rbs201011056k6.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 November 5, 2010
 
Commission File Number: 001-10306

 
The Royal Bank of Scotland Group plc

 
RBS, Gogarburn, PO Box 1000
Edinburgh EH12 1HQ

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

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


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


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

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

 
 
 


Risk and capital management (continued)

Funding and liquidity risk

The objective of the Group’s funding and liquidity management framework is to ensure that at all times the Group can meet its obligations as they fall due.  Liquidity management within the Group specifies prudent limits and controls over risk arising from maturity mismatch across the balance sheet and exposure to undrawn commitments or contingent obligations.

The Group has a highly diversified funding structure which avoids excessive reliance on any particular source. Funding is raised through various distribution channels, from a wide range of investors and clients.

The table below shows the composition of the Group’s primary funding sources, excluding repurchase agreements.

 
30 September 2010
  
30 June 2010
  
31 December 2009
 
£m 
% 
  
£m 
% 
  
£m 
% 
                 
Deposits by banks
80,186 
10.5 
  
96,614 
12.7 
  
115,642 
14.3 
                 
Debt securities in issue:
                
-  Commercial paper
30,424 
4.0 
  
30,865 
4.1 
  
44,307 
5.5 
-  Certificates of deposits
50,497 
6.6 
  
45,888 
6.0 
  
58,195 
7.2 
-  Medium-term notes and other bonds
133,403 
17.5 
  
122,981 
16.1 
  
125,800 
15.6 
-  Securitisations
20,759 
2.7 
  
17,583 
2.3 
  
18,027 
2.2 
                 
 
235,083 
30.8 
  
217,317 
28.5 
  
246,329 
30.5 
                 
Subordinated liabilities
27,890 
3.6 
  
27,523 
3.6 
  
31,538 
3.9 
                 
Total wholesale funding
343,159 
44.9 
  
341,454 
44.8 
  
393,509 
48.7 
Customer deposits
420,639 
55.1 
  
420,890 
55.2 
  
414,251 
51.3 
                 
 
763,798 
100.0 
  
762,344 
100.0 
  
807,760 
100.0 

Key points
·
The Group has continued to reduce reliance on wholesale funding and diversify funding sources. Debt securities in issue increased as issuance of long-term debt securities and securitisation of UK retail mortgages exceeded maturities in the period. Deposits by banks decreased by 17% in Q3 2010.
   
·
The Group has increased the proportion of its funding from customer deposits during 2010, from 51% at 31 December 2009 to 55% at 30 September 2010.
   
·
The Group was able to reduce short-term unsecured wholesale borrowing by £20 billion to £178 billion (including £77 billion of deposits from banks) from £198 billion at 30 June 2010 (including £92 billion of deposits from banks). The successful medium-term notes, covered bond and RMBS issuances in the quarter contributed to this reduction. These programmes tapped markets in multiple currencies, geographies and maturities. The impact was to strengthen the overall liability structure of the Group.


 
RBS Group – Q3 2010 Results
 
 
 


Risk and capital management (continued)

Funding and liquidity risk (continued)

The table below shows the Group’s debt securities and subordinated liabilities (sub-debt) by maturity.

 
30  September 2010
  
30  June 2010
  
31 December 2009
 
Debt 
 securities 
 in issue 
Sub- 
debt 
Total 
    
Debt 
securities  in issue 
Sub- 
debt 
Total 
    
Debt 
securities 
 in issue 
Sub-  
 debt 
Total 
  
 
£m 
£m 
£m 
% 
  
£m 
£m 
£m 
% 
  
£m 
£m 
£m 
% 
                             
< 1 year
99,714 
1,660 
101,374 
38.5 
  
103,630 
2,422 
106,052 
43.3 
  
136,901 
2,144 
139,045 
50.0 
1-5 years
90,590 
10,371 
100,961 
38.4 
  
77,266 
7,575 
84,841 
34.7 
  
70,437 
4,235 
74,672 
26.9 
> 5 years
44,779 
15,859 
60,638 
23.1 
  
36,421 
17,526 
53,947 
22.0 
  
38,991 
25,159 
64,150 
23.1 
                             
 
235,083 
27,890 
262,973 
100.0 
  
217,317 
27,523 
244,840 
100.0 
  
246,329 
31,538 
277,867 
100.0 

Key points
·
The Group has improved its funding and liquidity position by extending the average maturity of debt securities in issue.
   
·
The proportion of debt instruments with a remaining maturity of greater than one year has increased in 2010 from 50% at 31 December 2009 to 57% at 30 June 2010 and 62% at 30 September 2010.

The table below shows the amount and type of debt securities issued by the Group with a maturity of one year or greater, by quarter for year-to-date 2010 and 2009.

 
Quarter ended
  
Nine months 
 ended
30 September 
 2010 
  
Quarter ended
  
Nine months 
 ended 
30  September 
2009 
 
31 March 
 2010 
30 June 
2010 
30 September 
 2010 
    
31 March 
2009 
30 June 
 2009 
30 September 
 2009 
  
 
£m 
£m 
£m 
  
£m 
  
£m 
£m 
£m 
  
£m 
                       
Public
                      
- unsecured
3,976 
1,882 
6,254 
  
12,112 
  
- 
3,123 
4,062 
  
7,185 
- unsecured:
  guaranteed
- 
- 
- 
      
8,804 
4,520 
858 
  
14,182 
- secured
- 
1,030 
5,286 
  
6,316 
  
- 
- 
    
- 
Private
                      
- unsecured
4,158 
2,370 
6,299 
  
12,827 
  
1,637 
2,654 
6,053 
  
10,344 
- unsecured:
  guaranteed
- 
- 
- 
  
- 
  
6,493 
2,428 
- 
  
8,921 
                       
Gross issuance
8,134 
5,282 
17,839 
  
31,255 
  
16,934 
12,725 
10,973 
  
40,632 

In addition there was further term issuance in October of £3.9 billion bringing year-to-date issuance to £35.2 billion. This exceeds the original full year target of £25 billion.

The Group also executes other long-term funding arrangements (predominately term repurchase agreements) not reflected in the analysis above.


 
RBS Group – Q3 2010 Results
 
 
 


Risk and capital management (continued)

Funding and liquidity risk (continued)

The table below shows the residual maturity and currency breakdown of long-term debt securities issued in 2010.

Residual maturity
£m 
% 
     
< 1 year
836 
2.7 
1-3 years
8,208 
26.3 
3-5 years
6,889 
22.0 
5-10 years
8,356 
26.7 
> 10 years
6,966 
22.3 
     
 
31,255 
100.0 

Currency
£m 
% 
     
GBP
3,842 
12.3 
EUR
15,719 
50.3 
USD
8,540 
27.3 
Other
3,154 
10.1 
     
 
31,255 
100.0 

Key points
·
Term funding markets improved in Q3 2010 as European sovereign concerns subsided. The Group issued more term funding in Q3 2010 than in the first half of 2010 and accessed unsecured and secured markets in the US, Europe, Asia, Australia and the UK.
   
·
The Group’s €15 billion covered bond programme, launched in April 2010, is an important step in diversifying funding sources across product types and markets. To date, €4.75 billion of covered bonds with maturities ranging between 3 and 10 years were issued from this programme.
   
·
During Q3 2010, the Group executed its largest ever public issuance in the Australian dollar market and its first public Singapore dollar bond issuance. The Group also executed a £4.6 billion public RMBS issuance, which is the largest public transaction in this market since 2007.


 
RBS Group – Q3 2010 Results
 
 
 


Risk and capital management (continued)

Funding and liquidity risk (continued)

The table below shows the composition of the Group’s liquidity portfolio. The Group has refined the presentation of its liquidity portfolio. Treasury bills and government bonds which were previously reported under Central Group Treasury portfolio, Unencumbered collateral and Other liquid assets  are now included in their respective asset classes.

 
30 September 
2010 
30 June 
2010 
31 March 
   2010 
31 December 
2009 
Liquidity portfolio
£m 
£m 
£m 
£m 
         
Cash and balances at  central banks
56,661 
29,591 
42,008 
51,500 
Treasury bills
15,167 
16,086 
24,030 
30,010 
Central and local government bonds
        
- AAA rated governments (1)
31,251 
41,865 
36,148 
30,140 
- AA- to AA+ rated governments
1,618 
1,438 
1,858 
2,011 
- governments rated below AA
1,189 
1,149 
1,766 
1,630 
- local government
5,981 
5,692 
6,216 
5,706 
 
40,039 
50,144 
45,988 
39,487 
Unencumbered collateral (2)
        
- AAA rated
16,071 
16,564 
23,048 
20,246 
- below AAA rated and other high quality assets
22,636 
24,584 
29,817 
29,418 
 
38,707 
41,148 
52,865 
49,664 
         
Total liquidity portfolio
150,574 
136,969 
164,891 
170,661 

Notes:
(1)
Includes AAA rated US government guaranteed agencies.
(2)
Includes assets eligible for discounting at central banks, comprising loans and advances and debt securities.

Key points
·
The Group’s liquidity portfolio increased by £14 billion to £151 billion in the quarter.  Within this, cash and balances at central banks increased by £27 billion to £57 billion. The Group manages the composition of its liquidity portfolio based on a number of considerations. These include market opportunities, internal and external liquidity metrics and potential near term cash requirements.  Further, during Q3 2010, US Retail & Commercial and RBS N.V. reduced their G10 government securities as part of their respective balance sheet restructurings.
   
·
The Group is targeting a total liquidity portfolio of £150 billion as part of its strategic plan. However, the final level will be influenced by balance sheet size, maturity profile and regulatory requirements.


 
RBS Group – Q3 2010 Results
 
 
 


Risk and capital management (continued)

Funding and liquidity risk (continued)

The table below shows recent trends for the Group’s loan to deposit ratio and customer funding gap.

 
Loan to deposit ratio
  
Customer funding gap
 
Group 
Core 
  
Group
 
% 
% 
  
£bn
         
30 September 2010
126 
101 
  
107 
30 June 2010
128 
102 
  
118 
31 March 2010
131 
102 
  
131 
31 December 2009
135 
104 
  
142 
30 September 2009
142 
108 
  
164 
30 June 2009
145 
110 
  
178 
31 March 2009
150 
118 
  
225 
31 December 2008
151 
118 
  
233 

Notes:
(1)
Excludes repurchase agreements, bancassurance deposits to 31 March 2010 and loans are net of provisions.
(2)
Adjusting for customer loans and deposits classified as held-for-trading and designated as at fair value under IFRS (see note 10 Financial instruments classification on page 73 to 75), the loan to deposit ratio and customer funding gap at 30 September 2010 were 123% and £94 billion, respectively.

Key point
·
The loan to deposit ratio improved by 200 basis points in Q3 2010 to 126% and the customer funding gap narrowed by £11 billion to £107 billion at 30 September 2010, due primarily to a reduction in Non-Core customer loans.



 
RBS Group – Q3 2010 Results
 
 
 


Risk and capital management (continued)

Funding and liquidity risk (continued)

The table below shows the Group’s net stable funding ratio (NSFR), the proportion of structural term assets which are funded by stable funding including customer deposits, long-term wholesale funding and equity, computed in accordance with guidance issued by the Basel Committee in July 2010.

 
30 September 2010
  
30 June 2010
  
31 December 2009
    
   
ASF(1) 
    
ASF(1) 
    
ASF(1) 
  
Weighting 
 
£bn 
£bn 
  
£bn 
£bn 
  
£bn 
£bn 
  
% 
                     
Equity
77 
77 
  
79 
79 
  
80 
80 
  
100 
Wholesale funding > 1 year
165 
165 
  
143 
143 
  
144 
144 
  
100 
Wholesale funding < 1 year
178 
- 
  
198 
- 
  
249 
- 
  
- 
Derivatives
543 
- 
  
509 
- 
  
422 
- 
  
- 
Repurchase agreements
129 
- 
  
115 
- 
  
106 
- 
  
- 
Customer deposits
421 
379 
  
421 
379 
  
415 
374 
  
90 
Other (2)
116 
- 
  
116 
- 
  
106 
- 
  
- 
                     
Total liabilities and equity
1,629 
621 
  
1,581 
601 
  
 1,522 
598 
    
                     
Cash
61 
- 
  
30 
- 
  
52 
- 
  
- 
Inter bank lending
60 
- 
  
54 
- 
  
49 
- 
  
- 
Debt securities
226 
45 
  
236 
47 
  
249 
50 
  
20 
Derivatives
549 
- 
  
523 
- 
  
438 
- 
  
- 
Reverse repurchase agreements
93 
- 
  
87 
- 
  
76 
- 
  
- 
Advances < 1 year
132 
66 
  
135 
67 
  
139 
69 
  
50 
Advances >1 year
396 
368 
  
404 
376 
  
416 
387 
  
 See note (3)
Other (4)
112 
112 
  
112 
112 
  
103 
103 
  
100 
                     
Total assets
1,629 
591 
  
1,581 
602 
  
1,522 
609 
    
                     
Undrawn commitments
267 
13 
  
271 
14 
  
289 
14 
  
5 
Total assets and undrawn commitments
1,896 
604 
  
1,852 
616 
  
1,811 
623 
    
Net stable funding ratio
  
103%
    
98% 
    
96% 
    

Notes:
(1)
Available stable funding.
(2)
Deferred taxation, insurance liabilities and other liabilities.
(3)
Residential mortgages > 1 year are weighted at 65%; remainder is weighted at 100%.
(4)
Prepayments, accrued income, deferred taxation and other assets.


Key points
·
The Group’s NSFR increased from 98% as at 30 June 2010 to 103% as at 30 September 2010, primarily due to an increase in wholesale funding with maturity greater than one year and a reduction in customer loans.
   
·
The NSFR will continue to be refined over time in line with regulatory developments.


 
 
 
 

 
 
 

 
 
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: 5 November 2010
 
 
THE ROYAL BANK OF SCOTLAND GROUP plc (Registrant)
 
 
 
By:
 /s/ Jan Cargill
 
 
Name:
Title:
 Jan Cargill
 Deputy Secretary