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RNS

Interim Results 2019 - Part 1 of 2

Released 07:00 02-Aug-2019

RNS Number : 6639H
Royal Bank of Scotland Group PLC
02 August 2019
 
 

 

Interim Results 2019

 

                                                                                    

 

 

 

 

 

 

 

 

 

 

 rbs.com

 

The Royal Bank of Scotland Group plc

Interim Results for the period ending 30 June 2019

 

RBS reported an operating profit before tax of £2,694 million, an attributable profit of £2,038 million and a return on tangible equity of 12.1% for H1 2019. 

Excluding items associated with the Alawwal bank merger, as announced on 17 June 2019, H1 2019 return on tangible equity was 7.5%.

Q2 2019 operating profit before tax was £1,681 million with an attributable profit of £1,331 million and return on tangible equity of 15.8%.

RBS announces an interim ordinary dividend of 2p and a special dividend of 12p, representing £1.7 billion being returned to shareholders.

 

Supporting our customers through continued lending growth

UK Personal Banking (UK PB) gross new mortgage lending was £14.3 billion in H1 2019. Commercial Banking grew lending by £1.5 billion across SME & Mid-Corporates, Specialised business and Business Banking, while we continue to see large corporates delay financing reflecting Brexit uncertainty. NatWest Markets (NWM) helped customers raise c.£140 billion in debt capital markets in H1 2019(1).

We continue to target net lending growth across UK PB, Ulster Bank RoI, Commercial Banking and Private Banking at attractive returns. Net loans to customers increased by 2.5% on an annualised basis, increasing from £283.4 billion to £287.0 billion.

H1 2019 net impairment loss of £323 million, 21 basis points of gross customer loans, increased by £182 million compared with H1 2018 primarily reflecting a small number of single name charges in Commercial Banking. The cost of risk remains below our view of a normalised long term loss rate of 30-40 basis points.

Cost reduction of £173 million was achieved in H1 2019.

 

Continuing competitive market

Income decreased by 1.7% compared with H1 2018 excluding NWM, Central items and notable items.

Bank net interest margin (NIM) of 2.02% was 5 basis points lower than Q1 2019 primarily reflecting competitive pressures in the mortgage business and the contraction of the yield curve. Commercial Banking NIM remained broadly stable in Q2 2019.

 

Capital generation

CET1 ratio of 16.0% which, excluding the impact of the Alawwal bank merger and the dividend accrual, represents underlying capital generation of c.15 basis points in Q2 2019.

RWAs decreased by £2.3 billion in Q2 2019 as a result of a reduction due to the Alawwal bank merger, partially offset by increases in NWM and UK PB.

                      

2019 outlook - unchanged(2)

We retain the outlook we provided in the 2018 Annual Report and Accounts. We anticipate a further £1.2 billion of FX recycling gains in H2 2019 upon the transfer of ownership of NWM N.V. to NWM Plc, subject to regulatory approval, which is capital and TNAV neutral.

 

2020 outlook(2)

Given current market conditions, continued economic and political uncertainty and the contraction of the yield curve, it is very unlikely that we will achieve our target return on tangible equity of more than 12% and cost:income ratio of less than 50% in 2020. These remain our strategic targets and we believe they are achievable in the medium term.

 

Notes:

(1)   NatWest Markets has acted as Active Bookrunner for Issuers across Corporate, FI and SSA sectors, helping them to raise c. £140 billion in debt capital markets in H1 2019.

(2)   The targets, expectations and trends discussed in this section represent management's current expectations and are subject to change, including as a result of the factors described in the "Risk Factors" section on pages 253 to 263 of the 2018 Annual Report and Accounts and pages 46 and 47 of this document. These statements constitute forward-looking statements. Refer to Forward-looking statements in this announcement.

 

Business performance summary

 

 

 

 

 

 

 

 

 

Half year ended

 

Quarter ended

 

30 June

30 June

 

30 June

31 March

30 June

Performance key metrics and ratios (1)

2019 

2018 

 

2019 

2019 

2018 

Operating profit before tax

£2,694m

£1,826m

 

£1,681m

£1,013m

£613m

Profit attributable to ordinary shareholders

£2,038m

£888m

 

£1,331m

£707m

£96m

Net interest margin (NIM) (1)

1.83%

2.02%

 

1.78%

1.89%

2.01%

Bank net interest margin (RBS NIM excluding NWM) (1)

2.04%

2.13%

 

2.02%

2.07%

2.11%

Average interest earning assets

£440bn

£431bn

 

£445bn

£436bn

£435bn

Cost:income ratio (1)

57.2%

70.4%

 

52.6%

63.4%

80.0%

Earnings per share

 

 

 

 

 

 

  - basic

16.9p

7.4p

 

11.0p

5.9p

0.8p

  - basic fully diluted

16.8p

7.4p

 

11.0p

5.8p

0.8p

Return on tangible equity (1)

12.1%

5.3%

 

15.8%

8.3%

1.1%

Average tangible equity

£34bn

£34bn

 

£34bn

£34bn

£34bn

Average number of ordinary shares

 

 

 

 

 

 

 outstanding during the period (millions)

 

 

 

 

 

 

   - basic

12,058 

11,980 

 

12,069 

12,047 

12,003 

  -  fully diluted (2)

12,096 

12,039 

 

12,104 

12,087 

12,062 

 

 

 

 

 

 

 

 

30 June

31 March

31 December

Balance sheet related key metrics and ratios (1)

2019

2019 

2018

Total assets

£729.9bn

£719.1bn

£694.2bn

Funded assets  (1)

£584.3bn

£585.1bn

£560.9bn

Loans to customers - amortised cost

£310.6bn

£306.4bn

£305.1bn

Impairment provisions

£3.2bn

£3.1bn

£3.3bn

Loan impairment rate (1)

30bps

11bps

2bps

Customer deposits

£361.6bn

£355.2bn

£360.9bn

 

 

 

 

Liquidity coverage ratio (LCR)

154%

153%

158%

Liquidity portfolio

£203bn

£190bn

£198bn

Net stable funding ratio (NSFR) (3)

140%

137%

141%

Loan:deposit ratio (1)

86%

86%

85%

Total wholesale funding

£78bn

£77bn

£74bn

Short-term wholesale funding

£19bn

£19bn

£15bn

 

 

 

 

Common Equity Tier (CET1) ratio

16.0%

16.2%

16.2%

Total capital ratio

20.9%

21.1%

21.8%

Pro forma CET 1 ratio, pre dividend accrual (4)

17.1%

16.3%

16.9%

Risk-weighted assets (RWAs)

£188.5bn

£190.8bn

£188.7bn

CRR leverage ratio

5.2%

5.2%

5.4%

UK leverage ratio

5.9%

6.0%

6.2%

 

 

 

 

Tangible net asset value (TNAV) per ordinary share

290p

289p

287p

Tangible net asset value (TNAV) per ordinary share - fully diluted  (1,2)

289p

288p

286p

Tangible equity

£35,036m

£34,962m

£34,566m

Number of ordinary shares in issue (millions) (5)

12,091 

12,090 

12,049 

Number of ordinary shares in issue (millions) - fully diluted (2,5)

12,124 

12,129 

12,088 

 

Notes:

(1)   Refer to Appendix 2 for details of basis of preparation and reconciliation of non-IFRS financial and performance measures where relevant.

(2)   Includes the effect of dilutive share options and convertible securities. Dilutive shares on an average basis for H1 2019 were 38 million shares and for Q2 2019 were 35 million shares; (Q1 2019 - 40 million shares, H1 2018 - 59 million shares; Q2 2018 - 59 million shares), and as at 30 June 2019 were 33 million shares (31 March 2019 - 39 million shares; 31 December 2018 - 39 million shares).

(3)   NSFR reported in line with CRR2 regulations finalised in June 2019.

(4)   The pro forma CET 1 ratio at 30 June 2019 excluded a charge of £241 million (2p per share) for the interim dividend, a special dividend of £1,449 million (12p per share) and a foreseeable final dividend related to interim profits of £363 million (3p per share). 31 March 2019 excluded a charge of £241 million (2p per share) for the Q1 2019 foreseeable dividend. 31 December 2018 excluded a charge of £422 million (3.5p per share) for the final dividend and £904 million (7.5p per share) for the special dividend paid following the Annual General Meeting held on 25 April 2019.

(5)   Includes 17 million treasury shares (31 March 2019 - 24 million shares; 31 December 2018 - 8 million shares).

                                 

Re-segmentation

Effective from 1 January 2019, Business Banking has been transferred from UK Personal and Business Banking (UK PBB) to Commercial Banking as the nature of the business, including distribution channels, products and customers, are more closely aligned to the Commercial Banking business. Concurrent with the transfer, UK PBB has been renamed UK Personal Banking (UK PB) and the previous franchise combining UK PBB (now UK PB) and Ulster Bank RoI has been renamed Personal & Ulster. Comparatives have been re-stated.

 

Non-IFRS financial measures

This document contains a number of non-IFRS financial measures and performance metrics not defined under IFRS. For details of the basis of preparation and reconciliations where appropriate of, refer to Appendix 2 of this document.

 

 

Summary consolidated income statement for the period ended 30 June 2019

 

 

 

 

 

 

 

 

Half year ended

 

Quarter ended

 

30 June

30 June

 

30 June

31 March

30 June

 

2019 

2018 

 

2019 

2019 

2018 

 

£m

£m

 

£m

£m

£m

Net interest income

4,004 

4,326 

 

1,971 

2,033 

2,180 

 

 

 

 

 

 

 

Own credit adjustments

(46)

39 

 

(3)

(43)

18 

Strategic disposals

1,035 

 

1,035 

Other non-interest income

2,124 

2,337 

 

1,077 

1,047 

1,202 

 

 

 

 

 

 

 

Non-interest income

3,113 

2,376 

 

2,109 

1,004 

1,220 

 

 

 

 

 

 

 

Total income

7,117 

6,702 

 

4,080 

3,037 

3,400 

 

 

 

 

 

 

 

Litigation and conduct costs

(60)

(801)

 

(55)

(5)

(782)

Strategic costs

(629)

(350)

 

(434)

(195)

(141)

Other expenses

(3,411)

(3,584)

 

(1,673)

(1,738)

(1,801)

 

 

 

 

 

 

 

Operating expenses

(4,100)

(4,735)

 

(2,162)

(1,938)

(2,724)

 

 

 

 

 

 

 

Profit before impairment losses

3,017 

1,967 

 

1,918 

1,099 

676 

Impairment losses

(323)

(141)

 

(237)

(86)

(63)

 

 

 

 

 

 

 

Operating profit before tax

2,694 

1,826 

 

1,681 

1,013 

613 

Tax charge

(194)

(709)

 

22 

(216)

(396)

 

 

 

 

 

 

 

Profit for the period

2,500 

1,117 

 

1,703 

797 

217 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

Ordinary shareholders

2,038 

888 

 

1,331 

707 

96 

Other owners

202 

245 

 

102 

100 

144 

Non-controlling interests

260 

(16)

 

270 

(10)

(23)

 

 

 

 

 

 

 

Notable items within total income

 

 

 

 

 

 

Alawwal bank merger gain in NatWest Markets

444 

 

444 

FX recycling gain in Central items & other

290 

 

290 

Legacy liability release in Central items & other

256 

 

256 

IFRS volatility in Central items & other(1)

17 

(111)

 

21 

(4)

17 

UK PB debt sale gain

26 

 

FX gains in Central items & other

20 

 

20 

19 

Commercial Banking fair value and disposal (loss)/gain

(17)

192 

 

(15)

(2)

115 

NatWest Markets legacy business disposal

(27)

(57)

 

(23)

(4)

(41)

 

 

 

 

 

 

 

Notable items within operating expenses

 

 

 

 

 

 

Push payment fraud costs

(18)

 

(18)

 

 

Litigation and conduct costs

(60)

(801)

 

(55)

(5)

(782)

      of which: US RMBS

(802)

 

(803)

         of which:  DoJ

(1,040)

 

(1,040)

                         Nomura

241 

 

241 

 

Note:

(1)

IFRS volatility relates to loans which are economically hedged but for which hedge accounting is not permitted under IFRS.

 

 

 

 

Income statement overview

 

Income

Total income increased by £415 million, or 6.2%, compared with H1 2018 principally due to a £444 million gain relating to the Alawwal bank merger completion, FX recycling gains of £290 million and a £256 million legacy liability release, partially offset by lower central Treasury income, reflecting increased MREL costs and lower structural hedge income. Excluding NatWest Markets, Central items and notable items, income decreased by 1.7% compared with H1 2018 reflecting continuing margin pressure.

 

Bank NIM of 2.04% was 9 basis points lower than H1 2018 primarily reflecting competitive pressures within the personal business, while in Commercial Banking NIM increased by 3 basis points.

 

Operating expenses

Operating expenses decreased by £635 million, or 13.4%, compared with H1 2018 primarily reflecting a £741 million reduction in litigation and conduct costs, principally due to the net RMBS charge in H1 2018, partially offset by a £279 million increase in strategic costs.

 

Other expenses reduced by £173 million compared with H1 2018, despite an additional £18 million of authorised push payment fraud costs in line with new industry practice. The majority of the reduction in expenses is in Central items and reflects one-off releases in H1 2019 and innovation and other costs that were held centrally in H1 2018 which are now allocated to the franchises. Headcount reduced by c.3,400, or 4.9%, compared with H1 2018.

 

Impairments

A net impairment loss of £323 million, 21 basis points of gross customer loans, increased by £182 million compared with H1 2018 primarily reflecting a small number of single name charges in Commercial Banking and lower recoveries in UK PB, resulting from debt sales in recent years.

 

Tax

The tax charge includes a £215 million deferred tax asset credit associated with the transfer of taxable losses from NatWest Markets Plc to RBS Plc under ring-fencing regulations.

 

 

 

Non-controlling interests

Includes a charge of £274 million in relation to the gain recognised on completion of the Alawwal bank merger.

 

 

 

Business performance summary

Building the best bank for customers in the UK and Republic of Ireland

 

Customer Advocacy and Trust Scores

Our brands are our main connection with customers. Each takes a clear and differentiated position with the aim of helping us strengthen our relationship with them. For this reason we track customer advocacy for our key brands using the net-promoter score (NPS) - a commonly-used metric in banking and other industries across the world.

 

We know that we still have much to do. Our recent programme of branch closures has had a detrimental impact on NPS, particularly for the Royal Bank of Scotland.  Scores here are recovering in Personal Banking, and we are optimistic the same will happen in Business Banking.  We are determined to make a difference with the things that matter most to our customers.  We are fixing our core processes to get our service right first time more consistently while at the same time innovating to deliver better solutions.

 

The tables below show NPS and Trust scores for our key brands.

 

Personal Banking

 

Q1 2018

Q2 2018

Q3 2018

Q4 2018

Q1 2019

Q2 2019

NatWest

12

13

12

11

11

11

Royal Bank of Scotland

(14)

(21)

(22)

(17)

(14)

(10)

Ulster Bank Northern Ireland

(6)

(11)

(9)

(10)

(3)

                         1

Ulster Bank Republic of Ireland

(5)

(7)

(6)

(6)

(7)

(11)

 

Source: Ipsos MORI FRS 6 month rolling data. Latest base sizes: 3,111 for NatWest (England & Wales); 421 for Royal Bank of Scotland (Scotland). Based on the question: "How likely is it that you would recommend (brand) to a relative, friend or colleague in the next 12 months for current account banking?" Base: Claimed main banked current account customers.

Source: Coyne Research 12 month rolling data. Question: "Please indicate to what extent you would be likely to recommend (brand) to your friends or family using a scale of 0 to 10 where 0 is not at all likely and 10 is extremely likely".  Latest base sizes: 254 Northern Ireland; 292 Republic of Ireland

 

Business Banking

 

Q1 2018

Q2 2018

Q3 2018

Q4 2018

Q1 2019

Q2 2019

NatWest

(10)

(6)

(5)

(9)

(8)

(9)

Royal Bank of Scotland

(22)

(23)

(29)

(36)

(36)

(36)

 

Source: MarketVue Business Banking from Savanta Q2 2019.  Based on interviews with businesses with an annual turnover up to £2 million. Latest base sizes: 1098 for NatWest (England & Wales), 442 for Royal Bank of Scotland (Scotland). Question: "How likely would you be to recommend (bank)". Base: Claimed main bank. Data weighted by region and turnover to be representative of businesses in Great Britain.

 

 

Commercial Banking

 

Q1 2018

Q2 2018

Q3 2018

Q4 2018

Q1 2019

Q2 2019

NatWest

23

22

21

21

20

20

Royal Bank of Scotland

10

17

21

20

18

21

 

Source: MarketVue Business Banking from Savanta Q2 2019.  Based on interviews with businesses with an annual turnover over £2 million. Latest base sizes: 550 for NatWest (England & Wales), 89 for Royal Bank of Scotland (Scotland). Question: "How likely would you be to recommend (bank)". Base: Claimed main bank. Data weighted by region and turnover to be representative of businesses in Great Britain.

 

 

Trust

We also use independent experts to measure our customers' trust in the bank. Each quarter we ask customers to what extent they trust or distrust their bank to do the right thing. The score is a net measure of those customers that trust their bank (a lot or somewhat) minus those that distrust their bank (a lot or somewhat).

 

 

Q1 2018

Q2 2018

Q3 2018

Q4 2018

Q1 2019

Q2 2019

NatWest

59

58

64

56

                         60

61

Royal Bank of Scotland

15

27

25

27

28

38

 

 

Source: Populus. Latest quarter's data. Measured as a net % of those that trust RBS/NatWest to do the right thing, less those that do not. Latest base sizes: 908 for NatWest (England & Wales), 188 for Royal Bank of Scotland (Scotland).

 

 

Business performance summary

Personal & Ulster

UK Personal Banking

 

 

 

 

Half year ended

 

Quarter ended

 

 

30 June

30 June

 

30 June

31 March

30 June

 

 

2019 

2018 

 

2019 

2019 

2018 

 

 

£m

£m

 

£m

£m

£m

Total income

 

2,447 

2,551 

 

1,202 

1,245 

1,253 

Operating expenses

 

(1,229)

(1,291)

 

(594)

(635)

(605)

Impairment losses

 

(181)

(131)

 

(69)

(112)

(63)

Operating profit

 

1,037 

1,129 

 

539 

498 

585 

Return on equity

 

25.6%

31.4%

 

26.5%

24.7%

33.0%

Net interest margin

 

2.57%

2.71%

 

2.51%

2.62%

2.68%

Cost:income ratio

 

50.2%

50.6%

 

49.4%

51.0%

48.3%

 

 

 

 

 

As at

 

 

 

 

 

30 June

31 March

31 December

 

 

 

 

 

2019 

2019 

2018 

 

 

 

 

 

£bn

£bn

£bn

Net loans to customers (amortised cost)

 

 

 

 

151.9 

150.6 

148.9 

Customer deposits

 

 

 

 

147.5 

145.7 

145.3 

RWAs

 

 

 

 

37.0 

35.8 

34.3 

Loan impairment rate

 

 

 

 

18bps

30bps

38bps

 

H1 2019 compared with H1 2018

UK PB now has 6.3 million regular mobile app users, with 74% of active current account customers being regular digital users. Total digital sales volumes increased by 19% representing 48% of all sales in H1 2019. 60% of personal unsecured loan sales were via the digital channel, 4% higher than H1 2018. 55% of current accounts opened in H1 2019 were via the digital channel, with digital volumes 56% higher.

Total income was £104 million, or 4.1%, lower impacted by a £24 million reduction in debt sale gains, £7 million lower annual insurance profit share and an IFRS 9 accounting change for interest in suspense recoveries of £14 million, offset in impairments. Excluding these items, income was £59 million, or 2.3%, lower reflecting continued competitive pressure impacting mortgage margins, partially offset by increased deposit income.

Excluding strategic, litigation and conduct costs, operating expenses were £33 million, or 2.8%, lower driven by decreased staff costs associated with a 9.0% reduction in headcount and one off releases, partially offset by increased fraud costs of £15 million due to a revised customer refund approach for authorised push payments scams, annual pay award and innovation costs.

Impairments were £50 million higher reflecting lower recoveries as a result of debt sales in recent years and IFRS 9 model adjustments. The underlying default charge has increased slightly compared with H1 2018 primarily due to higher loan volumes over the past two years. Default rates in H1 2019 remain broadly stable.

Net loans to customers increased by £4.2 billion, or 2.8%, as a result of strong gross new mortgage lending and lower redemptions. Gross new mortgage lending in H1 2019 was £14.3 billion with market flow share of approximately 12%, supporting a stock share of approximately 10%.

Customer deposits increased by £4.0 billion, or 2.8%, as growth continued across current accounts and savings.

RWAs increased by £5.0 billion, or 15.6%, primarily reflecting ongoing predictive loss model recalibrations, higher lending volumes and an increase in RWAs related to the property portfolio following the introduction of IFRS 16.

Q2 2019 compared with Q1 2019

Total income was £43 million, or 3.5%, lower due to decreased savings deposit margins from the lower yield curve and continued pressure on mortgage margins. Net interest margin was 11 basis points lower due to continued pressures from both mortgages and the lower yield curve impacting savings deposit margin.

Net loans to customers increased by £1.3 billion, or 0.9%, as a result of gross new lending of both mortgages and loans. Gross new mortgage lending in the quarter was £6.7 billion. Mortgage approval share was around 13% in Q2 2019 up from 11% in Q1 2019.

Q2 2019 compared with Q2 2018

Total income decreased by £51 million, or 4.1%, primarily reflecting lower mortgage margins.

Excluding strategic, litigation and conduct costs, operating expenses were £26 million, or 4.6%, lower driven by decreased staff costs associated with a 9.0% reduction in headcount and one off releases, partially offset by increased fraud costs of £10 million due to a revised customer refund approach for authorised push payments scams and annual pay award.

 

 

Business performance summary

Ulster Bank RoI

 

 

 

 

 

 

 

 

Half year ended

 

Quarter ended

 

30 June

30 June

 

30 June

31 March

30 June

 

2019 

2018 

 

2019 

2019 

2018 

 

€m

€m

 

€m

€m

€m

Total income

324 

355 

 

158 

166 

190 

Operating expenses

(322)

(285)

 

(166)

(156)

(140)

Impairment releases

24 

30 

 

11 

13 

39 

Operating profit

26 

100 

 

23 

89 

Return on equity

2.1%

7.0%

 

0.6%

3.8%

12.5%

Net interest margin

1.63%

1.85%

 

1.62%

1.65%

1.91%

Cost:income ratio

99.3%

80.8%

 

105.1%

93.8%

74.7%

 

 

 

 

As at

 

 

 

 

30 June

31 March

31 December

 

 

 

 

2019 

2019 

2018 

 

 

 

 

€bn

€bn

€bn

Net loans to customers (amortised cost)

 

 

 

21.2 

21.1 

21.0 

Customer deposits

 

 

 

21.3 

20.3 

20.1 

RWAs

 

 

 

15.8 

16.4 

16.4 

Loan impairment rate

 

 

 

(20)bps

(24)bps

(38)bps

 

H1 2019 compared with H1 2018

Ulster Bank RoI continues to deliver digital enhancements that improve and simplify the everyday banking experience for customers. The successful launch of paperless processes for everyday banking products has made it easier and quicker for customers to move from application to drawdown. 70% of Ulster Bank RoI's active personal current account customers are choosing to bank through digital channels. Mobile payments and transfers increased by 30% compared with H1 18.

Total income was €31 million, or 8.7%, lower primarily reflecting a decrease in income associated with the sale of a portfolio of non-performing loans (NPL), an IFRS 9 accounting change for interest in suspense recoveries of €10 million and one-off benefits in Q2 2018.

Excluding strategic, litigation and conduct costs, operating expenses were €15 million, or 5.7%, higher largely reflecting the continued focus on strengthening the bank's risk and compliance environment and higher levies.

The net impairment release of €24 million principally reflects the net impact of an improvement in the performance of the NPL portfolio, NPL deleveraging and a change in accounting treatment of interest in suspense.

Net loans to customers decreased by €0.4 billion, or 1.9%, primarily driven by the sale of a portfolio of non-performing loans of €0.6 billion in 2018. New lending of €1.6 billion is 48.2% higher, with strong growth across all key segments.

Customer deposits increased by €1.8 billion, or 9.2%, supporting an 11 percentage point reduction in the loan to deposit ratio to 100%.

Risk weighted assets decreased by €3.2 billion, or 16.8%, largely due to the sale of a portfolio of NPLs in 2018 and an improvement in credit metrics, reflecting a more positive economic environment.

Q2 2019 compared with Q1 2019

Total income was €8 million, or 4.8%, lower largely due to an €11 million one-off benefit following a restructure of interest rate swaps on free funds in Q1 2019. Net interest margin was 3 basis points lower, primarily due to an increase in cash placements.   

Net loans to customers increased by €0.1 billion, or 0.5%, while customer deposits increased by €1.0 billion, or 4.9%.

Q2 2019 compared with Q2 2018

Total income decreased by €32 million, or 16.8%, primarily reflecting a reduction in income associated with the NPL portfolio and non-recurring funding and asset sale income benefits in Q2 2018.  

A net impairment release of €11 million principally reflects the net impact of improvement in the performance of the NPL portfolio, non-performing lending deleveraging and a change in the accounting treatment of interest in suspense.

 

 

Business performance summary

Commercial

Commercial Banking

 

 

 

 

 

 

 

 

 

 

Half year ended

 

Quarter ended

 

 

30 June

30 June

 

30 June

31 March

30 June

 

 

2019 

2018 

 

2019 

2019 

2018 

 

 

£m

£m

 

£m

£m

£m

Total income

 

2,165 

2,390 

 

1,083 

1,082 

1,232 

Operating expenses

 

(1,262)

(1,140)

 

(622)

(640)

(545)

Impairment losses

(202)

(35)

 

(197)

(5)

(23)

Operating profit

 

701 

1,215 

 

264 

437 

664 

Return on equity

 

8.8%

15.1%

 

6.2%

11.5%

16.4%

Net interest margin

 

1.98%

1.95%

 

1.97%

1.99%

1.98%

Cost:income ratio

 

56.9%

46.4%

 

56.1%

57.8%

43.0%

 

 

 

 

 

 

As at

 

 

 

 

 

 

30 June

31 March

31 December

 

 

 

 

 

2019 

2019 

2018 

 

 

 

 

 

£bn

£bn

£bn

Net loans to customer (amortised cost)

 

 

101.4 

100.8 

101.4 

Customer deposits

 

 

 

 

133.4 

131.8 

134.4 

RWAs

 

 

 

 

77.8 

78.1 

78.4 

Loan impairment rate

 

 

 

 

77bps

2bps

2bps

 

H1 2019 compared with H1 2018

The Bankline mobile app now has over 12,000 users, up from c.2,500 in Q1 2019, of which over 3,500 are daily users. Our customer support chatbot, Cora, now processes over 7,000 conversations a month, with consistently positive feedback. The improved lending journey continues to provide a decision in principle in under 24 hours for approximately 74% of loans.

Total income decreased by £225 million, or 9.4%, reflecting asset disposal and fair value gains of £192 million in H1 2018 in comparison to £17 million asset disposal and fair value losses in H1 2019 combined with lower non-interest income, partially offset by higher deposit income.

Excluding strategic, litigation and conduct costs, operating expenses were £13 million, or 1.2%, higher primarily reflecting an £11 million one-off item in Q1 2018, £11 million higher operating lease depreciation, increased remediation, innovation and technology spend, partially offset by £28 million lower back office operational costs.

Impairments were £167 million higher primarily reflecting a small number of single name charges and releases related to data quality improvements in the prior year.

Net loans to customers were £1.2 billion, or 1.2%, lower due to capital actions taken in H2 2018, business transfers of £0.9 billion and reductions relating to EU divestment, partially offset by growth of £1.3 billion across SME & Mid-Corporates, Specialised business and Business Banking. Net loans to customers remained stable in the first half of 2019 at £101.4 billion with reductions relating to EU divestment and Large Corporates & Institutions offset by growth of £1.5 billion across SME & Mid-Corporates, Specialised business and Business Banking.

Customer deposits decreased by £1.7 billion, due to business transfers of £1.0 billion to RBSI in H2 2018 and net outflows of £0.7 billion supporting a loan:deposit ratio of 76%.

RWAs decreased by £5.3 billion, or 6.4%, driven by active capital management in H2 2018 and business transfers of £1.9 billion, partially offset by model updates and underlying business growth.

Q2 2019 compared with Q1 2019

Total income remained stable at £1,083 million as balance growth was partially offset by £15 million of asset disposal and fair value losses in comparison with a £2 million loss in Q1 2019. Net interest margin was broadly stable, reducing by 2 basis points largely due to lower deposit funding benefits.

Excluding strategic, litigation and conduct costs, operating expenses were £50 million lower, due to a reduction in back office operational costs.

Impairments of £197 million increased by £192 million primarily reflecting a small number of single name charges in the second quarter.

Net loans to customers increased by £0.6 billion to £101.4 billion as growth across SME & Mid-Corporates, Specialised business and Business Banking was partially offset by £0.4 billion Large Corporates & Institutions Western European transfers to NatWest Markets and planned reductions in EU divestment.

Q2 2019 compared with Q2 2018

Total income decreased by £149 million, or 12.1%, reflecting asset disposal and fair value losses of £15 million compared to asset disposal and fair value gains of £115 million in Q2 2018 and lower non-interest income.

 

 

 

 

Business performance summary

Private Banking

 

 

 

 

 

 

 

 

 

 

Half year ended

 

Quarter ended

 

 

30 June

30 June

 

30 June

31 March

30 June

 

 

2019 

2018 

 

2019 

2019 

2018 

 

 

£m

£m

 

£m

£m

£m

Total income

 

384 

382 

 

191 

193 

198 

Operating expenses

 

(232)

(225)

 

(115)

(117)

(104)

Impairment releases/(losses)

 

(1)

 

(1)

Operating profit

 

155 

156 

 

75 

80 

94 

Return on equity

 

16.6%

15.8%

 

15.9%

17.1%

19.3%

Net interest margin

 

2.48%

2.53%

 

2.44%

2.52%

2.54%

Cost:income ratio

 

60.4%

58.9%

 

60.2%

60.6%

52.5%

 

 

 

 

 

As at

 

 

 

 

 

30 June

31 March

31 December

 

 

 

 

 

2019 

2019 

2018 

 

 

 

 

 

£bn

£bn

£bn

Net loans to customers (amortised cost)

 

 

 

 

14.7 

14.4 

14.3 

Customer deposits

 

 

 

 

28.0 

26.9 

28.4 

RWAs

 

 

 

 

9.7 

9.6 

9.4 

 

 

 

 

 

 

 

 

AUMs

 

 

 

 

21.9 

21.0 

19.8 

Assets Under Administration (1)

 

 

 

 

7.0 

6.8 

6.6 

Total Assets Under Management and Administration (AUMA)

 

 

 

 

28.9 

27.8 

26.4 

Note:

(1)    Private Banking manages assets under management portfolios on behalf of UK PB and RBSI. Prior to Q4 2018, the assets under management portfolios of UK PB and RBSI were not included. Private Banking receives a management fee from UK PB and clients of RBSI in respect of providing this service.

H1 2019 compared with H1 2018

Private Banking offers a service-led, digitally enabled experience for its clients with 74% of clients registered for digital banking, 85% of whom are active users. Coutts Connect, the social platform which allows clients to network and build working relationships, continues to attract users with a 10% increase in registered clients in the quarter. Over 1,500 clients are registered, with over 70% of conversations on a client to client basis.

Total income remained broadly stable as net interest income increased by £9 million due to deposit income benefits and asset and deposit volume growth, whilst non interest income reduced by £7 million due to movements in investment income one-offs.

Excluding strategic, litigation and conduct costs, operating expenses were £3 million lower reflecting decreased back office operational costs, partially offset by one-off non staff related costs.

Impairments were £4 million lower primarily due to data quality improvements and single name releases.

Net loans to customers increased by £0.9 billion, or 6.5%, primarily driven by mortgage lending.

Customer deposits increased by £1.6 billion, or 6.1%, as Q4 2018 inflows were maintained.

RWAs increased by £0.3 billion, or 3.2%, relative to 6.5% growth in net loans to customers.

Assets under management in Private Banking remained broadly stable. For the year to date, growth of £2.1 billion reflects positive investment performance of £1.9 billion following adverse market movements in Q4 2018 and net new business of £0.2 billion.

Total assets under management and administration overseen by Private Banking increased by £0.4 billion to £28.9 billion in comparison to H1 2018. For the year to date growth of £2.5 billion reflects £2.3 billion investment performance and net new business of £0.2 billion.

Q2 2019 compared with Q1 2019

Total income remained broadly stable as reduced deposit funding benefits were partially offset by balance growth and higher investment income. Net interest margin decreased by 8 basis points to 2.44% mainly due to lower deposit funding benefits.

Excluding strategic, litigation and conduct costs, operating expenses were £7 million lower due to a reduction in back office operational costs.

Impairments were £5 million higher due to single name releases in Q1 2019.

Net loans to customers increased by £0.3 billion driven by mortgage lending.

Assets under management in Private Banking increased by £0.9 billion driven by investment performance of £0.7 billion and net new business of £0.2 billion.

Total assets under management and administration overseen by Private Banking increased by £1.1 billion as a result of investment performance of £0.9 billion and net new business of £0.2 billion.

Q2 2019 compared with Q2 2018

Total income reduced by £7 million, or 3.5%, due to lower non interest income as a result of a £4 million one-off benefit in Q2 2018 related to MIFID II and a £3 million one-off investment income charge in Q2 2019.

 

 

Business performance summary

RBS International

 

 

 

 

 

 

 

 

 

 

Half year ended

 

Quarter ended

 

 

30 June

30 June

 

30 June

31 March

30 June

 

 

2019 

2018 

 

2019 

2019 

2018 

 

 

£m

£m

 

£m

£m

£m

Total income

 

310 

284 

 

159 

151 

147 

Operating expenses

 

(119)

(114)

 

(60)

(59)

(55)

Impairment releases

 

 

Operating profit

 

194 

173 

 

101 

93 

95 

Return on equity

 

29.7%

25.7%

 

30.8%

28.6%

27.9%

Net interest margin

 

1.69%

1.64%

 

1.68%

1.70%

1.72%

Cost:income ratio

 

38.4%

40.1%

 

37.7%

39.1%

37.4%

 

 

 

 

 

As at

 

 

 

 

 

30 June

31 March

31 December

 

 

 

 

 

2019 

2019 

2018 

 

 

 

 

 

£bn

£bn

£bn

Net loans to customers (amortised cost)

 

 

 

 

13.6 

13.3 

13.3 

Customer deposits

 

 

 

 

28.1 

27.6 

27.5 

RWAs

 

 

 

 

6.9 

7.0 

6.9 

 

H1 2019 compared with H1 2018

The migration of customers to the new Institutional Banking electronic platform is now complete, improving the customer experience, functionality and resilience of the platform. The Retail mobile banking app has seen a 9% increase in registrations in 2019 and 40% of Local Banking customers are now regular digital users. As part of the strategy to make RBS International an easier bank to deal with, it launched straight through processing for existing customers to open new savings accounts online. 66% of savings accounts opened since launch have used the process without need for paper or a signature.

Total income was £26 million, or 9.2%, higher driven by higher customer deposit margins, £12 million, and £5 million due to higher lending primarily in the Institutional Banking sector.

Operating expenses were £5 million, or 4.4% higher principally resulting from a £10 million litigation and conduct provision release in the prior year. Excluding strategic, litigation and conduct costs, operating expenses were £12 million, or 9.9%, lower driven by a reduction in back office costs.

A net impairment release of £3 million remained stable compared with prior year, reflecting a number of one-off releases.

Net loans to customers were £0.6 billion, or 4.6%, higher as a result of higher volumes in the Institutional Banking sector.

Customer deposits decreased £0.3 billion, or 1.1% as a result of lower short term inflows in Institutional Banking in H1 2019 compared with the prior year, partially offset by a £1.0 billion transfer from Commercial Banking in H2 2018 and underlying growth in the Funds sector in H1 2019.

RWAs were £0.1 billion, or 1.5%, higher as a result of increased lending balances.

H1 2019 return on equity of 29.7% compared with 25.7% in H1 2018.

Q2 2019 compared with Q1 2019

Total income was £8 million higher due to increased lending and funding income partially offset by lower non utilisation fees. Net interest margin is 2 basis points lower due to lower returns on investment of surplus deposits. 

Net loans to customers were £0.3 billion higher reflecting increased lending in the Institutional Banking sector.

Q2 2019 compared with Q2 2018

Total expenses were £5 million, or 9.1%, higher following a £9 million litigation and conduct release in Q2 2018 partially offset by lower remediation spend.

 

 

 

 

Business performance summary

NatWest Markets(1)

 

 

Half year ended

 

Quarter ended

 

 

30 June

30 June

 

30 June

31 March

30 June

 

 

2019 

2018 

 

2019 

2019 

2018 

 

 

£m

£m

 

£m

£m

£m

Total income

 

942  

721  

 

686  

256  

284  

  of which: Core income excluding own credit adjustments

702  

728  

 

325  

377  

316  

  of which: Legacy income

 

287  

(46)

 

366  

(79)

(50)

Own credit adjustments

 

(47)

39  

 

(5)

(42)

18  

Operating expenses

 

(678)

(671)

 

(344)

(334)

(322)

Impairment releases/(losses)

 

36  

(4)

 

20  

16  

(13)

Operating profit/(loss)

 

300  

46  

 

362  

(62)

(51)

Return on equity

 

1.0%

(0.5%)

 

4.4%

(2.4%)

(3.0%)

Cost:income ratio

 

72.0%

93.1%

 

50.1%

130.5%

113.4%

 

 

 

 

 

As at

 

 

 

 

 

30 June

31 March

31 December

 

 

 

 

 

2019 

2019 

2018 

 

 

 

 

 

£bn

£bn

£bn

Funded assets

 

 

 

 

133.4  

138.8  

111.4  

RWAs

 

 

 

 

41.4  

44.6  

44.9  

 

Note:

(1)   The NatWest Markets operating segment is not the same as the NatWest Markets Plc legal entity or group. NatWest Markets Plc entity includes the Central items & other segment but excludes NatWest Markets N.V. for statutory reporting. Refer to NatWest Markets Plc and NatWest Markets N.V. interim results that were released on 2 August 2019 for further details.

 

H1 2019 compared with H1 2018

NatWest Markets continues to use technology to enhance the way it provides smart solutions to clients. For example, physical data centres are in the process of being moved to the cloud; new collaboration channels such as Symphony allows us to engage and transact with clients in new ways and machine learning across written customer communication helps us understand and eliminate common client problems.

Total income increased by £221 million, or 30.7%, to £942 million including a £444 million gain relating to the Alawwal bank merger completion. Income in the core business fell by £26 million, or 3.6%. Customer activity remained robust in difficult market conditions but the business was impacted by higher funding costs associated with becoming a standalone non ring-fenced bank. Own credit adjustments deteriorated by £86 million reflecting the tightening of credit spreads in H1 2019.

Excluding strategic, litigation and conduct costs, operating expenses continued to fall, down £25 million, or 4.0%, reflecting lower back office operations costs.

RWAs decreased by £8.7 billion reflecting the reduction in Alawwal bank RWAs from £5.8 billion to £1.1 billion and other legacy reductions. The remaining Alawwal bank RWAs reflect NWM Plc's holding following the merger.

Q2 2019 compared with Q1 2019

Total income increased by £430 million primarily reflecting the Alawwal bank gain in legacy. Income in the core business fell by £52 million reflecting the impact of difficult market conditions.

RWAs decreased by £3.2 billion reflecting the Alawwal bank reduction, partially offset by an increase in the core business primarily due to increased credit risk as a result of customer activity in the banking book and the transfer of Western European clients from Commercial Banking.

Excluding strategic, litigation and conduct costs, operating expenses continued to fall, down £20 million in the quarter primarily due to lower back office operations costs.

Q2 2019 compared with Q2 2018

Total income increased by £402 million primarily reflecting the Alawwal gain in legacy. Income in the core business increased by £9 million, or 2.8% as customer activity remained robust in difficult market conditions, although Q2 2018 was impacted by some turbulence in European bond markets.

Excluding strategic, litigation and conduct costs, operating expenses continued to fall, down £15 million, or 4.9%, due to lower back office operations costs.

 

 

 

Business performance summary

 

 

 

 

 

 

 

Central items & other

 

 

 

 

 

 

 

 

 

Half year ended

 

Quarter ended

 

 

 

30 June

30 June

 

30 June

31 March

30 June

 

 

 

2019 

2018 

 

2019 

2019 

2018 

 

 

 

£m

£m

 

£m

£m

£m

 

Central items not allocated

 

284  

(979)

 

337  

(53)

(850)

 

 

 

 

 

 

 

 

 

 

Central items not allocated represented a gain of £284 million in H1 2019 primarily reflecting FX recycling gains of £290 million and a legacy liability release of £256 million, both relating to the Alawwal merger, partially offset by strategic costs of £315 million. Other expenses decreased by £124 million compared with H1 2018 primarily due to one-off releases in H1 2019 and innovation and other costs that were held centrally in 2018 that are now allocated to the franchises.

                   

 

Impact of Alawwal bank merger

 

 

 

 

 

 

The impact on profit of the Alawwal bank merger is summarised below:

 

 

 

 

 

 

 

 

 

Segment

 

 

Legal entity

 

 

Central

 

 

 

 

 

NatWest

items &

 

 

 

 

 

Markets

other

RBS

 

RBS

NWM N.V.

 

£m

£m

£m

 

£m

£m

Alawwal bank merger gain

444  

444  

 

(12)

456  

Legacy liability release

256  

256  

 

256  

FX recycling gain

290  

290  

 

290  

Impact on non-interest income

444  

546  

990  

 

534  

456  

 

 

 

 

 

 

 

Impact on RBS profit before tax

 

 

990  

 

 

 

Tax credit

 

 

41  

 

 

 

Profit after tax

 

 

1,031  

 

 

 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

Ordinary shareholders

 

 

757  

 

 

 

Non-controlling interests

 

 

274  

 

 

 

 

Business performance summary

Capital and leverage ratios

 

 

The table below sets out the key Capital and Leverage ratios on an end-point basis.

End-point CRR basis (1)

 

30 June 

31 December 

 

2019 

2018 

Capital adequacy ratios

CET1

16.0 

16.2 

Tier 1

18.2 

18.4 

Total

20.9 

21.8 

 

 

 

Capital

£m

£m

 

 

 

Tangible equity

35,036 

34,566 

 

 

 

Expected loss less impairment provisions

(726)

(654)

Prudential valuation adjustment

(419)

(494)

Deferred tax assets

(869)

(740)

Own credit adjustments

(261)

(405)

Pension fund assets

(400)

(394)

Cash flow hedging reserve

(117)

191 

Foreseeable dividends

(2,053)

(1,326)

Other deductions

(105)

 

 

 

Total deductions

(4,845)

(3,927)

 

 

 

  CET1 capital

30,191 

30,639 

  AT1 capital

4,051 

4,051 

 

 

 

Tier 1 capital

34,242 

34,690 

Tier 2 capital

5,119 

6,483 

 

 

 

Total regulatory capital

39,361 

41,173 

 

 

 

Risk-weighted assets

 

 

 

 

 

Credit risk

137,100 

137,900 

Counterparty credit risk

14,200 

13,600 

Market risk

14,600 

14,800 

Operational risk

22,600 

22,400 

 

 

 

Total RWAs

188,500 

188,700 

 

 

 

Leverage

 

 

 

 

 

Cash and balances at central banks

85,400 

88,900 

Trading assets

85,400 

75,100 

Derivatives

145,600 

133,300 

Financial assets

389,200 

377,500 

Other assets

24,300 

19,400 

 

 

 

Total assets

729,900 

694,200 

Derivatives

 

 

  - netting and variation margin

(156,600)

(141,300)

  - potential future exposures

44,100 

42,100 

Securities financing transactions gross up

1,900 

2,100 

Undrawn commitments

49,300 

50,300 

Regulatory deductions and other adjustments

(9,500)

(2,900)

 

 

 

CRR leverage exposure

659,100 

644,500 

 

 

 

CRR leverage ratio %

5.2 

5.4 

 

 

 

UK leverage exposure (2)

576,600 

559,500 

 

 

 

UK leverage ratio % (2)

5.9 

6.2 

 

 

 

Notes:

(1)   Based on end-point CRR Tier 1 capital and leverage exposure under the CRR Delegated Act.

(2)   Based on end-point CRR Tier 1 capital and UK leverage exposures reflecting the post EU referendum measures announced by the Bank of England in the third quarter of 2016.

 

Segment performance

 

Half year ended 30 June 2019

 

Personal & Ulster

 

Commercial & Private

 

 

 

Central

 

 

UK Personal

Ulster

 

Commercial

Private

RBS

 

NatWest

items &

Total

 

Banking

Bank RoI

 

Banking

Banking

International

 

Markets

other (1)

RBS

 

£m

£m

 

£m

£m

£m

 

£m

£m

£m

Income statement

 

 

 

 

 

 

 

 

 

 

Net interest income

2,084 

200 

 

1,424 

261 

242 

 

(122)

(85)

4,004 

Non-interest income

363 

82 

 

741 

123 

68 

 

667 

80 

2,124 

Own credit adjustments

 

 

(47)

(46)

Strategic disposals

 

 

444 

591 

1,035 

Total income

2,447 

283 

 

2,165 

384 

310 

 

942 

586 

7,117 

Direct expenses

 

 

 

 

 

 

 

 

 

 

  - staff costs

(313)

(106)

 

(374)

(82)

(59)

 

(349)

(558)

(1,841)

  - other costs

(164)

(48)

 

(155)

(35)

(23)

 

(86)

(1,059)

(1,570)

Indirect expenses

(675)

(88)

 

(569)

(96)

(27)

 

(165)

1,620 

Strategic costs

 

 

 

 

 

 

 

 

 

 

  - direct

(9)

 

(32)

(5)

 

(49)

(538)

(629)

  - indirect

(75)

(10)

 

(86)

(17)

(5)

 

(30)

223 

Litigation and conduct costs

(6)

(20)

 

(46)

(2)

 

13 

(60)

Operating expenses

(1,229)

(281)

 

(1,262)

(232)

(119)

 

(678)

(299)

(4,100)

Operating profit before impairment (losses)/releases

1,218 

 

903 

152 

191 

 

264 

287 

3,017 

Impairment (losses)/releases

(181)

21 

 

(202)

 

36 

(3)

(323)

Operating profit

1,037 

23 

 

701 

155 

194 

 

300 

284 

2,694 

Additional information

 

 

 

 

 

 

 

 

 

 

Return on equity (2)

25.6%

2.1%

 

8.8%

16.6%

29.7%

 

1.0%

nm

12.1%

Cost:income ratio (2)

50.2%

99.3%

 

56.9%

60.4%

38.4%

 

72.0%

nm

57.2%

Loan impairment rate (2)

24bps

(21)bps

 

39bps

nm

nm

 

nm

nm

21bps

Impairment provisions (£bn)

(1.2)

(0.7)

 

(1.2)

 

(0.1)

(3.2)

Impairment provisions - stage 3 (£bn)

(0.7)

(0.6)

 

(0.9)

 

(0.1)

(2.3)

Net interest margin

2.57%

1.63%

 

1.98%

2.48%

1.69%

 

(0.73%)

nm

1.83%

Third party customer asset rate

3.28%

2.30%

 

3.20%

2.95%

1.75%

 

nm

nm

nm

Third party customer funding rate

(0.37%)

(0.17%)

 

(0.43%)

(0.44%)

(0.14%)

 

nm

nm

nm

Average interest earning assets (£bn)

163.8 

24.7 

 

145.3 

21.2 

28.8 

 

33.3 

23.2 

440.3 

Total assets (£bn)

173.9 

26.4 

 

165.6 

21.9 

30.4 

 

278.9 

32.8 

729.9 

Funded assets (£bn)

173.9 

26.4 

 

165.6 

21.9 

30.4 

 

133.4 

32.7 

584.3 

Net loans to customers - amortised cost (£bn)

151.9 

19.0 

 

101.4 

14.7 

13.6 

 

9.3 

0.7 

310.6 

Customer deposits (£bn)

147.5 

19.0 

 

133.4 

28.0 

28.1 

 

2.8 

2.8 

361.6 

Risk-weighted assets (RWAs) (£bn)

37.0 

14.2 

 

77.8 

9.7 

6.9 

 

41.4 

1.5 

188.5 

RWA equivalent (RWAes) (£bn)

38.1 

14.5 

 

79.3 

9.7 

7.0 

 

46.1 

1.8 

196.5 

Employee numbers (FTEs - thousands)

21.3 

3.1 

 

10.5 

1.9 

1.8 

 

5.0 

23.0 

66.6 

 

 

 

 

 

 

 

 

 

 

 

For the notes to this table refer to page 18. nm = not meaningful

 

 

 

 

 

 

 

Segment performance

 

 

 

 

 

 

 

 

 

 

 

 

Half year ended 30 June 2018

 

Personal & Ulster

 

Commercial & Private

 

 

 

Central

 

 

UK Personal

Ulster

 

Commercial

Private

RBS

 

NatWest

items &

Total

 

Banking

Bank RoI

 

Banking

Banking

International

 

Markets

other (1)

RBS

 

£m

£m

 

£m

£m

£m

 

£m

£m

£m

Income statement

 

 

 

 

 

 

 

 

 

 

Net interest income

2,139 

224 

 

1,400 

252 

219 

 

67 

25 

4,326 

Non-interest income

412 

88 

 

990 

130 

65 

 

615 

37 

2,337 

Own credit adjustments

 

 

39 

39 

Total income

2,551 

312 

 

2,390 

382 

284 

 

721 

62 

6,702 

Direct expenses

 

 

 

 

 

 

 

 

 

 

 - staff costs

(360)

(98)

 

(374)

(83)

(51)

 

(309)

(628)

(1,903)

 - other costs

(117)

(45)

 

(114)

(28)

(33)

 

(115)

(1,229)

(1,681)

Indirect expenses

(708)

(88)

 

(597)

(105)

(37)

 

(201)

1,736 

Strategic costs 

 

 

 

 

 

 

 

 

 

 

 - direct

(14)

 

(20)

(1)

 

(28)

(289)

(350)

 - indirect

(85)

(6)

 

(44)

(7)

(3)

 

(6)

151 

Litigation and conduct costs

(7)

(17)

 

(1)

10 

 

(12)

(783)

(801)

Operating expenses

(1,291)

(252)

 

(1,140)

(225)

(114)

 

(671)

(1,042)

(4,735)

Operating profit/(loss) before impairment (losses)/releases

1,260 

60 

 

1,250 

157 

170 

 

50 

(980)

1,967 

Impairment (losses)/releases

(131)

26 

 

(35)

(1)

 

(4)

(141)

Operating profit/(loss)

1,129 

86 

 

1,215 

156 

173 

 

46 

(979)

1,826 

Additional information

 

 

 

 

 

 

 

 

 

 

Return on equity (2)

31.4%

7.0%

 

15.1%

15.8%

25.7%

 

(0.5%)

nm

5.3%

Cost:income ratio (2)

50.6%

80.8%

 

46.4%

58.9%

40.1%

 

93.1%

nm

70.4%

Loan impairment rate (2)

18bps

(26)bps

 

7bps

nm

nm

 

nm

nm

9bps

Impairment provisions (£bn)

(1.1)

(1.1)

 

(1.5)

(0.1)

 

(0.2)

0.1 

(3.9)

Impairment provisions - stage 3 (£bn)

(0.7)

(1.0)

 

(1.3)

 

(0.1)

(3.1)

Net interest margin

2.71%

1.85%

 

1.95%

2.53%

1.64%

 

0.50%

nm

2.02%

Third party customer asset rate

3.38%

2.39%

 

2.93%

2.85%

2.44%

 

nm

nm

nm

Third party customer funding rate

(0.29%)

(0.21%)

 

(0.26%)

(0.18%)

(0.09%)

 

nm

nm

nm

Average interest earning assets (£bn)

159.3 

24.4 

 

144.8 

20.1 

26.9 

 

27.1 

28.6 

431.2 

Total assets (£bn)

168.4 

24.9 

 

165.7 

20.9 

29.8 

 

285.0 

53.6 

748.3 

Funded assets (£bn)

168.4 

24.8 

 

165.7 

20.9 

29.8 

 

134.5 

53.1 

597.2 

Net loans to customers - amortised cost (£bn)

147.7 

19.1 

 

102.6 

13.8 

13.0 

 

8.1 

(0.2)

304.1 

Customer deposits (£bn)

143.5 

17.3 

 

135.1 

26.4 

28.4 

 

3.6 

4.7 

359.0 

Risk-weighted assets (RWAs) (£bn)

32.0 

16.8 

 

83.1 

9.4 

6.8 

 

50.1 

0.6 

198.8 

RWA equivalent (RWAes) (£bn)

32.7 

17.3 

 

86.5 

9.5 

6.8 

 

54.1 

1.0 

207.9 

Employee numbers (FTEs - thousands)

23.4 

3.1 

 

10.7 

1.9 

1.7 

 

5.6 

23.6 

70.0 

For the notes to this table refer to page 18. nm = not meaningful.

 

 

 

 

 

 

 

Segment performance

 

Quarter ended 30 June 2019

 

Personal & Ulster

 

Commercial & Private

 

 

 

Central

 

 

UK Personal

Ulster

 

Commercial

Private

RBS

 

NatWest

items &

Total

 

Banking

Bank RoI

 

Banking

Banking

International

 

Markets

other (1)

RBS

 

£m

£m

 

£m

£m

£m

 

£m

£m

£m

Income statement

 

 

 

 

 

 

 

 

 

 

Net interest income

1,032 

102 

 

716 

129 

125 

 

(91)

(42)

1,971 

Non-interest income

170 

35 

 

367 

62 

34 

 

338 

71 

1,077 

Own credit adjustments

 

 

(5)

(3)

Strategic disposals

 

 

444 

591 

1,035 

Total income

1,202 

138 

 

1,083 

191 

159 

 

686 

621 

4,080 

Direct expenses

 

 

 

 

 

 

 

 

 

 

  - staff costs

(155)

(54)

 

(184)

(41)

(31)

 

(176)

(264)

(905)

  - other costs

(90)

(22)

 

(80)

(17)

(10)

 

(38)

(511)

(768)

Indirect expenses

(297)

(41)

 

(260)

(45)

(13)

 

(76)

732 

Strategic costs

 

 

 

 

 

 

 

 

 

 

  - direct

(4)

 

(12)

(3)

 

(31)

(388)

(434)

  - indirect

(49)

(5)

 

(50)

(10)

(3)

 

(17)

134 

Litigation and conduct costs

(7)

(19)

 

(36)

(2)

 

(6)

15 

(55)

Operating expenses

(594)

(145)

 

(622)

(115)

(60)

 

(344)

(282)

(2,162)

Operating profit/(loss) before impairment (losses)/releases

608 

(7)

 

461 

76 

99 

 

342 

339 

1,918 

Impairment (losses)/releases

(69)

10 

 

(197)

(1)

 

20 

(2)

(237)

Operating profit

539 

 

264 

75 

101 

 

362 

337 

1,681 

Additional information

 

 

 

 

 

 

 

 

 

 

Return on equity (2)

26.5%

0.6%

 

6.2%

15.9%

30.8%

 

4.4%

nm

15.8%

Cost:income ratio (2)

49.4%

105.1%

 

56.1%

60.2%

37.7%

 

50.1%

nm

52.6%

Loan impairment rate (2)

18bps

(20)bps

 

77bps

nm

nm

 

nm

nm

30bps

Impairment provisions (£bn)

(1.2)

(0.7)

 

(1.2)

 

(0.1)

(3.2)

Impairment provisions - stage 3 (£bn)

(0.7)

(0.6)

 

(0.9)

 

(0.1)

(2.3)

Net interest margin

2.51%

1.62%

 

1.97%

2.44%

1.68%

 

(1.05%)

nm

1.78%

Third party customer asset rate

3.25%

2.29%

 

3.18%

2.89%

1.79%

 

nm

nm

nm

Third party customer funding rate

(0.38%)

(0.15%)

 

(0.42%)

(0.45%)

(0.13%)

 

nm

nm

nm

Average interest earning assets (£bn)

164.8 

25.3 

 

146.1 

21.2 

29.8 

 

34.4 

23.2 

444.8 

Total assets (£bn)

173.9 

26.4 

 

165.6 

21.9 

30.4 

 

278.9 

32.8 

729.9 

Funded assets (£bn)

173.9 

26.4 

 

165.6 

21.9 

30.4 

 

133.4 

32.7 

584.3 

Net loans to customers - amortised cost (£bn)

151.9 

19.0 

 

101.4 

14.7 

13.6 

 

9.3 

0.7 

310.6 

Customer deposits (£bn)

147.5 

19.0 

 

133.4 

28.0 

28.1 

 

2.8 

2.8 

361.6 

Risk-weighted assets (RWAs) (£bn)

37.0 

14.2 

 

77.8 

9.7 

6.9 

 

41.4 

1.5 

188.5 

RWA equivalent (RWAes) (£bn)

38.1 

14.5 

 

79.3 

9.7 

7.0 

 

46.1 

1.8 

196.5 

Employee numbers (FTEs - thousands)

21.3 

3.1 

 

10.5 

1.9 

1.8 

 

5.0 

23.0 

66.6 

 

 

 

 

 

 

 

 

 

 

 

For the notes to this table refer to page 18. nm = not meaningful

 

 

 

 

 

 

 

Segment performance

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended 31 March 2019

 

Personal & Ulster

 

Commercial & Private

 

 

 

Central

 

 

UK Personal

Ulster

 

Commercial

Private

RBS

 

NatWest

items &

Total

 

Banking

Bank RoI

 

Banking

Banking

International

 

Markets

other (1)

RBS

 

£m

£m

 

£m

£m

£m

 

£m

£m

£m

Income statement

 

 

 

 

 

 

 

 

 

 

Net interest income

1,052 

98 

 

708 

132 

117 

 

(31)

(43)

2,033 

Non-interest income

193 

47 

 

374 

61 

34 

 

329 

1,047 

Own credit adjustments

 

 

(42)

(1)

(43)

Total income

1,245 

145 

 

1,082 

193 

151 

 

256 

(35)

3,037 

Direct expenses

 

 

 

 

 

 

 

 

 

 

 - staff costs

(158)

(52)

 

(190)

(41)

(28)

 

(173)

(294)

(936)

 - other costs

(74)

(26)

 

(75)

(18)

(13)

 

(48)

(548)

(802)

Indirect expenses

(378)

(47)

 

(309)

(51)

(14)

 

(89)

888 

Strategic costs  

 

 

 

 

 

 

 

 

 

 

 - direct

(5)

 

(20)

(2)

 

(18)

(150)

(195)

 - indirect

(26)

(5)

 

(36)

(7)

(2)

 

(13)

89 

Litigation and conduct costs

(1)

 

(10)

 

(2)

(5)

Operating expenses

(635)

(136)

 

(640)

(117)

(59)

 

(334)

(17)

(1,938)

Operating profit/(loss) before impairment (losses)/releases

610 

 

442 

76 

92 

 

(78)

(52)

1,099 

Impairment (losses)/releases

(112)

11 

 

(5)

 

16 

(1)

(86)

Operating profit/(loss)

498 

20 

 

437 

80 

93 

 

(62)

(53)

1,013 

Additional information

 

 

 

 

 

 

 

 

 

 

Return on equity (2)

24.7%

3.8%

 

11.5%

17.1%

28.6%

 

(2.4%)

nm

8.3%

Cost:income ratio (2)

51.0%

93.8%

 

57.8%

60.6%

39.1%

 

130.5%

nm

63.4%

Loan impairment rate (2)

30bps

(23)bps

 

2bps

nm

nm

 

nm

nm

11bps

Impairment provisions (£bn)

(1.2)

(0.7)

 

(1.0)

 

(0.1)

(0.1)

(3.1)

Impairment provisions - stage 3 (£bn)

(0.6)

(0.6)

 

(0.8)

 

(0.1)

(2.1)

Net interest margin

2.62%

1.65%

 

1.99%

2.52%

1.70%

 

(0.39%)

nm

1.89%

Third party customer asset rate

3.31%

2.32%

 

3.22%

3.01%

1.72%

 

nm

nm

nm

Third party customer funding rate

(0.37%)

(0.19%)

 

(0.47%)

(0.42%)

(0.15%)

 

nm

nm

nm

Average interest earning assets (£bn)

162.9 

24.1 

 

144.6 

21.2 

27.8 

 

32.1 

23.1 

435.8 

Total assets (£bn)

172.2 

24.8 

 

165.4 

21.7 

28.9 

 

272.8 

33.3 

719.1 

Funded assets (£bn)

172.2 

24.8 

 

165.4 

21.7 

28.9 

 

138.8 

33.3 

585.1 

Net loans to customers - amortised cost (£bn)

150.6 

18.2 

 

100.8 

14.4 

13.3 

 

9.1 

306.4 

Customer deposits (£bn)

145.7 

17.5 

 

131.8 

26.9 

27.6 

 

2.7 

3.0 

355.2 

Risk-weighted assets (RWAs) (£bn)

35.8 

14.2 

 

78.1 

9.6 

7.0 

 

44.6 

1.5 

190.8 

RWA equivalent (RWAes) (£bn)

36.8 

14.2 

 

79.9 

9.6 

7.1 

 

49.1 

2.0 

198.7 

Employee numbers (FTEs - thousands)

21.6 

3.1 

 

10.3 

1.9 

1.7 

 

5.0 

23.3 

66.9 

For the notes to this table refer to page 18. nm = not meaningful.

 

 

 

 

 

 

 

Segment performance

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended 30 June 2018

 

Personal & Ulster

 

Commercial & Private

 

 

 

Central

 

 

UK Personal

Ulster

 

Commercial

Private

RBS

 

NatWest

items &

Total

 

Banking

Bank RoI

 

Banking

Banking

International

 

Markets

other (1)

RBS

 

£m

£m

 

£m

£m

£m

 

£m

£m

£m

Income statement

 

 

 

 

 

 

 

 

 

 

Net interest income

1,071 

118 

 

717 

129 

115 

 

31 

(1)

2,180 

Non-interest income

182 

48 

 

515 

69 

32 

 

235 

121 

1,202 

Own credit adjustments

 

 

18 

18 

Total income

1,253 

166 

 

1,232 

198 

147 

 

284 

120 

3,400 

Direct expenses

 

 

 

 

 

 

 

 

 

 

 - staff costs

(182)

(49)

 

(186)

(40)

(27)

 

(144)

(311)

(939)

 - other costs

(52)

(26)

 

(67)

(14)

(18)

 

(62)

(623)

(862)

Indirect expenses

(334)

(41)

 

(286)

(50)

(17)

 

(99)

827 

Strategic costs 

 

 

 

 

 

 

 

 

 

 

 - direct

(7)

 

(14)

 

(11)

(112)

(141)

 - indirect

(24)

(3)

 

(2)

(2)

 

30 

Litigation and conduct costs

(6)

(8)

 

10 

(1)

 

(6)

(780)

(782)

Operating expenses

(605)

(124)

 

(545)

(104)

(55)

 

(322)

(969)

(2,724)

Operating profit/(loss) before impairment (losses)/releases

648 

42 

 

687 

94 

92 

 

(38)

(849)

676 

Impairment (losses)/releases

(63)

34 

 

(23)

 

(13)

(1)

(63)

Operating profit/(loss)

585 

76 

 

664 

94 

95 

 

(51)

(850)

613 

Additional information

 

 

 

 

 

 

 

 

 

 

Return on equity (2)

33.0%

12.5%

 

16.4%

19.3%

27.9%

 

(3.0%)

nm

1.1%

Cost:income ratio (2)

48.3%

74.7%

 

43.0%

52.5%

37.4%

 

113.4%

nm

80.0%

Loan impairment rate (2)

17bps

(67)bps

 

9bps

nm

nm

 

nm

nm

8bps

Impairment provisions (£bn)

(1.1)

(1.1)

 

(1.5)

(0.1)

 

(0.2)

0.1 

(3.9)

Impairment provisions - stage 3

(0.7)

(1.0)

 

(1.3)

 

(0.1)

(3.1)

Net interest margin (2)

2.68%

1.91%

 

1.98%

2.54%

1.72%

 

0.46%

nm

2.01%

Third party customer asset rate

3.36%

2.40%

 

2.96%

2.82%

2.34%

 

nm

nm

nm

Third party customer funding rate

(0.29%)

(0.21%)

 

(0.26%)

(0.17%)

(0.11%)

 

nm

nm

nm

Average interest earning assets (£bn)

160.1 

24.8 

 

144.9 

20.3 

26.9 

 

27.0 

30.9 

434.9 

Total assets (£bn)

168.4 

24.9 

 

165.7 

20.9 

29.8 

 

285.0 

53.6 

748.3 

Funded assets (£bn)

168.4 

24.8 

 

165.7 

20.9 

29.8 

 

134.5 

53.1 

597.2 

Net loans to customers - amortised cost (£bn)

147.7 

19.1 

 

102.6 

13.8 

13.0 

 

8.1 

(0.2)

304.1 

Customer deposits (£bn)

143.5 

17.3 

 

135.1 

26.4 

28.4 

 

3.6 

4.7 

359.0 

Risk-weighted assets (RWAs) (£bn)

32.0 

16.8 

 

83.1 

9.4 

6.8 

 

50.1 

0.6 

198.8 

RWA equivalent (RWAes) (£bn)

32.7 

17.3 

 

86.5 

9.5 

6.8 

 

54.1 

1.0 

207.9 

Employee numbers (FTEs - thousands)

23.4 

3.1 

 

10.7 

1.9 

1.7 

 

5.6 

23.6 

70.0 

nm = not meaningful.

 

 

 

 

 

Notes:

(1)   Central items include unallocated transactions, including volatile items under IFRS, items related to Alawwal bank merger and RMBS related charges.

(2)   Refer to Appendix 2 for details of basis of preparation and reconciliation of non-IFRS performance measures where relevant.

 

Condensed consolidated income statement for the period ended 30 June 2019 (unaudited)

 

Half year ended

 

30 June

30 June

2019 

2018*

 

£m 

£m 

Interest receivable

5,553 

5,444 

Interest payable

(1,549)

(1,118)

Net interest income

4,004 

4,326 

 

 

 

Fees and commissions receivable

1,762 

1,646 

Fees and commissions payable

(487)

(451)

Income from trading activities

599 

847 

Other operating income

1,239 

334 

Non-interest income

3,113 

2,376 

Total income

7,117 

6,702 

Operating expenses

(4,100)

(4,735)

 

 

 

Profit before impairment losses

3,017 

1,967 

Impairment losses

(323)

(141)

 

 

 

Operating profit before tax

2,694 

1,826 

Tax charge

(194)

(709)

 

 

 

Profit for the period

2,500 

1,117 

Attributable to:

 

 

Ordinary shareholders

2,038 

888 

Other owners

202 

245 

Non-controlling interests

260 

(16)

 

 

 

Earnings per ordinary share

16.9p

7.4p

Earnings per ordinary share - fully diluted

16.8p

7.4p

 

* Restated. Refer to Note 2 for further details.

 

 

Condensed consolidated statement of comprehensive income for the period ended 30 June 2019 (unaudited)

 

Half year ended

 

30 June

30 June

 

2019 

2018*

 

£m

£m

Profit for the period

2,500 

1,117 

 

 

 

Items that do not qualify for reclassification

 

 

Remeasurement of retirement benefit scheme

 

 

  - contributions in preparation for ring-fencing (1)

(2,000)

  - other movements

(68)

(Loss)/profit on fair value of credit in financial liabilities designated at FVTPL due to own credit risk

(96)

95 

Fair value through other comprehensive income (FVOCI) financial assets

38 

Tax

26 

500 

 

 

 

 

(100)

(1,402)

Items that do qualify for reclassification

 

 

Fair value through other comprehensive income (FVOCI) financial assets

(12)

199 

Cash flow hedges

402 

(521)

Currency translation

(241)

18 

Tax

(122)

97 

 

 

 

 

27 

(207)

 

 

 

Other comprehensive loss after tax

(73)

(1,609)

 

 

 

Total comprehensive income/(loss) for the period

2,427 

(492)

 

 

 

Attributable to:

 

 

Ordinary shareholders

1,950 

(708)

Preference shareholders

20 

74 

Paid-in equity holders

182 

171 

Non-controlling interests

275 

(29)

 

 

 

 

2,427 

(492)

 

* Restated. Refer to Note 2 for further details.

 

Note:

(1)

On 17 April 2018, RBS agreed a Memorandum of Understanding (MoU) with the Trustees of the RBS Group Pension Fund in connection with the requirements of ring-fencing.  NatWest Markets Plc could not continue to be a participant in the Main section and separate arrangements were required for its employees. Under the MoU, NatWest Plc made a contribution of £2 billion on 9 October 2018 to strengthen funding of the Main section in recognition of the changes in covenant. In Q1 2019, NatWest Markets Plc paid a contribution of £53 million to the new NatWest Markets section relating to the non-ring fenced bank.

 

 

Condensed consolidated balance sheet as at 30 June 2019 (unaudited)

 

 

30 June

31 December

2019 

2018 

 

£m

£m 

Assets

 

 

Cash and balances at central banks

85,380 

88,897 

Trading assets

85,364 

75,119 

Derivatives

145,594 

133,349 

Settlement balances

8,438 

2,928 

Loans to banks - amortised cost

12,935 

12,947 

Loans to customers - amortised cost

310,631 

305,089 

Other financial assets

65,634 

59,485 

Intangible assets

6,631 

6,616 

Other assets

9,262 

9,805 

 

 

 

Total assets

729,869 

694,235 

 

 

 

Liabilities

 

 

Bank deposits

23,093 

23,297 

Customer deposits

361,626 

360,914 

Settlement balances

7,619 

3,066 

Trading liabilities

84,135 

72,350 

Derivatives

141,697 

128,897 

Other financial liabilities

46,485 

39,732 

Subordinated liabilities

9,808 

10,535 

Other liabilities

9,169 

8,954 

Total liabilities

683,632 

647,745 

Equity

 

 

Ordinary shareholders' interests

41,667 

41,182 

Other owners' interests

4,554 

4,554 

Owners' equity

46,221 

45,736 

Non-controlling interests

16 

754 

 

 

 

Total equity

46,237 

46,490 

Total liabilities and equity

729,869 

694,235 

 

 

 

 

Condensed consolidated statement of changes in equity for the period ended 30 June 2019 (unaudited)

 

 

Half year ended

 

30 June

30 June

2019

2018

£m

£m

 

 

 

Called-up share capital - at beginning of period

12,049 

11,965 

Ordinary shares issued

42 

63 

 

 

 

At end of period

12,091 

12,028 

 

 

 

Paid-in equity - at beginning and end of period

4,058 

4,058 

 

 

 

Share premium account - at beginning of period

1,027 

887 

Ordinary shares issued

62 

108 

 

 

 

At end of period

1,089 

995 

 

 

 

Merger reserve - at beginning and end of period

10,881 

10,881 

 

 

 

Fair value through other comprehensive income reserve - at beginning of period

343 

255 

Implementation of IFRS 9 on 1 January 2018

34 

Unrealised gains

45 

203 

Realised gains

(133)

(3)

Tax

10 

(47)

 

 

 

At end of period

265 

442 

 

 

 

Cash flow hedging reserve - at beginning of period

(191)

227 

Amount recognised in equity

524 

(156)

Amount transferred from equity to earnings

(122)

(365)

Tax

(94)

143 

 

 

 

At end of period

117 

(151)

 

 

 

 

Foreign exchange reserve - at beginning of period

3,278 

2,970 

Retranslation of net assets

30 

(58)

Foreign currency gains on hedges of net assets

14 

Tax

Recycled to profit or loss on disposal of businesses (1)

(335)

74 

 

 

 

At end of period

2,982 

3,001 

 

 

 

 

Retained earnings - at beginning of period

 

14,312 

17,130 

Implementation of IFRS 9 on 1 January 2018

(105)

Implementation of IFRS 16 on 1 January 2019 (2)

(187)

Profit attributable to ordinary shareholders and other equity owners

2,240 

1,133 

Equity preference dividends paid

 

(20)

(74)

Paid-in equity dividends paid

 

(182)

(171)

Ordinary dividends paid

 

(1,327)

Realised gains in period on FVOCI equity shares

114 

Remeasurement of retirement benefit schemes

 

 

  - contributions in preparation for ring-fencing (3)

(2,000)

  - other movements

 

(68)

  - tax

 

18 

516 

Changes in fair value of credit in financial liabilities designated at fair value through profit or loss

 

 

  - gross

 

(96)

95 

  - tax

 

10 

(16)

Shares issued under employee share schemes

(4)

(2)

Share-based payments

(26)

18 

At end of period

 

14,784 

16,527 

 

 

 

 

For the notes to this table, refer to the following page.

 

 

 

 

Condensed consolidated statement of changes in equity for the period ended 30 June 2019 (unaudited) continued

 

 

 

Half year ended

 

 

30 June

30 June

 

 

2019

2018

 

 

£m

£m

Own shares held - at beginning of period

(21)

(43)

Purchase of own shares

(58)

(63)

Shares issued under employee share schemes

33 

82 

At end of period

 

(46)

(24)

Owners' equity at end of period

 

46,221 

47,757 

 

 

 

Non-controlling interests - at beginning of period

754 

763 

Currency translation adjustments and other movements

 

15 

(12)

Profit/(loss) attributable to non-controlling interests

260 

(16)

Movements in fair value through other comprehensive income - unrealised losses

 

(1)

Equity raised (4)

 

45 

Equity withdrawn and disposals (5)

 

(1,058)

At end of period

 

16 

734 

 

 

 

 

Total equity at end of period

 

46,237 

48,491 

 

 

 

 

Total equity is attributable to:

 

 

 

Ordinary shareholders

 

41,667 

41,134 

Preference shareholders

 

496 

2,565 

Paid-in equity holders

4,058 

4,058 

Non-controlling interests

 

16 

734 

 

 

 

 

 

 

46,237 

48,491 

 

Notes:

 

(1)       Includes £338 million arising on the completion of the Alawwal bank merger in June 2019, of which £48 million relates to tax. The merger resulted in the de-recognition of the associate investment in Alawwal bank and recognition of a new investment in SABB held at fair value through other comprehensive income (FVOCI). Further impacts in relation to the transaction are disclosed in Note 3 and 6.  

 

(2)       Refer to Note 2 for further information on the impact of IFRS 16 implementation.

 

(3)       On 17 April 2018 RBS agreed a Memorandum of Understanding (MoU) with the Trustees of the RBS Group Pension Fund in connection with the requirements of ring-fencing.  NatWest Markets Plc could not continue to be a participant in the Main section and separate arrangements were required for its employees. Under the MoU, NatWest Plc made a contribution of £2 billion on 9 October 2018 to strengthen funding of the Main section in recognition of the changes in covenant. In Q1 2019 NatWest Markets Plc paid a contribution of £53 million to the new NatWest Markets section relating to the non-ring fenced bank.

(4)       Capital injection from RFS Holdings B.V. Consortium Members.

(5)       Distribution to RFS Holdings B.V. Consortium Members on completion of the Alawwal bank merger.

 

 

 

 

Condensed consolidated cash flow statement for the period ended 30 June 2019 (unaudited)

 

 

Half year ended

 

30 June

30 June

 

2019 

2018 

 

£m

£m

 

 

 

Operating activities

 

 

Operating profit before tax

2,694 

1,826 

Adjustments for non-cash items

(2,428)

(1,280)

 

 

 

Net cash inflow from trading activities

266 

546 

Changes in operating assets and liabilities

9,939 

9,408 

 

 

 

Net cash flows from operating activities before tax

10,205 

9,954 

Income taxes paid

(192)

(156)

 

 

 

Net cash flows from operating activities

10,013 

9,798 

 

 

 

Net cash flows from investing activities

(5,776)

(3,769)

 

 

 

Net cash flows from financing activities

(2,689)

(2,307)

 

 

 

Effects of exchange rate changes on cash and cash equivalents

211 

38 

 

 

 

Net increase in cash and cash equivalents

1,759 

3,760 

Cash and cash equivalents at beginning of year

108,811 

122,605 

 

 

 

Cash and cash equivalents at end of year

110,570 

126,365 

 

 

 

 

Notes

1. Basis of preparation

The Group condensed consolidated financial statements have been prepared in accordance with the Disclosure and

Transparency Rules of the Financial Conduct Authority and IAS 34 'Interim Financial Reporting'. They should be read in

conjunction with RBS's 2018 Annual Report and Accounts which were prepared in accordance with International Financial

Reporting Standards issued by the International Accounting Standards Board (IASB) and interpretations issued by the IFRS

Interpretations Committee of the IASB as adopted by the European Union (EU) (together IFRS).

 

Going concern

The Group's business activities and financial position, and the factors likely to affect its future development and performance are discussed on pages 1 to 45. The risk factors which could materially affect the Group's future results are described on pages 46 and 47.

 

Having reviewed the Group's forecasts, projections and other relevant evidence, the directors have a reasonable expectation that the Group will continue in operational existence for the foreseeable future. Accordingly, the results for the half year ended 30 June 2019 have been prepared on a going concern basis.

 

Re-segmentation

Effective from 1 January 2019, Business Banking has been transferred from UK Personal and Business Banking (UK PBB) to Commercial Banking as the nature of the business, including distribution channels, products and customers, are more closely aligned to the Commercial Banking business. Concurrent with the transfer, UK PBB has been renamed UK Personal Banking (UK PB) and the previous franchise combining UK PBB (now UK PB) and Ulster Bank RoI has been renamed Personal & Ulster. Comparatives have been re-stated. Refer to Note 4, Segmental analysis and the disclosures in the Capital and risk management section, as marked, where the impact is reflected.

 

 

2.  Accounting policies

The Group's principal accounting policies are as set out on pages 182 to 186 of the 2018 Annual Report and Accounts and are unchanged other than as presented below.

 

Changes in reporting standards

IAS 12 'Income taxes' was revised with effect from 1 January 2019. The income statement is now required to include any tax relief on the servicing cost of instruments classified as equity. Relief of £67 million was recognised in the statement of changes in equity for the year ended 31 December 2018; this and prior periods have been restated.

 

Presentation of interest in suspense recoveries

Until 1 January 2019, interest in suspense recoveries were presented as a component of interest receivable within Net interest income. It amounted to £31 million for the period ended 30 June 2019. From 1 January 2019 interest in suspense recoveries is presented within impairment charges; prior periods were presented as income. Comparatives have not been restated.

 

Revised Accounting policy 10 - Leases

The Group has adopted IFRS 16 'Leases' with effect from 1 January 2019, replacing IAS 17 'Leases'. The Group has applied IFRS 16 on a modified retrospective basis without restating prior years. Accounting policy 10 presented in the 2018 Annual Report and Accounts has been updated as follows:

 

As lessor

Finance lease contracts are those which transfer substantially all the risks and rewards of ownership of an asset to a customer. All other contracts with customers to lease assets are classified as operating leases.

 

Loans to customers include finance lease receivables measured at the net investment in the lease, comprising the minimum lease payments and any unguaranteed residual value discounted at the interest rate implicit in the lease. Interest receivable includes finance lease income recognised at a constant periodic rate of return before tax on the net investment. Unguaranteed residual values are subject to regular review; if there is a reduction in their value, income allocation is revised and any reduction in respect of amounts accrued is recognised immediately.

 

Rental income from operating leases is recognised in other operating income on a straight-line basis over the lease term unless another systematic basis better represents the time pattern of the asset's use. Operating lease assets are included within Property, plant and equipment and depreciated over their useful lives.

 

As lessee

On entering a new lease contract, the Group recognises a right of use asset and a liability to pay future rentals. The liability is measured at the present value of future lease payments discounted at the applicable incremental borrowing rate. The right of use asset is depreciated over the shorter of the term of the lease and the useful economic life, subject to review for impairment. Short term and low value leased assets are expensed on a systematic basis.

 

Notes

2. Accounting policies continued

For further details see page 186 of RBS's 2018 Annual Report and Accounts. The impact on RBS's balance sheet at 1 January 2019 is as follows:

 

£bn

Retained earnings at 1 January 2019

14.3 

Loans to customers - Finance leases

0.2 

Other assets - Net right of use assets

1.3 

 - Recognition of lease liabilities

(1.9)

 - Provision for onerous leases

0.2 

Other liabilities

(1.7)

 

 

Net impact on retained earnings

(0.2)

Retained earnings at 1 January 2019

14.1 

 

Operating lease commitments reported under IAS 17 were £2.7 billion which resulted in lease liabilities recognised under IFRS 16 of £1.9 billion. The difference is primarily because of the different treatment of termination and extension options; and discounting the contractual lease payments under IFRS 16.

 

Critical accounting policies and key sources of estimation uncertainty

The judgements and assumptions that are considered to be the most important to the portrayal of the Group's financial condition are those relating to goodwill, provisions for liabilities, deferred tax, loan impairment provisions and fair value of financial instruments. These critical accounting policies and judgements are described on page 186 of the 2018 Annual Report and Accounts.

 

Notes

3. Analysis of income, expenses and impairment losses

 

Half year ended

 

30 June

30 June

 

2019

2018

 

£m

£m

 

 

 

Loans to customers - amortised cost

4,848 

4,978 

Loans to banks - amortised cost

346 

236 

Other financial assets

359 

230 

Interest receivable

5,553 

5,444 

 

 

 

Balances by banks

144 

113 

Customer deposits

599 

415 

Other financial liabilities

481 

337 

Subordinated debt

245 

226 

Internal funding of trading businesses

80 

27 

 

 

 

Interest payable

1,549 

1,118 

 

 

 

Net interest income (1)

4,004 

4,326 

Net fees and commissions

1,275 

1,195 

Foreign exchange

219 

336 

Interest rate

397 

275 

Credit

31 

187 

Own credit adjustment

(46)

39 

Equities, commodities and other

(2)

10 

 

 

 

Income from trading activities

599 

847 

 

 

 

Operating lease and other rental income

127 

128 

Changes in the fair value of financial assets and liabilities designated as at fair value through profit or loss

19 

(7)

Changes in fair value of other financial assets fair value through profit or loss

31 

(42)

Hedge ineffectiveness

21 

(69)

Loss on disposal of amortised cost assets

22 

Profit on disposal of fair value through other comprehensive income assets

16 

Profit on sale of property, plant and equipment

15 

21 

Share of (loss)/profits of associated entities

(22)

17 

Profit/(loss) on disposal of subsidiaries and associates (2)

1,037 

(9)

Other income

(5)

272 

 

 

 

Other operating income

1,239 

334 

 

 

 

Total non-interest income

3,113 

2,376 

 

 

 

Total income

7,117 

6,702 

Salaries

(1,455)

(1,520)

Variable compensation

(185)

(148)

Social security costs

(156)

(158)

Pension costs

(162)

(169)

Other

(70)

(91)

 

 

 

Staff costs

(2,028)

(2,086)

 

 

 

Premises and equipment

(558)

(644)

Depreciation and amortisation (3)

(621)

(338)

Other administrative expenses (4)

(863)

(1,636)

Administrative expenses

(2,042)

(2,618)

 

 

 

Write down of goodwill and other intangible assets

(30)

(31)

 

 

 

Operating expenses

(4,100)

(4,735)

 

 

 

Impairment losses

(323)

(141)

Impairments as a % of gross loans to customers

0.21%

0.09%

 

Notes:

 

(1)   Negative interest on loans is reported as interest payable. Negative interest on customer deposits is reported as interest receivable.

(2)   Includes a gain of £444 million (€523 million), a legacy liability release of £256 million and an FX recycling gain of £290 million on completion of the Alawwal bank merger.

(3)   Half year ended 30 June 2019 includes a property impairment of £133 million and accelerated depreciation of £66 million in relation to the planned reduction of the Group property portfolio and depreciation charges in relation to the right of use assets recognised following the adoption of IFRS 16 (previously leasing costs in relation to these were included in premises and equipment). For further details on the adoption of IFRS 16 refer to Note 2.  

 

(4)   Includes litigation and conduct costs, net of amounts recovered. Refer to Note 9 for further details.

 

 

Notes

4. Segmental analysis

The business is organised into the following franchises and reportable segments:

Personal & Ulster, comprising two reportable segments, UK Personal Banking (UK PB) and Ulster Bank RoI;

Commercial & Private Banking (CPB), comprising two reportable segments: Commercial Banking and Private Banking;

RBS International (RBSI) which is a single reportable segment;

NatWest Markets (NWM), which is a single reportable segment; and

Central items & other which comprises corporate functions.

 

Analysis of operating profit/(loss)

The following tables provide a segmental analysis of operating profit/(loss) by main income statement captions.

 

 

 

 

 

 

 

 

 

Net

 

Other non-

 

 

Impairment

 

interest

Net fees and

interest

Total

Operating

(losses)/

Operating

income

commissions

income

income

expenses

releases

profit/(loss)

Half year ended 30 June 2019

£m

£m

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

 

UK Personal Banking

2,084 

366 

(3)

2,447 

(1,229)

(181)

1,037 

Ulster Bank RoI

200 

51 

32 

283 

(281)

21 

23 

 

 

 

 

 

 

 

 

Personal & Ulster

2,284 

417 

29 

2,730 

(1,510)

(160)

1,060 

 

 

 

 

 

 

 

 

Commercial Banking

1,424 

661 

80 

2,165 

(1,262)

(202)

701 

Private Banking

261 

111 

12 

384 

(232)

155 

 

 

 

 

 

 

 

 

Commercial & Private Banking

1,685 

772 

92 

2,549 

(1,494)

(199)

856 

 

 

 

 

 

 

 

 

RBS International

242 

53 

15 

310 

(119)

194 

NatWest Markets

(122)

48 

1,016 

942 

(678)

36 

300 

Central items & other

(85)

(15)

686 

586 

(299)

(3)

284 

 

 

 

 

 

 

 

 

Total

4,004 

1,275 

1,838 

7,117 

(4,100)

(323)

2,694 

 

Half year ended 30 June 2018*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

UK Personal Banking

2,139 

359 

53 

2,551 

(1,291)

(131)

1,129 

Ulster Bank RoI

224 

43 

45 

312 

(252)

26 

86 

 

 

 

 

 

 

 

 

Personal & Ulster

2,363 

402 

98 

2,863 

(1,543)

(105)

1,215 

 

 

 

 

 

 

 

 

Commercial Banking

1,400 

631 

359 

2,390 

(1,140)

(35)

1,215 

Private Banking

252 

116 

14 

382 

(225)

(1)

156 

 

 

 

 

 

 

 

 

Commercial & Private Banking

1,652 

747 

373 

2,772 

(1,365)

(36)

1,371 

 

 

 

 

 

 

 

 

RBS International

219 

52 

13 

284 

(114)

173 

NatWest Markets

67 

(7)

661 

721 

(671)

(4)

46 

Central items & other

25 

36 

62 

(1,042)

(979)

 

 

 

 

 

 

 

 

Total

4,326 

1,195 

1,181 

6,702 

(4,735)

(141)

1,826 

 

 

 

 

 

 

 

 

* Restated. Refer to Note 1 for further details.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Half year ended

 

30 June 2019

 

30 June 2018*

 

 

Inter

 

 

 

Inter

 

 

External

segment

Total

 

External

segment

Total

Total revenue

£m

£m

£m

 

£m

£m

£m

 

 

 

 

 

 

 

 

UK Personal Banking

3,118 

32 

3,150 

 

3,096 

30 

3,126 

Ulster Bank RoI

309 

311 

 

339 

339 

 

 

 

 

 

 

 

 

Personal & Ulster

3,427 

34 

3,461 

 

3,435 

30 

3,465 

 

 

 

 

 

 

 

 

Commercial Banking

2,173 

63 

2,236 

 

2,354 

42 

2,396 

Private Banking

343 

120 

463 

 

333 

88 

421 

 

 

 

 

 

 

 

 

Commercial & Private Banking

2,516 

183 

2,699 

 

2,687 

130 

2,817 

 

 

 

 

 

 

 

 

RBS International

319 

15 

334 

 

235 

79 

314 

NatWest Markets

1,494 

510 

2,004 

 

953 

259 

1,212 

Central items & other

1,397 

(742)

655 

 

961 

(498)

463 

 

 

 

 

 

 

 

 

Total

9,153 

9,153 

 

8,271 

8,271 

 

 

 

 

 

 

 

 

* Restated. Refer to Note 1 for further details.

 

 

 

 

 

 

 

 

 

Notes

4. Segmental analysis continued

Analysis of net fees and commissions

 

 

Personal & Ulster

 

Commercial & Private

 

 

Central

 

 

UK Personal

Ulster

 

Commercial

Private

RBS

NatWest

items

 

 

Banking

Bank RoI

 

Banking

Banking

International

Markets

& other

Total

Half year ended 30 June 2019

£m

£m

 

£m

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

Fees and commissions receivable

 

 

 

 

 

 

 

 

 

  - Lending (credit facilities)

266 

18 

 

204 

18 

35 

542 

  - Payment services

154 

21 

 

323 

17 

12 

15 

542 

  - Credit and debit card fees

189 

10 

 

84 

290 

  - Underwriting fees

 

100 

100 

  - Investment management,

 

 

 

 

 

 

 

 

 

     trustee and fiduciary services

22 

 

91 

20 

138 

  - Other

36 

 

82 

12 

88 

(77)

150 

Total

667 

57 

 

696 

127 

54 

238 

(77)

1,762 

 

 

 

 

 

 

 

 

 

 

Fees and commissions payable

(301)

(6)

 

(35)

(16)

(1)

(190)

62 

(487)

Net fees and commissions

366 

51 

 

661 

111 

53 

48 

(15)

1,275 

 

 

 

 

 

 

 

 

 

 

Half year ended 30 June 2018*

 

 

 

 

 

 

 

 

 

Fees and commissions receivable

 

 

 

 

 

 

 

 

 

  - Lending (credit facilities)

208 

15 

 

183 

17 

39 

463 

  - Payment services

101 

12 

 

267 

17 

11 

409 

  - Credit and debit card fees

222 

12 

 

86 

326 

  - Underwriting fees

 

22 

93 

115 

  - Investment management,

 

 

 

 

 

 

 

 

 

     trustee and fiduciary services

25 

 

95 

21 

143 

  - Other

37 

 

99 

12 

90 

(56)

190 

Total

593 

46 

 

657 

131 

52 

223 

(56)

1,646 

 

 

 

 

 

 

 

 

 

 

Fees and commissions payable

(234)

(3)

 

(26)

(15)

(230)

57 

(451)

Net fees and commissions

359 

43 

 

631 

116 

52 

(7)

1,195 

 

 

 

 

 

 

 

 

 

 

* Restated. Refer to Note 1 for further details.

 

 

 

 

 

 

 

 

 

 

Total assets and liabilities

 

 

30 June 2019

 

31 December 2018*

Assets

Liabilities

 

Assets

Liabilities

 

£m 

£m 

 

£m 

£m 

 

 

 

 

 

 

UK Personal Banking

173,860 

150,573 

 

171,011 

148,793 

Ulster Bank RoI

26,430 

21,933 

 

25,193 

21,189 

 

 

 

 

 

 

Personal & Ulster

200,290 

172,506 

 

196,204 

169,982 

 

 

 

 

 

 

Commercial Banking

165,594 

139,098 

 

166,478 

139,803 

Private Banking

21,909 

28,188 

 

21,983 

28,554 

 

 

 

 

 

 

Commercial & Private Banking

187,503 

167,286 

 

188,461 

168,357 

 

 

 

 

 

 

RBS International

30,413 

28,325 

 

28,398 

27,663 

NatWest Markets

278,949 

261,084 

 

244,531 

227,399 

Central items & other

32,714 

54,431 

 

36,641 

54,344 

 

 

 

 

 

 

Total

729,869 

683,632 

 

694,235 

647,745 

 

 

 

 

 

 

* Restated. Refer to Note 1 for further details.

 

 

 

 

 

 

Notes

5. Tax

The actual tax charge differs from the expected tax charge computed by applying the standard UK corporation tax rate of 19% (2018 - 19%), as analysed below.

 

 

Half year ended

 

30 June

30 June

2019

2018

 

£m

£m

 

 

 

Profit before tax

2,694 

1,826 

 

 

 

Expected tax charge

(512)

(347)

Losses and temporary differences in period where no deferred tax assets recognised

(2)

(8)

Foreign profits taxed at other rates

Items not allowed for tax

 

 

  - losses on disposals and write-downs

(46)

(26)

  - UK bank levy

(15)

(16)

  - regulatory and legal actions

(5)

(154)

  - other disallowable items

(40)

(34)

Non-taxable items

 

 

  - Alawwal bank merger gain disposal

212 

  - other

26 

Taxable foreign exchange movements

(5)

Losses brought forward and utilised

21 

18 

Increase/(reduction) in carrying value of deferred tax in respect of UK losses

215 

(15)

Banking surcharge

(155)

(188)

Tax credit paid-in equity

32 

Adjustments in respect of prior periods

102 

25 

 

 

 

Actual tax charge

(194)

(709)

 

The tax charge includes a £215 million deferred tax asset credit associated with the transfer of taxable losses from NatWest Markets Plc to RBS Plc under ring-fencing regulations.

 

At 30 June 2019, the Group has recognised a deferred tax asset of £1,499 million (31 December 2018 - £1,412 million) and a deferred tax liability of £463 million (31 December 2018 - £454 million). These include amounts recognised in respect of UK trading losses of £848 million (31 December 2018 - £675 million). Under UK tax legislation, these UK losses can be carried forward indefinitely. The Finance Act 2016 limited the offset of the UK banking losses carried forward to 25% of taxable profits. The Group has considered the carrying value of this asset as at 30 June 2019 and concluded that it is recoverable based on future profit projections.

 

Notes

6. Profit attributable to non-controlling interests

 

Half year ended

 

30 June

30 June

2019

2018

 

£m

£m

 

 

 

RFS Holdings B.V. Consortium Members (1)

258 

(17)

Other

 

 

 

Profit/(loss) attributable to non-controlling interests

260 

(16)

 

Note:

(1)

Includes a gain of £274 million recognised on completion of the Alawwal Bank merger.

 

 

 

7. Trading assets and liabilities

 

 

Trading assets and liabilities comprise assets and liabilities held at fair value in trading portfolios.

 

 

30 June

31 December

 

2019 

2018 

Assets

£m

£m

Loans

 

 

  Reverse repos

28,176 

24,759 

  Collateral given

22,063 

19,036 

Other loans

1,651 

1,308 

Total loans

51,890 

45,103 

Securities

 

 

  Central and local government

 

 

  -  UK

5,365 

6,834 

  -  US

6,093 

4,689 

  -  other

16,341 

13,498 

Other securities

5,675 

4,995 

Total securities

33,474 

30,016 

Total

85,364 

75,119 

 

 

 

Liabilities

 

 

Deposits

 

 

  Repos

32,087 

25,645 

  Collateral received

23,204 

20,187 

  Other deposits

2,335 

1,788 

Total deposits

57,626 

47,620 

Debt securities in issue

1,495 

903 

Short positions

25,014 

23,827 

Total

84,135 

72,350 

 

Notes

8. Financial instruments: classification

The following tables analyse financial assets and liabilities in accordance with the categories of financial instruments in IFRS 9. Assets and liabilities outside the scope of IFRS 9 are shown within other assets and other liabilities.

 

 

 

 

Amortised

Other

 

MFVTPL (1,2)

FVOCI (3)

cost

assets

Total 

Assets

£m

£m 

£m 

£m 

£m 

 

 

 

 

 

 

Cash and balances at central banks

85,380 

 

85,380 

Trading assets

85,364 

 

 

85,364 

Derivatives

145,594 

 

 

 

145,594 

Settlement balances

8,438 

 

8,438 

Loans to banks - amortised cost

 

 

12,935 

 

12,935 

Loans to customers - amortised cost

 

 

310,631 

 

310,631 

Other financial assets

1,130 

51,250 

13,254 

 

65,634 

Intangible assets

6,631 

6,631 

Other assets

 

 

 

9,262 

9,262 

 

 

 

 

 

 

30 June 2019

232,088 

51,250 

430,638 

15,893 

729,869 

 

 

 

 

 

 

Cash and balances at central banks

88,897 

 

88,897 

Trading assets

75,119 

 

 

75,119 

Derivatives

133,349 

 

 

 

133,349 

Settlement balances

2,928 

 

2,928 

Loans to banks - amortised cost

 

 

12,947 

 

12,947 

Loans to customers - amortised cost

 

 

305,089 

 

305,089 

Other financial assets

1,638 

46,077 

11,770 

 

59,485 

Intangible assets

6,616 

6,616 

Other assets

 

 

 

9,805 

9,805 

 

 

 

 

 

 

31 December 2018

210,106 

46,077 

421,631 

16,421 

694,235 

 

 

 

 

 

 

 

 

Held-for-

 

Amortised

Other

 

trading (1)

DFV (4)

cost

liabilities

Total 

Liabilities

£m 

£m 

£m 

£m 

£m 

 

 

 

 

 

 

Bank deposits

23,093 

 

23,093 

Customer deposits

361,626 

 

361,626 

Settlement balances

7,619 

 

7,619 

Trading liabilities

84,135 

 

 

84,135 

Derivatives

141,697 

 

 

141,697 

Other financial liabilities

2,494 

43,991 

 

46,485 

Subordinated liabilities

763 

9,045 

 

9,808 

Other liabilities

2,146 

7,023 

9,169 

 

 

 

 

 

 

30 June 2019

225,832 

3,257 

447,520 

7,023 

683,632 

 

 

 

 

 

 

Bank deposits

23,297 

 

23,297 

Customer deposits

360,914 

 

360,914 

Settlement balances

3,066 

 

3,066 

Trading liabilities

72,350 

 

 

72,350 

Derivatives

128,897 

 

 

128,897 

Other financial liabilities

2,840 

36,892 

 

39,732 

Subordinated liabilities

867 

9,668 

 

10,535 

Other liabilities

2,218 

6,736 

8,954 

 

 

 

 

 

 

31 December 2018

201,247 

3,707 

436,055 

6,736 

647,745 

 

Notes:

(1)

Includes derivatives held for hedging purposes.

(2)

Mandatory fair value through profit or loss.

(3)

Fair value through other comprehensive income.

(4)

Designated as at fair value through profit or loss.

 

 

Notes

8. Financial instruments: classification continued

 

The Group's financial assets and liabilities include:

 

 

 

30 June

31 December

 

2019 

2018 

 

£m

£m

Reverse repos

 

 

Loans to banks - amortised cost

2,162 

3,539 

Loans to customers - amortised cost

683 

Trading assets

28,176 

24,759 

 

 

 

Repos

 

 

Bank deposits

3,715 

941 

Customer deposits

1,004 

3,774 

Trading liabilities

32,087 

25,645 

 

Carried at fair value - valuation hierarchy

Disclosures relating to the control environment, valuation techniques and related aspects pertaining to financial instruments measured at fair value are included in the 2018 Annual Report and Accounts. Valuation, sensitivity methodologies and inputs at 30 June 2019 are consistent with those described in Note 12 to the 2018 Annual Report and Accounts.

 

The tables below show financial instruments carried at fair value on the balance sheet by valuation hierarchy - level 1, level 2 and level 3 and valuation sensitivities for level 3 balances.

 

 

 

 

 

 

 

 

 

30 June 2019

 

31 December 2018

 

Level 1 

Level 2 

Level 3 

 

Level 1 

Level 2 

Level 3 

 

£m

£m

£m

 

£m

£m

£m

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Trading assets

 

 

 

 

 

 

 

  Loans

51,616 

274 

 

44,983 

120 

  Securities

24,247 

8,885 

342 

 

22,003 

7,312 

701 

Derivatives

143,994 

1,595 

 

131,513 

1,836 

Other financial assets

 

 

 

 

 

 

 

  Loans

425 

63 

 

768 

136 

  Securities

43,434 

8,014 

444 

 

40,132 

6,172 

507 

 

 

 

 

 

 

 

 

Total financial assets held at fair value

67,686 

212,934 

2,718 

 

62,135 

190,748 

3,300 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Trading liabilities

 

 

 

 

 

 

 

 

 Deposits

57,258 

368 

 

47,243 

377 

 

 Debt securities in issue

1,415 

80 

 

791 

112 

 

 Short positions

19,656 

5,358 

 

18,941 

4,886 

 

Derivatives

140,507 

1,186 

 

127,709 

1,188 

 

Other financial liabilities

 

 

 

 

 

 

 

 

 Debt securities in issue

2,234 

156 

 

2,348 

280 

 

 Other deposits

104 

 

212 

 

Subordinated liabilities

763 

 

867 

 

Total financial liabilities held at fair value

19,660 

207,639 

1,790 

 

18,941 

184,056 

1,957 

 

                   

 

Notes:

(1)

Level 1 - Instruments valued using unadjusted quoted prices in active and liquid markets for identical financial instruments. Examples include government bonds, listed equity shares and certain exchange-traded derivatives.

Level 2 - Instruments valued using valuation techniques that have observable inputs. Examples  include most government agency securities, investment-grade corporate bonds, certain mortgage products, including CLOs, most bank loans, repos and reverse repos, less liquid listed equities, state and municipal obligations, most notes issued, and certain money market securities and loan commitments and most OTC derivatives.

Level 3 - Instruments valued using a valuation technique where at least one input which could have a significant effect on the instrument's valuation, is not based on observable market data. Examples include cash instruments which trade infrequently, certain syndicated and commercial mortgage loans, certain emerging markets and derivatives with unobservable model inputs.

(2)

Transfers between levels are deemed to have occurred at the beginning of the quarter in which the instruments were transferred. There were no significant transfers between level 1 and level 2.

 

 

 

Notes

8. Financial instruments: carried at fair value - valuation hierarchy continued

 

 

 

 

 

 

 

 

 

30 June 2019

 

31 December 2018

 

Level 3

Favourable

Unfavourable

 

Level 3

Favourable

Unfavourable

 

£m

£m

£m

 

£m

£m

£m

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Trading assets

 

 

 

 

 

 

 

  Loans

274 

10 

(10)

 

120 

10 

(10)

  Securities

342 

10 

 

701 

20 

(10)

Derivatives

 

 

 

 

 

 

 

  Interest rate

1,326 

200 

(200)

 

1,487 

120 

(120)

  Foreign exchange

123 

10 

(10)

 

130 

10 

(10)

  Other

146 

10 

(10)

 

219 

10 

(20)

Other financial assets

 

 

 

 

 

 

 

  Loans

63 

 

136 

10 

(20)

  Securities

444 

40 

(30)

 

507 

50 

(30)

Total financial assets held at fair value

2,718 

280 

(260)

 

3,300 

230 

(220)

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Trading liabilities

 

 

 

 

 

 

 

  Deposits

368 

40 

(40)

 

377 

40 

(40)

  Debt securities in issue

80 

 

112 

10 

(10)

Derivatives

 

 

 

 

 

 

 

  Interest rate

802 

100 

(100)

 

808 

70 

(70)

  Foreign exchange

304 

10 

(10)

 

279 

10 

(10)

  Other

80 

 

101 

(10)

Other financial liabilities

 

 

 

 

 

 

 

  Debt securities in issue

156 

 

280 

10 

(10)

Total financial liabilities held at fair value

1,790 

150 

(150)

 

1,957 

140 

(150)

 

 

Movement in level 3 portfolios

 

 

Half year ended 2019

 

Half year ended 2018

 

 

Other

 

 

 

 

Other

 

 

 

Trading

financial

Total

Total

 

Trading

financial

Total

Total

 

assets (2)

assets (3)

assets

liabilities

 

assets (2)

assets (3)

assets

liabilities

 

£m

£m

£m

£m

 

£m

£m

£m

£m

At 1 January

2,657 

643 

3,300 

1,957 

 

2,692 

530 

3,222 

2,187 

Amount recorded in the income statement (1)

(113)

(109)

260 

 

(21)

64 

43 

(233)

Amount recorded in the statement of

 

 

 

 

 

 

 

 

 

  comprehensive income

75 

75 

 

17 

17 

Level 3 transfers in

158 

160 

161 

 

513 

84 

597 

198 

Level 3 transfers out

(462)

(53)

(515)

(239)

 

(181)

(1)

(182)

(107)

Issuances

23 

 

24 

Purchases

290 

292 

216 

 

596 

17 

613 

191 

Settlements

(73)

(6)

(79)

(171)

 

(473)

(473)

(108)

Sales

(249)

(157)

(406)

(419)

 

(632)

(79)

(711)

(122)

Foreign exchange and other adjustments

(3)

 

 

 

 

 

 

 

 

 

 

 

At 30 June

2,211 

507 

2,718 

1,790 

 

2,495 

634 

3,129 

2,030 

 

 

 

 

 

 

 

 

 

 

Amounts recorded in the income statement

 

 

 

 

 

 

 

 

 

  in respect of balances held at year end

 

 

 

 

 

 

 

 

 

  - unrealised

(112)

(110)

260 

 

(16)

24 

(222)

  - realised

 

 

Notes:

(1)

There were £383 million net losses on trading assets and liabilities (30 June 2018 - £195 million gains) recorded in income from trading activities. Net gains on other instruments of £14 million (30 June 2018 - £81 million gains) were recorded in other operating income and interest income as appropriate.

(2)

Trading assets comprise assets held at fair value in trading portfolios.

(3)

Other financial assets comprise fair value through other comprehensive income, designated at fair value through profit or loss and other fair value through profit or loss.

 

 

Notes

8. Financial instruments: fair value of financial instruments not carried at fair value

The following table shows the carrying value and fair value of financial instruments carried at amortised cost on the balance sheet.

 

Items where fair value

 

 

 

 

 

 

approximates

 

 

Fair value hierarchy level

 

carrying value

Carrying value 

Fair value 

Level 1

Level 2

Level 3

30 June 2019

£bn

£bn 

£bn 

£bn

£bn

£bn

 

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

Cash and balances at central banks

85.4 

 

 

 

 

 

Settlement balances

8.4 

 

 

 

 

 

Loans to banks

0.2 

12.7 

12.7 

4.9 

7.8 

Loans to customers

 

310.6 

307.4 

1.0 

306.4 

Other financial assets

 

 

 

 

 

 

  Securities

 

13.3 

13.5 

7.2 

4.1 

2.2 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

Bank deposits

4.2 

18.9 

18.7 

12.7 

6.0 

Customer deposits

307.2 

54.4 

54.5 

7.4 

47.1 

Settlement balances

7.6 

 

 

 

 

 

Other financial liabilities

 

 

 

 

 

 

  Debt securities in issue

 

44.0 

45.9 

43.7 

2.2 

Subordinated liabilities

 

9.0 

10.1 

10.0 

0.1 

Other liabilities - notes in circulation

2.1 

 

 

 

 

 

 

 

 

 

 

 

 

31 December 2018

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

Cash and balances at central banks

88.9 

 

 

 

 

 

Settlement balances

2.9 

 

 

 

 

 

Loans to banks

0.5 

12.4 

12.4 

9.2 

3.2 

Loans to customers

 

305.1 

301.7 

0.5 

301.2 

Other financial assets

 

 

 

 

 

 

  Securities

 

11.8 

11.8 

7.3 

3.0 

1.5 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

Bank deposits

4.2 

19.1 

18.5 

13.9 

4.6 

Customer deposits

307.1 

53.8 

54.6 

10.4 

44.2 

Settlement balances

3.1 

 

 

 

 

 

Other financial liabilities

 

 

 

 

 

 

  Debt securities in issue

 

36.9 

38.6 

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