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RBS investor presentation - Re-building and Recovery

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					Re-building and Recovery
Debt Investor Presentation   Q1 2010 Results
Important Information

Certain sections in this presentation 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’, ‘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, capitalisation, portfolios, capital ratios, liquidity, risk weighted assets, return on
equity, cost-to-income ratios, leverage and loan-to-deposit ratios, funding and risk profile; the Group’s future financial performance; the level and extent of future impairments and write-downs; the protection
provided by the 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. Such statements are
subject to risks and uncertainties. For example, certain of the 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: general economic conditions
in the UK and in other countries in which the Group has significant business activities or investments, including the United States; developments in the global financial markets, and their impact on the
financial industry in general and on the Group in particular; the full nationalisation of the Group or other resolution procedures under the Banking Act 2009; the monetary and interest rate policies of the Bank
of England, the Board of Governors of the Federal Reserve System and other G7 central banks; inflation; deflation; unanticipated turbulence in interest rates, foreign currency exchange rates, commodity
prices and equity prices; changes in UK and foreign laws, regulations and taxes, including changes in regulatory capital regulations; a change of UK Government or changes to UK Government policy;
changes in the Group’s credit ratings; the Group’s participation in the APS and the effect of such scheme on the Group’s financial and capital position; the conversion of the B Shares in accordance with their
terms; the ability to access the contingent capital arrangements with Her Majesty’s Treasury (“HM Treasury”); limitations on, or additional requirements imposed on, the Group’s activities as a result of HM
Treasury’s investment in the Group; changes in competition and pricing environments; the financial stability of other financial institutions, and the Group’s counterparties and borrowers; the value and
effectiveness of any credit protection purchased by the Group; the extent of future write-downs and impairment charges caused by depressed asset valuations; the ability to achieve revenue benefits and
cost savings from the integration of certain of the businesses and assets of RBS Holdings, N.V. (formerly ABN AMRO); natural and other disasters; the inability to hedge certain risks economically; the ability
to access sufficient funding to meet liquidity needs; the ability to complete restructurings on a timely basis, or at all, including the disposal of certain non-core assets and assets and businesses required as
part of the EC State aid approval; the adequacy of loss reserves; acquisitions or restructurings; technological changes; changes in consumer spending and saving habits; and the success of the Group in
managing the risks involved in the foregoing.

The forward-looking statements contained in this presentation speak only as of the date of this presentation, 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 presentation do not constitute a public offer under any applicable legislation or an offer to sell or solicitation of an offer to buy any securities or
financial instruments or any advice or recommendation with respect to such securities or other financial instruments.




                                                                                                                                                                                                                                          2
Agenda


    Introduction to RBS, the strategic vision and Q110 highlights

    Building blocks of the RBS Recovery
        External factors
        Internal metrics

    Reducing and managing risk


    Funding & Liquidity


    RBS compared to peers


    Concluding remarks


    Appendices
                                                                    3
The New RBS – What we aspire to be
What did we set out to achieve in February 2009?

                                      RBS’s 2013 vision


     To be one of the world’s most admired, valuable and stable universal banks

     To return to >15% sustainable RoEs, powered by market-leading businesses in large
     customer-driven markets

     To deliver its strategy from a stable AA category risk profile and balance sheet

     The business mix to produce an attractive blend of profitability, stability and
     sustainable growth – anchored in the UK and in retail and commercial banking
     together with customer driven wholesale banking, and with credible growth prospects
     geographically and by business line

     Management hallmarks to include an open, investor-friendly approach, discipline
     and proven execution effectiveness, strong risk management and a central focus on
     the customer



                                                                                           5
How are we going to do it?

                                     RBS’s Strategic Plan

            A reshaped                                          New management
             business                                             disciplines



    Focus on UK and US franchises,
    and move balance of Group towards UK              A cost base that is reduced, controlled
    Retail and Commercial businesses                  and transparent
    Resize and refocus GBM on corporate               Returns and balance sheet use targeted
    and financial institutions franchises and         and measured
    core locations                                    A strong risk management organisation
    Reposition other overseas businesses to           and processes
    align with Group competencies and                 A management framework and
    reduce risk                                       incentives to reward longer-term
    Use smaller balance sheet with much               performance
    less wholesale funding reliance                   Management and accounting
    Understand and manage down our Non-               mechanisms for Non-Core assets
    Core bank effectively

                                                                                                6
Progress to date
                                         Strategic plan timeline


           2009                      2010                  2011                  2011 onwards

                      Core profits build, Non-Core losses fall               Target >15% RoE

 Formation of the               Execution and        Return to Group        Ongoing revenue and cost
 Strategic Plan                 implementation       profitability          initiatives
 Creation of Non-Core           phase of the plan    Initial cost           Completion of Non-Core run-
 £2.5bn cost saving             ‘Roll up our         reduction              down
 programme announced            sleeves’             programmes             2013 targets achieved
 Business restructuring         Economic             completed                 – Returns
 and reinvestment               recovery takes       Interest rates start      – Risk
 New Management and             hold                 to rise
                                                                               – Franchise
 Board                          Retail &
 APS entered into and           Commercial starts
 Recapitalisation               to rebound
 completed
 ‘Tools for the job’ in place


                                                                                                          7
    Progress to date
                                                                  Current position versus 2013 targets


                    Key performance                                               Worst                       FY 09                        Q1 10                                           2013
                       indicator                                                  point                       Actual                       Actual                                         Target

    Core Tier 1 Capital                                                             4%(1)                      11.0%                        10.6%                                            >8%

    Loan : deposit ratio (net of provisions)                                      154%(2)                      135%                          131%                                          c100%

    Wholesale funding reliance(3)                                                £343bn(4)                    £250bn                       £222bn                                        <£150bn

    Liquidity reserves(5)                                                         £90bn(4)                    £171bn                       £165bn                                        c£150bn

    Leverage ratio(6)                                                             28.7x(7)                      17.0x                        17.6x                                          <20x

    Return on Equity (RoE)                                                        (31%)(8)                Core 13%(9)                   Core 15%(9)                                         >15%

    Cost : income ratio net of claims                                              97%(10)                  Core 53%                     Core 54%                                      Core <50%




1As at 1 January 2008. 2 As at October 2008 3 Amount of unsecured wholesale funding under 1 year. 2009 includes £109bn of bank deposits and £141bn of other wholesale funding. 2013 target is for <£65bn
of bank deposits, <£85bn of other wholesale funding. 4 As at December 2008 5 Eligible assets held for contingent liquidity purposes including cash, government issued securities and other securities eligible      8
with central banks. 6 Funded tangible assets divided by Tier 1 Capital. 7 As at June 2008 8 Group return on tangible equity for 2008 9 Indicative Core attributable profit taxed at 28% on attributable core spot
tangible equity (c70% of Group tangible equity based on RWAs). 10 2008
Key Q1 10 Results Highlights

   Core Business (Retail & Commercial, GBM, GTS and Insurance)
    Core Business (Retail & Commercial, GBM, GTS and Insurance)
     – Core customer franchises remain strong – UK Retail now serves >12.8m current account customers
     – Operating profit: £2.3bn, +92% vs Q409 driven by seasonally strong results in GBM and improving Retail &
       Commercial trends
     – ROE: 15%, in line with long run targets
     – NIM: 2.11%, +5bps vs Q409 driven by GBM
     – Credit profile: ongoing improvement, impairment losses reduced 25% q-o-q to £971m
     – RWAs: £421bn, +7%, driven by ABN AMRO migration


   Group profile
    Group Profile
     – Group operating profit of £713m vs loss of £1.4bn Q409
     – Impairments: £2.7bn, -14% q-o-q driven by improvements in Core and Non-Core
     – Non-Core run off: tracking to plan, a further 4% (£8bn) reduction in TPAs in Q1
     – Core Tier 1 ratio 10.6%, RBS remains a highly capitalised bank
     – Good progress made against key metrics published in our Strategic Plan

 1 Note: All financial information contained in these materials in relation to the performance of the Group in the first quarter of the calendar year 2010, and comparisons of such data with the fourth
 quarter of the calendar year 2009, the first quarter of the calendar year 2009 or any other period, are extracted without amendment from the announcement on 7 May 2010 of the financial results of the   9
 Group for the end of the first quarter of the calendar year 2010 in its Interim Management Statement Q1 2010, disseminated to the London Stock Exchange via RNS announcement on that date.
     Key Q1 10 Results Highlights

            Funding
           Funding
             – Short Term wholesale funding reduced to £222bn (£128bn excluding bank deposits) in Q1 2010, on the way to
               target of under £150bn in 2013
             – c. £8bn of unguaranteed long-term issuance in Q1 2010 (£21bn 2009) covering a range of maturities.
             – Re-introducing issuance of different currencies to the funding platform and building the yield curve in existing
               markets for RBS name
             – Limited impact of run-off of Government funding schemes. Asset reduction outpaces maturities of CGS and SLS
             – Establishment of an FSA regulated RBS residential mortgage-backed Covered Bond programme launched on
               April 1st 2010

           Liquidity
            Liquidity
             – Net Stable Funding Ratio1 of 90% as at Q110 - up from 79% in at FY08
             – Significant increase in liquidity reserves; increasing from £90bn in FY08 to £165bn in Q110, with higher quality
               of liquidity
             – FSA-eligible government bonds portfolio in the Plc will increase under the current plan from £25bn at Q1 2010
               to £50bn at 2013 to strengthen Group liquidity (£1bn FY08, £20bn FY09)
             – Ongoing collateral enablement effort to expand and diversify secured funding resources


                                                                                                                                  10
1   Net Stable Funding Ratio measures the level of net stable funding divided by long-term assets (RBS Definition)
Building blocks of the RBS Recovery
Building blocks of the RBS Recovery

      What are the necessary external factors and internal metrics to achieve the plan?

               World economic recovery continues

  External     Interest rates normalise
  factors
               Strong but rational competition going forward
               Path of regulatory change will be phased and sensible

               We have strong franchises in large customer-driven markets
               Sustained and improving customer satisfaction levels
               Strategic plan, investment and income initiatives drive sustainable growth
               Liability margins to improve – asset margins to hold
  Internal
               We can deliver good cost efficiency
  metrics
               Impairments trend to “normalised” levels
               Remain well capitalised and can deliver our funding plan
               Non-Core run-off drives the decline in risk concentrations and wholesale funding reliance
               Management execute the plan well and drive cultural change

                                                                                                           12
Building blocks of the RBS Recovery



          External Factors

          Internal Metrics




                                      13
Building blocks of the RBS Recovery – External factors
                                          Current position                                                 Possible risks

                 Outlook is better than expected 6-12 months ago                                Economic growth falters
                 US and UK current account and savings deficits are starting to improve         Economic imbalances
World economic                                                                                  Sovereign credit risks
                 UK housing market has performed better than expected
recovery
                 Confidence in markets has improved but will remain sensitive to news flow      Wholesale funding, liquidity risks
continues
                 and market developments                                                        Harsh capital and liquidity regimes hinder growth
                 Low interest rates have improved liquidity which could continue                Interest rates, inflation rise rapidly


                 Strong but rational competition - competitors have similar capital, funding    New market entrants / return of foreign banks
                 and return targets                                                             Irrational behaviour from established competitors
                 Banking, similar to other mature capital intensive industries, is relatively   Return of irrational wholesale and securitisation
Strong but       concentrated                                                                   markets
rational
                 New business margins are broadly consistent with industry return targets       Banks move up risk profile again to generate
competition
                 Increased industry funding costs e.g. liquidity, capital and funding need to   increased returns
going forward
                 be reflected as interest rates normalise                                       Regulatory intervention
                 Banks are capital intensive and becoming more so and cannot survive
                 without moving to exceed cost of capital (CoE 10-15%)


Path of                                                                                         More penal at implementation
regulatory       Proposals published, but subject to consultation and impact assessment         Shortened timeline for introduction
change will be
phased and       Implementation likely phased so as not to destabilise Banking System           Failure to gain global agreement, UK or EU ‘goes
sensible                                                                                        it alone’

                                                                                                Debates around industry structure, bank specific
                 UK and other Governments have been supportive                                  taxes and levies and Basel III capital / liquidity
Government                                                                                      proposals
policy           UK Government, through UKFI, has remained a constructive shareholder
                 and operated in line with shareholder best practice                            Impact of consumer legislation – e.g. overdraft
                                                                                                fees
                                                                                                                                                     14
Building blocks of the RBS Recovery



          External Factors

          Internal Metrics




                                      15
Building blocks of the RBS Recovery – Internal metrics

                                       We have strong franchises in large customer-driven markets

                               Q1 Customer Numbers                                             Market Positions                                 Income FY09    Deposits Q110
                             >12.8m current accounts
UK Retail                                                                                   #2 Current Accounts                                       £4.9bn      £89.4bn
                              10m savings accounts
UK                       1.2m Business, Commercial &                                           #1 SME
                                                                                                                                                      £3.6bn      £91.4bn
Corporate                     Corporate customers                                     #1 Corporate & Commercial
                                  258,000 UK Wealth                                  #1 Private Banking in the UK                                     £1.1bn      £36.4bn
Wealth                                 customers
                           #1 UK, #3 Europe, #6 USA,                                 Top tier in key product areas                                   £11.0bn      £47.0bn
GBM
                                   #7 APAC1
                                                                                             #5 Trade Finance
GTS                                 >1.2m customers                                                                                                   £2.5bn      £64.6bn
                                                                                           #4 Merchant Acquirer
                                                                                           #1 in Northern Ireland
Ulster                        1.9m customer accounts                                                                                                  £1.0bn      £23.7bn
                                                                                           #3 in island of Ireland
                                    3.9m Retail                                     Top 5 in 8 of top 10 markets in
US R&C                                                                                                                                                £2.7bn      £62.5bn
                              0.5m SME & Corporate                                          which we operate
                             11.1m own brand policies
Insurance                                                                                    #1 Motor insurance                                       £4.5bn        n.a.
                                6.6m other policies2

                      Our franchises have sustained market positions, with customer numbers steady or growing
                                                                                                                                                                               16
 1   2010 Greenwich Associates H209 data (Large Corporate Banking study), rankings relate to Total Relationships. 2 Partnership, broker and other policies
Building blocks of the RBS Recovery – Internal metrics

                                             Liability margins to improve – asset margins to hold

                                   Current Position                                                                   Outlook
                                                               Q110                 Q409                                                 2011-13
                                                                                                Overall margin
                    Group NIM                                 1.92%                1.83%
                                                                                                Asset margins

                                                                                                Liability margins
                    R&C NIM1                                  3.01%                3.01%        R&C margin
       Margin




                                                                                                GBM margin
                    GBM                                       1.11%                0.89%        Non-Core margin
                                                                                                Impact of funding &
                                                                                                liquidity
                    Non-Core                                  1.25%                1.17%
                                                                                                Overall deposit margin

         To achieve the plan:                                                                   Possible risks:

                Current new business asset margins hold steady                                     Irrational competition
                                                                                                   Interest rates remain near zero for extended
                Interest rates rise towards end of plan period                                     period
1   Underlying, adjusted for days in month; 2.97% (Q110) and 3.04% (Q409) on a reported basis                                                      17
 Building blocks of the RBS Recovery – Internal metrics

                Strategic plan, investment and income initiatives drive sustainable growth

    Non Interest Income - Leveraging for growth                    Investment - major programmes underway
                  In systems, proposition, technologies and      5 year spend > £6bn to foster growth & efficiency
Investment
                  staff
                                                              Example projects:
                  Leverage group capabilities e.g:
                                                                Multi-channel / internet development – c12% of spend
                    New affluent proposition in UK Retail
                                                                  – UK Retail; build new channel platforms & capabilities
                    GBM Capital Market products in UK             – UK Retail; migrate customers to remote channels &
Cross-sell          Corporate                                       improve productivity
                    New Bancassurance platform in Ulster          – GTS; on-line portals/cash mgt/trade services
                    GTS products available across the           Reduce cost to serve – c55% of spend
                    corporate franchise
                                                                  – Group - process efficiencies across business areas
                                                                  – GBM - automation of operational processes
                  Leveraging client relationships e.g:
                                                                Improve MI systems – c4% of spend
                    GBM – deepening corporate and FI
Customer                                                        Improve & integrate infrastructure – c10% of spend
                    relationships, focus on core clients
relationships
                    Retail & Commercial – increasing share        – UK Retail – new sales management platform
                    of wallet through client cross-sell           – GBM – enhanced trading platforms



                                                                                                                            18
Building blocks of the RBS Recovery – Internal metrics

                                                 We can deliver good cost efficiency

£bn               17.4

                   2.4




                  15.0




                 FY09               Cost             Impact of          Non-Core           Inflation          Volume
                                  reduction          Disposals           roll-off                               and
         Core                    programme                                                                     other1
         Non-Core

                         Core costs broadly flat over the planning horizon
                         Impact of inflation & volume growth in Core offset by business re-investment & cost reduction
                         Rump of Non-Core costs of c£300-400m expected in 2013, falling away rapidly thereafter
                         Target cost:income ratio of less than 50%
1   Includes FX impact                                                                                                   19
Building blocks of the RBS Recovery – Internal metrics

                                   Impairments trend to “normalised” levels

             Impairments – returning to normalised levels


                                                            £bn % of L&A                    Outlook
                                           2.5%
                                                  Non-Core 9.2    5.7      Trend back towards historic levels
1998-2008 avg: 0.6%                               Core      4.7   1.1      Historic levels flattered by high loan growth
                                      1.1%                                 in 2003-07 period
2003-07 avg: 0.5%
                                                                           Large Non-Core impairment reduction as
                                                                           portfolio runs off – small impairment
                                                                           charges remain in 2013-14

                                                                                        Possible Risks

                                                                           Recovery path not sustained
‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09          ~‘13              Event risk – individual significant shocks

                     Impairment as a % of net L&A




                                                                                                                           20
Reducing and managing risk
Focus on composition of the RBS loan book
Reducing & managing risk



          Improved risk policies & framework

          Non-Core reduction on track

          GBM de-leveraged and de-risked

          Prime Core credit portfolios



                                               22
The New Risk Agenda
                     The Group has seen significant change in risk culture and process

Risk agenda – delivering the 5 year plan with strong risk                     New Head of Restructuring & Risk appointed in H1 2009
management                                                                    bringing significant changes to senior leadership in risk
                                                                              management function

                              Strategy & Policy                               Adoption of new, enhanced risk management framework
                         Alignment – risk & business                          and architecture including appointment of Board Risk
                         strategy                                             Committee and Executive Risk Forum (ERF)
                         Group policy framework
                         Capital / risk adjusted                              Disciplined RWA usage in the Core bank (value not
                         performance                                          volume) and total balance sheet size controlled and
                                                                              liquidity surprise avoided

                                                   Operating model
         Risk Architecture                                                    Introduction of new and enhanced risk concentration
                                             Governance
    Risk systems                                                              limits – reduced single name, sector and country limits
                                             Organisation, people & culture
    Risk data architecture
                                             One risk community
    Analytics and modelling
                                             Regulatory and operational
    Risk information & reporting                                              Appointment of Board Risk Committee and Executive
                                             risk coverage
                                                                              Risk Forum (ERF)

                        Risk Appetite & Framework
                                                                              Ongoing work to fully embed improved risk management
                        Credit approval
                                                                              framework
                        Market risk limits and controls
                        Risk concentrations
                        Country risk                                          Ongoing work to fully embed improved risk management
                        Scenario testing                                      framework including new reporting systems to increase
                                                                              transparency
                                                                                                                                        23
    Reduced exposures to CDPCs, monolines and conduits
                                                                 Risk profile – worst should be past
    Counterparty credit market exposures                                             Total assets held by sponsored conduits
    £bn                                                                              £bn                                        Core
                                                                     Monolines                                                  Non Core
                    8.3                                                                    49.9
                                                                     CDPCs

                                                                                                     35.0
                                                                                                               30.5
                                                                                                                         27.4
                                                                                                                                    24.1
                                                2.6                      2.5




                  FY08                        FY09                    Q110                 FY08     Q209       Q309      FY09       Q110
    Group Credit Risks (REILs1)
                                                                                        Significant reduction in exposure to monolines and
£bn
                                      Stabilising but our outlook remains cautious      CDPCs since FY08
         60                                                                             Exposure to loss from sponsored conduits has also
                                                                                        been managed down
         40
                                                                                        NPLs2 are showing signs of stabilisation however
         20
                                                                                        our outlook remains cautious.
                                                                                        Provisions as a percentage of NPLs2 have
           0                                                                            increased from 43% at FY09 to 46% as at Q110
                  FY07         FY08        H109        Q309       FY09     Q110
                                                                                                                                             24
1   Risk Elements In Lending          2   Non Performing Loans
Reducing credit risk concentrations
                                                                Portfolio concentrations continue to reduce

    Country1                                                                      Sector1
    Top 10 A+ and lower countries by credit risk                                  Top 10 Corporate industry sectors by credit
    assets                                                                        risk assets                                                                             New frameworks, polices and
    £bn              0       2       4       6       8      10      12                  £bn              0      20      40       60      80      100    120               limits in place
                                                                                                                                                                          Good progress on de-risking, with
             Italy                                                                           Property
                                                                                                                                                                          proactive management of both
                                                                                          Transport &
             India                                                                           Storage                                                                      Core and Non-Core exposures
           China
                                                                                       Manufacturing                                                                      Reduced concentrations overall
                                                                                 Wholesale & Retail                                                                       but more remains to be done
          Turkey
                                                                                                  TMT
                                                                                                                                                                          Exposure to higher risk
    South Korea                                                                                                                                                           economies reduced
                                                                                        Public Sector
          Russia
                                                                                                                                                                          Greek exposure is small, with
                                                                                              Building
                                                                                                                                                                          <£1bn of credit risk assets and
                                                                                  Tourism & Leisure
          Poland                                                                                                                                                          c. £1.5bn of Greek government
                                                                                                                                            Dec 2008
          Mexico
                                                           Dec 2008                 Power, Water &
                                                                                              Waste
                                                                                                                                                                          debt securities (as at 31/3/10)
                                                          March 2010                                                                          March 2010
                                                                                  Natural Resources
       Romania                                                                             & Nuclear

        Portugal




                                                                                                                                                                                                          25
1     Country and Sector charts are based on Credit Risk Assets – see Report and Accounts for further details. Country chart shows ten largest countries rated A+ or below by domicile of borrower.
Impairments outlook
                                 Impairments appear to have peaked in Q209 but remain elevated
                                                                                                          No. & value of wholesale cases transferred to Recoveries
    Group credit trends, Q109 – Q110                                                                      Units globally, Q408-Q110 (monthly average)           £bn
     40                                                                                        4%           600                                                                         9

     35                                                                                                                                                                                 8
                                                                                                            500
                                                                                                                                                                                        7
     30                                                                                        3%
                                                                                                            400                                                                         6
     25
                                                                                                                                                                                        5
     20                                                                                        2%           300
                                                                                                                                                                                        4
     15                                                                                                     200                                                                         3
     10                                                                                        1%                                                                                       2
                                                                                                            100
      5                                                                                                                                                                                 1
                                                                                                                 0                                                                 1    0
      0                                                                                        0%
                                                                                                                        Q408      Q109        Q209       Q309       Q409        Q110
               Q109            Q209             Q309            Q409             Q110                            Property                         Construction           Transport & Storage
                     REILs                                                                                       Wholesale & Retail Trade         Manufacturing          Other1
                     Impairments as a % of gross L&A (annualised)                                                Transfer to GRG reflecting revised management of Ulster non-core property
                                                                                                                 portfolio
                                                                                                                 Average value transferred            Average value transferred inc Ulster

                                                                                                                     Q1 continues previous trends seen in 2009
           NPLs increased by 4%
                                                                                                                     No large individual cases
           No individual large names in Q1
                                                                                                                     Uptick in commercial customers having problems –
           Ulster Bank Core & Non-Core drove Q1 growth
                                                                                                                     classic late cycle phenomenon

                                                                                                                                                                                            26
1   Other is spread across a large number of sectors and includes TMT, Tourism & Leisure and Business Services
Reducing & managing risk



          Improved risk policies & framework

          Non-Core reduction on track

          GBM de-leveraged and de-risked

          Prime Core credit portfolios



                                               27
     Non-Core long term run-off targets
                                               Run-off is key to reducing risk on the balance sheet
         Non Core third party assets (TPAs excluding derivatives & Sempra) run-off targets, £bn

                                                                                                       Breakdown of changes in TPAs
                                                                               Undrawn commitments
                    85                                                         TPAs
                                                                                                       2009-2013

                                                                                                       FX                         (10)-(20)

                                    36                                                                 Rollovers &
                                                                                                           drawings       20-30
                                                    29                                        c. 212
                  252                                                   23                             Impairments                (20)-(30)
                                   1871                                        19
                                                    143                                                Asset sales                (60)-(80)
                                                                        118              13
                                                                              82
                                                                                        20-40
                                                                                                       Run-off                    (110)-(130)
                  2008            2009             2010             2011      2012       2013

                       Plan revised to reflect removal of c. £30 billion APS securitisation, which is no longer viable under
                       final terms of APS
                       FY 2013 targets revised to £20-40 billion, reflecting removal of securitisation that is partially offset by
                       additional sales
                       Sales selected for pricing and capital preservation
                                                                                                                                                28
1   Excluding Sempra which had £14bn of assets as at 31 December 2009
Non-Core run-off1 current progress
                                      Significant progress already achieved on Non-Core run-off

                               £bn

                                       252              (65)




                                                                         187        (2)        (2)        (9)     5    179



                                      FY08            Mvmt2           FY 09     Impairments Disposals   Run-Off   FX   Q110



                                          Non-Core assets reduced 4% (£8bn) during Q1 2010 on a reported basis
                                          Excluding negative FX moves (£5bn), TPAs reduced 7% (£13bn)
                                          Run-off driven by CRE, Corporate and Markets
                                          Asset sales primarily Corporate
                                          C. £40bn targeted reduction pa. Excluding the FX movement Q110 is on
                                          track for FY2010

1   Third party assets excluding Sempra, excluding mark to market derivatives                                                 29
2   Run-off, MTM, disposals, impairments and FX
    Non-Core make up by division
                                             Good run-off progression across all asset classes
                                        2008 Y/E TPAs1 by asset class                                              2009 Y/E TPAs1 by asset class
       Other
                                                                                                          Other                                         Corporate
       RBS Insurance £2.0bn                                          Corporate
                                                                                                          RBS Insurance £1.5bn
       Retail & Commercial                                               Project & Export Finance                                                        Project & Export Finance
                                                                                                          Retail & Commercial Countries                  £20.6bn
       Countries £6.7bn                                                  £21.3bn                          £4.3bn
       Bank of China / Linea                                             Asset Finance £24.2bn                                                           Asset Finance £22.2bn
                                                                                                          Other Whole Businesses £3.3bn
       Directa £4.5bn                                                    Leveraged Finance £15.9bn                                                       Leveraged Finance
                                                                                                          ABN AMRO Shared Assets £1.3bn                  £13.1bn
       Other Whole businesses                                            Corp & Warehouse Loans           Asset Management £1.6bn                        Corp & Warehouse Loans
       £4.2bn                                                            £41.6bn
                                                        21                                                                                               £23.2bn
       ABN AMRO Shared Assets                                                                                                         12
       £1.5bn
       Asset Management £1.9bn                    21                                         Retail                             16
                                                                                             UK Mortgages &
                                                                                             Personal Lending
        Retail                                                                 103           £2.4bn
                                                                                                                                                        79
         UK Mortgages &                                                                      US Mortgages &
         Personal Lending                  41                                                Personal Lending             25
         £3.2bn                                                                              £7.8bn
         US Mortgages &                                                                      Ireland Mortgages
         Personal Lending                                                                    £6.1bn
         £11.0bn
         Ireland Mortgages
         £6.5bn                                                      4
                                                         61                                                                      52           3              SME
            Markets                                                                                   Markets                                                 UK SME £1.9bn
            Structured Credit Portfolio
                                                                                                      Structured Credit                                       US SME £0.9bn
            £20.1bn
                                                                                                      Portfolio £14.9bn
            Equities £5.0bn
                                            Commercial Property             SME                       Equities £2.0n                           Commercial Property
            Credit Collateral Financing
                                            UK £26.0bn                       UK SME £2.3bn            Credit Collateral                           UK £23.6bn
            £8.6bn
                                            Ireland £9.9bn                   US SME £1.6bn            Financing £4.8bn
            Exotic Credit Trading £1.4bn                                                                                                          Ireland £8.1bn
                                            Rest of Europe £15.1bn                                    Other £2.9bn
            Other £6.2bn                                                                                                                          Europe £13.0bn
                                            US £7.3bn                                                                                             US £4.7bn
                                            APAC £2.9bn                                                                                           APAC £2.3bn              30
1Excluding MTM derivatives and Sempra
Based on data from RBS risk systems             Total Assets = £252bn                                                          Total Assets = £187bn
Non-Core impairments1 stabilised in Q1
                                   Impairments appear to have stabilised, albeit at elevated levels
                                                     Q110             Q110     Q409      FY09
                                                                                                    Q1 10 Key Sector Impairments:
                                                      £m            % L&A1   % L&A1    % L&A1
                  UK Retail                               5            0.8      1.1          2.1    Mortgage & Personal lending
                  UK Corporate                         155             1.9      3.9          4.8    Property & construction 34% of total
                  Ulster Bank2                         552            13.0      7.0          8.3    Property £461m, 84% of total
                  US R&C                               208             7.4      7.6          9.7    SBO/Home Equity £102m, and CRE £63m - 80% of total
                  GBM                                  753             3.6      4.1          4.9    Property £472m, 62% of total
                  Other                                  31            3.7      6.5          9.3    Mainly Wealth
                                                                                                    Absence of large individual cases but with Ulster
                  Total                              1,704             4.6      4.6          5.7
                                                                                                    Bank remaining at elevated levels

      Non-Core impairments by asset type Q109, Q409 & Q1102, £bn
                                                               Non-Core provision coverage of 39%, +300bps q-o-q                                 2.1
                                                                                                                                             1.8    1.8
                                                                                                                                                          1.7




                    Property              Manufacturing                  Other         Mortgages          Other personal           Other     Total Non-Core
                                                                       Corporate
                                                                             Q109     Q309         Q409     Q110                                                31
1   Excludes Available for sale impairments.   2   Includes EMEA.
Reducing & managing risk



          Improved risk policies & framework

          Non-Core reduction on track

          GBM de-leveraged and de-risked

          Prime Core credit portfolios



                                               32
GBM - Strategy
                               GBM strategy refocused to a capital efficient business model
                                                                    GBM Summary – FY07 vs FY09 & Q110
                                                                                                       FY07
                                                                                            “Old” GBM     Core GBM         FY09            Q110
      Top 5 wholesale bank in chosen markets
                                                                    Income, £bn               9.11             6.7         11.0             2.8
            Fewer, deeper client relationships
                                                                    Costs, £bn                (5.8)2          (5.1)        (4.7)           (1.3)
            Clear product choices
                                                                    Profit, £bn               3.21             1.5          5.7             1.5
            Global, focused on major hubs
                                                                    ROE, %                   10.8%            10.4%       30.7%           28.4%

      Financing and risk management-led                             Balance Sheet, £bn        873.8           617.3       412.2            443.7

            “Flow monster”                                          People                   24,100           20,900      16,8003           n.d

            Leadership in fixed income
                                                                    Focus on core clients
            Enhanced equity and advisory
                                                                                  26,000+                                          Client base
      Tight risk, capital and funding control                                                                                      Corporates

                                                                                                                                   FI’s
      Sustainable efficient platform

      New management team
                                                                                             ~5,800
                                                                                                                   43%
                                                                                                                    57%
                                                                                  “Old        Core      Distribution of
1 Core + Non Core                                                                                                                                  33
2 Source: GBM Finance (Core only, excluding Sempra)                               GBM”        GBM       Core Clients
3 Source: Published FY09 financials (Core only, excluding Sempra)
GBM – De-leveraged and de-risked
                          Continuing focus on deleveraging and risk management
 GBM balance sheet, £bn                                                                       Continued focus on de-leveraging
             874                                                        Securities
                                          R – Reported                                        56% reduction from FY07 CFX
                                                                        Reverse Repos
                                          C – Constant Currency
                                                                        Loans & Advances      Remaining within target range of
                                                                        Settlement balances   c£400-450bn
                                                                        Other
                                    412
                                                                  444                         FX driving £11bn (33%) of Q110
                                               360                           381              growth
                                                                                              Settlement Balances driving
                                                                                              £12bn (37%) of Q110 growth
                                                                                              Excluding FX and Settlement
         R     C                      R       C                     R      C                  Balances, total assets declined
                                                                                              1% Q-o-Q
   FY07 ‘Old GBM’                  FY09 GBM Core              Q110 GBM Core

 Loan Impairments by quarter (£m)
   269                       272
                                                                          Recent impairments lower than Q109 & Q309 peaks,
                                                                          Future quarterly trend likely to be ‘lumpy’ given
                                            130                           nature of counterparties
                                                                          Risk for larger impairments in 2010 remains high,
                                                        32                outer-year outlook will develop alongside the
                   (31)                                                   developing economic picture
                                                                                                                                 34
  Q109             Q209     Q309           Q409       Q110
Reducing & managing risk



          Improved risk policies & framework

          Non-Core reduction on track

          GBM de-leveraged and de-risked

          Prime Core credit portfolios



                                               35
    Group loan portfolio breakdown
                      Well diversified loan portfolio across geographies and customer segments
    Breakdown of Loans & Advances (Q110 Gross, £612bn)1                                                 Loan Impairments (£bn)3

            Non-Core                                          UK Retail
                                                                17%                                                                  3.5
              24%
                                                                                                                                      8.2%




                                                                                                                                                      2.1
                                                                                                                     1.8                                              1.8
                                                                                                                                                       5.4%                         1.7
                                                                               UK Corporate                          2.8%                                             4.6%
                                                                                                                                                                                    4.6%
       US R&C                                                                                                                                   1.2            1.3
                                                                                   19%                        1.0
                                                                                                                               1.1
         8%                                                                                                                                     1.0%
                                                                                                                                                               1.2%          1.0
                                                                                                                               0.9%
                                                                                                              0.8%                                                           0.9%
             Ulster
              6%
                                                                     Wealth
                    GTS                                               2%                                       Q109             Q209             Q309           Q409          Q110
                    2%                                2
                                               GBM
                                               22%                                                                               Core impairments             Non Core impairments


               A well diversified portfolio with UK Retail and Corporate representing c. 36%, GBM c. 22% and other
               divisions c. 18% of gross loans
               Non Core loans < 25% of assets, but approximately two thirds of impairments per quarter
               Impairments plateauing in Core and demonstrating improvements in Non Core though volatility remains
               likely
                                                                                                                                                                                           36
1 Gross loans and advances including provisions.                                              2   GBM loans and advances include L&A to banks
3 Figures represent loan impairments as percentage of gross loans & advances
    Core Retail1 Loan Book
                           Core Retail exposure dominated by secured, prime residential mortgages
     Core Retail L&A by geography (Q110 Gross, £168bn)                           Core Retail L&A by product
                                                                                      £164bn      £159bn      £164bn     £165bn   £168bn
                              US                                                                                8%                  7%
                                                                                        9%          8%                    7%
                             18%
                                                                                                                4%        4%        4%
                                                                                        4%          4%

                                                                                                                12%       11%      12%
                                                                                       12%          12%




              Ulster
              11%
                                                                                       76 %        76 %        77 %       78 %     78 %




                                                                            UK
                                                                           71%
                                                                                       Q109          Q209       Q309      Q409    Q110
                                                                                      Retail / Secured    Personal     Cards      Other


                  Strategic focus shifted to generating mortgages through retail branch networks with secured lending now
                  representing over 78% of the book – share of UK mortgage market increased significantly in 2008/09
                  Ulster Bank represents 11% of retail loans with the balance originating in the US
                  Unsecured personal loans and credit cards gradually declining through exit from non-bank channels and
                  falling demand as customers reduce overall debt levels
                                                                                                                                           37
1   Retail comprises UK Retail, Wealth, and retail parts of Ulster and US R&C
Mortgage Book Loan To Values
                                            Mortgage lending further protected by low average LTVs
               Cumulative LTV distribution as % of book volume1
               %       61
                       61                Dec-08       Jun-09                                      Dec-09                      98% of the UK mortgage book is Core and
                                                                                                                              only 7% buy-to-let
UK Retail4




                  54

                                      35 32
                                                     29 27
                                                                                                                              Average LTV of 59% (67% for the buy-to-let
                                 27
                                                22                       19 15          15 11
                                                                                                                              portfolio)
                                                                   13                                  11 8
                                                                                   8              5                           Rising house prices in H2 09 led to reduction
                   >50%          >75%           >80%                 >90%           >95%          >100%
                                                                                                                              in value of houses over 95% LTV

               Cumulative LTV distribution as % of book volume2
               %                         Dec-08       Jun-09                                      Dec-09                      Average indexed LTV of 63%
Ulster Bank4




                            59
                  53 56
                                           40                                                                                 Mortgage impairments 0.8% of loans and
                                      36                  37
                                 32             27
                                                     32
                                                                         24
                                                                              29
                                                                                             24
                                                                                                                              advances
                                                                   18                   19                  20
                                                                                   13             9
                                                                                                       15                     Continued stress in the Irish residential
                                                                                                                              mortgage market since H2 09
                   >50%          >75%           >80%                 >90%           >95%          >100%

               Cumulative LTV distribution as % of book volume
               % 70 74          66                 Dec-08                                         Dec-09                      Average LTV of 72%, 67.5% excluding SBO3
                                 61                    57
US R&C5




                                                51
                                                                           44
                                                                                                                              SBO3 portfolio fully moved into Non Core
                                                                    34                    30                                  Average FICO of 737
                                                                                   19                   17                    Origination focused in mature and stable
                                                                                                   9
                                                                                                                              markets of New England and Mid-Atlantic
                   >50%          >60%           >70%                 >80%           >90%          >100%                                                                                 38
Excludes wealth and business offset mortgages
1                                                              2   LTV basis current value by volume             3   Serviced by others    4   Core   5   Including Core and Non-Core
     Core Retail credit trends
                                                    Mortgage arrears trending below industry average
     Core Retail1 Loan Impairments by product (£m)                                                    RBS UK mortgage arrears vs. CML2

                                                        577                                              3.0 %
                                       595
        600                                                              555
                                                                                517
                                        60               32
                     502                                                  62
                                                                                                         2.5 %
        500                                              131                        72
                      82               130
                                                                          134
                                                                                                         2.0 %
        400                                                                         106
                      137                                                                                1.5 %
        300                                              247
                                       299
                                                                                    233
                                                                                                         1.0 %
                                                                          282
        200           195
                                                                                                         0.5 %
        100                                              167
                                       106                                          106
                      88                                                  77                                      -
           0                                                                                                          Q4 '03 Q4 '04          Q4 '05 Q4 '06        Q4 '07 Q4 '08          Q4 '09
                    Q109             Q209              Q309            Q409     Q110
                                                                                                                                                  3
                 Mortgages4                  Personal                  Cards        Other                                                  CML 3+ %      RBS & NW 3+ %


                      Overall retail impairments are seen to be plateauing, albeit at elevated levels
                      Impairment reduction seen predominantly through the unsecured area; derived from a combination of
                      exiting non-bank channels and reduced demand as households de-lever
                      RBS’s mortgage impairments are stable in absolute terms and are trending below industry trends

                                                                                                                                                                                                  39
1   Retail comprises UK Retail, Wealth, and retail parts of Ulster and US R&C   2   Council of Mortgage Lenders            3   3 months average              4   Including Home Equity
     Core Corporate Loan Book
                                                   Core Corporate1 loan book (£155bn as at Q110)

     Core Corporate1 L&A by geography (Q110 Gross, £155bn)                                   Core Corporate L&A by sector (£bn)2
                                                                                                               164
                                    US                                                                                          154            156             152             155
                                                                                                  150          22.8
                                   13%                                                                                           21.2          21.9            21.1             20.3

                                                                                                               24.2
                                                                                                                                 20.5          20.5            19.5             20.5


                                                                                                  100          38.1                            36.8                             38.2
                   Ulster                                                                                                        36.6                          36.1

                   13%                                                                                         6.3               6.1            6              5.7              5.8
                                                                                                               4.6               4.5           6.1             6.3              6.5
                                                                                                               10.5              10.1          10.1            9.8              10.1
                                                                                                                7                6.7           6.8
                                                                                                   50          8.5
                                                                                                                                                               6.4              6.4
                                                                                                                                 8.5           8.5             8.5              8.8
                                                                                                               5.1               4.9           4.9             4.6              4.7

                                                                                                               36.6              35.2          34.7            34.2             33.8

                                                                                                     0
                                                                                                             Q109              Q209            Q309           Q409            Q110
                                                                           UK
                                                                          74%                            Property
                                                                                                         Asset & invoice finance
                                                                                                                                                      Housebuilding & construction
                                                                                                                                                      Hotels & restaurants
                                                                                                         Wholesale & retail trade, repairs            Banks & FI
                                                                                                         Manufacturing                                Other
                                                                                                         US Corporate                                 Ulster Corporate



                                      Corporate loan book well diversified by product
                                      UK Corporate represents circa 74% of the corporate lending portfolio
                                      Portfolio concentration reducing towards a more balanced business mix

                                                                                                                                                                                       40
1   Corporate comprises UK Corporate and Corporate sections of Ulster and US R&C   2   US and Ulster Corporate sector breakdown not provided
    Total Commercial Real Estate Exposure
                            Credit quality remains under pressure but no major shift from year-end
    Global CRE portfolio by division (Q1 10, £85.2bn)                                      Global CRE portfolio by sector (Q1 10, £85.2bn)
                                            GBM
                                             3%                                             Commercial                                                                     50
                                                                                             Investment 3                                                                   51

                                                                                              Residential                          13
                                                                                                        3
                                                                                              Investment                           13

                                                           UK Corporate                    Commercial                         9
        Non-Core
                                                               37%                         Development 4                      10                                          Q110
          44%
                                                                                            Residential                          12
                                                                                                                                                                          FY09
                                                                                                        4
                                                                                           Development                           11

                                                                                                                    1
                                                                                                      Other
                                                                                                                    1

                                                                                                                                                                                 85
                                                                                                       Total
                                                                                                                                                                                  86
                                 US R&C           Ulster
                                   5%             11%                                                           0           10           20           30             40   50      60
                     Global exposure has remained broadly stable (£85.2bn at Q110 vs £86.3bn at FY 09) of which 44%
                     has been transferred to Non Core
                     GBM interest cover ratio (ICR) 1.60x1, UK Corporate ICR 1.64x1
                     Exposure principally dominated by commercial investment properties, c. 60% of total exposure
                     Low interest rates are supporting ongoing debt-servicing
                     Credit quality remains under pressure but no major shift from year-end
1   Includes Core and Non-Core portfolios                  3   Investment properties are income generating, ie occupied with a tenant
                                                                                                                                                                                   41
2   2009 restated on a comparable basis                    4   Development is any stage through construction but will include speculative deals that remain empty.
      Core Corporate & Commercial credit trends
                                   Core Corporate impairments are stabilising albeit at elevated levels
      Core UK Corporate Loan Impairments by product (£m)                                                          UK Business Banking (SME) – Debtflows1
                                                                                                                 Total Portfolio £18.5bn; Core £16.3bn, Non-Core £2.2bn
                                  450
                                                                                                                                                                              Debtflow as % of balances
                                                                                                                      0.30%

                                                                                                                      0.25%

                                                                                                                      0.20%
                                                      187                190                186
                                                                                                                      0.15%
              100                                                                                                     0.10%

                                                                                                                      0.05%

             Q1 09        Q2 09         Q3 09                         Q4 09          Q1 10                            0.00%
             Property                                             Asset & invoice finance                                  Dec-07                 Jun-08            Dec-08            Jun-09   Dec-09
             Housebuilding & Construction                         Hotels & Restaurants
             Other


                   Impairments have risen since Q1 09 reflecting the deteriorating economic environment during the year
                   Q2 09 impairments included a charge of £271m for latent loss provisioning
                   Impairments charge has been biased towards the housebuilding, property and construction sectors
                   Excluding latent loss provisioning, impairments appear to have stablised in recent quarters albeit at high
                   levels; though the financial condition of many clients remains delicate
                                                                                                                                                                                                          42
1   Debt flow rate is calculated by looking at the monthly default balances (also known as transfer into recoveries or debt flow) as a % of total Loans & Receivables in that month
Funding & Liquidity
Good progress made, more to do
Ongoing de-leveraging
                                                    Overall deleveraging progress in line with plan
Funded balance sheet road map FY07 – Q110
£bn                                     FX vs FY09
                                        Liquidity portfolio
    1,500
           1,322
                      1,227
                               1,084     1,121                                                                    Key Ratios

                                                                                                                                                              FY 2009   Q1 2010
                                                                                                                   Leverage ratio1                              17.0x     17.6x
                                                                                                                   Tangible common equity ratio2                5.2%      5.1%
                                                                                                                   Tangible equity per share                    51.3p     51.5p
                                                                                                                   Core Tier 1 Ratio                           11.0%     10.6%
       0
                FY07                   FY08                FY09                 Q110
           Total BS decreased by £636bn since FY08 despite £75bn increase in the liquidity portfolio to £165bn at Q110
           Long run funded balance sheet target of £1.1trn
           Significantly reduced leverage ratio of 17.6x (vs 23x at the worst point)
           On-going risk reduction
                                                                                                                                                                              44
   1 Tier 1 leverage ratio is based on total tangible assets (after netting derivatives) divided by Tier 1 capital
   2 Tangible equity leverage ratio is based on total tangible equity divided by total tangible assets (after netting derivatives)     3   Excluding Sempra
    Funding and Liquidity
                                                          Reducing wholesale funding requirements
    Wholesale funding maturity
    £bn
    350                                                                                                  Funding Metrics
                                                                                                     Key Key Funding                      Metrics
    300                                                                                                                                                         H109                FY09     Q110
                                                                               Reduction in          Loan:deposit ratio (Group)1                                143%                135%     131%
    250           55%            53%            50%            47%               funding
                                                                               requirement                 Core                                                 110%                104%     102%
    200                                                                        seen in short         Loan:deposit gap (Group)2                               £180bn                £142bn   £131bn
                                                                               term bucket
    150                                                                                                    Core                                                £41bn               £16bn    £10bn

    100                                                                                              Liquidity reserves                                      £121bn                £171bn   £165bn
                                                                                Stable >1yr
                                                                                 absolute                  Of which central govt bond
      50                                                                                                                                                         £7bn              £20bn    £25bn
                                                                                  funding                  portfolio:

        0                                                                                            Net Stable Funding Ratio3                                   83%                 90%      90%
                 FY08           HY09           FY09           Q110                                   Wholesale funding > 1 year4                                 47%                 50%      53%

              > 5 years                  1 - 5 years                  < 1 year

              Reduction of £42bn in overall wholesale funding requirements between FY08 and Q110
              Absolute wholesale funding greater than 1 year remains stable despite total wholesale funding
              requirement declining. Mix of wholesale funding greater than 1 year increases to 53%, +3% from FY09
              Strong term issuance programme with over £8bn of public and private unguaranteed issuance in Q110
              €15bn covered bond programme registered with the FSA on 01 April 2010
                                                                                                                                                                                                45
1 Net of provisions                                                               3Net Stable Funding Ratio measures the level of net stable funding divided by long-term assets
2 Net loans & advances to customers less customer deposits (excluding repos)      4 Excluding bank deposits
    Funding and Liquidity
                                     Refinancing requirement outweighed by run-off in Non-Core
    Non-Core third party assets (TPAs excl MTMs) run-                                                Refinancing requirement outweighed by run-off in
    off targets1 trend with the Group Loan:Deposit gap                                               Non-Core third party assets2
       £bn                                                                                             £bn
      300                                                                                              50



      250
                                                                                                       40


      200
                                                                                                       30

      150

                                                                                                       20
      100


                                                                                                       10
        50


         0                                                                                               0
                2008       1H09        FY09      2010e 2011e 2012e 2013e                                            2010e         2011e      2012e         2013e
                              TPAs                   Loan to deposit gap2                                             Run-off of Non-Core       Group maturing term
                                                                                                                      TPAs p.a.                 funding p.a.3

             Reduction in the loan to deposit gap expected to continue trending closely with the run-off of Non-Core TPAs
             Future wholesale funding requirement is significantly outweighed by the level of run-off from Non-Core TPAs
1 Run-off at constant year-end 2008 FX rates                                                                                                                          46
2 Net customer loans less customer deposits excluding repos
3 Maturing term funding includes government guaranteed MTNs, unguaranteed MTNs and subordinated debt. Figures exclude RBS NV (£15bn total)
Benchmarking
Well capitalised, funding & liquidity still improving
Well capitalised, funding & liquidity still improving
                                           Among the best capitalised banks in the peer group



                         Deposit Ratio




                                                     Funding Gap




                                                                        Gross Loans




                                                                                        coverage of
                                                                        Impairment




                                                                                                                        Core Tier 1
                                                                                        Provisions
                                                                         charge to




                                                                                                      Liquidity
                                                                                                      Reserve
                                                                                                                                           RBS remains among the best
                           Loan to




                                                                                           NPLs




                                                                                                                          ratio
                                                                                                                                           capitalised banks compared to
                                                                                                                                           the UK and European peer group
UK Banks (FY09)                                                                                                                            RBS in the middle of the pack for
RBS Core                 104%                       £(16)bn                1.1%           67%                                              impairments against UK peers
RBS Group                135%                      £(142)bn                2.3%           43%         £171bn            11.0%
Barclays                 130%                      £(109)bn                1.7%           42%         £127bn            10.0%              Majority of our impairments
HSBC                         77%                    £146bn                 2.7%           57%         £58bn             9.4%               (63%) generated by the Non-
Lloyds Banking Group     169%                      £(289)bn                3.4%           44%         £151bn            8.1%
                                                                                                                                           Core division which is meeting
Standard Chartered           80%                    £29bn                  1.0%           71%          n/d              8.9%
                                                                                                                                           its reduction targets
RBS Rank (Core/Group)    3 /4
                            rd      th               3 /4rd        th     2 /3
                                                                            nd   rd       2 /4
                                                                                           nd    th     1   st            1st

                                                                                                                                           Group loan:deposit ratio is
European Banks (FY09)
                                                                                                                                           improving, reducing from 151%
Credit Suisse                83%                    £29bn                  0.2%           61%          n/d              11.2%
Deutsche Bank            100%                        £8bn                  1.0%           37%         £49bn             8.7%
                                                                                                                                           at FY08 to 131% at Q1 2010
Santander                135%                      £(172)bn                1.4%           73%         £89bn             8.6%
                                                                                                                                           Core loan:deposit ratio already at
UBS                          75%                    £60bn                  0.6%           39%          n/d              11.9%
RBS Rank (Core/Group)     4th/~4th                   4th/4th               5th/5th        2nd/4th       1st               3rd
                                                                                                                                           102%

US Banks (FY09)
Bank of America ML           87%                    £56bn                  5.4%           108%        £75bn             7.8%
Citi                         66%                    £151bn                 6.6%           107%         n/a             10.9%
JP Morgan                    64%                    £136bn                 4.5%           160%         n/a             8.8%
Wells Fargo                  92%                    £25bn                  2.8%           91%          n/a              6.5%

 RBS Rank (Core/Group)     5th/5th                   5th/5th               1st/1st        5th/5th      n/m                1st

 RBS Overall Rank        10th/~11th                 10th/11th              6th/7th       7th/10th       1st               3rd         Green – Better than RBS
                                                                                                                                      Blue – In-line with RBS               48
                                                                                                                                      Red – Worse than RBS
                                         Further to go                      Middle of the pack              Amongst the best
Concluding remarks
Conclusion
                                     The New RBS in 2013
                                      Leading positions in all our customer businesses
           Top tier market
           franchises
                                      Strong, predictable and resilient business performance

                                      Complementary portfolio with clear cohesion logic and synergies
           Balanced portfolio
                                      Balanced by geography, growth, risk profile and business cycle

           Solid profitability and    Commitment to RoE >15% on an expanded equity base
           attractive return
           potential                  Attractive and sustainable income characteristics

           Low volatility        Clean balance sheet with a CT1 target >8%
           underpinned by strong
           balance sheet         Criteria for standalone AA category rating met

                                      Proven management track record, universal disciplines in place
           Standalone strength
           and solid foundations
                                      Roadmap to orderly UK Government stake sell down

                                      Transparent and responsive communication with few negative surprises
           Investor friendly
                                      Clearly articulated strategy with evidence of it working

      Delivering the plan should create an attractive investment case                                        50
Appendices
Appendices


         External factors

         Peer group credit ratings

         Funding programmes

         Funding and liquidity

         Core Impairments

         Risk

         GBM
                                     52
    Building blocks of the RBS Recovery – External factors

                                                    World economic recovery continues

                                   Current position                                      Consensus Economic Data1

      Outlook is better than expected 6-12 months ago                 UK (%)                   2009   2010   2011   2012   2013

      US and UK current account and savings deficits are              GDP1                     -4.9   1.3    2.3    2.1     2.4
      starting to improve                                             Unemployment2            5.2    5.2    n.a.   n.a.    n.a.

      UK housing market has performed better than                     Inflation (CPI)1         2.2    2.7    1.7    2.1     2.5
      expected                                                        US (%)                   2009   2010   2011   2012   2013
      Confidence in markets has improved but will remain              GDP  1
                                                                                               -2.4   3.2    3.1    3.4     3.2
      sensitive to news flow and market developments                  Unemployment 2           9.6    9.1    n.a.   n.a.    n.a.
      Low interest rates have improved liquidity which could
      continue                                                                                Possible Risks

                                                                        Economic growth falters
                                      Assumptions
                                                                        Economic imbalances
       Subdued loan growth as economies recover slowly
                                                                        Sovereign credit risks
       and customers delever
                                                                        Wholesale funding, liquidity risks
       RBS deposit growth marginally ahead of nominal
       GDP growth; c4-5% p.a.                                           Harsh capital and liquidity regimes hinder growth
       Interest rates move and “normalise” from 2011                    Interest rates, inflation rise rapidly
                                                                                                                                   53
1 Consensus economics (April 2010 survey)
2 Claimants count
Building blocks of the RBS Recovery – External factors

                       Strong but rational competition going forward
                                    Current position and outlook
        Strong but rational competition
        Banking, similar to other mature capital intensive industries, is relatively concentrated
        New business margins are broadly consistent with industry return targets
        Increased industry funding costs e.g. liquidity, capital and funding need to be reflected as
        interest rates normalise
        Competitors have similar capital, funding and return targets
        Banks are capital intensive and becoming more so and cannot survive without moving to
        exceed cost of capital (CoE 10-15%)


                                             Possible risks
        New market entrants / return of foreign banks
        Irrational behaviour from established competitors
        Return of irrational wholesale and securitisation markets
        Banks move up risk profile again to generate increased returns
        Regulatory intervention
                                                                                                       54
Building blocks of the RBS Recovery – External factors

                            Path of regulatory change will be phased and sensible

                    BASEL II CHANGES e.g.:
     Capital –
                      Stressed VaR
      RWA
                      Correlation Trading Book
     impacts                                                        To be phased in from 2012
      Liquidity     LIQUIDITY REQUIREMENTS:                         CHANGES TO CAPITAL DEDUCTIONS e.g.:
                      Increased liquidity reserves                   Deferred Tax Assets
                      Costs of holding                               Material holdings
                                                                     Pension deficit


                    2010                           2011                        2012             2013   2014

                   Observations:
                       Proposals published, but subject to consultation and impact assessment
                       Implementation likely phased so as not to destabilise Banking System

                   Risks:
                       More penal at implementation
                       Shortened timeline for introduction
                       Failure to gain global agreement, UK or EU ‘goes it alone’

                                                                                                              55
Counterparty & OTC Derivative reforms expected to impact RWAs from 2012
Building blocks of the RBS Recovery – External factors

                                        Government policy

               UK and other Governments have been supportive
                 ̶ Liquidity and funding support can now wind down
                 ̶ Crucial task for RBS to provide opportunity for UK Government to sell down stake
   Support
                   profitably
               UK Government, through UKFI, has remained a constructive shareholder and operated in
               line with shareholder best practice

               Lending commitments 2010:
    RBS          ̶ Residential lending – make available £8bn net
 Commitments     ̶ Business lending – make available £50bn gross new facilities
               Competition – EU mandated sales


               Debates around:
                 ̶ Industry structure

    Risks        ̶ Bank specific taxes and levies
                 ̶ Basel III capital and liquidity proposals
               Impact of consumer legislation – e.g. overdraft fees

                                                                                                      56
Appendices


         External factors

         Peer group credit ratings

         Funding programmes

         Funding and liquidity

         Core Impairments

         Risk

         GBM
                                     57
Credit Agency Ratings – LT Issuer Ratings

 Peer’s Ratings            Moody’s   S&P   Fitch   RBS Group Ratings                           Moody’s          S&P   Fitch

 JPMorgan Chase Bank NA     Aa1      AA-   AA-     RBS (Bank Level)                               Aa3           A+    AA-

 Credit Suisse AG           Aa1      A+    AA-     RBS (Group Level)                               A1            A    AA-

 BNP Paribas                Aa2      AA     AA     NatWest (Bank)                                 Aa3           A+    AA-
 HSBC Bank plc              Aa2      AA     AA     RBS Citizens                                    A2           A-     A+
 Santander                  Aa2      AA     AA     Ulster Bank Ltd                                 A2            A     A+
 BBVA                       Aa2      AA    AA-     Ulster Bank Ireland Ltd                         A2            A     A+
 Société Génerale           Aa2      A+     A+     RBS NV                                          A2           A+    AA-
 Barclays Bank              Aa3      AA-   AA-
 RBS                        Aa3      A+    AA-     Peers ratings sorted in descending order by Moody’s rating
 Bank of Scotland Plc       Aa3      A+    AA-     Ratings correct as at 20th May 2010

 Lloyds TSB Bank            Aa3      A+    AA-
 Nationwide                 Aa3      A+    AA-
 Deutsche Bank              Aa3      A+    AA-
 Bank of America NA         Aa3      A+     A+
 ING Bank NV                Aa3      A+     A+
 UBS                        Aa3      A+     A+
 Commerzbank AG             Aa3       A     A+
 Goldman Sachs              Aa3       A     A+
 Citibank NA                 A1      A+     A+
 Morgan Stanley Bank NA      A1      A+     A+
 UniCredit Bank AG           A1       A     A+
 Standard Chartered Bank     A2      A+     A+
                                                                                                                              58
Appendices


         External factors

         Peer group credit ratings

         Funding programmes

         Funding and liquidity

         Core Impairments

         Risk

         GBM
                                     59
Wholesale Funding Issuance Programmes

                    RBS Group plc                   RBS plc                     RBS NV                          Ulster
                  S&P: A/A-1/Stable          S&P: A+/A-1/Stable          S&P: A+/A-1/Stable            S&P: A/A-1/Stable
                  Moody’s: A1/P-1/Stable     Moody’s: Aa3/P-1/Stable     Moody’s: A2/P-1/Stable        Moody’s: A2/P-1/Negative
                  Fitch: AA-/F1+/Stable      Fitch: AA-/F1+/Stable       Fitch: AA-/F1+/Stable         Fitch: A+/F1+/Stable


                   €10bn ECP                  €20bn ECP                  A$20bn Australian ECP &       €12bn ECP
                   $10bn USCP                 €20bn French CD            ECD                           €10bn French CD
   CP/CD                                      $12.5bn USCP               €25bn ECP
                                                                         €20bn French CD




                   £90bn EMTN                £90bn EMTN                      £90bn EMTN, $35bn USMTN & WKSI SEC Shelf can
    MTN            $35bn USMTN               $35bn USMTN                          be issued out of either RBSG or RBS plc
                   WKSI SEC Shelf No Limit   WKSI SEC Shelf No Limit



Securitisation                                Securitisation programme


                                              €15bn CB programme
Covered Bond                                  registered with FSA on
                                              01 April 2010


          Diversity of wholesale funding programmes, across maturities and markets to support Group needs

                                                                                                                                  60
Appendices


         External factors

         Peer group credit ratings

         Funding programmes

         Funding and liquidity

         Core Impairments

         Risk

         GBM
                                     61
Wholesale funding requirement, Q110

                              Total funding (£796bn)                                    Wholesale residual maturity excl. bank deposits (£271bn)


                      Bank deposits,
                                                        CP, £36.6bn, 5%                          More than 5
                      £100.2bn, 13%
                                                                                                years, 62.3bn,
                                                              CDs, £57.4bn,
                                                                                                     23%
                                                                   7%



                                                                    MTNs, £126.6bn,
                                                                                                                                    Less than 1
                                                                         16%
                                                                                                                                   year, 127.9bn,
                                                                                                                                        47%

                                                                     Securitisations,
                                                                      £18.6bn, 2%
                                                                     Capital
             Customer                                               securities,                   1-5 years,
             deposits,                                             £31.9bn, 4%                   79.9bn, 30%
           £425.1bn, 53%



                 Strong progress on terming out of wholesale funding requirements with 53% of funding greater than 1
                 year versus 45% at FY08, driven in the main by a reduction in the wholesale funding requirement1 from
                 £313bn to £271bn
                 Funding across a number of different currencies including GBP (c. 20%), USD (c. 40%), EUR (c.25%)
                 and Other (c. 15%)2
1                             2
    Excluding bank deposits       Approximate figures                                                                                               62
Liquidity reserves
                    Continued progress in increasing the strength of liquidity reserves
Build-up of liquidity reserves

                                                £171bn
                                                              £165bn
                                                   20
                                  £140bn                         17

                    £121bn                         42                      RBS’s contingent liquidity reserves
                                                                 46
                                                                           continue to grow in line with new
       £90bn                                                               regulatory liquidity reforms
                                                                           Credit risk associated with liquidity
                                                   52            42        reserves is well controlled
                                                                           FSA eligible liquidity portfolio will
                                                   10            14        constitute UK, US and G10
                                                                           European government bond issues
                                                   28            20
                                                                           only
                                                   20            25


       FY08         Q209           Q309          Q409          Q110
       Central Group Treasury Portfolio   Treasury Bills
       Other governm ent securities       Cash and central bank balances
       Unencum bered collateral           Other liquid assets



                                                                                                                   63
Appendices


         External factors

         Peer group credit ratings

         Funding programmes

         Funding and liquidity

         Core Impairments

         Risk

         GBM
                                     64
Core impairments
                                     Q110         Q110           Q409           FY09
                                                                                             Q110 Key Sector Impairments:
                                      £m        % L&A1         % L&A1         % L&A1
    UK Retail                          387             1.5            1.8            1.6     A reduction in unsecured charges; mortgage growth reflects increased provisions
    UK Corporate                       186             0.7            0.7            0.8     Broadly spread, but property related sectors most prominent
    Ulster Bank                        218             2.3            3.5            1.6     Lower, primarily as a result of a Q409 non recurring latent provision
    US R&C                             143             1.0            1.3            1.4     Broadly stable performance; good improvement in Corporate & Commercial
    GBM                                  32            0.1            0.6            0.6     Minimal charge reflecting absence of large single name provisions
    Other2                                5          n.m.             0.2            0.3     Small charge in Wealth
    Total Core                         971             0.9            1.2            1.1     25% decline sequentially driven by improving trends in UK & US Retail


          Core impairments by division Q109 – Q1103, £bn

                                                                Core provision coverage of 59%, +200bps q-o-q                                                    1.3
                                                                                                                                                           1.2
                                                                                                                                                        1.1
                                                                                                                                                  1.0
                                                                                                                                                                       1.0




                       UK Retail               UK Corporate                   Ulster Bank                     US R&C              GBM                Total Core
                                                                       Q109            Q209           Q309           Q409   Q110
                                                                                                                                                                               65
1   Impairments as a % of L&A excludes Available for Sale 2 Includes Wealth, GTS, RBS Insurance and Central Items.
Appendices


         External factors

         Peer group credit ratings

         Funding programmes

         Funding and liquidity

         Core Impairments

         Risk

         GBM
                                     66
Risk Management risk agenda
 Activity                                                    2009   2010   2011   2012
 Strategy & Policy
 Alignment of risk & business strategy
 Rationalise group policy framework
 Capital / risk adjusted performance
 Risk Appetite & Framework
 Credit approval framework
 Concentration risk framework & limits
 Market risk framework
 Country risk framework
 Integrated stress testing and scenarios
 Regulatory risk and operational risk framework & controls
 Operating Model
 Improved governance
 Organisation, people & culture
 One risk community
 Regulatory risk and operational risk framework & controls

 Risk Architecture
 Risk systems
 Risk data architecture
 Analytics and modelling
Risk information and reporting


Strategy and Policy

Risk appetite and framework
Operating Model

Risk architecture

            Development                      Embedding
                                                                                         67
Adopting a new Risk Framework


                         Group Strategy                 A
  high level Risk
   Strategy and




                                                                                                                                               Stable / Efficient
                                                                                                   Maintain Capital       Deliver Stable                            Maintain Market
     Appetite




                     A     Strategic
                                           Board            Strategic Risk Profile                                                                Access to
                          Risk Profile                                                               Adequacy            Earnings Growth                             Confidence
                                                                                                                                                   Funding

                     B Key Risk Appetite
                                           Board Risk   B   Key Risk Appetite Measures
                           Measures                                                                   RWA Mgmt               Earnings            Cost of Funding
                                           Committee
                                                                                                                             Volatility                               Target Agency
                                                                                                    Capital Allocation                          Leverage Ratios       Rating of AA
     Detailed Risk




                                                                                                                            Value at Risk
       Appetite




                     C       Risk                                                                    Stressed ratios                                Stressed         Reputation Risk
                             Limits         ERF                                                     Leverage Ratios        Credit Volatility       measures


                                                        C   Credit Risk      Single Name
                                                                             Concentration


                                           Risk                              Sector
                         Day to day risk   Management                        Concentration
                          management
                                                                             Asset Class and
                                                                             Product

                                                            Market Risk      Value at Risk

                                                                             Sensitivities

                                                            Treasury         Capital

                                                                             Balance Sheet Risks
                                                                             Funding & Liquidity


                                                            Operational      Policy Standards
                                                            Risk

                                                            Regulatory       Policy Standards
                                                            Risk

                                                            Country Risk     Policy Standards




                                                                                                                                                                                       68
Portfolio quality – Core overview

Exposure by division                                           Exposure1,2 risk rating                                                     Portfolio performance
Portfolio by division, %                                       Portfolio by grade, %                                                       £bn                                      FY 2009        HY 2009
                      0 10 20 30 40                                         0     5 10 15 20 25                                            Normal monitoring                                491       493

                                                 £224bn          AQ1                                         £124bn                        o/w Financial institutions                      129        107
GBM
                                     £110bn                                                                                                o/w Corporates and                               362       386
UK Corporate                                                     AQ2               £13bn
                                                                                                                                           Personal
UK Retail                           £103bn
                                                                 AQ3                  £27bn
US R&C                        £52bn                                                                                                        Heightened monitoring                              50       72
                                                                 AQ4                                £85bn
Ulster Bank                  £42bn                                                                                                         o/w Financial institutions                         12       27
                          £16bn                                  AQ5                                     £108bn
Wealth                                                                                                                                     o/w Corporates and                                 38       45
GTS                      £7bn                                    AQ6                              £78bn                                    Personal

Other                   £3bn                                     AQ7                      £43bn
                                                                                                                                           Defaulted assets                                   16       13

                                                                 AQ8                 £21bn
                                                                                                                                           Total                                            557       578
                                                                 AQ9              £11bn
                                                                                                                                                  Normal monitoring
                                                                 AQ10              £16bn
                                                                                                                                                  Heightened monitoring
                                                                                                       Average AQ = 4.4
                                                                                                                                                  Non-performing book



   1 Exposures are defined as credit risk assets consisting of loans and advances (including overdraft facilities), instalment credit, finance lease receivables and other traded instruments
     across all customer types. Asset Quality (AQ) bands allow the internal reporting and oversight of risk assets by differentiating on the basis of the key drivers of default for a customer
     type. Bands also map to asset quality and wholesale exposure scales, enabling detailed internal and external reporting of risk depending on audience and business need
   2 A further £31bn of assets are covered by the standardised approach for which a PD equivalent to those assigned to assets covered by the internal ratings based approach is not                      69
     available.
Portfolio quality – Non-Core overview

Exposure by division                                          Exposure1 risk rating                                                       Portfolio performance
Portfolio by division, %                                      Portfolio by grade, %                                                       £bn                                    FY 2009         HY 2009
                                                                            0             10             20                               Normal monitoring                                98        98

             0      25      50     75 100                        AQ1                                 £21bn                                o/w Financial institutions                       13        10

                                                                                                                                          o/w Corporates and                               85        88
Non-Core                                      £151bn             AQ2              £2bn
                                                                                                                                          personal
                                                                 AQ3                  £6bn
                                                                                                                                          Heightened monitoring                            30        41
                                                                 AQ4                                £17bn
                                                                                                                                          o/w Financial institutions                         6        8
                                                                 AQ5                                         £27bn
                                                                                                                                          o/w Corporates and                               24        33
                                                                 AQ6                                £19bn                                 Personal

                                                                 AQ7                          £14bn
                                                                                                                                          Defaulted assets                                 23        21
                                                                 AQ8                £5bn
                                                                                                                                          Total                                          151         160
                                                                 AQ9                 £6bn


                                                                 AQ10                                 £23bn
                                                                                                                                                           Normal monitoring
                                                                                                        Average AQ = 5.6                                   Heightened monitoring
                                                                                                                                                           Non-performing book

  1 Exposures are defined as credit risk assets consisting of loans and advances (including overdraft facilities), instalment credit, finance lease receivables and other traded instruments
    across all customer types. Asset Quality (AQ) bands allow the internal reporting and oversight of risk assets by differentiating on the basis of the key drivers of default for a customer
    type. Bands also map to asset quality and wholesale exposure scales, enabling detailed internal and external reporting of risk depending on audience and business need
  2 A further £11bn of assets are covered by the standardised approach for which a PD equivalent to those assigned to assets covered by the internal ratings based approach is not                     70
    available.
Core portfolio quality – by region and sector

        Exposure by region                                                                Exposure by sector
        Portfolio by region, %                                                            Portfolio by sector, %
                                     0     10 20 30 40 50                                                                              0         5       10       15        20   25      30

        United                                                                             Personal                                                                                       £165bn
                                                                         £272bn
        Kingdom                                                                            Banks, other FIs                                                                      £134bn

        Western Europe                                                                     Property                                                          £57bn
                                                         £134bn
        (Excluding UK)                                                                     Manufacturing                                             £31bn

                                                                                           Transport and Storage                                     £31bn
        North America                              £89bn
                                                                                          Wholesale and retail trade                              £25bn
                                                                                          Public Sectors &                                       £22bn
        Asia & Pacific                     £29bn                                          Quasi-Government
                                                                                                                                                 £19bn
                                                                                          TMT
                                                                                          Building                                               £17bn
        Latin America                     £14bn
                                                                                          Tourism and Leisure                                   £16bn
                                                                                          Business Services                                     £13bn
        CEE &                            £10bn
        Central Asia                                                                      Natural Resources                                    £12bn
                                                                                          and Nuclear
        Middle East                                                                       Power, Water & Waste                                 £12bn
                                         £9bn
        & Africa                                                                          Agriculture and Fisheries                         £3bn

                                                                                                                                                                     Normal monitoring
                                                                                                                                                                     Heightened monitoring
                                                                                                                                                                     Non-performing book
                                                                                                                                                                                                   71
 1 Exposures are defined as credit risk assets consisting of loans and advances (including overdraft facilities), installment credit, finance lease receivables and other
   traded instruments across all customer types
Non-core portfolio quality – by region
and sector
        Exposure by region                                                                Exposure by sector
        Portfolio by region, %                                                            Portfolio by sector, %
                                          0      10       20       30      40                                                            0       5      10      15      20   25    30       35

        Western Europe                                                                     Property                                                                                     £46bn
                                                                        £50bn
        (Excluding UK)                                                                     Personal                                                              £21bn

         United                                                                            Banks, other FIs                                                     £19bn
                                                                        £48bn
         Kingdom                                                                           Transport and Storage                                            £15bn

                                                                                          Manufacturing                                               £10bn
        North America                                     £25bn
                                                                                          TMT                                                        £8bn

                                                                                          Wholesale and retail trade                              £7bn
        Asia & Pacific                            £10bn
                                                                                           Power, Water & Waste                                   £6bn
                                                                                           Building                                              £5bn
        Latin America                             £9bn
                                                                                           Natural Resources                                    £5bn
                                                                                           and Nuclear
        CEE &                                                                              Tourism and Leisure                                 £4bn
                                                £6bn
        Central Asia                                                                       Public Sectors                                      £3bn
                                                                                           & Quasi-Government
        Middle East                                                                                                                          £2bn
                                              £3bn                                         Business Services
        & Africa                                                                           Agriculture and Fisheries                         £0bn

                                                                                                                                                                        Normal monitoring
                                                                                                                                                                        Heightened monitoring
                                                                                                                                                                        Non-performing book

                                                                                                                                                                                                 72
 1 Exposures are defined as credit risk assets consisting of loans and advances (including overdraft facilities), installment credit, finance lease receivables and other
   traded instruments across all customer types
Appendices


         External factors

         Peer group credit ratings

         Funding programmes

         Funding and liquidity

         Core Impairments

         Risk

         GBM
                                     73
Progress to date - Risk revolution




   +

   –


           1 July 08                                              1 Jan 09                           1 July 09                         31 Dec 09



                                               Profit days (#)               Loss days (#)   Total   Profit days (%)   Loss days (%)
                        H2 08                         94                          38          132          71%             29%
                        H1 09                        123                          2           125          98%              2%
                        H2 09                        115                          14          129          89%             11%


                                    ■       Radical upgrading of front office risk management frameworks

                                    ■       Moved VaR to 99 percentile tail risk

                                    ■       Created a market leading Counterparty Exposure Management business

                                    ■       GBM’s daily profitability improved considerably in 2009

                                                                                                                                                   74
Note: Chart data shows GBM’s daily Markets revenues (excluding Sempra)
GBM – De-leveraged and de-risked
                                                                            Proportion of liquidity in                                    Debt Securities & Reverse
                 GBM Core Assets                                            GBM Core Assets (Q409)                                        Repo held by businesses

    655
      35               Significant reduction in                                                                                    Also highly liquid
                                                                            80% of GBM Core Assets in
                       debt securities and reverse
                                                                            Q409 are liquid assets
                       repo in H208                                                                                                                Other           Flow Rates Trading
                                                                                                                                                       8%       11%
                                                                                                                                    Equities
     207      499                                                                                                                               12%
               20       476
                                              459                                                                                                                                           STMF1 + Flow Rates
                         29
                                   438                                                                                                                                                      Trading = 80%
               89                            64         412
                                   52                                                                                                                                                       These are high grade,
                         81
                                                                                                                                                                                            very short term assets
                                                       74       Cash & T-                 74
                                             75                   bills                               Cash & T-bills                                            69%
                                   75
                                                                                                                                                                  STMF
     225       16 6                                    73        Reverse                  73                                       Note: Reverse repo in Flow Rates Trading is managed by
                                                                                                      Reverse Repo
                         16 1                                     Repo                                                             STMF

                                                                                          31          Other (mainly DPS3)
                                  15 6      16 4
                                                                                          12          Equity shares
                                                      13 7        Trading
                                                                                                                                                      Other       Flow Rates Trading
                                                                  Assets                  94          Debt Securities            Emerging Markets
                                                                                                                                                           9%
                                                                                                                                                      3%
                                                                                                                                  Flow Credit
               224                                                                        46                                                     9%                      31%
                        205                                                                           Derivative collateral
     18 8                                                                                                                                                                                   STMF + Flow Rates
                                  15 5      15 6                                                      (booked in CEM)2
                                                      12 8         Loan                                                                                                                     Trading = 53%
                                                                                          82
                                                                                                                                                                                            These are high grade
                                                                                                      Lending portfolio4                                                                    debt securities
                                                                                                                                                   26%
    Q308 Q408 Q109 Q209 Q309 Q409                                                       Q409 2                                                                        22%
                                                                                                                                          Mortgage
                                                                                                                                                                         STMF
                                                                                                                                           Trading

1 Short Term Markets and Financing (“STMF”) includes repo financing and Money Markets.
2 Cash collateral posted in relation to derivative liabilities across GBM.                                                                                                                                       75
3 Deals pending settlement
4 Lending portfolio also includes a proportion of assets that could be liquidated swiftly, prices depend on market conditions.
GBM - Non-Derivative trading book assets
         £bn


         254             144


                                                                                                     FY09    FY08
                                                                                  Asset              £bn     £bn     % change

                                                                                  Debt securities     74.2    94.2      (21%)

                                                                                  Reverse repos1      69.5    90.1      (23%)

                                          27                                      T Bills             26.5    16.0       66%

                                                        50                        Loans & advances    50.3    54.8       (8%)

                                                                                  Equities            10.7    10.8       (1%)
                                                                11
                                                                          23      Other               22.7    25.3      (10%)

                                                                                  GBM Core2          253.9   291.3      (13%)
        Non-            Debt           T bills          L&A   Equities   Other3
     derivative      securities
      trading        & reverse
      assets           repos




 1 Trading book reverse repos
 2 Excludes Non-Core portfolio of £32.5bn
 3 Mainly comprises of DPS (deals pending settlement)
                                                                                                                                76
GBM - Reverse repos1

                                                                                                                         FY09     FY08          %
                                                                                       Exposure by counterparty           £bn      £bn      change
  £bn                                                                                  Reverse repos – Banks               34       57       (40%)
                                                                                       Reverse repos – Customers           39       32         22%
               73
                                                                                       Total                             73.3      88.8      (18%)

                                         34
                                                                                                                                     % of total MTM
                                                                   39
                                                                                       Maturity profile                           FY09       FY08
                                                                                       < 3 months                                  91.7       82.6
                                                                                       < 6 months                                   3.9       12.1
                                                                                       < 1 year                                     4.4        4.4

        Total                     Banks                     Customers                  > 1 year                                     0.0        0.8
        reverse                                                                        Total                                       100         100
        repos

                                                                                       Collateral quality distribution          FY09 %      FY08 %
       Only 4% of portfolio (£2.9bn) in Non-Core
                                                                                       Government                                 85.9         89.3
                                                                                       Corporates                                 10.7          7.2
                                                                                       Other                                       3.4          3.5
                                                                                       Total                                     100.0        100.0



 1 Including assets transferred to non-core. Banking and trading book repos.
 Note:Collateral quality distribution and tenor distribution are calculated based on gross reverse repos                                              77
GBM - Debt securities1

  £bn

         70

                                                                                                                                                   FY09
                                                                                                              Asset                                 £bn

                                                                                                              Central & Local Government           41.9

                                                                                                              Mortgage & asset-backed securities   30.6

                                                                                                              Treasury & other bills               28.3
                          24
                                                                                                              Banks & Building Society              7.2
                                           11                                                                 Corporate (inc Financials)              5
                                                            4                2               2
                                                                                                              Debt Securities total                 113
         AAA              AA                A            BBB-              BB+           Unrated
                                                          and              and
                                                         below            below

           – Majority of non-related linked to exposures in ABS, Fund
             derivatives and Corporates
           – Excess liquidity invested in Treasury and Other Bills




1 Core
     debt securities – banking book & trading book, excludes £13.5bn of unanalysed securities                                                             78
GBM debt securities total consists of £32.5bn T Bills included in Cash & T-Bills and £94bn Debt Securities on summary slide 17
GBM - Credit portfolio by credit grade
GBM – Credit grade exposures1                                                                    GBM – Sector exposures1
    Core                                                                                          Core £224.4bn
                                       2% 1%
                                           1%                                                                                          12%
                                  5%
                                 4%
                                                                                                                             4%

                         14%                                                                                            4%                                     38%
                                                                 46%                                                  4%
                                                                                                                                                                        Property:
                                                                                                                        6%
                                                                                                                                                                        3%
                                                                                                                         3%
                          15%
                                                             Average rating                                                  6%

                                       8%        4%          AQ3.0                                                                 9%                14%

    Non Core                                                                                      Non Core £87.7bn
                                       14%               13%                                                                           11%      4%
                                                                 2%                                                               2%                        16%
                                4%
                                                                                                                          5%
                           1%                                      6%

                                                                                                                         6%
                           9%                                                                                                                                     11%
                                                                  15%
                                                                                                                          9%
                                                                                                                                                                     Property:
                             12%                                                                                                                                     26%
                                                                                                                                                             10%
                                                   24%
                                                             Average rating                                                            26%
                                                             AQ5.4
                                                                                                            Banks and Building Societies          Financial Interm ediaries
           AQ1     AQ2     AQ3     AQ4     AQ5     AQ6     AQ7     AQ8     AQ9     AQ10                     Manufacturing                         Transport and Storage
                                                                                                            Property                              TMT
                                                                                                            Pow er, Water & Waste                 Natural Resources and Nuclear
                                                                                                            Public Sectors                        Other
                                                                                                                                                                                                79
1   Exposures are defined as credit risk assets consisting of loans and advances (including overdraft facilities), installment credit, finance lease receivables and other traded instruments
    across all customer types.

				
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