 



 

 
 
Signatures


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







 
 
Date: 4 May 2012
 
 
THE ROYAL BANK OF SCOTLAND GROUP plc (Registrant)
 
 
 
By:
/s/ Jan Cargill
 
 
Name:
Title:
Jan Cargill
Deputy Secretary