Company Quick10K Filing
Royal Bank of Scotland
20-F 2019-12-31 Filed 2020-02-27
20-F 2018-12-31 Filed 2019-02-28
20-F 2017-12-31 Filed 2018-03-29
20-F 2016-12-31 Filed 2017-03-27
20-F 2015-12-31 Filed 2016-03-24
20-F 2014-12-31 Filed 2015-03-31
20-F 2013-12-31 Filed 2014-04-30
20-F 2012-12-31 Filed 2013-03-27
20-F 2011-12-31 Filed 2012-03-27
20-F 2010-12-31 Filed 2011-03-31
20-F 2009-12-31 Filed 2010-04-27

RBS 20F Annual Report

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Royal Bank of Scotland Earnings 2011-12-31

Balance SheetIncome StatementCash Flow

20-F 1 dp29251_20f.htm FORM 20-F



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________


FORM 20-F
(Mark One)
 
 
o
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
 
 
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the fiscal year ended December 31, 2011
OR
 
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR
 
 
o
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 

 
Commission file number: 001-10306
 
THE ROYAL BANK OF SCOTLAND GROUP plc
 (Exact name of Registrant as specified in its charter)
 
United Kingdom
(Jurisdiction of incorporation)
 
RBS Gogarburn, PO Box 1000, Edinburgh EH12 1HQ, United Kingdom
(Address of principal executive offices)
 
Aileen Taylor, Group Secretary, Tel: +44 (0) 131 626 4099, Fax: +44 (0) 131 626 3081
 
PO Box 1000, Gogarburn, Edinburgh EH12 1HQ
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
 
Securities registered or to be registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
 
Name of each exchange on which registered
American Depositary Shares, each representing 20 ordinary shares, nominal value £0.25 per share
Ordinary shares, nominal value £0.25 per share
American Depositary Shares Series F, H, L, M, N, P, Q, R, S, T and U each representing one Non-Cumulative Dollar Preference Share, Series F, H, L, M, N, P, Q, R, S, T and U respectively
Dollar Perpetual Regulatory tier one securities, Series 1
Senior Floating Rate Notes due 2013
3.400% Senior Notes due 2013
3.250% Senior Notes due 2014
3.950% Senior Notes due 2015
4.875% Senior Notes due 2015
4.375% Senior Notes due 2016
5.625% Senior Notes due 2020
6.125% Senior Notes due 2021
 
New York Stock Exchange
 
New York Stock Exchange*
New York Stock Exchange
 
 
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
______________________________________
* Not for trading, but only in connection with the registration of American Depositary Shares representing such ordinary shares pursuant to the requirements of the Securities and Exchange Commission.
 
 
 

 

 
Securities registered or to be registered pursuant to Section 12(g) of the Act:
 
None
 
_______________
 
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
 
None
 
_______________
 
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2011, the close of the period covered by the annual report:
 
 
(Title of each class)
 
 
(Number of outstanding shares)
Ordinary shares of 25 pence each
B Shares
Dividend Access Share
11% cumulative preference shares
5½% cumulative preference shares
Non-cumulative dollar preference shares, Series F, H and L to U
Non-cumulative convertible dollar preference shares, Series 1
Non-cumulative euro preference shares, Series 1 to 3
Non-cumulative convertible sterling preference shares, Series 1
Non-cumulative sterling preference shares, Series 1
 
 
59,228,412,207
51,000,000,000
1
500,000
400,000
209,609,154
64,772
2,044,418
14,866
54,442
 

 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
 
x  Yes      o  No
 
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
 
o  Yes      x  No
 
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
 

 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
x  Yes      o  No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
o  Yes      o  No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
 
 Large accelerated filer  x  Accelerated filer  o  Non-Accelerated filer o
 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
o    U.S. GAAP
x  International Financial Reporting Standards as issued by the International Accounting Standards Board
o    Other

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
 
o   Item 17        o   Item 18

 
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
o  Yes        x  No
 
 
 

 
SEC Form 20-F cross reference guide
 
 
Item    Item Caption    Pages
         
PART I        
1   Identity of Directors, Senior Management and Advisers   Not applicable
         
2   Offer Statistics and Expected Timetable   Not applicable
         
3  
Key Information
Selected financial data
Capitalisation and indebtedness
Reasons for the offer and use of proceeds
Risk factors
 
8-9, 350-352, 386-387, 394, 424-425
Not applicable
Not applicable
7, 405-418
         
4   Information on the Company    12-16, 57, 74-165, 323-324, 327-328, 332-333, 386-394
    History and development of the Company
Business overview
Organisational structure
Property, plant and equipment
  4-6, 257-259, 334-335, 430, 451
4-6, 257-259, 370-375, 395-398
4-5
332-333, 398
         
4A   Unresolved Staff Comments   Not applicable
         
5  
Operating and Financial Review and Prospects
Operating results
Liquidity and capital resources
 
 
6, 8-57, 325-326, 395-397
56-57, 68-91, 299-323, 325-328, 332-333,
351-352, 360, 368-369, 393-394
         
    Research and development, patents, licences etc
Trend information
Off balance sheet arrangements
Contractual obligations
  Not applicable
4-7, 405-418
82-85, 359-360
74-81, 353-356
         
6   Directors, Senior Management and Employees
Directors and senior management
Compensation 
Board practices
Employees
Share ownership
  211-214
232-253, 288-296, 376
216-225, 230-231, 247-253, 261
25, 258, 288-290
250-251, 262
         
7  
Major Shareholders and Related Party Transactions
Major shareholders
Related party transactions
Interests of experts and counsel
  261, 398
377-378
Not applicable
         
8   Financial Information
Consolidated statements and other financial information
Significant changes
  257, 264-384, 425
5, 378
 
 
 

 
 
 
Item    Item Caption    Pages
         
9  
The Offer and Listing
Offer and listing details 
Plan of distribution
Markets
Selling shareholders
Dilution
Expenses of the issue
 
423-424
Not applicable
422
Not applicable
Not applicable
Not applicable
         
10  
Additional Information
Share capital
Memorandum and articles of association
Material contracts
Exchange controls
Taxation
Dividends and paying agents
Statement of experts 
Documents on display
Subsidiary information 
  Not applicable
430-438
398-403
429
426-429
Not applicable
Not applicable
439
Not applicable
         
11  
Quantitative and Qualitative Disclosure  
about Market Risk
  58-207, 299-320, 325-326
         
12  
Description of Securities other than
Equity Securities
  404
         
PART II        
         
13   Defaults, Dividend Arrearages and Delinquencies   Not applicable
         
14  
Material Modifications to the Rights of Security
Holders and Use of Proceeds
  Not applicable
         
15   Controls and Procedures   223-225, 265
         
16    [Reserved]    
         
    A Audit Committee financial expert
B Code of ethics 
C Principal Accountant Fees and services
D Exemptions from the Listing Standards for Audit Committees    
E Purchases of Equity Securities by the  
F Change in Registrant’s Certifying Accountant
G Corporate Governance
H Mine Safety Disclosure
 
221-225
259
221-225, 296
Not applicable
Not applicable
Not applicable
216-220
Not applicable
         
PART III        
17   Financial Statements   Not applicable
         
18   Financial Statements    264-384
         
19   Exhibits   452-455
         
    Signature    456
 
 
 
 

 
                                               
 
Form 20-F
 
 
2
Presentation of information
3
Forward-looking statements
4
Description of business
5
Recent developments
6
Competition
7
Risk factors
8
Key financials
9
Summary consolidated income statement
9
Results summary
12
Analysis of results
23
Divisional performance
53
Consolidated balance sheet
56
Cash flow
57
Capital resources
58
Risk and balance sheet management
58
  Introduction
68
  Balance sheet management
68
    - Capital management
74
    - Liquidity and funding risk
89
    - Interest rate risk
91
    - Structural foreign currency exposures
91
    - Equity risk
92
  Risk management
92
    - Credit risk
166
    - Country risk
187
    - Market risk
194
    - Insurance risk
194
    - Operational risk
197
    - Compliance risk
202
    - Reputational risk
202
    - Business risk
203
    - Pension risk
205
  Asset Protection Scheme


 
1

 
 
Presentation of information
 
In this document and unless specified otherwise, the term ‘company’ or ‘RBSG’ means The Royal Bank of Scotland Group plc, ‘RBS’, ‘RBS Group’ or the ‘Group’ means the company and its subsidiaries, ‘the Royal Bank’ means The Royal Bank of Scotland plc and ‘NatWest’ means National Westminster Bank Plc.

The company publishes its financial statements in pounds sterling (‘£’ or ‘sterling’). The abbreviations ‘£m’ and ‘£bn’ represent millions and thousands of millions of pounds sterling, respectively, and references to ‘pence’ represent pence in the United Kingdom (‘UK’). Reference to ‘dollars’ or ‘$’ are to United States of America (‘US’) dollars. The abbreviations ‘$m’ and ‘$bn’ represent millions and thousands of millions of dollars, respectively, and references to ‘cents’ represent cents in the US. The abbreviation ‘€’ represents the ‘euro’, the European single currency, and the abbreviations ‘€m’ and ‘€bn’ represent millions and thousands of millions of euros, respectively.

Certain information in this report is presented separately for domestic and foreign activities. Domestic activities primarily consist of the UK domestic transactions of the Group. Foreign activities comprise the Group's transactions conducted through those offices in the UK specifically organised to service international banking transactions and transactions conducted through offices outside the UK.

The geographic analysis in the Business Review, including the average balance sheet and interest rates, changes in net interest income and average interest rates, yields, spreads and margins in this report have been compiled on the basis of location of office - UK and overseas. Management believes that this presentation provides more useful information on the Group's yields, spreads and margins of the Group's activities than would be provided by presentation on the basis of the domestic and foreign activities analysis used elsewhere in this report as it more closely reflects the basis on which the Group is managed. ‘UK’ in this context includes domestic transactions and transactions conducted through the offices in the UK which service international banking transactions.

The results, assets and liabilities of individual business units are classified as trading or non-trading based on their predominant activity. Although this method may result in some non-trading activity being classified as trading, and vice versa, the Group believes that any resulting misclassification is not material.

International Financial Reporting Standards
As required by the Companies Act 2006 and Article 4 of the European Union IAS Regulation, the consolidated financial statements of the Group are 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 (together ‘IFRS’). They also comply with IFRS as issued by the IASB.

RBS Holdings N.V. (formerly ABN AMRO Holding N.V.)
In 2007, RFS Holdings B.V., which was jointly owned by the Group, the Dutch State (successor to Fortis) and Santander (together, the “Consortium Members”) completed the acquisition of ABN AMRO Holding N.V.
 
On 6 February 2010, the businesses of ABN AMRO Holding N.V. acquired by the Dutch State were legally demerged to a newly established company, ABN AMRO Bank N.V., which on 1 April 2010 was transferred to ABN AMRO Group N.V., itself owned by the Dutch State. Following legal separation, RBS Holdings N.V. (formerly ABN AMRO Holding N.V.) has one operating subsidiary, The Royal Bank of Scotland N.V. (“RBS N.V.”), a fully operational bank within the Group. RBS N.V. is independently rated and regulated by the Dutch Central Bank. Certain assets within RBS N.V. continue to be shared by the Consortium Members.

On 19 April 2011, the Group announced the proposed transfers of a substantial part of the business activities of RBS N.V. to the Royal Bank. Subject to, among other matters, regulatory and other approvals and procedures, it is expected that the transfers will be implemented on a phased basis over a period ending 31 December 2013. A large part of the transfers is expected to have taken place by the end of 2012.

On 17 October 2011, the Group completed the transfer of a substantial part of the UK activities of RBS N.V. to the Royal Bank pursuant to Part VII of the UK Financial Services and Markets Act 2000.

Approximately 98% of the issued share capital of RFS Holdings B.V. is held by the Group.

Non-GAAP financial information
The directors manage the Group’s performance by class of business, before certain reconciling items, as is presented in the segmental analysis on pages 371 to 375 (the “managed basis”). Discussion of the Group’s performance focuses on the managed basis as the Group believes that such measures allow a more meaningful analysis of the Group’s financial condition and the results of its operations. These measures are non-GAAP financial measures. A body of generally accepted accounting principles such as IFRS is commonly referred to as ‘GAAP’. A non-GAAP financial measure is defined as one that measures historical or future financial performance, financial position or cash flows but which excludes or includes amounts that would not be so adjusted in the most comparable GAAP measure. Reconciliations of these non-GAAP measures are presented throughout this document or in the segmental analysis on pages 371 to 375. These non-GAAP financial measures are not a substitute for GAAP measures. Furthermore, RBS has divided its operations into “Core” and “Non- Core”. Certain measures disclosed in this document for Core operations and used by RBS management are non-GAAP financial measures as they represent a combination of all reportable segments with the exception of Non-Core. In addition, RBS has further divided parts of the Core business into “Retail & Commercial” consisting of the UK Retail, UK Corporate, Wealth, Global Transaction Services, Ulster Bank and US Retail & Commercial divisions. This is a non GAAP financial measure. Lastly, the Basel III net stable funding ratio (see page 81) represents a non-GAAP financial measure given it is a metric that is not yet required to be disclosed by a government, governmental authority or self-regulatory organisation.

Glossary
A glossary of terms is provided on pages 440 to 447.
 
 
2

 
 
 
Forward-looking statements
 
Certain sections in this document contain ‘forward-looking statements’ as that term is defined in the United States Private Securities Litigation Reform Act of 1995, such as statements that include the words ‘expect’, ‘estimate’, ‘project’, ‘anticipate’, ‘believes’, ‘should’, ‘intend’, ‘plan’, ‘could’, ‘probability’, ‘risk’, ‘Value-at-Risk (VaR)’, ‘target’, ‘goal’, ‘objective’, ‘will’, ‘endeavour’, ‘outlook’, ‘optimistic’, ‘prospects’ and similar expressions or variations on such expressions.

In particular, this document includes forward-looking statements relating, but not limited to: the Group’s restructuring plans, divestments, capitalisation, portfolios, net interest margin, capital ratios, liquidity, risk weighted assets (RWAs), return on equity (ROE), profitability, cost:income ratios, leverage and loan:deposit ratios, funding and risk profile; certain ring-fencing proposals; sustainability targets; the Group’s future financial performance; the level and extent of future impairments and write-downs, including sovereign debt impairments; the protection provided by the Asset Protection Scheme (APS); and the Group’s potential exposures to various types of market risks, such as interest rate risk, foreign exchange rate risk and commodity and equity price risk. These statements are based on current plans, estimates and projections, and are subject to inherent risks, uncertainties and other factors which could cause actual results to differ materially from the future results expressed or implied by such forward-looking statements. For example, certain market risk disclosures are dependent on choices about key model characteristics and assumptions and are subject to various limitations. By their nature, certain of the market risk disclosures are only estimates and, as a result, actual future gains and losses could differ materially from those that have been estimated.

Other factors that could cause actual results to differ materially from those estimated by the forward-looking statements contained in this document include, but are not limited to: the global economic and financial market conditions and other geopolitical risks, and their impact on the financial industry in general and on the Group in particular; the ability to access sufficient sources of liquidity and funding; the recommendations made by the Independent Commission on Banking (ICB) and their potential implications; the ability to implement strategic plans on a timely basis, or at all, including the disposal of certain Non-Core assets and assets and businesses required as part of the State Aid restructuring plan; organisational restructuring, including any adverse consequences of a failure to transfer, or delay in transferring, certain business assets and liabilities from RBS N.V. to RBS; the full nationalisation of the Group or other resolution procedures under the Banking Act 2009; deteriorations in borrower and counterparty credit quality; costs or exposures borne by the Group arising out of the origination or sale of mortgages or mortgage-backed securities in the United States; the extent of future write-downs and impairment charges caused by depressed asset valuations; the value and effectiveness of any credit protection purchased by the Group; unanticipated turbulence in interest rates, yield curves, foreign currency exchange rates, credit spreads, bond prices, commodity prices, equity prices and basis, volatility and correlation risks; changes in the credit ratings of the Group; ineffective management of capital or changes to capital adequacy or liquidity requirements; litigation and regulatory investigations; changes to the valuation of financial instruments recorded at fair value; competition and consolidation in the banking sector; the ability of the Group to attract or retain senior management or other key employees; regulatory or legal changes (including those requiring any restructuring of the Group’s operations) in the United Kingdom, the United States and other countries in which the Group operates or a change in United Kingdom Government policy; changes to regulatory requirements relating to capital and liquidity; changes to the monetary and interest rate policies of central banks and other governmental and regulatory bodies; changes in UK and foreign laws, regulations, accounting standards and taxes, including changes in regulatory capital regulations and liquidity requirements; impairments of goodwill; pension fund shortfalls; general operational risks; HM Treasury exercising influence over the operations of the Group; insurance claims; reputational risk; the ability to access the contingent capital arrangements with HM Treasury; the participation of the Group in the APS and the effect of the APS on the Group’s financial and capital position; the conversion of the B Shares in accordance with their terms; limitations on, or additional requirements imposed on, the Group’s activities as a result of HM Treasury’s investment in the Group; and the success of the Group in managing the risks involved in the foregoing.

The forward-looking statements contained in this document speak only as of the date of this announcement, and the Group does not undertake to update any forward-looking statement to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

The information, statements and opinions contained in this document do not constitute a public offer under any applicable legislation or an offer to sell or solicitation of any offer to buy any securities or financial instruments or any advice or recommendation with respect to such securities or other financial instruments.

 
3

 
 

 
Description of business
Introduction
The Royal Bank of Scotland Group plc is the holding company of a large global banking and financial services group. Headquartered in Edinburgh, the Group operates in the United Kingdom, the United States and internationally through its principal subsidiaries, the Royal Bank and NatWest. Both the Royal Bank and NatWest are major UK clearing banks. In the United States, the Group's subsidiary Citizens is a large commercial banking organisation. Globally, the Group has a diversified customer base and provides a wide range of products and services to personal, commercial and large corporate and institutional customers.

Following the placing and open offers in December 2008 and in April 2009, HM Treasury owned approximately 70.3% of the enlarged ordinary share capital of the company. In December 2009, the company issued a further £25.5 billion of new capital to HM Treasury. This new capital took the form of B shares, which do not generally carry voting rights at general meetings of ordinary shareholders but are convertible into ordinary shares and qualify as Core Tier 1 capital. Following the issuance of the B shares, HM Treasury's holding of ordinary shares of the company remained at 70.3% although its economic interest rose to 84.4%.

At 31 December 2011, HM Treasury’s holding in the company’s ordinary shares was 66.9% and its economic interest was 82.2%.

The Group had total assets of £1,506.9 billion and owners' equity of
£74.8 billion at 31 December 2011. The Group's risk asset ratios at 31 December 2011, were a Total capital ratio of 13.8%, a Core Tier 1 capital ratio of 10.6% and a Tier 1 capital ratio of 13.0%.

Organisational structure and business overview
The Group’s activities are organised on a divisional basis as follows:
 
UK Retail offers a comprehensive range of banking products and related financial services to the personal market. It serves customers through a number of channels including: the RBS and NatWest network of branches and ATMs in the United Kingdom, telephony, online and mobile. UK Retail remains committed to delivering ‘Helpful and Sustainable’ banking and to the commitments set out in its Customer Charter - the results of which are externally assessed and published every six months.

UK Corporate is a leading provider of banking, finance and risk management services to the corporate and SME sector in the United Kingdom. It offers a full range of banking products and related financial services through a nationwide network of relationship managers, and also through telephone and internet channels. The product range includes asset finance through the Lombard brand.

Wealth provides private banking and investment services in the UK through Coutts & Co and Adam & Company, offshore banking through RBS International, NatWest Offshore and Isle of Man Bank, and international private banking through Coutts & Co Ltd.

Global Transaction Services (GTS) ranks among the top tier of global transaction banks, offering payments, cash and liquidity management, trade finance and commercial card products and services. Through the network and extensive partner bank agreements, GTS is able to support and connect customers across 128 countries.

Ulster Bank is the leading retail and business bank in Northern Ireland and the third largest banking group on the island of Ireland. It provides a comprehensive range of financial services. The Retail Markets division which has a network of 236 branches, operates in the personal and financial planning sectors. The Corporate Markets division provides services to SME business customers, corporates and institutional markets.

US Retail & Commercial provides financial services primarily through the Citizens and Charter One brands. US Retail & Commercial is engaged in retail and corporate banking activities through its branch network in 12 states in the United States and through non-branch offices in other states.

The divisions discussed above are collectively referred to as Retail & Commercial.

Global Banking & Markets (GBM) is a leading banking partner to major corporations and financial institutions around the world, providing an extensive range of debt and equity financing, risk management and investment services to its customers. The division is organised along six principal business lines: money markets; rates flow trading; currencies; equities; credit and mortgage markets; and portfolio management & origination.

RBS Insurance provides a wide range of general insurance products to consumers through a number of well known brands including; Direct Line, Churchill and Privilege. It also provides insurance services for third party brands, through its UKI Partnerships business. In the commercial sector, its NIG and Direct Line for Business operations provide insurance products for businesses via brokers or direct respectively. Through its international division, RBS Insurance sells general insurance, mainly motor, in Germany and Italy. In addition to insurance services, RBS Insurance continues to provide support and reassurance to millions of UK motorists through its Green Flag breakdown recovery service and Tracker stolen vehicle recovery and telematics business. On 15 February 2012, a new corporate brand, Direct Line Group, was announced.

To comply with EC State Aid requirements, the Group has agreed to dispose of RBS Insurance.  It continues to be reported as a separate operating segment rather than within the Non-Core division as its business is distinct from the activities of the Non-Core division.

Central Functions comprises Group and corporate functions, such as treasury, funding and finance, risk management, legal, communications and human resources. The Centre manages the Group's capital resources and Group-wide regulatory projects and provides services to the operating divisions.

 
4

 
 
Business review continued
 
Non-Core division manages separately assets that the Group intends to run off or dispose of. The division contains a range of businesses and asset portfolios primarily from the GBM division, higher risk profile asset portfolios including excess risk concentrations, and other illiquid portfolios. It also includes a number of other portfolios and businesses including regional markets businesses that the Group has concluded are no longer strategic.

Business Services supports the customer-facing businesses and provides operational technology, customer support in telephony, account management, lending and money transmission, global purchasing, property and other services. Business Services drives efficiencies and supports income growth across multiple brands and channels by using a single, scalable platform and common processes wherever possible. It also leverages the Group's purchasing power and is the Group's centre of excellence for managing large-scale and complex change. For reporting purposes, Business Services costs are allocated to the divisions above. It is not deemed a reportable segment.

Organisational change
In January 2012, the Group announced changes to its wholesale banking operations in light of a changed market and regulatory environment.  The changes will see the reorganisation of the Group’s wholesale businesses into ‘Markets’ and ‘International Banking’ and the exit and downsizing of selected activities.  The changes will ensure the wholesale businesses continue to deliver against the Group’s strategy.

The changes will include an exit from cash equities, corporate brokering, equity capital markets and mergers and acquisitions businesses.  Significant reductions in balance sheet, funding requirements and cost base in the remaining wholesale businesses will be implemented.

Existing GBM and GTS divisions will be reorganised as follows:

·
The ‘Markets’ business will maintain its focus on fixed income, with strong positions in debt capital raising, securitisation, risk management, foreign exchange and rates. It will serve the corporate and institutional clients of all Group businesses.
 
 
·
GBM's corporate banking business will combine with the international businesses of our GTS arm into a new ‘International Banking’ unit and provide clients with a 'one-stop shop' access to the Group’s debt financing, risk management and payments services. This international corporate business will be self-funded through its stable corporate deposit base.

·
The domestic small and mid-size corporates currently served within GTS will be managed within RBS's domestic corporate banking businesses in the UK, Ireland (Ulster Bank) and the US (US Retail & Commercial).

Our wholesale business will be retaining its international footprint to ensure that it can serve our customers' needs globally. We believe, that despite current challenges to the sector, wholesale banking services can play a central role in supporting cross border trade and capital flows, financing requirements and risk management and we remain committed to this business.

Going forward the Group will comprise the following segments:

·
Retail and Commercial
 
  - UK Retail
 
  - UK Corporate
 
  - Wealth
 
  - US Retail & Commercial
 
  - Ulster Bank
 
  - International Banking
·
Markets
·
RBS Insurance
·
Group Centre
·
Core
·
Non-Core

Business divestments
To comply with EC State Aid requirements the Group agreed a series of restructuring measures to be implemented over a four year period from December 2009. This supplements the measures in the Strategic Plan previously announced by the Group. These include divesting RBS Insurance, 80.01% of GMS (completed in 2010) and substantially all of RBS Sempra Commodities JV business (largely completed in 2010), as well as divesting the RBS branch-based business in England and Wales and the NatWest branches in Scotland, along with the Direct SME customers across the UK.

Recent developments
Liability management: Exchange offer
On 28 February 2012, The Royal Bank of Scotland plc announced an invitation to offer to exchange certain Canadian Dollar, Australian Dollar, US Dollar, Euro and Swiss Franc denominated subordinated notes for new Canadian Dollar, Australian Dollar, US Dollar, Euro and Swiss Franc denominated subordinated notes, due 2022 and callable 2017. The new notes, other than the Australian Dollar denominated new notes, were issued on 16 March 2012, and the Australian Dollar denominated new notes were issued on 19 March 2012, in each case under the £90,000,000,000 Euro Medium Term Note Programme of The Royal Bank of Scotland plc and The Royal Bank of Scotland Group plc.

National Loan Guarantee Scheme
On 20 March 2012, RBS agreed to participate in the National Loan Guarantee Scheme (the Scheme), pursuant to which The Commissioners of Her Majesty’s Treasury (HM Treasury) have agreed to unconditionally and irrevocably guarantee the due payment of all sums due and payable by RBS under any senior unsecured notes issued by RBS in accordance with the terms of the Scheme in respect of which HM Treasury issues a Guarantee Certificate (as defined in a deed of guarantee dated 20 March 2012 (the “Deed of Guarantee”)). The Guarantor’s obligations in that respect, are contained in the Deed of Guarantee, the form of which is available at www.dmo.gov.uk.
 
2012 Budget
In the Budget statement on 21 March 2012, the Chancellor of the Exchequer announced a further reduction of 1% in the rate of corporation tax such that the rate will fall by 2% from 26% to 24% in April 2012, to 23% in April 2013 and to 22% in April 2014.
 
It was also announced in the Budget statement that the full rate of the bank levy will increase to 0.105 per cent. from 1 January 2013.

 
5

 
 
Business review continued

Competition
The Group faces strong competition in all the markets it serves. Banks’ balance sheets have strengthened whilst loan demand has been subdued as many customers have sought to delever and the UK economy has remained weak. Competition for retail deposits remains intense as institutions continue to target strong and diverse funding platforms for their balance sheets.

Competition for corporate and institutional customers in the UK is from UK banks and from large foreign financial institutions who are also active and offer combined investment and commercial banking capabilities. In asset finance, the Group competes with banks and specialist asset finance providers, both captive and non-captive. In European and Asian corporate and institutional banking markets the Group competes with the large domestic banks active in these markets and with the major international banks.

In the small business banking market, the Group competes with other UK clearing banks, specialist finance providers and building societies.

In the personal banking segment, the Group competes with UK clearing banks and building societies, major retailers and life assurance companies. In the mortgage market, the Group competes with UK clearing banks and building societies. The ambitions of non-traditional players in the UK market remain strong, with new entrants active and potentially seeking to build their platforms by acquiring businesses made available through restructuring of incumbents. The Group distributes life assurance products to banking customers in competition with independent advisors and life assurance companies.

In the UK credit card market large retailers and specialist card issuers are active in addition to the UK banks. In addition to physical distribution channels, providers compete through direct marketing activity and the internet.

In Wealth Management, The Royal Bank of Scotland International competes with other UK and international banks to offer offshore banking services. Coutts and Adam & Company compete as private banks with UK clearing and private banks, and with international private banks. Competition in wealth management remains strong as banks maintain their focus on competing for affluent and high net worth customers.

RBS Insurance competes in personal lines insurance and, to a more limited extent, in commercial insurance. There is strong competition from a range of insurance companies which now operate telephone and internet direct sales businesses. Competition in the UK motor market remains intense, and price comparison internet sites now play a major role in the marketplace. These sites are now extending their scope to home insurance and other lines. RBS Insurance also competes with local insurance companies in the direct motor insurance markets in Italy and Germany.

In Ireland, Ulster Bank competes in retail and commercial banking with the major Irish banks and building societies, and with other UK and international banks and building societies active in the market. The challenging conditions in the Irish economy persist and many of the domestic Irish banks have required State support and are engaged in significant restructuring actions.

In the United States, Citizens competes in the New England, Mid-Atlantic and Mid-West retail and mid-corporate banking markets with local and regional banks and other financial institutions. The Group also competes in the US in large corporate lending and specialised finance markets, and in fixed-income trading and sales. Competition is principally with the large US commercial and investment banks and international banks active in the US. The economic recovery in the US is proving weaker than expected and loan demand is weak in Citizens’ markets.

 
6

 
Business review continued
 
 
Risk factors

Set out below is a summary of certain risks which could adversely affect the Group; it should be read in conjunction with the Risk and balance sheet management section of the Business review (pages 58 to 207). This summary should not be regarded as a complete and comprehensive statement of all potential risks and uncertainties. A fuller description of these and other risk factors is included on pages 405 to 418.

·
The Group’s businesses, earnings and financial condition have been and will continue to be affected by geopolitical conditions, the global economy, the instability in the global financial markets and increased competition. Together with a perceived increased risk of default on the sovereign debt of certain European countries and unprecedented stresses on the financial system within the eurozone, these factors have resulted in significant changes in market conditions including interest rates, foreign exchange rates, credit spreads, and other market factors and consequent changes in asset valuations.

·
The Group’s ability to meet its obligations’ including its funding commitments, depends on the Group’s ability to access sources of liquidity and funding. The inability to access liquidity and funding due to market conditions or otherwise could adversely affect the Group’s financial condition. Furthermore, the Group’s borrowing costs and its access to the debt capital markets and other sources of liquidity depend significantly on its and the UK Government’s credit ratings.

·
The Independent Commission on Banking has published its final report on competition and possible structural reforms in the UK banking industry. The Government has indicated that it supports and intends to implement the recommendations substantially as proposed which could have a material adverse effect on the Group.

·
The Group’s ability to implement its Strategic Plan depends on the success of its efforts to refocus on its core strengths and its balance sheet reduction programme. As part of the Group’s Strategic Plan and implementation of the State Aid restructuring plan agreed with the European Commission and HM Treasury, the Group is undertaking an extensive restructuring which may adversely affect the Group’s business, results of operations and financial condition and give rise to increased operational risk and may impair the Group’s ability to raise new Tier 1 capital due to restrictions on its ability to make discretionary dividend or coupon payments on certain securities.

·
The occurrence of a delay in the implementation of (or any failure to implement) the approved proposed transfers of a substantial part of the business activities of RBS N.V. to the Royal Bank may have a material adverse effect on the Group.

·
The Group or any of its UK bank subsidiaries may face the risk of full nationalisation or other resolution procedures and various actions could be taken by or on behalf of the UK Government, including actions in relation to any securities issued, new or existing contractual arrangements and transfers of part or all of the Group’s businesses.

·
The actual or perceived failure or worsening credit of the Group’s counterparties or borrowers and depressed asset valuations resulting from poor market conditions have adversely affected and could continue to adversely affect the Group.

·
The value of certain financial instruments recorded at fair value is determined using financial models incorporating assumptions, judgements and estimates that may change over time or may ultimately not turn out to be accurate.

·
The Group’s insurance businesses are subject to inherent risks involving claims on insured events.

·
The Group’s business performance, financial condition and capital and liquidity ratios could be adversely affected if its capital is not managed effectively or as a result of changes to capital adequacy and liquidity requirements, including those arising out of Basel III implementation (globally or by European or UK authorities), or if the Group is unable to issue Contingent B Shares to HM Treasury under certain circumstances.

·
The Group could fail to attract or retain senior management, which may include members of the Group Board, or other key employees, and it may suffer if it does not maintain good employee relations.

·
Any significant developments in regulatory or tax legislation could have an effect on how the Group conducts its business and on its results of operations and financial condition, and the recoverability of certain deferred tax assets recognised by the Group is subject to uncertainty.

·
The Group is subject to substantial regulation and oversight, and any significant regulatory or legal developments could have an adverse effect on how the Group conducts its business and on its results of operations and financial condition.  In addition, the Group is, and may be, subject to litigation and regulatory investigations that may impact its business, results of operations and financial condition.

·
Operational and reputational risks are inherent in the Group’s operations.

·
The Group may be required to make contributions to its pension schemes and government compensation schemes, either of which may have an adverse impact on the Group’s results of operations, cash flow and financial condition.

·
As a result of the UK Government’s majority shareholding in the Group it can, and in the future may decide to, exercise a significant degree of influence over the Group including on dividend policy, modifying or cancelling contracts or limiting the Group’s operations. The offer or sale by the UK Government of all or a portion of its shareholding in the company could affect the market price of the equity shares and other securities and acquisitions of ordinary shares by the UK Government (including through conversions of other securities or further purchases of shares) may result in the delisting of the Group from the Official List.

 
7

 
 
Business review continued

 
Key financials
for the year ended 31 December
2011 
£m 
2010 
£m 
2009 
£m 
Total income
28,937 
31,868 
33,026 
Operating loss before tax
(766)
(399)
(2,647)
Loss attributable to ordinary and B shareholders
(1,997)
(1,125)
(3,607)
Cost:income ratio
62% 
57% 
52% 
Basic loss per ordinary and B share from continuing operations (pence)
(1.8p)
(0.5p)
(6.3p)


at 31 December
2011 
£m 
2010 
£m 
2009 
£m 
Funded balance sheet (1)
977,249 
1,026,499 
1,255,032 
Total assets
1,506,867 
1,453,576 
1,696,486 
Loans and advances to customers
515,606 
555,260 
728,393 
Deposits
611,759 
609,483 
756,346 
Owners' equity
74,819 
75,132 
77,736 
Risk asset ratios
- Core Tier 1
10.6% 
10.7% 
11.0% 
 
- Tier 1
13.0% 
12.9% 
14.1% 
 
- Total
13.8% 
14.0% 
16.1% 
Note:
 (1)
Funded balance sheet represents total assets less derivatives.


Overview of results
The results of RFS Holdings B.V., the entity that acquired ABN AMRO, are fully consolidated in the Group’s financial statements. The interests of the State of the Netherlands and Santander in RFS Holdings are included in non-controlling interests. Legal separation of ABN AMRO Bank N.V. took place on 1 April 2010. As a result, RBS presents the interests of the Consortium Members in ABN AMRO as discontinued operations.
 
 
8

 
 
 
Summary consolidated income statement
for the year ended 31 December 2011
 
2011 
2010 
2009 
 
£m 
£m 
£m 
Net interest income
12,679 
14,209 
13,388 
Fees and commissions receivable
6,384 
8,193 
8,738 
Fees and commissions payable
(1,460)
(2,211)
(2,790)
Other non-interest income
7,078 
6,549 
8,424 
Insurance net premium income
4,256 
5,128 
5,266 
Non-interest income
16,258 
17,659 
19,638 
Total income
28,937 
31,868 
33,026 
Operating expenses
(18,026)
(18,228)
(17,417)
Profit before insurance net claims and impairment losses
10,911 
13,640 
15,609 
Insurance net claims
(2,968)
(4,783)
(4,357)
Impairment losses
(8,709)
(9,256)
(13,899)
Operating loss before tax
(766)
(399)
(2,647)
Tax (charge)/credit
(1,250)
(634)
429 
Loss from continuing operations
(2,016)
(1,033)
(2,218)
Profit/(loss) from discontinued operations, net of tax
47 
(633)
(105)
Loss for the year
(1,969)
(1,666)
(2,323)
Non-controlling interests
(28)
665 
(349)
Other owners’ dividends
— 
(124)
(935)
Loss attributable to ordinary and B shareholders
(1,997)
(1,125)
(3,607)
       
Basic loss per ordinary and B share from continuing operations
(1.8p)
(0.5p)
(6.3p)
       

Results summary
2011 compared with 2010
Operating profit
Group operating loss before tax for the year was £766 million compared with £399 million in 2010.  Group operating profit on a managed basis was £1,892 million compared with £1,913 million in 2010.  Adjusting for the impact of the disposal of GMS in 2010, which recorded an operating profit of £207 million, Group operating profit on a managed basis was up 11%. The improvement was driven by a strong Retail & Commercial (R&C) operating performance and the return to profit of RBS Insurance. Ulster Bank and GBM faced more difficult conditions, leaving total Core operating profit on a managed basis at £6,095 million. Non-Core operating loss in 2011 was 24% lower compared with 2010, despite the acceleration of disposals in the second half of the year.

Total income
Total income fell by 9% to £28,937 million, primarily reflecting lower net interest income, lower trading income in GBM and Non-Core and a fall in insurance net premium income.

Net interest income
Group net interest income fell 11% to £12,679 million largely driven by the run-off of balances and exit of higher margin and higher risk segments in Non-Core. Group NIM was 14 basis points lower, reflecting the cost of carrying a higher liquidity portfolio and by the impact of non-performing assets in the Non-Core division. However, R&C NIM was up 7 basis points, with strengthening asset margins in the first half of the year offsetting the impact of a competitive deposit market.

Non-interest income
Non-interest income decreased to £16,258 million from £17,659 million in 2010. This included movements in the fair value of the Asset Protection Scheme resulting in a £906 million charge (2010 - £1,550 million), gain on redemption of own debt of £255 million (2010 - £553 million) and a gain on movements in the fair value of own debt of £1,846 million (2010 - £174 million gain). Excluding these items, non-interest income was down 19% primarily reflecting a reduction in income from trading activities and lower net fees and commissions.

 
9

 
 
Business review continued


Operating expenses
Operating expenses decreased to £18,026 million (2010 - £18,228 million). Operating expenses on a managed basis fell to £15,478 million from £16,710 million in 2010.

This decrease was primarily driven by cost savings achieved as a result of the cost reduction programme and Non-Core run-off, largely reflecting the disposal of RBS Sempra and specific country exits. Staff costs fell 9%, driven by lower GBM variable compensation as a result of its decrease in revenues, and in Non-Core, given the impact of a 32% reduction in headcount and continued business disposals and country exits.

The Group cost:income ratio was 62% in 2011 compared with 57% in 2010.

Net insurance claims
Bancassurance and general insurance claims, after reinsurance, reduced by 38% to £2,968 million.

General insurance claims were £1,730 million lower, mainly due to the non-repeat of bodily injury reserve strengthening in 2010, de-risking of the motor book, more benign weather in 2011 and claims in Non-Core decreasing as legacy policies ran-off.
 
Impairment losses
Impairment losses were £8,709 million compared with £9,256 million in 2010, with Core loan impairments falling by £260 million and Non-Core by £1,557 million, despite continuing challenges in Ulster Bank and corporate real estate portfolios, partially offset by an impairment of £1,099 million and interest rate hedge adjustments on impaired available-for-sale Greek government bonds of £169 million.

Risk elements in lending represented 8.6% of gross loans and advances to customers excluding reverse repos at 31 December 2011
(2010 - 7.3%).

Provision coverage of risk elements in lending was 49% (2010 - 47%).

Tax
The tax charge was £1,250 million in 2011, compared with £634 million in 2010. The high tax charge in the year reflects profits in high tax regimes (principally US) and losses in low tax regimes (principally Ireland), losses in overseas subsidiaries for which a deferred tax asset has not been recognised (principally Ireland and the Netherlands) and the effect of the two reductions of 1% in the rate of UK corporation tax enacted in March 2011 and July 2011 on the net deferred tax balance.

Earnings
Basic loss per ordinary and B share from continuing operations increased from a loss of 0.5p to a loss of 1.8p.

 
10

 
 
Business review continued
 
Results summary continued
2010 compared with 2009

Operating loss
Operating loss before tax for the year was £399 million compared with a loss of £2,647 million in 2009. The improvement in performance is primarily driven by stronger Core Retail & Commercial operating profits offsetting more normal results from Global Banking & Markets, coupled with lower impairments in the Non-Core division.

After tax, non-controlling interests and preference share and other dividends, the loss attributable to ordinary and B shareholders was £1,125 million, compared with an attributable loss of £3,607 million in 2009.

Total income
Total income decreased 4% to £31,868 million in 2010 reflecting the return to more normal levels in Global Banking & Markets compared with the favourable market conditions seen in 2009.  This was offset by good growth in Core Retail & Commercial and the improvement in Non-Core.

Net interest income
Net interest income increased by 6% to £14,209 million, reflecting improvements in net interest margin which more than offset lower interest-earning assets and interest-bearing liabilities. Group net interest margin increased from 1.83% to 2.06% largely reflecting expanding asset margins in UK Retail and UK Corporate divisions as well as in US Retail & Commercial. The run-off of low-yielding Non-Core assets also contributed to this increase. The Group net interest margin was also affected by increased funding costs.

Non-interest income
Non-interest income decreased to £17,659 million from £19,638 million in 2009. This included movements in the fair value of the Asset Protection Scheme - credit default swap resulting in a £1,550 million charge and gain on redemption of own debt of £553 million (2009 - £3,790 million). Excluding these items, non-interest income was up 18% primarily reflecting an increase in income from trading activities.
 
Operating expenses
Operating expenses increased to £18,228 million (2009 - £17,417 million). The main driver of this 5% increase was the impact of a £2,148 million gains on pension curtailment in 2009. This was partially offset by gains on the recognition of benefits from the Group-wide efficiency programme. The programme continues to deliver material savings which have been funding investments to strengthen our Core franchises. Annualised savings are now just ahead of the £2.5 billion target for 2011 and are forecast to exceed £3 billion by 2013. Integration and restructuring costs were £1,032 million compared with £1,286 million in 2009. Write-down of goodwill and other intangible assets was £10 million compared with £363 million in 2009. Premises and equipment costs fell by 7% in the year largely driven by efficiency cost savings, significant
one-off property impairments recognised in 2009 and country exits following Non-Core disposals.

Net insurance claims
Bancassurance and general insurance claims, after reinsurance, increased by 10% to £4,783 million.

Impairment losses
Impairment losses were £9,256 million compared with £13,899 million in 2009, with Core impairments falling by £898 million and Non-Core by £3,745 million. The decrease reflects an overall improvement in the economic environment. Impairments fell in all businesses, except Ulster Bank, which has faced an economic environment that remains challenging.

Risk elements in lending and potential problem loans represented 7.4% of gross loans and advances to customers excluding reverse repos at 31 December 2010 (2009 - 5.5%).

Provision coverage of risk elements in lending and potential problem loans was 46% (2009 - 45%).

Tax
The Group recorded a tax charge of £634 million in 2010, compared with a tax credit of £429 million in 2009.

Earnings
Basic loss per ordinary and B share from continuing operations improved from a loss of 6.3p to a loss of 0.5p.
 
11

 
 
Business review continued
 
 
Analysis of results
Net interest income
 
2011 
2010 
2009 
 
£m 
£m 
£m 
Interest receivable
21,410 
22,776 
33,836 
Interest payable
(8,731)
(8,567)
(17,332)
Net interest income
12,679 
14,209 
16,504 
       
 
   
Gross yield on interest-earning assets of the banking business (1)
3.24 
3.30 
3.76 
Cost of interest-bearing liabilities of the banking business
(1.68)
(1.47)
(2.18)
Interest spread of the banking business (2)
1.56 
1.83 
1.58 
Benefit from interest-free funds
0.36 
0.23 
0.25 
Net interest margin of the banking business (3)
1.92 
2.06 
1.83 
       
Yields, spreads and margins of the banking business
% 
% 
Gross yield (1)
     
  - Group
3.24 
3.30 
3.76 
  - UK
3.56 
3.42 
3.35 
  - Overseas
2.77 
3.15 
4.09 
Interest spread (2)
     
  - Group
1.56 
1.83 
1.58 
  - UK
1.81 
2.01 
1.50 
  - Overseas
1.22 
1.59 
1.67 
Net interest margin (3)
     
  - Group
1.92 
2.06 
1.83 
  - UK
2.07 
2.22 
1.81 
  - Overseas
1.70 
1.84 
1.85 
       
The Royal Bank of Scotland plc base rate (average)
0.50 
0.50 
0.64 
London inter-bank three month offered rates (average)
     
  - Sterling
0.87 
0.70 
1.21 
  - Eurodollar
0.33 
0.34 
0.69 
  - Euro
1.36 
0.75 
1.21 

Notes:
(1)
Gross yield is the interest earned on average interest-earning assets of the banking book.
(2)
Interest spread is the difference between the gross yield and the interest rate paid on average interest-bearing liabilities of the banking business.
(3)
Net interest margin is net interest income of the banking business as a percentage of average interest-earning assets of the banking business.
(4)
The analysis into UK and overseas has been compiled on the basis of location of office.
(5)
Interest receivable and interest payable on trading assets and liabilities are included in income from trading activities.
 
 
12

 
Business review continued
 
 
 
Average balance sheet and related interest

   
2011
 
2010
   
Average 
 Balance 
Interest  
Rate 
 
Average 
 balance 
Interest 
Rate 
   
£m 
£m 
% 
 
£m 
£m 
% 
Assets
               
Loans and advances to banks
- UK
31,994 
293 
0.92 
 
22,714 
222 
0.98 
 
- Overseas
41,840 
404 
0.97 
 
30,148 
369 
1.22 
Loans and advances to customers
- UK
294,301 
12,105 
4.11 
 
310,712 
11,989 
3.86 
 
- Overseas
171,979 
5,864 
3.41 
 
195,858 
6,900 
3.52 
Debt securities
- UK
62,231 
1,449 
2.33 
 
66,765 
1,459 
2.19 
 
- Overseas
58,773 
1,295 
2.20 
 
63,334 
1,837 
2.90 
Interest-earning assets
- UK
388,526 
13,847 
3.56 
 
400,191 
13,670 
3.42 
 
- Overseas
272,592 
7,563 
2.77 
 
289,340 
9,106 
3.15 
Total interest-earning assets
- banking business
661,118 
21,410 
3.24 
 
689,531 
22,776 
3.30 
 
- trading business
278,975 
     
276,330 
   
Interest-earning assets
 
940,093 
     
965,861 
   
Non-interest-earning assets (5)
 
595,062 
     
706,343 
   
Total assets
 
1,535,155 
     
1,672,204 
   
                 
Percentage of assets applicable to overseas operations
40.2% 
     
44.0% 
   
                 
Liabilities
               
Deposits by banks
- UK
17,224 
242 
1.41 
 
21,816 
334 
1.53 
 
- Overseas
47,371 
740 
1.56 
 
59,799 
999 
1.67 
Customer accounts: demand deposits
- UK
112,522 
664 
0.59 
 
120,796 
621 
0.51 
 
- Overseas
43,177 
483 
1.12 
 
39,127 
607 
1.55 
Customer accounts: savings deposits
- UK
76,719 
1,177 
1.53 
 
68,142 
935 
1.37 
 
- Overseas
25,257 
130 
0.51 
 
25,587 
213 
0.83 
Customer accounts: other time deposits
- UK
39,672 
481 
1.21 
 
39,934 
431 
1.08 
 
- Overseas
33,971 
594 
1.75 
 
43,996 
914 
2.08 
Debt securities in issue
- UK
108,406 
2,606 
2.40 
 
111,277 
2,212 
1.99 
 
- Overseas
42,769 
765 
1.79 
 
72,175 
1,065 
1.48 
Subordinated liabilities
- UK
16,874 
470 
2.79 
 
19,442 
398 
2.05 
 
- Overseas
5,677 
270 
4.76 
 
8,714 
19 
0.22 
Internal funding of trading business
- UK
(40,242)
149 
(0.37)
 
(41,451)
(140)
0.34 
 
- Overseas
(8,783)
(40)
0.46 
 
(6,864)
(41)
0.60 
Interest-bearing liabilities
- UK
331,175 
5,789 
1.75 
 
339,956 
4,791 
1.41 
 
- Overseas
189,439 
2,942 
1.55 
 
242,534 
3,776 
1.56 
Total interest-bearing liabilities
- banking business
520,614 
8,731 
1.68 
 
582,490 
8,567 
1.47 
 
- trading business (5)
307,564 
     
293,993 
   
Interest-bearing liabilities
 
828,178 
     
876,483 
   
Non-interest-bearing liabilities:
               
Demand deposits
- UK
46,495 
     
46,692 
   
 
- Overseas
19,909 
     
23,994 
   
Other liabilities (5)
 
565,534 
     
648,129 
   
Owners' equity
 
75,039 
     
76,906 
   
Total liabilities and owners' equity
 
1,535,155 
     
1,672,204 
   
                 
Percentage of liabilities applicable to overseas operations
37.1% 
     
41.7% 
   


For notes relating to this table refer to page 12.

 
13

 
 
Business review continued

 
Average balance sheet and related interest continued

   
2009
   
Average 
balance 
Interest 
Rate 
   
£m 
£m 
% 
Assets
       
Loans and advances to banks
- UK
21,616 
310 
1.43 
 
- Overseas
32,367 
613 
1.89 
Loans and advances to customers
- UK
333,230 
11,940 
3.58 
 
- Overseas
376,382 
16,339 
4.34 
Debt securities
- UK
52,470 
1,414 
2.69 
 
- Overseas
84,822 
3,220 
3.80 
Interest-earning assets
- UK
407,316 
13,664 
3.35 
 
- Overseas
493,571 
20,172 
4.09 
Total interest-earning assets
- banking business
900,887 
33,836 
3.76 
 
- trading business (5)
291,092 
   
Interest-earning assets
 
1,191,979 
   
Non-interest-earning assets
 
831,501 
   
Total assets
 
2,023,480 
   
         
Percentage of assets applicable to overseas operations
 
47.4% 
   
         
Liabilities
       
Deposits by banks
- UK
24,837 
679 
2.73 
 
- Overseas
104,396 
2,362 
2.26 
Customer accounts: demand deposits
- UK
110,294 
569 
0.52 
 
- Overseas
82,177 
1,330 
1.62 
Customer accounts: savings deposits
- UK
54,270 
780 
1.44 
 
- Overseas
83,388 
2,114 
2.54 
Customer accounts: other time deposits
- UK
68,625 
932 
1.36 
 
- Overseas
71,315 
2,255 
3.16 
Debt securities in issue
- UK
116,536 
2,830 
2.43 
 
- Overseas
117,428 
2,500 
2.13 
Subordinated liabilities
- UK
26,053 
834 
3.20 
 
- Overseas
12,468 
656 
5.26 
Internal funding of trading business
- UK
(60,284)
(317)
0.53 
 
- Overseas
(14,845)
(192)
1.29 
Interest-bearing liabilities
- UK
340,331 
6,307 
1.85 
 
- Overseas
456,327 
11,025 
2.42 
Total interest-bearing liabilities
- banking business
796,658 
17,332 
2.18 
 
- trading business (5)
331,380 
   
Interest-bearing liabilities
 
1,128,038 
   
Non-interest-bearing liabilities:
       
Demand deposits
- UK
38,220 
   
 
- Overseas
27,149 
   
Other liabilities (5)
 
772,770 
   
Owners' equity
 
57,303 
   
Total liabilities and owners' equity
 
2,023,480 
   
         
Percentage of liabilities applicable to overseas operations
 
45.8% 
   


 
For notes relating to this table refer to page 12.
 
 
14

 
Business review continued

 
Analysis of change in net interest income - volume and rate analysis
Volume and rate variances have been calculated based on movements in average balances over the period and changes in interest rates on average interest-earning assets and average interest-bearing liabilities. Changes due to a combination of volume and rate are allocated pro rata to volume and rate movements.

 
2011 over 2010
 
Increase/(decrease) due to changes in:
 
Average 
 volume 
Average 
 rate 
Net 
 change 
 
£m 
£m 
£m 
Interest-earning assets
     
Loans and advances to banks
     
  UK
86 
(15)
71 
  Overseas
124 
(89)
35 
Loans and advances to customers
     
  UK
(652)
768 
116 
  Overseas
(820)
(216)
(1,036)
Debt securities
     
  UK
(102)
92 
(10)
  Overseas
(125)
(417)
(542)
Total interest receivable of the banking business
     
  UK
(668)
845 
177 
  Overseas
(821)
(722)
(1,543)
 
(1,489)
123 
(1,366)
Interest-bearing liabilities
     
Deposits by banks
     
  UK
66 
26 
92 
  Overseas
197 
62 
259 
Customer accounts: demand deposits
     
  UK
45 
(88)
(43)
  Overseas
(58)
182 
124 
Customer accounts: savings deposits
     
  UK
(125)
(117)
(242)
  Overseas
80 
83 
Customer accounts: other time deposits
     
  UK
(53)
(50)
  Overseas
189 
131 
320 
Debt securities in issue
     
  UK
58 
(452)
(394)
  Overseas
494 
(194)
300 
Subordinated liabilities
     
  UK
58 
(130)
(72)
  Overseas
(260)
(251)
Internal funding of trading business
     
  UK
(4)
(285)
(289)
  Overseas
10 
(11)
(1)
Total interest payable of the banking business
     
  UK
101 
(1,099)
(998)
  Overseas
844 
(10)
834 
 
945 
(1,109)
(164)
Movement in net interest income
     
  UK
(567)
(254)
(821)
  Overseas
23 
(732)
(709)
 
(544)
(986)
(1,530)

 
15

 
 
Business review continued

Analysis of change in net interest income - volume and rate analysis continued

 
2010 over 2009
 
Increase/(decrease) due to changes in:
 
Average 
 volume 
Average 
 rate 
Net 
 change 
 
£m 
£m 
£m 
Interest-earning assets
     
Loans and advances to banks
     
  UK
15 
(103)
(88)
  Overseas
(40)
(204)
(244)
Loans and advances to customers
     
  UK
(836)