Page 

Forward looking statements

2 

Presentation of information

3 

Condensed consolidated income statement

6 

Highlights

7 

Analysis of results

13 

Segment performance

24 

Statutory results

69 

Condensed consolidated income statement

69 

Condensed consolidated statement of comprehensive income

70 

Condensed consolidated balance sheet

71 

Average balance sheet

72 

Condensed consolidated statement of changes in equity

75 

Condensed consolidated cash flow statement

77 

Notes

78 

Disposal of Direct Line Group

137 

Risk factors

138 

Statement of directors’ responsibilities

141 

Additional information

142 

Share information

142 

Other financial data

143 

Signature page

Appendix 1 Capital and risk management

Appendix 2 Restatement

●

Personal & Business Banking (PBB) serves individual and mass affluent customers together with small businesses (generally up to £2 million turnover), with more business bankers moving back into branches. PBB comprises two reportable segments, UK Personal & Business Banking, including Williams & Glyn, (UK PBB) and Ulster Bank.

●

Commercial & Private Banking (CPB) serves commercial and mid-corporate customers and high net worth individuals, deepening relationships with commercial clients, operating overseas through its market-leading trade and foreign exchange services, while connecting our private banking brands more effectively to successful business owners and entrepreneurs. CPB comprises two reportable segments, Commercial Banking and Private Banking.

●

Corporate & Institutional Banking (CIB) serves our corporate and institutional clients primarily in the UK and Western Europe, as well as those US and Asian multinationals with substantial trade and investment links in the region, with debt financing, risk management and trade services, focusing on core product capabilities that are of most relevance to our clients. CIB is a single reportable segment.

●

Own credit adjustments

●

Gain on redemption of own debt

●

Write-down of goodwill

●

Asset Protection Scheme

●

Strategic disposals

●

Bonus tax

●

RFS Holdings minority interest

Half year ended

Quarter ended

30 June

30 June

30 June

31 March

30 June

2014

2013

2014

2014

2013

£m

£m

£m

£m

£m

Interest receivable

7,621 

8,560 

3,821 

3,800 

4,281 

Interest payable

(2,128)

(3,123)

(1,023)

(1,105)

(1,514)

Net interest income

5,493 

5,437 

2,798 

2,695 

2,767 

Fees and commissions receivable

2,605 

2,708 

1,314 

1,291 

1,392 

Fees and commissions payable

(487)

(460)

(251)

(236)

(250)

Income from trading activities

1,493 

2,064 

541 

952 

949 

Gain on redemption of own debt

20 

191 

- 

20 

242 

Other operating income

1,036 

1,332 

345 

691 

720 

Non-interest income

4,667 

5,835 

1,949 

2,718 

3,053 

Total income

10,160 

11,272 

4,747 

5,413 

5,820 

Staff costs

(3,536)

(3,727)

(1,845)

(1,691)

(1,840)

Premises and equipment

(1,275)

(1,104)

(622)

(653)

(548)

Other administrative expenses

(1,662)

(2,181)

(951)

(711)

(1,418)

Depreciation and amortisation

(554)

(736)

(282)

(272)

(349)

Write-down of goodwill and other intangible assets

(212)

- 

(130)

(82)

- 

Operating expenses

(7,239)

(7,748)

(3,830)

(3,409)

(4,155)

Profit before impairment losses

2,921 

3,524 

917 

2,004 

1,665 

Impairment (losses)/recoveries

(269)

(2,150)

93 

(362)

(1,117)

Operating profit before tax

2,652 

1,374 

1,010 

1,642 

548 

Tax charge

(733)

(678)

(371)

(362)

(328)

Profit from continuing operations

1,919 

696 

639 

1,280 

220 

Profit from discontinued operations, net of tax

35 

138 

26 

9 

9 

Profit for the period

1,954 

834 

665 

1,289 

229 

Non-controlling interests

(42)

(117)

(23)

(19)

14 

Preference share and other dividends

(487)

(182)

(412)

(75)

(101)

Profit attributable to ordinary and

  B shareholders

1,425 

535 

230 

1,195 

142 

Earnings/(loss) per ordinary and equivalent

 B share (EPS)

Basic EPS from continuing and discontinued operations

12.7p

- 

2.0p

- 

- 

Basic EPS from continuing operations

12.5p

- 

1.9p

- 

- 

(1)

Basic EPS for the half year and quarter ended 30 June 2013 have been restated to reflect the terms of the dividend access share (see Note 9 on page 88).

(2)

Diluted EPS in the half year ended 30 June 2014 and the quarter ended 30 June 2014 were 0.1p lower than basic EPS.

●

Operating profit before tax was £2,652 million compared with £1,374 million in the first half of 2013, including a gain of £191 million from the sale of the remaining interest in Direct Line Insurance Group in Q1 2014 and a write-down of goodwill of £130 million in Q2 2014. Own credit adjustment was a charge of £51 million compared with a credit of £376 million in H1 2013 which also included a gain of £191 million on redemption of own debt compared with £20 million in H1 2014.

●

On a non-statutory basis operating performance in the first half of 2014 was good, with all customer-facing businesses reporting improved operating profits compared with H1 2013. Non-statutory operating profit of £2,601 million included £514 million of restructuring costs (H1 2013 - £271 million) and £250 million of litigation and conduct costs (H1 2013 - £620 million), with £150 million added to provisions for Payment Protection Insurance (H1 2013 - £160 million) and £100 million to interest rate swap redress provisions.

●

Total income declined 10% to £10,160 million. On a non-statutory basis total income declined 6% to £9,978 million. Growth of 3% in Personal & Business Banking (PBB) and 2% in Commercial & Private Banking (CPB) was more than offset by lower income, down 10%, in Corporate & Institutional Banking (CIB), reflecting its smaller balance sheet and reduced risk profile. Net interest margin improved to 2.18%, up 21 basis points compared with H1 2013, with continuing benefits from deposit repricing in PBB and CPB outweighing modest erosion of asset margins.

●

Operating expenses were 7% lower at £7,239 million. On a non-statutory basis operating expenses were 8% lower at £7,108 million, including £514 million of restructuring costs and £250 million of litigation and conduct costs.  Non-statutory operating expenses, excluding restructuring and litigation and conduct costs, were down 8% to £6,344 million. Overall headcount has fallen by 8,000 over the past 12 months.

●

Impairment losses declined by £1,881 million to £269 million. All core businesses showed significant reductions in impairment losses as UK and Irish credit conditions continued to improve. In RBS Capital Resolution (RCR) there was a net write-back of provisions, reflecting disposals at favourable prices. At 30 June 2014, risk elements in lending (REIL) represented 8.3% of gross loans to customers, compared with 9.4% at 31 December 2013.

●

The tax charge was £733 million, representing 27.6% of operating profit before tax, and included a £76 million write-off of deferred tax assets.

●

The Common Equity Tier 1 (CET1) capital ratio strengthened to 10.1%⁽¹⁾ from 8.6% at the end of 2013, principally driven by reductions in risk-weighted assets in CIB and RCR and the retained profit for the period. RBS remains on track to achieve its medium-term capital targets.

●

After charging the initial £320 million Dividend Access Share retirement dividend, profit attributable to ordinary and B shareholders was £1,425 million.

●

Operating profit before tax totalled £1,010 million, after a write-down of goodwill of £130 million and a charge of £190 million for own credit. Profit attributable to ordinary and B shareholders was £230 million, after charging the initial £320 million Dividend Access Share retirement dividend.

●

On a non-statutory basis operating profit in Q2 2014 was £1,318 million, compared with £174 million in Q2 2013 and £1,283 million in Q1 2014. Restructuring costs totalled £385 million and litigation and conduct costs £250 million.

●

Total income was 18% lower than in Q2 2013 at £4,747 which included a charge on own credit of £190 million compared with a gain of £139 million on Q1 2014 and a gain of £191 million on the disposal of RBS’s remaining interest in Direct Line Insurance Group in Q1 2014. On a non-statutory basis total income was 10% lower than in Q2 2013 at £4,925 million, with a 4% improvement in UK PBB more than offset by the 13% reduction in CIB, reflecting its smaller balance sheet and lower risk levels. Within CIB, Rates, Currencies and Credit income was £765 million, down 10% from Q2 2013 and 25% from Q1 2014. Citizens Financial Group benefited from a net gain of $283 million on the sale of its Illinois branch network.

●

Operating expenses were £3,830 million, down 8% from Q2 2013 and 12% from Q1 2014.

●

Impairments amounted to a net release of £93 million compared with losses of £1,117 million in Q2 2013 and £362 million in Q1 2014, benefiting from improvements in bad debt flows and latent provision releases totalling £258 million, primarily reflecting improving credit conditions.

●

Total assets fell to £1,011 billion, down from 1,216 billion from June 2013. Funded assets, which exclude derivatives of £275 billion (30 June 2013 - £374 billion), fell to £736 billion, down £107 billion from June 2013, principally driven by the reduction in CIB’s balance sheet and the run-off of RCR and Non-Core assets.

○

In UK PBB, gross new mortgage lending totalled £9.8 billion in H1 2014, a market share of 9.9%. Repayments remain high, with the low interest rate environment enabling higher levels of principal repayment.

○

In CPB, Commercial Banking, loans and advances in the growable book increased to £64.9 billion, up £2 billion from the prior year, but this was offset by a £2.8 billion planned decline in the non-growable book, which comprises real estate finance, businesses in restructuring and excess single-name concentrations.

○

Overall SME applications were 11% higher in H1 2014 than in the prior year and gross new lending was up 31% at £5.0 billion, with run-off remaining at a similar level to previous years.

○

Total net lending flows reported within the scope of the Funding for Lending Scheme were minus £1.5 billion in Q2 2014 with the majority of the decline in large corporates.

●

Risk-weighted assets (RWAs) fell to £392 billion at the end of June 2014, down £22 billion from the end of March 2014.

●

The CET1 ratio was 10.1%⁽¹⁾ at the end of June 2014, up from 8.6% at the end of 2013 and 9.4% at the end of March 2014 reflecting the attributable profit for the period and lower RWAs.

●

The bank’s liquid asset buffer was £138 billion at the end of June 2014, up slightly from the first quarter but down from £146 billion at the end of 2013, leaving ample headroom to accommodate lending growth in H2 2014.

●

Personal & Business Banking

○

Operating profit increased to £1,049 million from £307 million in the first half of 2013. Operating profit excluding restructuring costs and litigation and conduct costs of £183 million (H1 2013 - £315 million) was £1,232 million in H1 2014, up from £622 million in H1 2013. The increase in operating profit was principally driven by a decline in impairment losses, predominantly in Ulster Bank. In addition, income grew by 5% in UK PBB with higher personal mortgage and deposit balances and stronger deposit margins.

○

Within PBB, UK Personal & Business Banking (UK PBB) operating profit increased to £994 million from £688 million in the first half of 2013. Operating profit excluding restructuring, litigation and conduct costs of £169 million (H1 2013 - £269 million) rose 22% to £1,163 million, driven by strong income growth (up 5% compared with H1 2013) and a 42% decline in impairment losses.

○

Ulster Bank operating profit increased to £55 million from a loss of £381 million in the first half of 2013. Operating profit excluding restructuring, litigation and conduct of £14 million (H1 2013 - £46 million) was £69 million compared with a loss of £335 million in H1 2013, principally as a result of the marked improvement in impairment losses.

●

Commercial & Private Banking

○

Operating profit increased to £780 million from £501 million in the first half of 2013. Operating profit excluding restructuring costs and litigation and conduct costs of £115 million (H1 2013 - £59 million) was £895 million was 60% higher than in H1 2013, with net interest income benefiting from improving deposit margins and impairment losses substantially reduced.

○

Commercial Banking operating profit increased to £635 million from £413 million in the first half of 2013. Operating profit excluding restructuring costs and litigation and conduct costs of £112 million (H1 2013 - £54 million) rose by 60% to £747 million, with the effect of repricing activity offsetting the impact of a decline in CIB (Markets) revenue share income. Lower impairments reflected fewer significant individual cases together with £60 million of latent provision releases.

○

Private Banking operating profit was £145 million compared with £88 million in the first half of 2013. Operating profit excluding restructuring costs of £3 million (H1 2013 - £5 million) was 59% higher at £148 million, with net interest income benefiting from improved deposit margins and with cost saving initiatives contributing to an 8% reduction in operating expenses.

●

Corporate & Institutional Banking

○

Operating profit was £308 million, compared with a loss of £197 million in H1 2013. Operating profit excluding restructuring costs and litigation and conduct costs of £241 million (H1 2013 - £493 million) was £549 million, up 85% from H1 2013. The improvement primarily reflected lower impairments (a net recovery of £39 million compared with losses of £223 million in the prior year).

○

While Rates income improved from a weak H1 2013 (up 40%), Currencies declined by 27% and Credit by 22%, reflecting lower market volatility and the reduction in CIB’s RWA deployment.

○

RWAs fell from £147 billion to £128 billion driven by deleveraging, mitigation and risk-reduction.

●

Citizens Financial Group

○

Operating profit increased by £68 million ($158 million), or 19%, to £421 million ($704 million), reflecting the sale of the Illinois retail branches and small business and select middle market relationships in the Illinois market. Excluding the impact of the sale, £170 million ($283 million) net gain, and restructuring costs of £69 million ($115 million) (H1 2013 – £3 million ($5 million)), operating profit was down 3% driven by lower non-interest income and higher impairment losses partially offset by higher net interest income.

○

The Illinois branch transaction, completed on 20 June 2014, resulted in a net gain of £170 million ($283 million) and restructuring costs of £10 million ($17 million).

○

Net interest income rose 14%, reflecting an expanded investment securities portfolio and 8% growth in average loans and advances, driven by the transfer of a £2,2 billion ($3.6 billion) portfolio from Non-Core.

●

RBS Capital Resolution

○

Over the course of H1 2014 RCR reduced funded assets by £8 billion, or 28%, to £21 billion. RWA equivalent⁽²⁾ decreased by £21 billion, or 33%, to £44 billion.

○

Operating loss in H1 2014 was £48 million, with an operating profit of £66 million recorded in the second quarter of the year, driven by net impairment releases of £128 million.

○

The combined effect of the small operating loss and RWA equivalent reduction was net CET1 capital accretion of £2 billion.

●

RBS is making steady progress towards building a simpler, smaller and fairer bank, and remains focused on delivering the commitments for personal and business customers it announced on 27 February 2014.

○

RBS now offers its best rates to existing credit card and home insurance customers, adding to earlier progress on savings, mortgages, loans and current accounts. There is now no deal across the entire Personal Banking product set that is not available to existing customers.

○

Customer letters and emails have been simplified, and simplification of the product set has continued, with the number of products on offer to Personal Banking customers reduced by 29% since 2012; this will reach over 50% by end 2014.

○

The branch refurbishment programme has continued with a further roll-out of WiFi.

○

RBS has reduced the time taken to open an account from five days to one for most personal customers.

○

By the end of the year, 84% of business banking frontline staff will be based in or above a branch. So that more time can be spent with customers, a further 40 experienced relationship managers have been allocated to serve commercial customers, with a central focus on lending.

○

Lending procedures are being improved. Lending decisions for commercial customers will by the end of the year be made within five days for all but the most complex applications.

Half year ended

Quarter ended

30 June

30 June

30 June

31 March

30 June

2014

2013

2014

2014

2013

Net interest income

£m

£m

£m

£m

£m

Net interest income (1)

5,493 

5,437 

2,798 

2,695 

2,767 

Average interest-earning assets (1)

507,088 

555,709 

502,155 

512,079 

551,375 

Net interest margin

  - RBS

2.18%

1.97%

2.23%

2.13%

2.01%

  - Personal & Business Banking

3.39%

3.15%

3.40%

3.37%

3.20%

  - Commercial & Private Banking

2.90%

2.69%

2.91%

2.89%

2.77%

  - Citizens Financial Group

2.94%

2.90%

2.93%

2.94%

2.89%

(1)

For further analysis and details refer to pages 72 to 74.

●

Net interest income improved by 1% to £5,493 million. The increase was consistent across all businesses, with notable improvements in PBB (£97 million, 4%) and CPB (£90 million, 7%).

●

Net interest margin (NIM) increased by 21 basis points to 2.18%, driven by deposit repricing initiatives across a number of businesses. The benefit of reduced funding costs outweighed lower yields on assets. 

●

Net interest income improved by 4% to £2,798 million principally driven by improved margins and an additional day in the quarter.

●

NIM increased by 10 basis points to 2.23%, driven by lower funding costs, reflecting repricing initiatives across a number of businesses, RCR run-off and a small number of one-off recoveries.

●

Net interest income improved by 1% to £2,798 million reflected by improved margins.

●

NIM increased by 22 basis points to 2.23% benefiting from repricing initiatives across a number of businesses.

Half year ended

Quarter ended

30 June

30 June

30 June

31 March

30 June

2014

2013

2014

2014

2013

Non-interest income

£m

£m

£m

£m

£m

Fees and commissions receivable

2,605 

2,708 

1,314 

1,291 

1,392 

Fees and commissions payable

(487)

(460)

(251)

(236)

(250)

Net fees and commissions

2,118 

2,248 

1,063 

1,055 

1,142 

Income from trading activities

  - non-statutory basis

1,482 

1,890 

626 

856 

874 

  - own credit adjustments*

11 

175 

(84)

95 

76 

  - RFS Holdings minority interest

- 

(1) 

(1)

1 

(1)

Statutory basis

1,493 

2,064 

541 

952 

949 

Gain on redemption of own debt

20 

191 

- 

20 

242 

Other operating income

  - non-statutory basis

882 

1,028 

438 

444 

661 

  - own credit adjustments*

(62)

201 

(106)

44 

51 

  - strategic disposals

191 

- 

- 

191 

6 

  - RFS Holdings minority interest

25 

103 

13 

12 

2 

Statutory basis

1,036 

1,332 

345

691 

720 

Total non-interest income - non-statutory basis

4,482 

5,166 

2,127 

2,355 

2,677 

Total non-interest income -statutory basis

4,667 

5,835 

1,949 

2,718 

3,053 

*Own credit adjustments impact:

Income from trading activities

11 

175 

(84)

95 

76 

Other operating income

(62)

201 

(106)

44 

51 

Own credit adjustments

(51)

376 

(190)

139 

127 

●

Non-interest declined by £1,168 million or 20% which included a charge on own credit of £62 million compared with a gain of £201 million in H1 2013, partially offset by a gain of £191 million on the disposal of RBS’s remaining interest in Direct Line Insurance Group in 2014. On a non-statutory basis non-interest income declined by £684 million or 13%, principally reflecting a 22% reduction in income from trading activities, in line with CIB’s smaller balance sheet and reduced risk profile.

●

A net gain of £170 million ($283 million) was recorded on CFG’s sale of its Illinois branch network.

●

Gains on the disposal of available-for-sale securities in Treasury were down £245 million to £215 million for H1 2014 (Q2 2014 - £15 million; Q1 2014 - £200 million).

●

Gain on redemption of own debt was £20 million compared with £191 million in H1 2013.

●

Non-interest declined by £769 million or 28%, which included a charge of own credit of £190 million compared with a gain of £139 million in Q1 2014 and a gain of £191 million on the disposal of RBS’s remaining interest in Direct Line Insurance Group in Q1 2014. On a non-statutory basis non-interest income declined by £228 million or 10%, principally reflecting the seasonality of CIB income and lower disposal income in RCR. This was partly offset by the net gain on sale from CFG’s branch sale. 

●

Non-interest income declined by £1,104 million which included a charge on own credit of £190 million compared with a gain of £127 million in Q2 2013. On a non-statutory basis non-interest income declined by £550 million or 21%, which included the weaker performance of Currencies within CIB. This was largely in line with overall market trends and reflected weak client demand and low volatility.

●

The movements discussed above were partly offset by the stronger performance of Rates in CIB and the net gain on sale of the Illinois retail branches, coupled with higher current account-related fee income.

Half year ended

Quarter ended

30 June

30 June

30 June

31 March

30 June

2014

2013

2014

2014

2013

Operating expenses

£m

£m

£m

£m

£m

Staff costs

  - non-statutory basis

3,340 

3,585 

1,693 

1,647 

1,764 

  - restructuring costs

196 

142 

153 

43 

76 

  - RFS Holdings minority interest

- 

- 

(1) 

1 

- 

Statutory basis

3,536 

3,727 

1,845 

1,691

1,840 

Premises and equipment

  - non-statutory basis

1,079 

1,079 

485 

594 

526 

  - restructuring costs

196 

25 

137 

59 

22 

Statutory basis

1,275 

1,104 

622 

653 

548 

Other administrative expenses

  - non-statutory basis

1,292 

1,479 

605 

687 

801 

  - restructuring costs

119 

84 

94 

25 

48 

  - litigation and conduct costs

250 

620 

250 

- 

570 

  - RFS Holdings minority interest

1 

(2)

2 

(1)

(1) 

Statutory basis

1,662 

2,181 

951 

711 

1,418 

Restructuring costs

  - non-statutory basis

514 

271 

385 

129 

149 

  - staff expenses

(196)

(142)

(153)

(43)

(76)

  - premises and equipment

(196)

(25)

(137)

(59)

(22)

  - other

(119)

(84)

(94)

(25)

(48)

  - Depreciation and amortisation

(3)

(20)

(1)

(2)

(3)

Statutory basis

- 

- 

- 

- 

- 

Litigation and conduct costs

  - non-statutory basis

250 

620 

250 

- 

570 

  - other administrative expenses

(250)

(620)

(250)

- 

(570) 

Statutory basis

- 

- 

- 

- 

- 

Depreciation and amortisation

  - non-statutory basis

551 

716 

282 

269 

346 

  - integration and restructuring

3 

20 

1 

2 

3 

  - RFS Holdings minority interest

- 

- 

(1)

1 

- 

Statutory basis

554 

736 

282 

272 

349 

Write-down of goodwill and other intangible assets

  - non-statutory basis

82 

- 

- 

82 

- 

  - write-down of goodwill

130 

- 

130 

- 

- 

Statutory basis

212 

- 

130 

82 

- 

Operating expenses - non-statutory basis

7,108 

7,750 

3,700 

3,408 

4,156 

Operating expenses - statutory basis

7,239 

7,748 

3,830 

3,409 

4,155 

●

Operating expenses were £509 million which included the write-down of goodwill of £130 million in H1 2014. On a non-statutory basis operating expenses were £642 million, 8%, lower. Non-statutory operating expenses excluding restructuring costs of £514 million (H1 2013 - £271 million) and litigation and conduct costs of £250 million (H1 2013 - £620 million) decreased by £515 million or 8% to £6,344 million. Much of the decrease was achieved in CIB through headcount reductions and tight control of discretionary expenditure. Overall operating expense trends are starting to show the benefits of the reshaping of the bank’s cost base.

●

Litigation and conducts costs totalled £250 million compared with £620 million in H1 2013, with an additional provision of £150 million (H1 2013 - £160 million) for Payment Protection Insurance redress recorded in UK PBB and a further £100 million (H1 2013 - £150 million) relating to interest rate hedging product redress booked within Commercial Banking and CIB. H1 2013 included provisions for other regulatory and legal actions of £385 million in CIB.

●

Restructuring costs increased by £243 million to £514 million, including significant charges in relation to Williams & Glyn and to the restructuring of the property portfolio.

●

Operating expenses were up £421 million which included the write-down of goodwill of £130 million in Q2 2014. On a non-statutory basis operating expenses were up £292 million, 9% reflecting higher restructuring and litigation and conduct costs. Non-statutory operating expenses excluding restructuring costs of £385 million (Q1 2014 - £129 million) and litigation and conduct costs of £250 million decreased by £214 million or 7%. This was principally driven by lower staff costs in CIB, operational cost saving initiatives in CPB and lower costs in PBB. This was only partly offset by higher staff costs in RCR.

●

Operating expenses were down £325 million, 8% reflecting lower litigation and conduct costs. On a non-statutory basis operating expenses were down £456 million, 11%, reflecting lower litigation and conduct costs. Non-statutory operating expenses excluding restructuring costs of £385 million (Q2 2013 - £149 million) and litigation and conduct costs of £250 million (Q2 2013 - £570 million) decreased by £372 million or 11%. The fall was consistent across all businesses, with notable declines in CIB (£114 million, 11%), CPB (£46 million, 7%). The decrease was helped by favourable foreign exchange movements. 

Half year ended

Quarter ended

30 June

30 June

30 June

31 March

30 June

2014 

2013 

2014 

2014 

2013 

Impairment losses/(recoveries)

£m

£m

£m

£m

£m

Loans

271 

2,161 

(89)

360 

1,125 

Securities

(2)

(11)

(4)

2 

(8)

Total impairment losses/(recoveries)

269 

2,150 

(93)

362 

1,117 

Loan impairment losses/(recoveries)

  - individually assessed

113 

1,472 

(42)

155 

826 

  - collectively assessed

348 

734 

221 

127 

293 

  - latent

(180)

(36)

(258)

78 

15 

Customer loans

281 

2,170 

(79)

360 

1,134 

Bank loans

(10)

(9)

(10)

- 

(9)

Loan impairment losses/(recoveries)

271 

2,161 

(89)

360 

1,125 

RBS excluding RCR/Non-Core

290 

1,258 

36 

254 

659 

RCR

(19)

n/a

(125)

106 

n/a

Non-Core

n/a

903 

n/a

n/a

466 

RBS

271 

2,161 

(89)

360 

1,125 

Customer loan impairment charge as a % of

  gross loans and advances (1)

RBS excluding RCR/Non-Core

0.2%

0.6%

- 

0.3%

0.7%

RCR

(0.1%)

n/a

(1.7%)

1.2%

n/a

Non-Core

n/a

3.9%

n/a

n/a

4.0%

30 June

31 March

31 December

2014 

2014 

2013 

Loan impairment provisions

£22.4bn

£24.2bn

£25.2bn

Risk elements in lending

£34.1bn

£37.4bn

£39.4bn

Provision coverage (2)

66%

65%

64%

(1)

Excludes reverse repurchase agreements and includes disposals groups.

(2)

Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.

●

Loan impairment losses declined sharply by £1,890 million or 87%, including £180 million of releases of latent provisions (H1 2013 - £36 million). Asset quality continued to improve in the UK and Ireland.

●

Loan impairments in RCR amounted to a net recovery of £19 million.

●

Provision coverage strengthened to 66% compared with 64% at the end of 2013. REIL were £5.3 billion lower and represented 8.3% of gross customer loans, compared with 9.4% at the end of 2013.

●

A net recovery of £89 million was recorded in Q2 2014, compared with losses of £360 million in Q1 2014.

●

The improvement in loan impairment losses was driven by the release of latent provisions in CPB and CIB and by a strong credit performance in RCR (a net recovery of £125 million compared with losses of £106 million in Q1 2014).

●

REIL fell by £3.3 billion. As a percentage of gross loans to customers, REIL declined to 8.3% from 9.0% at 31 March 2014.

●

Loan impairment recoveries totalled £89 million compared with losses of £1,125 million in Q2 2013 which included £466 million in respect of Non-Core.

●

The improvement in impairments reflected significantly lower losses in Ulster Bank reflecting stronger credit metrics and the benefits of the investment in programmes to support customers in financial difficulty, and continued strong recoveries across UK PBB and release of latent provisions and non-repeat of significant individual cases in CPB.

●

In Q2 2014 loan impairment recoveries in RCR were £125 million.

Capital and leverage ratios

CRR end-point basis (1)

30 June

31 March

31 December

2014 

2014 

2013 (2)

Capital

£bn

£bn

£bn

CET1

39.7 

39.1 

36.8 

Tier 1

39.7 

39.1 

36.8 

Total

48.7 

47.3 

45.5 

RWAs by risk

Credit risk

  - non-counterparty

283.3 

295.2 

317.9 

  - counterparty

38.6 

41.3 

39.1 

Market risk

33.4 

41.0 

30.3 

Operational risk

36.8 

36.8 

41.8 

392.1 

414.3 

429.1 

Risk asset ratios

%

%

%

CET1

10.1 

9.4 

8.6 

Tier 1

10.1 

9.4 

8.6 

Total

12.4 

11.4 

10.6 

30 June

31 March

31 December

Leverage ratio (3)

2014 

2014 

2013 

Tier 1 capital - £bn

39.7 

39.1 

36.8 

Exposure - £bn

1,070.2 

1,083.4 

1,082.0 

Leverage ratio - % (3)

3.7 

3.6 

3.4 

(1)

Capital Requirements Regulation (CRR) as implemented by the Prudential Resolution Authority in the UK, with effect from 1 January 2014.

(2)

Estimated.

(3)

Leverage ratio is calculated using:

·       CRR end-point Tier 1 capital; and

·       Exposure measure based on guidance in the BCBS 270 proposal issued in January 2014, supplemented by the instructions in the March 2014 Basel III Quantitative Impact Study and the related FAQs.

●

The CRR end-point CET 1 ratio improved to 10.1% from 9.4%, principally driven by retained earnings after charging the initial DAS dividend of £320 million, and continuing reduction in RWAs and expected loss.

●

RWAs decreased by £22 billion principally reflecting the £12 billion fall in CIB driven by risk reductions and mitigation costs and £5 billion of run-off and disposals in RCR.

●

The CRR end-point CET 1 ratio improved to 10.1% from 8.6%, principally driven by retained earnings, continuing reduction in RWAs and regulatory capital deductions relating to deferred tax assets and expected loss.

●

RWAs decreased by £37 billion principally attributable to the risk reductions and mitigation actions in CIB, and run-off and disposals in RCR.

●

Leverage ratio improved by 30 basis points reflecting attributable profit, lower regulatory deductions as well as lower leverage exposure, particularly relating to derivatives in CIB.

30 June

31 March

31 December

Balance sheet

2014

2014

2013

Total assets

£1,011bn

£1,024bn

£1,028bn

Derivatives

£275bn

£278bn

£288bn

Funded balance sheet (1)

£736bn

£746bn

£740bn

Net loans and advances to customers (2)

£387bn

£392bn

£393bn

Customer deposits (3)

£401bn

£404bn

£418bn

Loan:deposit ratio - RBS (4)

96%

97%

94%

(1)

Funded balance sheet represents total assets less derivatives.

(2)

Excludes reverse repurchase agreements and stock borrowing, and includes disposal groups.

(3)

Excludes repurchase agreements and stock lending, and includes disposal groups.

(4)

Net of provisions, including disposal groups and excluding repurchase agreements. Excluding disposal groups, the loan:deposit ratios for RBS at 30 June 2014 was 96% (31 March 2014 - 97%; 31 December 2013 - 94%).

●

Funded assets decreased by £10 billion to £736 billion principally attributable to lower debt securities in CIB coupled with RCR run-off.

●

Net loans and advances to customers decreased by £5 billion to £387 billion principally driven by RCR run-off and disposals, the impact of stronger sterling on US dollar denominated loans, partly offset by good mortgage balance growth in UK PBB.

●

Customer deposits decreased by £3 billion driven by lower balances in CFG adversely impacted by foreign exchange movements, deposit repricing in Private Banking and lower balances in CIB. This was partly offset by increased deposit balances in UK PBB.

●

Funded assets decreased by £4 billion to £736 billion principally driven by RCR run-off.

●

Net loans and advances to customers decreased by £6 billion reflecting RCR run-off and the impact of currency movements.

●

Customer deposits fell by £17 billion reflecting a managed run-down of surplus liquidity. The customer funding surplus decreased to £14 billion, while the loan:deposit ratio increased by 2 percentage points to 96%.

30 June

31 March

31 December

Funding and liquidity metrics

2014

2014

2013

Deposits (1)

£440bn

£440bn

£453bn

Deposits as a percentage of funded balance sheet

60%

59%

61%

Short-term wholesale funding (2)

£34bn

£31bn

£32bn

Wholesale funding (2)

£102bn

£102bn

£108bn

Wholesale funding as a percentage of funded balance sheet

14%

14%

15%

Short-term wholesale funding as a percentage of funded balance sheet

5%

4%

4%

Short-term wholesale funding as a percentage of total wholesale funding

33%

30%

30%

Liquidity portfolio

£138bn

£131bn

£146bn

Liquidity portfolio as a percentage of funded balance sheet

19%

18%

20%

Liquidity portfolio as a percentage of short-term wholesale funding

406%

423%

456%

(1)

Customer and bank deposits excluding repurchase agreements and stock lending and includes disposal groups.

(2)

Excludes derivative collateral.