Natwest Group PLC

Quarterly Report • Aug 2, 2019

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RNS Number : 6640H Royal Bank of Scotland Group PLC 02 August 2019 Appendix 1 Capital and risk management Document navigation The following are contained within this appendix: ● Capital, liquidity and funding risk (pages 1 to 7); ● Credit risk - Economic loss drivers(page 8); ● Credit risk - Banking activities (page 9); ● Credit risk - Banking activities segmental exposure (pages 10 to 12); ● Credit risk - Banking activities sector analysis (pages 13 to 15); ● Credit risk - Banking activities personal portfolio (pages 16 to 20); ● Credit risk - Banking activities CRE (pages 21); ● Credit risk - Banking activities flow statements (pages 22 to 28); ● Credit risk - Asset quality (pages 29 to 33); ● Credit risk - Trading activities (pages 34 to 36); ● Credit risk - Cross border exposure (page 36); ● Non-traded market risk (pages 37 to 41); ● Traded market risk (page 41); and ● Other risks (page 42) Certain disclosures in this appendix are within the scope of EY's review report and are marked accordingly. Appendix 1 Capital and risk management Capital, liquidity and funding risk Key developments ● The CET1 ratio decreased by 20 basis points to 16.0% as a result of the £2.0 billion attributable profit, offset by a foreseeable 5p ordinary dividend accrual of £0.6 billion, 12p special dividend of £1.4 billion and the impact of IFRS 16. ● RWAs decreased by £0.2 billion in H1 2019. Credit risk decreased by £0.8 billion driven by the completion of the merger of Alawwal bank and SABB reducing credit risk by £4.6 billion, offset by increases in credit risk driven by the £1.3 billion uplift due to adoption of IFRS 16 from 1 January 2019, an increase due to PD calibrations affecting asset quality and growth in asset size. Counterparty credit risk increased primarily due to increased exposures. ● The leverage ratio decreased to 5.2% driven by decreased capital. ● The total loss absorbing capital ratio of 32.1% is above the BOE requirement of 24.0% by 1 January 2020. ● In the first half of 2019, RBSG issued £3.0 billion new MREL eligible senior debt and redeemed a €1.0 billion Tier 2 security, with £0.5 billion of non-MREL RBSG senior debt also being repaid on maturity during the period. In subsidiaries, NWB issued a £750 million covered bond and NatWest Markets Plc maintained active issuance programmes for senior unsecured and secured notes, with net issuance of around £3 billion in the period. ● RBSG participation in the Bank of England's Term Funding Scheme reduced by £4 billion. ● The liquidity coverage ratio decreased from 158% to 154% driven by reductions in NWM Plc's liquidity position due to seasonally low outflows at 31 December 2018. ● The net stable funding ratio was relatively consistent at 140% compared to 141% for FY 2018. Minimum capital requirements The Group is subject to minimum capital requirements relative to RWAs. The table below summarises the minimum ratios of capital to RWAs that the Group is expected to have to meet under the end-point CRR requirements applicable from 1 January 2019. These ratios apply at the consolidated group level. Different minimum capital requirements may apply to individual legal entities or sub-groups. Minimum requirements Type CET1 Total Tier 1 Total capital System wide Pillar 1 minimum requirements 4.5% 6.0% 8.0% Capital conservation buffer 2.5% 2.5% 2.5% Countercyclical capital buffer (1) 0.7% 0.7% 0.7% G-SIB buffer (2) 1.0% 1.0% 1.0% Bank specific Pillar 2A (4) 2.0% 2.7% 3.6% Total (excluding PRA buffer) (5) 10.7% 12.9% 15.8% Capital ratios at 30 June 2019 16.0% 18.2% 20.9% Notes: (1) The countercyclical capital buffer (CCyB) applied to UK designated assets is set by the Financial Policy Committee (FPC). The UK CCyB is currently 1.0% (effective from November 2018). The Republic of Ireland CCyB is currently 0.0%, the CBI have announced an increase to 1.0% effective July 2019. Foreign exposures may be subject to different CCyB rates depending on the rate set in those jurisdictions. Firm specific CCyB is based on a weighted average at CCyB's applicable to countries in which the Bank has exposures. (2) Globally systemically important banks (G-SIBs), as designated by the Financial Stability Board (FSB), are subject to an additional capital buffer of between 1.0% and 3.5%. In November 2018 the FSB announced that RBS is no longer a G-SIB. From 1 January 2020, RBS will be released from this global buffer requirement. (3) The Group will be subject to a systemic risk buffer (SRB) and this will apply at the ring-fenced bank sub-group level rather than at the consolidated group level. As from 1 August 2019 NWH will be subject to a Systemic Risk Buffer of 1.5%. Where the Systemic Risk Buffer is greater than the G-SII buffer, the PRA may require the consolidated group to hold a higher level of capital through the PRA buffer and Leverage Ratio Group add-on. (4) From 1 January 2015, UK banks have been required to meet at least 56% of its Pillar 2A capital requirement with CET1 capital and with balance with Additional Tier 1 and/or Tier 2 capital. Additional capital requirements under Pillar 2A may be specified by the PRA as a ratio or as an absolute value. The table sets out an implied ratio to cover the full value of Pillar 2A requirements. (5) The Group may be subject to a PRA buffer requirement as set by the PRA. The PRA buffer consists of two components: - A risk management and governance buffer that is set as a scalar, up to 40% of the Pillar 1 and Pillar 2A requirements. - A buffer to cover stress risks informed by the results of the BoE concurrent stress testing results. - The PRA requires that the level of this buffer is not publicly disclosed. (6) The capital conservation buffer, the countercyclical capital buffer, the G-SIB buffer and systemic risk buffer (where applicable) make up the combined buffer. If the Group fails to meet the combined buffer requirement, it is subject to restrictions on distributions on CET1 instruments, discretionary coupons on AT1 instruments and on payment of variable remuneration or discretionary pension benefits. These restrictions are calculated by reference to the Group's Maximum Distributable Amount (MDA). Where a PRA buffer is applicable, the MDA trigger is below the PRA buffer and MDA restrictions are not automatically triggered if the Group fails to meet its PRA buffer. The MDA is calculated as the amount of interim or year-end profits not yet incorporated into CET1 capital multiplied by a factor ranging from 0 to 0.6 depending on the size of the CET1 shortfall against the combined buffer. Appendix 1 Capital and risk management Capital, liquidity and funding risk continued Capital flow statement Refer to Business performance summary - Capital and leverage for information on Capital, RWAs and leverage and the Pillar 3 supplement for capital and leverage relating to significant subsidiaries and also CRR templates. The table below analyses the movement in end-point CRR CET1, AT1 and Tier 2 capital for the half year ended 30 June 2019. CET1 AT1 Tier 2 Total £m £m £m £m At 1 January 2019 30,639 4,051 6,483 41,173 Profit for the year 711 - - 711 Own credit 144 - - 144 Share capital and reserve movements in respect of employee share schemes 49 - - 49 Foreign exchange reserve (296) - - (296) FVOCI reserves (78) - - (78) Goodwill and intangibles deduction (15) - - (15) Deferred tax assets (129) - - (129) Prudential valuation adjustments 75 - - 75 Expected loss less impairment (72) - - (72) Net dated subordinated debt/grandfathered instruments - - (1,400) (1,400) Foreign exchange movements - - 36 36 Foreseeable ordinary and special dividends (728) - - (728) Other movements (109) - - (109) At 30 June 2019 30,191 4,051 5,119 39,361 Risk-weighted assets The table below analyses the movement in RWAs on the end-point CRR basis during the half year, by key drivers. Counterparty Operational Credit risk credit risk Market risk risk Total RWAs £bn £bn £bn £bn £bn At 1 January 2019 137.9 13.6 14.8 22.4 188.7 Foreign exchange movement 0.1 - - - 0.1 Business movements (1) 2.9 0.4 (0.4) 0.2 3.1 Risk parameter changes (2) 0.7 0.1 - - 0.8 Model updates (3) 0.2 - 0.2 - 0.4 Other movements (4) (4.7) 0.1 - - (4.6) At 30 June 2019 137.1 14.2 14.6 22.6 188.5 The table below analyses segmental RWAs. Personal & Ulster Commercial & Private Central Ulster Commercial Private NatWest items Total RWAs UK PB Bank RoI Banking Banking RBSI Markets & other Total £bn £bn £bn £bn £bn £bn £bn £bn At 1 January 2019 * 34.3 14.7 78.4 9.4 6.9 44.9 0.1 188.7 Foreign exchange movement - - 0.1 - - - - 0.1 Business movements (1) 1.4 (0.1) 1.0 0.3 0.2 - 0.3 3.1 Risk parameter changes (2) 1.3 (0.4) (0.2) - - 0.1 - 0.8 Model updates (3) - - 0.2 - - 0.2 - 0.4 Other movements (4) - - (1.7) - (0.2) (3.8) 1.1 (4.6) At 30 June 2019 37.0 14.2 77.8 9.7 6.9 41.4 1.5 188.5 Credit risk 29.3 13.2 68.5 8.4 6.1 10.1 1.5 137.1 Counterparty credit risk 0.1 - 0.2 0.1 - 13.8 - 14.2 Market risk 0.1 - 0.3 - - 14.2 - 14.6 Operational risk 7.5 1.0 8.8 1.2 0.8 3.3 - 22.6 Total RWAs 37.0 14.2 77.8 9.7 6.9 41.4 1.5 188.5 Restated. Refer to Note 1 of the main announcement for further details. (1) Included within business movements is the £1.3 billion uplift in credit risk due to adoption of IFRS 16 from 1 January 2019. (2) Risk parameter changes relate to asset quality metrics of customers and counterparties such as probability of default (PD) and loss given default (LGD). (3) Model updates relates primarily to revision in LGD models for the UK mid-corporate portfolios. (4) Other primarily reflects the reduction following the Alawwal bank merger. Other also reflects assets which have transferred between Commercial Banking, RBSI, Central items and NatWest Markets. Appendix 1 Capital and risk management Capital, liquidity and funding risk continued Capital resources (Within the scope of EY's review report) 30 June 2019 31 December 2018 PRA PRA End-point transitional End-point transitional CRR basis basis CRR basis basis £m £m £m £m Shareholders' equity (excluding non-controlling interests) Shareholders' equity 46,221 46,221 45,736 45,736 Preference shares - equity (496) (496) (496) (496) Other equity instruments (4,058) (4,058) (4,058) (4,058) 41,667 41,667 41,182 41,182 Regulatory adjustments and deductions Own credit (261) (261) (405) (405) Defined benefit pension fund adjustment (400) (400) (394) (394) Cash flow hedging reserve (117) (117) 191 191 Deferred tax assets (869) (869) (740) (740) Prudential valuation adjustments (419) (419) (494) (494) Goodwill and other intangible assets (6,631) (6,631) (6,616) (6,616) Expected losses less impairments (726) (726) (654) (654) Foreseeable ordinary and special dividends (2,053) (2,053) (1,326) (1,326) Other regulatory adjustments - - (105) (105) (11,476) (11,476) (10,543) (10,543) CET1 capital 30,191 30,191 30,639 30,639 Additional Tier 1 (AT1) capital Qualifying instruments and related share premium 4,051 4,051 4,051 4,051 Qualifying instruments and related share premium subject to phase out - 1,398 - 1,393 Qualifying instruments issued by subsidiaries and held by third parties subject to phase out - 140 - 140 AT1 capital 4,051 5,589 4,051 5,584 Tier 1 capital 34,242 35,780 34,690 36,223 Qualifying Tier 2 capital Qualifying instruments and related share premium 4,969 5,054 6,301 6,386 Qualifying instruments issued by subsidiaries and held by third parties 150 1,498 182 1,565 Tier 2 capital 5,119 6,552 6,483 7,951 Total regulatory capital 39,361 42,332 41,173 44,174 Appendix 1 Capital and risk management Capital, liquidity and funding risk continued Loss absorbing capital The following table illustrates the components of estimated loss absorbing capital (LAC) in RBSG plc and operating subsidiaries and includes external issuances only. The table is prepared on a transitional basis, including the benefit of regulatory capital instruments issued from operating companies, to the extent they meet the current MREL criteria. 30 June 2019 31 December 2018 Balance Balance Par sheet Regulatory LAC Par sheet Regulatory LAC value (1) value value (2) value (3) value (1) value value (2) value (3) £bn £bn £bn £bn £bn £bn £bn £bn CET1 capital (4) 30.2 30.2 30.2 30.2 30.6 30.6 30.6 30.6 Tier 1 capital: end-point CRR compliant AT1 of which: RBSG (holdco) 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 of which: RBSG operating subsidiaries (opcos) - - - - - - - - 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 Tier 1 capital: end-point CRR non compliant of which: holdco 1.4 1.6 1.4 0.5 1.4 1.6 1.4 0.5 of which: opcos 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 1.5 1.7 1.5 0.6 1.5 1.7 1.5 0.6 Tier 2 capital: end-point CRR compliant of which: holdco 5.9 6.1 5.0 4.3 6.8 6.7 6.3 5.1 of which: opcos 0.5 0.5 0.3 0.5 0.5 0.5 0.3 0.5 6.4 6.6 5.3 4.8 7.3 7.2 6.6 5.6 Tier 2 capital: end-point CRR non compliant of which: holdco 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 of which: opcos 1.6 2.0 1.3 1.7 1.9 2.0 1.4 1.6 1.7 2.1 1.4 1.8 2.0 2.1 1.5 1.7 Senior unsecured debt securities issued by: RBSG holdco 19.4 20.0 - 19.2 16.8 16.8 - 15.5 RBS opcos 20.6 20.5 - - 17.1 16.9 - - 40.0 40.5 - 19.2 33.9 33.7 - 15.5 Total 83.8 85.0 42.4 60.6 79.3 79.3 44.2 58.0 RWAs 188.5 188.7 CRR leverage exposure 659.1 644.5 LAC as a ratio of RWAs 32.1% 30.7% LAC as a ratio of CRR leverage exposure 9.2% 9.0% Notes: (1) Par value reflects the nominal value of securities issued. (2) Regulatory capital instruments issued from operating companies are included in the transitional LAC calculation, to the extent they meet the current MREL criteria. (3) LAC value reflects RBS's interpretation of the Bank of England's approach to setting a minimum requirement for own funds and eligible liabilities (MREL), published in June 2018. MREL policy and requirements remain subject to further potential development, as such RBS estimated position remains subject to potential change. Liabilities excluded from LAC include instruments with less than one year remaining to maturity, structured debt, operating company senior debt, and other instruments that do not meet the MREL criteria. The LAC calculation includes eligible Tier 1 and Tier 2 securities before the application of any regulatory caps or adjustments. (4) Corresponding shareholders' equity was £46.2 billion (31 December 2018 - £45.7 billion). (5) Regulatory amounts reported for AT1, Tier 1 and Tier 2 instruments are before grandfathering restrictions imposed by CRR. Appendix 1 Capital and risk management Capital, liquidity and funding risk continued Funding sources (Within the scope of EY's review report) The table below shows the carrying values of the principal funding sources based on contractual maturity. Balance sheet captions include balances held at all classifications under IFRS 9 but excludes derivative cash collateral. 30 June 2019 31 December 2018 Short-term Long-term Short-term Long-term less than more than less than more than 1 year 1 year Total 1 year 1 year Total £m £m £m £m £m £m Personal and corporate deposits Personal (1) 180,503 1,376 181,879 178,293 1,499 179,792 Corporate (2) 132,323 272 132,595 131,575 142 131,717 312,826 1,648 314,474 309,868 1,641 311,509 Financial institutions deposits Banks (3) 6,581 13,315 19,896 6,758 15,865 22,623 Non-bank financial institutions (NBFI) (4) 46,977 1,092 48,069 46,800 564 47,364 53,558 14,407 67,965 53,558 16,429 69,987 Debt securities in issue Commercial papers (CPs) and certificates of deposits (CDs) 3,192 16 3,208 3,157 - 3,157 Medium-term notes 7,651 29,662 37,313 4,928 25,596 30,524 Covered bonds 1,252 4,888 6,140 - 5,367 5,367 Securitisations - 1,215 1,215 - 1,375 1,375 12,095 35,781 47,876 8,085 32,338 40,423 Subordinated liabilities 134 9,674 9,808 299 10,236 10,535 Repos (5) Sovereign 1,479 - 1,479 405 - 405 Financial institutions 34,431 424 34,855 29,664 - 29,664 Corporate 472 - 472 291 - 291 36,382 424 36,806 30,360 - 30,360 Total funding 414,995 61,934 476,929 402,170 60,644 462,814 Of which: available in resolution (6) - 25,943 25,943 - 22,909 22,909 CET 1 capital 30,191 30,639 CRR Leverage exposure 659,105 644,498 Funded assets 584,274 560,886 Funding coverage of CET 1 capital 16 15 Funding as a % of leverage exposure 72% 72% Funding as a % of funded assets 82% 83% Funding available in resolution as a % of CET1 capital 86% 75% Funding available in resolution as a % of leverage exposure 4% 4% Notes: (1) Includes £104 million (31 December 2018 - £206 million) of DFV deposits included in other financial liabilities balance sheet. (2) Includes £1,027 million (31 December 2018 - £428 million) of HFT deposits included in trading liabilities. (3) Includes £519 million (31 December 2018 - £267 million) of HFT deposits included in trading liabilities on the balance sheet. Includes £10 billion (31 December 2018 - £14 billion) relating to Term Funding Scheme participation and £1.8 billion (31 December 2018 - £1.8 billion) relating to RBS's participation in central bank financing operations under the European Central Bank's Targeted Long-term refinancing operations. (4) Includes £789 million (31 December 2018 - £1,093 million) of HFT deposits included in trading liabilities and nil (31 December 2018 - £7 million) of DFV deposits included in other financial liabilities on the balance sheet. (5) Includes HFT repos of £32,087 million (31 December 2018 - £25,645 million) and amortised cost repos of £4,719 million (31 December 2018 - £4,715 million). (6) Eligible liabilities (as defined in the Banking Act 2009 as amended from time to time) that meet the eligibility criteria set out in the regulations, rules, policies, guidelines, or statements of the Bank of England including the Statement of Policy published by the Bank of England in June 2018. The balance consists of £19 billion (31 December 2018 - £16 billion) under debt securities in issue (senior MREL) and £7 billion (31 December 2018 - £7 billion) under subordinated liabilities. h Appendix 1 Capital and risk management Capital, liquidity and funding risk continued Liquidity portfolio (Within the scope of EY's review report) The table below shows the liquidity portfolio by product, liquidity value and by carrying value. Liquidity value 30 June 2019 31 December 2018 UK DoL UK DoL RBSG (1) Sub (2) NWM Plc RBSG (1) Sub (2) NWM Plc £m £m £m £m £m £m Cash and balances at central banks 83,979 56,173 12,783 83,781 59,745 11,005 Central and local government bonds AAA rated governments 5,914 2,458 1,532 8,188 4,386 615 AA- to AA+ rated governments and US agencies 41,013 30,427 4,260 35,683 25,845 5,256 Below AA rated governments 1,594 - 1,274 - - - 48,521 32,885 7,066 43,871 30,231 5,871 Primary liquidity 132,500 89,058 19,849 127,652 89,976 16,876 Secondary liquidity (3) 70,575 69,652 344 70,231 69,642 344 Total liquidity value 203,075 158,710 20,193 197,882 159,618 17,220 Total carrying value 232,653 187,874 20,408 225,039 186,340 17,388 Notes: (1) RBSG includes UK DoLSub, NatWest Markets Plc and other significant operating subsidiaries that hold liquidity portfolios. These include RBS International, NWM N.V. and Ulster Bank Ireland DAC who hold managed portfolios that comply with local regulations that may differ from PRA rules. (2) UK DoLSub comprises RBSG's four licensed deposit-taking UK banks within the ring-fenced bank: National Westminster Bank Plc, The Royal Bank of Scotland plc, Coutts & Co and Ulster Bank Limited. (3) Secondary liquidity represents assets pre-positioned with central bank refinancing facilities. Liquidity value is lower than carrying value as it is stated after discounts applied by the Bank of England and other central banks to instruments. Appendix 1 Capital and risk management Credit risk Economic loss drivers (Within the scope of EY's review report) A full description of the framework for incorporating economic loss drivers in to IFRS9 ECL calculations is provided in the Group's 2018 Annual Report & Accounts. It includes a description of the approach adopted on multiple economic scenarios for both Personal and Wholesale portfolios. The table and commentary below provides an update on the base case economics used at June 2019, and also the multiple economic scenarios used for Personal portfolios. The average over the five year horizon (2019 to 2023) for the central base case and two upside and downside scenarios used for ECL modelling are set out below. 30 June 2019 31 December 2018 Upside 2 Upside 1 Base case Downside 1 Downside 2 Upside 2 Upside 1 Base case Downside 1 Downside 2 % % % % % % % % % % UK GDP - change 2.5 2.2 1.6 1.3 0.9 2.6 2.3 1.7 1.5 1.1 Unemployment 3.2 3.7 4.7 5.4 6.5 3.3 3.8 5.0 5.6 6.9 House Price Inflation - change 4.7 3.7 1.7 1.0 (0.9) 4.3 3.3 1.7 1.1 (0.5) Bank of England base rate 1.3 1.2 1.0 0.1 - 1.7 1.3 1.1 0.5 - Republic of Ireland GDP - change 5.3 4.3 3.5 3.1 2.4 4.3 3.6 3.0 3.1 2.8 Unemployment 4.1 4.5 5.1 5.9 6.7 4.2 4.6 5.2 6.0 6.8 House Price Inflation - change 10.0 7.3 3.9 2.8 (0.1) 9.2 6.8 4.0 3.2 0.8 European Central Bank base rate 1.5 0.8 0.1 - - 1.3 0.8 0.3 - - World GDP - change 3.9 3.4 2.8 2.5 2.0 3.6 3.2 2.7 2.5 2.3 Probability weight 12.7 14.8 30.0 29.7 12.7 12.8 17.0 30.0 25.6 14.6 Probability weightings of scenarios (Within the scope of EY's review report) RBS's approach to IFRS 9 multiple economic scenarios in Personal involves selecting a suitable set of discrete scenarios to characterise the distribution of risks in the economic outlook and assigning appropriate probability weights to those scenarios. This involves the following steps: ● Scenario selection - Two upside and two downside scenarios from Moody's inventory of scenarios were chosen. The aim is to obtain downside scenarios that are not as severe as stress tests, so typically they have a severity of around one in ten and one in five of approximate likelihood, along with corresponding upsides. ● Severity assessment - Having selected the most appropriate scenarios their severity is then assessed based on the behaviour of UK GDP by calculating a variety of measures such as average growth, deviation from baseline and peak to trough falls. These measures are compared against a set of 1,000 model runs, following which, a percentile in the distribution is established which most closely corresponds to the scenario. ● Probability assignment - Having established the relevant percentile points, probability weights are assigned to ensure that the scenarios produce an unbiased result. If the severity assessment step shows the scenarios to be broadly symmetric, then this will result in a symmetric probability weight (same probability weight above and below the base case). However, if the downsides are not as extreme as the upsides, then a higher probability weight is allocated to the downsides to ensure the unbiasedness requirement is satisfied. This adjustment is made purely to restore unbiasedness, not to address any relative skew in the distribution of risks in the economic outlook. Appendix 1 Capital and risk management Credit risk - Banking activities Introduction This section covers the credit risk profile of RBS's banking activities. Banking activities include a small number of portfolios that were carried at fair value. Financial instruments within the scope of the IFRS 9 ECL framework (Within the scope of EY's review report) Refer to Note 8 of the main announcement for balance sheet analysis of financial assets that are classified as amortised cost (AC) or fair value through other comprehensive income (FVOCI), the starting point for IFRS 9 ECL framework assessment. Financial assets Of the total third party £485.1 billion AC and FVOCI balance (gross of ECL), £472 billion or 97% was within the scope of the IFRS 9 ECL framework and comprised by stage: Stage 1 £438.8 billion; Stage 2 £25.9 billion; and Stage 3 £7.3 billion (31 December 2018 - £463.9 billion of which Stage 1 £430.1 billion; Stage 2 £26.1 billion; and Stage 3 £7.7 billion). Total assets within IFRS 9 ECL scope comprised the following by balance sheet caption and stage: ● Loans: £325 billion of which Stage 1 £292 billion; Stage 2 £25.7 billion; and Stage 3 £7.3 billion (31 December 2018 - £319.8 billion of which Stage 1 £286.0 billion; Stage 2 £26.1 billion; and Stage 3 £7.7 billion). ● Other financial assets: £147 billion of which Stage 1 £146.8 billion; Stage 2 £0.2 billion; and Stage 3 nil (31 December 2018 - £144.1 billion of which Stage 1 £144.1 billion; Stage 2 nil; and Stage 3 nil). Those assets outside the framework were as follows: ● Settlement balances, items in the course of collection, cash balances and other non-credit risk assets of £10.1 billion. These were assessed as having no ECL unless there was evidence that they were credit impaired. ● Equity shares of £1.1 billion as not within the IFRS 9 ECL framework by definition. ● Fair value adjustments of £1.1 billion on loans hedged by interest rate swaps, where the underlying loan was within the IFRS 9 ECL scope. ● Group-originated securitisations, where ECL was captured on the underlying loans of £0.4 billion. ● Commercial cards which operate in a similar manner to charge cards, with balances repaid monthly via mandated direct debit with the underlying risk of loss captured within the customer's linked current account of £0.4 billion. Contingent liabilities and commitments In addition to contingent liabilities and commitments disclosed in Note 12 of the main announcement, reputationally-committed limits are also included in the scope of the IFRS 9 ECL framework. These are offset by £4 billion out of scope balances primarily related to facilities that, if drawn, would not be classified as AC or FVOCI, or undrawn limits relating to financial assets exclusions. Total contingent liabilities (including financial guarantees) and commitments within IFRS 9 ECL scope of £177.4 billion comprised Stage 1; £171.3 billion; Stage 2 £5.4 billion; and Stage 3 £0.7 billion. Appendix 1 Capital and risk management Credit risk - Banking activities continued Portfolio summary - segment analysis (Within the scope of EY's review report) The table below shows gross loans and ECL, by segment and stage, within the scope of the IFRS 9 ECL framework. Ulster Commercial Private Central items UK PB Bank RoI Banking Banking RBSI NWM & other Total 30 June 2019 £m £m £m £m £m £m £m £m Loans - amortised cost Stage 1 137,384 19,684 90,287 14,198 15,011 9,539 5,881 291,984 Stage 2 13,515 1,638 9,237 531 426 229 129 25,705 Stage 3 1,827 2,171 2,340 173 99 715 - 7,325 152,726 23,493 101,864 14,902 15,536 10,483 6,010 325,014 ECL provisions (1) Stage 1 99 28 123 12 4 8 6 280 Stage 2 417 56 187 9 2 10 1 682 Stage 3 710 588 926 19 16 81 - 2,340 1,226 672 1,236 40 22 99 7 3,302 ECL provisions coverage (2) Stage 1 (%) 0.07 0.14 0.14 0.08 0.03 0.08 0.10 0.10 Stage 2 (%) 3.09 3.42 2.02 1.69 0.47 4.37 0.78 2.65 Stage 3 (%) 38.86 27.08 39.57 10.98 16.16 11.33 - 31.95 0.80 2.86 1.21 0.27 0.14 0.94 0.12 1.02 Impairment losses ECL charge (3) 181 (21) 202 (3) (3) (36) 3 323 Stage 1 (53) (24) (55) (5) (3) (2) 2 (140) Stage 2 103 (38) 38 (1) - (2) 1 101 Stage 3 131 41 219 3 - (32) - 362 ECL loss rate - annualised (basis points) 23.70 (17.88) 39.66 (4.03) (3.86) (68.68) 9.98 19.88 Amounts written-off 90 72 276 1 2 11 - 452 31 December 2018 Loans - amortised cost Stage 1 134,836 17,822 91,034 13,750 13,383 8,196 6,964 285,985 Stage 2 13,245 2,080 9,518 531 289 407 27 26,097 Stage 3 1,908 2,308 2,448 225 101 728 - 7,718 149,989 22,210 103,000 14,506 13,773 9,331 6,991 319,800 ECL provisions (1) Stage 1 101 35 124 13 6 6 - 285 Stage 2 430 114 194 10 3 12 - 763 Stage 3 597 638 942 20 17 106 - 2,320 1,128 787 1,260 43 26 124 - 3,368 ECL provisions coverage (2) Stage 1 (%) 0.07 0.20 0.14 0.09 0.04 0.07 - 0.10 Stage 2 (%) 3.25 5.48 2.04 1.88 1.04 2.95 - 2.92 Stage 3 (%) 31.29 27.64 38.48 8.89 16.83 14.56 - 30.06 0.75 3.54 1.22 0.30 0.19 1.33 - 1.05 Impairment losses ECL charge (3) 339 15 147 (6) (2) (92) (3) 398 ECL loss rate - annualised (basis points) 22.60 6.75 14.27 (4.14) (1.45) (98.60) (4.29) 12.45 Amounts written-off 445 372 572 7 9 89 - 1,494 Restated. Refer to Note 1 of the main announcement for further details. Notes: (1) Includes £4 million (31 December 2018 - £5 million) related to assets at FVOCI. (2) ECL provisions coverage is ECL provisions divided by loans - amortised cost. (3) Includes a £30 million charge (31 December 2018 - £3 million charge) related to other financial assets, of which nil (31 December 2018 - £1 million charge) related to assets at FVOCI; and a £28 million charge (31 December 2018 - £31 million release) related to contingent liabilities. Key points ● Total ECL provisions reduced slightly in the first half of 2019. The reduced ECL requirement in Stage 1 and Stage 2 performing exposures offset a small increased provisioning requirement in Stage 3 exposures. The ECL requirement arising from the economic uncertainty associated with Brexit is formally reviewed by the Provisions Committee at the end of each quarter. As at the end of H1 2019, the modelled impact remained unchanged from the year end at £101 million. ● In UK PB, the ECL levels remained broadly stable in Stage 1 and Stage 2 with the increase in Stage 3 including the effect of a loss rate model adjustment on unsecured lending. In addition, the value of new defaults was higher than write-offs and debt repayments by customers, and unlike in 2018, there were no debt sales in H1 2019. ● In Ulster Bank RoI, the reduction in ECL was driven by ongoing improvements in the portfolio performance and the completion of the remainder of the Bank's 2018 sale of non-performing loans in H1 2019. ● In Commercial Banking, the ECL balance reduced marginally with write-offs of legacy positions more than offsetting the small number of significant individual charges during the period. ● The impairment charge for the half year was £323 million (20 basis points annualised), remaining below the longer term view of normalised loss rates of between 30 and 40 basis points. The charge in Q2 2019 was higher than Q1, driven by a small number of significant individual charges within Commercial Banking. Appendix 1 Capital and risk management Credit risk - Banking activities continued Segmental loans and impairment metrics (Within the scope of EY's review report) The table below shows gross loans and ECL, by segment and stage, within the scope of the ECL framework. Gross loans ECL provisions (2) Stage 2 (1) Stage 2 (1) Stage 1 ≤30 DPD >30 DPD Total Stage 3 Total Stage 1 ≤30 DPD >30 DPD Total Stage 3 Total 30 June 2019 £m £m £m £m £m £m £m £m £m £m £m £m UK PB 137,384 12,900 615 13,515 1,827 152,726 99 371 46 417 710 1,226 Ulster Bank RoI 19,684 1,583 55 1,638 2,171 23,493 28 51 5 56 588 672 Personal (3) 11,304 1,082 37 1,119 2,000 14,423 9 23 3 26 490 525 Wholesale 8,380 501 18 519 171 9,070 19 28 2 30 98 147 Commercial Banking 90,287 8,891 346 9,237 2,340 101,864 123 181 6 187 926 1,236 Private Banking 14,198 356 175 531 173 14,902 12 4 5 9 19 40 Personal 11,324 203 51 254 157 11,735 4 3 - 3 15 22 Wholesale 2,874 153 124 277 16 3,167 8 1 5 6 4 18 RBS International 15,011 417 9 426 99 15,536 4 2 - 2 16 22 Personal 2,610 36 7 43 86 2,739 1 1 - 1 12 14 Wholesale 12,401 381 2 383 13 12,797 3 1 - 1 4 8 NatWest Markets 9,539 229 - 229 715 10,483 8 10 - 10 81 99 Central items and other 5,881 129 - 129 - 6,010 6 1 - 1 - 7 Total loans 291,984 24,505 1,200 25,705 7,325 325,014 280 620 62 682 2,340 3,302 Of which: Personal 162,622 14,221 710 14,931 4,070 181,623 113 398 49 447 1,227 1,787 Wholesale 129,362 10,284 490 10,774 3,255 143,391 167 222 13 235 1,113 1,515 31 December 2018 UK PB 134,836 12,521 725 13,245 1,908 149,989 101 382 48 430 597 1,128 Ulster Bank RoI 17,822 1,968 112 2,080 2,308 22,210 35 103 11 114 638 787 Personal (3) 11,059 1,353 105 1,458 2,153 14,670 13 73 11 84 530 627 Wholesale 6,763 615 7 622 155 7,540 22 30 - 30 108 160 Commercial Banking 91,034 9,087 430 9,518 2,448 103,000 124 186 8 194 942 1,260 Private Banking 13,750 380 151 531 225 14,506 13 5 5 10 20 43 Personal 10,803 183 25 208 203 11,214 5 3 - 3 17 25 Wholesale 2,947 197 126 323 22 3,292 8 2 5 7 3 18 RBS International 13,383 274 15 289 101 13,773 6 3 - 3 17 26 NatWest Markets 8,196 407 - 407 728 9,331 6 12 - 12 106 124 Central items and other 6,964 27 - 27 - 6,991 - - - - - - Total loans 285,985 24,664 1,433 26,097 7,718 319,800 285 691 72 763 2,320 3,368 Of which: Personal 159,553 14,106 865 14,971 4,351 178,875 122 458 59 517 1,158 1,797 Wholesale 126,432 10,558 568 11,126 3,367 140,925 163 233 13 246 1,162 1,571 Restated. Refer to Note 1 of the main announcement for further details. For the notes to this table refer to the following page. Appendix 1 Capital and risk management Credit risk - Banking activities continued Segmental loans and impairment metrics (Within the scope of EY's review report) The table below shows gross loans and ECL provisions, by days past due, by segment and stage, within the scope of the ECL framework. ECL provisions coverage ECL Stage 2 (1,2) Total Amounts Stage 1 ≤30 DPD >30 DPD Total Stage 3 Total charge Loss rate written-off 30 June 2019 % % % % % % £m basis points £m UK PB 0.07 2.88 7.48 3.09 38.86 0.80 181 23.70 90 Ulster Bank RoI 0.14 3.22 9.09 3.42 27.08 2.86 (21) (17.88) 72 Personal (3) 0.08 2.13 8.11 2.32 24.50 3.64 (10) (13.87) 64 Wholesale 0.23 5.59 11.11 5.78 57.31 1.62 (11) (24.26) 8 Commercial Banking 0.14 2.04 1.73 2.02 39.57 1.21 202 39.66 276 Private Banking 0.08 1.12 2.86 1.69 10.98 0.27 (3) (4.03) 1 Personal 0.04 1.48 - 1.18 9.55 0.19 (3) (5.11) 1 Wholesale 0.28 0.65 4.03 2.17 25.00 0.57 - - - RBS International 0.03 0.48 - 0.47 16.16 0.14 (3) (3.86) 2 Personal 0.04 2.78 - 2.33 13.95 0.51 (1) (7.30) 2 Wholesale 0.02 0.26 - 0.26 30.77 0.06 (2) (3.13) - NatWest Markets 0.08 4.37 - 4.37 11.33 0.94 (36) (68.68) 11 Central items and other 0.10 0.78 - 0.78 - 0.12 3 9.98 - Total loans 0.10 2.53 5.17 2.65 31.95 1.02 323 19.88 452 Of which: Personal 0.07 2.80 6.90 2.99 30.15 0.98 167 18.39 157 Wholesale 0.13 2.16 2.65 2.18 34.19 1.06 156 21.76 295 31 December 2018 UK PB 0.07 3.05 6.62 3.25 31.29 0.75 339 22.6 445 Ulster Bank RoI 0.20 5.23 9.82 5.48 27.64 3.54 15 6.8 372 Personal (3) 0.12 5.40 10.48 5.76 24.62 4.27 20 13.6 343 Wholesale 0.33 4.88 - 4.82 69.68 2.12 (5) (6.6) 29 Commercial Banking 0.14 2.05 1.86 2.04 38.48 1.22 147 14.3 572 Private Banking 0.09 1.32 3.31 1.88 8.89 0.30 (6) (4.1) 7 Personal 0.05 1.64 - 1.44 8.37 0.22 (6) (5.4) 5 Wholesale 0.27 1.02 3.97 2.17 13.64 0.55 - - 2 RBS International 0.04 1.09 - 1.04 16.83 0.19 (2) (1.5) 9 NatWest Markets 0.07 2.95 - 2.95 14.56 1.33 (92) (98.6) 89 Central items and other - - - - - - (3) (4.3) - Total loans excluding balances at central banks 0.10 2.80 5.02 2.92 30.06 1.05 398 12.5 1,494 Personal 0.08 3.25 6.82 3.45 26.61 1.00 354 19.8 776 Wholesale 0.13 2.21 2.29 2.21 34.51 1.11 44 3.1 718 Total loans 0.08 2.80 5.02 2.92 30.06 0.83 398 9.8 1,494 Restated. Refer to Note 1 of the main announcement for further details. Notes: (1) 30 DPD - 30 days past due, the mandatory 30 days past due backstop is prescribed by IFRS 9 for significant increase in credit risk. (2) ECL provisions on contingent liabilities and commitments are included within the Financial assets section so as not to distort ECL coverage ratios. (3) Includes a £1 million charge and a £1 million write off (31 December 2018 - £1 million and £3 million) related to the business banking portfolio in Ulster Bank RoI. (4) Balances at central banks in scope for ECL are £84.1 billion (31 December 2018 - £87.2 billion). ECL provision related to these balances is £3 million (31 December 2018 - £2 million). Key points ● For UK PB, the annualised loss rate of 24 basis points compared to 23 basis points for 2018, with the impairment charge for underlying new defaults broadly stable in H1 2019. The overall coverage level increased slightly driven by the uplift in Stage 3 which included the effect of a loss rate model adjustment on unsecured lending. The reduction in the total value of Stage 3 exposures reflected a methodology refinement in the mortgage portfolio. ● In Ulster Bank RoI, the P&L benefited from a provision release due to improvements in the portfolio performance reflective of the prevailing macro economic environment. ● In Commercial Banking, the loss rate of 40 basis points increased from 2018 reflecting a small number of individual charges and a reduction in the level of impairment releases. The coverage level remained stable at 1.21%. ● In NatWest Markets, the negative loss rate reflected the impact of impairment releases on the legacy portfolio and included a £27 million gain on purchased or originated credit impaired assets. Appendix 1 Capital and risk management Credit risk - Banking activities continued Portfolio summary - sector analysis (Within the scope of EY's review report) The table below shows financial assets and off-balance sheet exposures gross of ECL and related ECL provisions, impairment and past due by sector, asset quality and geographical region based on the country of operation of the customer. Personal Wholesale Total Credit Other Mortgages (1) cards personal Total Property Corporate FI Sovereign Total 30 June 2019 £m £m £m £m £m £m £m £m £m £m Loans by geography 167,499 4,181 9,943 181,623 36,918 71,708 27,035 7,730 143,391 325,014 - UK 152,515 4,085 9,467 166,067 33,910 59,111 17,312 3,428 113,761 279,828 - RoI 14,119 96 223 14,438 1,225 4,131 194 3,662 9,212 23,650 - Other Europe 274 - 90 364 1,387 3,927 4,308 334 9,956 10,320 - RoW 591 - 163 754 396 4,539 5,221 306 10,462 11,216 Loans by asset quality (2,3) 167,499 4,181 9,943 181,623 36,918 71,708 27,035 7,730 143,391 325,014 - AQ1-AQ4 105,736 24 1,070 106,830 15,740 23,161 25,792 7,574 72,267 179,097 - AQ5-AQ8 57,317 3,955 7,935 69,207 19,548 46,230 1,219 150 67,147 136,354 - AQ9 1,144 62 310 1,516 114 605 2 1 722 2,238 - AQ10 3,302 140 628 4,070 1,516 1,712 22 5 3,255 7,325 Loans by stage 167,499 4,181 9,943 181,623 36,918 71,708 27,035 7,730 143,391 325,014 - Stage 1 152,647 2,831 7,144 162,622 33,252 61,854 26,537 7,719 129,362 291,984 - Stage 2 11,550 1,210 2,171 14,931 2,150 8,142 476 6 10,774 25,705 - Stage 3 3,302 140 628 4,070 1,516 1,712 22 5 3,255 7,325 Weighted average 12 months PDs * - IFRS 9 (%) 0.33 4.15 2.84 0.55 0.73 0.91 0.12 0.07 0.71 0.61 - Basel (%) 0.83 3.82 4.02 1.06 0.98 1.59 0.22 0.08 1.07 1.07 ECL provisions by geography 739 224 824 1,787 424 1,050 32 9 1,515 3,302 - UK 236 221 805 1,262 361 681 17 6 1,065 2,327 - RoI 503 3 19 525 40 116 1 1 158 683 - Other Europe - - - - 21 139 12 1 173 173 - RoW - - - - 2 114 2 1 119 119 ECL provisions by stage 739 224 824 1,787 424 1,050 32 9 1,515 3,302 - Stage 1 16 36 61 113 44 103 11 9 167 280 - Stage 2 96 100 251 447 41 185 9 - 235 682 - Stage 3 627 88 512 1,227 339 762 12 - 1,113 2,340 ECL provisions coverage (%) 0.44 5.36 8.29 0.98 1.15 1.46 0.12 0.12 1.06 1.02 - Stage 1 (%) 0.01 1.27 0.85 0.07 0.13 0.17 0.04 0.12 0.13 0.10 - Stage 2 (%) 0.83 8.26 11.56 2.99 1.91 2.27 1.89 - 2.18 2.65 - Stage 3 (%) 18.99 62.86 81.53 30.15 22.36 44.51 54.55 - 34.19 31.95 ECL charge 3 26 138 167 22 134 (2) 2 156 323 ECL loss rate (%) - 1.24 2.78 0.18 0.12 0.37 (0.01) 0.05 0.22 0.20 Amounts written-off 71 35 51 157 173 112 10 - 295 452 Other financial assets by asset quality (3) - - - - - 710 12,490 133,781 146,981 146,981 - AQ1-AQ4 - - - - - 115 11,825 133,781 145,721 145,721 - AQ5-AQ8 - - - - - 587 659 - 1,246 1,246 - AQ9 - - - - - 8 3 - 11 11 - AQ10 - - - - - - 3 - 3 3 Off-balance sheet 12,883 16,768 12,390 42,041 16,230 53,157 26,949 39,064 135,400 177,441 Loan commitments 12,883 16,768 12,380 42,031 15,538 50,061 25,356 39,064 130,019 172,050 Financial guarantees - - 10 10 692 3,096 1,593 - 5,381 5,391 Off-balance sheet by asset quality (3) 12,883 16,768 12,390 42,041 16,230 53,157 26,949 39,064 135,400 177,441 - AQ1-AQ4 11,830 309 9,455 21,594 11,983 36,462 25,443 39,049 112,937 134,531 - AQ5-AQ8 1,043 16,166 2,924 20,133 4,125 16,349 1,504 15 21,993 42,126 - AQ9 1 4 11 16 8 88 - - 96 112 - AQ10 (4) 9 289 - 298 114 258 2 - 374 672 Not within the scope of EY's review report. For the notes to this table refer to the following page. Appendix 1 Capital and risk management Credit risk - Banking activities continued Portfolio summary - sector analysis (Within the scope of EY's review report) Personal Wholesale Total Credit Other Mortgages (1) cards personal Total Property Corporate FI Sovereign Total 31 December 2018 £m £m £m £m £m £m £m £m £m £m Loans by geography 165,081 4,216 9,578 178,875 36,707 72,240 25,011 6,967 140,925 319,800 - UK 150,233 4,112 9,117 163,462 33,855 60,657 11,611 3,089 109,212 272,674 - RoI 14,350 104 233 14,687 1,114 3,733 392 2,497 7,736 22,423 - Other Europe 102 - 67 169 1,395 3,760 5,903 1,088 12,146 12,315 - RoW 396 - 161 557 343 4,090 7,105 293 11,831 12,388 Loans by asset quality (2,3) 165,081 4,216 9,578 178,875 36,707 72,240 25,011 6,967 140,925 319,800 - AQ1-AQ4 104,989 35 1,040 106,064 16,133 22,587 22,397 6,802 67,919 173,983 - AQ5-AQ8 55,139 3,990 7,736 66,865 18,815 47,651 2,574 161 69,201 136,066 - AQ9 1,287 69 239 1,595 74 359 5 - 438 2,033 - AQ10 3,666 122 563 4,351 1,685 1,643 35 4 3,367 7,718 Loans by stage 165,081 4,216 9,578 178,875 36,707 72,240 25,011 6,967 140,925 319,800 - Stage 1 149,760 2,851 6,942 159,553 33,145 61,844 24,502 6,941 126,432 285,985 - Stage 2 11,655 1,243 2,073 14,971 1,877 8,753 474 22 11,126 26,097 - Stage 3 3,666 122 563 4,351 1,685 1,643 35 4 3,367 7,718 Weighted average 12 months PDs * - IFRS 9 (%) 0.32 4.03 2.77 0.54 0.75 0.97 0.14 0.06 0.75 0.62 - Basel (%) 0.84 3.52 3.50 1.04 0.95 1.43 0.23 0.06 1.01 1.03 ECL provisions by geography 839 230 728 1,797 588 941 41 1 1,571 3,368 - UK 237 227 707 1,171 518 615 27 1 1,161 2,332 - RoI 602 3 21 626 43 125 2 - 170 796 - Other Europe - - - - 22 53 10 - 85 85 - RoW - - - - 5 148 2 - 155 155 ECL provisions by stage 839 230 728 1,797 588 941 41 1 1,571 3,368 - Stage 1 23 38 61 122 43 107 12 1 163 285 - Stage 2 150 120 247 517 39 200 7 - 246 763 - Stage 3 666 72 420 1,158 506 634 22 - 1,162 2,320 ECL provisions coverage (%) 0.51 5.46 7.60 1.00 1.60 1.30 0.16 0.01 1.11 1.05 - Stage 1 (%) 0.02 1.33 0.88 0.08 0.13 0.17 0.05 0.01 0.13 0.10 - Stage 2 (%) 1.29 9.65 11.92 3.45 2.08 2.28 1.48 - 2.21 2.92 - Stage 3 (%) 18.17 59.02 74.60 26.61 30.03 38.59 62.86 - 34.51 30.06 ECL charge 57 87 210 354 30 13 3 (2) 44 398 ECL loss rate (%) 0.03 2.06 2.19 0.20 0.08 0.02 0.01 (0.03) 0.03 0.12 Amounts written-off 368 79 329 776 292 395 31 - 718 1,494 Other financial assets by asset quality (3) - - - - 105 652 8,838 134,546 144,141 144,141 - AQ1-AQ4 - - - - 105 10 8,110 134,546 142,771 142,771 - AQ5-AQ8 - - - - - 642 721 - 1,363 1,363 - AQ9 - - - - - - 4 - 4 4 - AQ10 - - - - - - 3 - 3 3 Off-balance sheet 13,228 16,613 12,229 42,070 16,044 52,730 28,761 29,277 126,812 168,882 Loan commitments 13,228 16,613 12,229 42,070 15,335 48,569 26,684 29,276 119,864 161,934 Financial guarantees - - - - 709 4,161 2,077 1 6,948 6,948 Off-balance sheet by asset quality (3) 13,228 16,613 12,229 42,070 16,044 52,730 28,761 29,277 126,812 168,882 - AQ1-AQ4 12,116 422 9,103 21,641 11,945 36,134 27,364 29,262 104,705 126,346 - AQ5-AQ8 1,101 15,900 3,116 20,117 3,928 16,390 1,397 15 21,730 41,847 - AQ9 1 8 10 19 6 46 - - 52 71 - AQ10 (4) 10 283 - 293 165 160 - - 325 618 Not within the scope of EY's review report. Notes: (1) Includes £0.6 billion (31 December 2018 - £0.7 billion) secured lending in Private Banking, in line with ECL calculation methodology. (2) AQ10 includes £0.7 billion (31 December 2018 - £0.6 billion) of RoI mortgages which are not currently considered defaulted for capital calculation purposes for RoI but included in Stage 3. (3) AQ bandings are based on Basel PDs and mapping is as follows: Internal asset quality band Probability of default range Indicative S&P rating AQ1 0% - 0.034% AAA to AA AQ2 0.034% - 0.048% AA to AA- AQ3 0.048% - 0.095% A+ to A AQ4 0.095% - 0.381% BBB+ to BBB- AQ5 0.381% - 1.076% BB+ to BB AQ6 1.076% - 2.153% BB- to B+ AQ7 2.153% - 6.089% B+ to B AQ8 6.089% - 17.222% B- to CCC+ AQ9 17.222% - 100% CCC to C AQ10 100% D (4) £0.3 billion (December 2018 - £0.3 billion) AQ10 Personal balances primarily relate to loan commitments, the draw down of which is effectively prohibited. Appendix 1 Capital and risk management Credit risk - Banking activities continued Portfolio summary - sector analysis (Within the scope of EY's review report) Wholesale forbearance The table below shows Wholesale forbearance, Heightened Monitoring and Risk of Credit Loss by sector. Personal forbearance is disclosed on the next page. FI Property Sovereigns Other corporate Total 30 June 2019 £m £m £m £m £m Forbearance (flow) 3 284 - 1,594 1,881 Heightened Monitoring and Risk of Credit Loss 88 1,082 - 3,771 4,941 31 December 2018 Forbearance (flow) 14 305 - 2,247 2,566 Heightened Monitoring and Risk of Credit Loss 100 503 16 4,145 4,764 Key points · Loans by stage - The percentage of exposure in Stage 1 and Stage 2 was broadly unchanged from the 2018 year end. The reduction in value of mortgage Stage 3 exposures included a methodology change in the UK PB portfolio and also the completion of the remainder of Ulster Bank RoI's 2018 sale of non-performing loans in H1 2019. · Weighted average 12 months PDs - In Wholesale, Basel PDs, which are based on a through-the-cycle approach, tend to be higher than point-in-time best estimate IFRS 9 PDs, which reflect the current state in the economic cycle. Basel PDs also include an element of conservatism associated with the regulatory capital framework. In Personal, the Basel PDs, which are point-in-time estimates, also tend to be higher also reflecting conservatism (conservatism is higher in mortgages than other products), and an element of default rate under-prediction in the IFRS 9 PD models. This overall default rate under-prediction was mitigated by net ECL modelling overlays of approximately £30 million at H1 2019, pending model calibrations being implemented. The IFRS 9 PD for credit cards was higher than the Basel equivalent and reflected the relative sensitivity of the IFRS 9 model to forward-looking economic drivers, as well as an IFRS 9 model over-prediction mitigated within the ECL overlay. · ECL provision by stage and coverage - The majority of ECL by value in both Personal and Wholesale was in Stage 3. Provision coverage was progressively higher by stage reflecting the lifetime nature of losses in both Stage 2 and Stage 3. In the Personal portfolio, provision coverage was materially lower in mortgages relative to credit cards and other personal unsecured products reflecting the secured nature of the facilities. For Wholesale exposures, security and enterprise value mitigated losses in Stage 3. · In mortgages, the reduction in Stage 1 and Stage 2 ECL was driven by the movement of exposures into Stage 3 following a regulatory driven revision to the definition of default in the Ulster Bank RoI business. The corresponding increase in Stage 3 ECL was offset by the completion of the remainder of Ulster Bank RoI's 2018 sale of non-performing loans in H1 2019. The increase in ECL and provision coverage on Other personal included the effect of a loss rate model adjustment. · The ECL impairment charge for the half year was £323 million (20 basis points annualised), remaining below the longer term view of normalised loss rates of 30 to 40 basis points. The charge in Q2 2019 was higher than Q1, driven by a small number of significant individual charges. · Completed Wholesale forbearance in the six months to 30 June 2019 was £1.9 billion compared to £2.6 billion for the full year 2018. Forbearance during the period was largely driven by Services, Retail & Leisure, Property and Transport sectors. The volume of customers completing forbearance was similar to 2018. However, exposure levels increased due to a small number of entities with large exposures. The portfolio continues to be monitored closely with targeted sector reviews. · Heightened Monitoring and Risk of Credit Loss - The volume of customers classified as Heightened Monitoring or Risk of Credit Loss remained similar to December 2018 with exposure increasing from £4.8 billion to £4.9 billion in the period to 30 June 2019. The increase in exposures was driven by the Heightened Monitoring portfolio. With ongoing economic and political uncertainty, key wholesale sectors continue to be reviewed at senior credit forums with business appetite and underwriting standards tightened where necessary. Appendix 1 Capital and risk management Credit risk - Banking activities continued Personal portfolio (Within the scope of EY's review report) Disclosures in the Personal portfolio section include drawn exposure (gross of provisions). 30 June 2019 31 December 2018 UK Ulster Private UK Ulster Private PB Bank RoI Banking RBSI Total PB Bank RoI Banking RBSI Total Personal lending £m £m £m £m £m £m £m £m £m £m Mortgages 140,929 14,181 9,474 2,661 167,245 138,250 14,361 9,082 2,684 164,377 of which: Owner occupied 125,719 13,070 8,302 1,756 148,847 122,642 13,105 7,953 1,781 145,481 Buy-to-let 15,210 1,111 1,172 905 18,398 15,608 1,256 1,129 903 18,896 Interest only - variable 7,062 179 3,585 431 11,257 8,358 188 3,871 489 12,906 Interest only - fixed 12,632 10 4,275 226 17,143 12,229 12 3,636 187 16,064 Mixed (1) 6,088 63 2 22 6,175 6,036 68 2 18 6,124 Impairment provision (2) 215 502 5 13 735 212 602 5 16 835 Other personal lending (3) 12,179 317 1,654 52 14,202 11,633 330 1,676 55 13,694 Impairment provision (2) 1,003 22 17 1 1,043 909 25 19 1 954 Total personal lending 153,108 14,498 11,128 2,713 181,447 149,883 14,691 10,758 2,739 178,071 Mortgage LTV ratios - Total portfolio 57% 61% 56% 58% 57% 56% 62% 56% 58% 57% - Stage 1 57% 58% 56% 57% 57% 56% 58% 56% 57% 56% - Stage 2 59% 66% 56% 66% 60% 58% 67% 58% 55% 59% - Stage 3 56% 74% 58% 91% 67% 55% 77% 58% 99% 69% - Buy-to-let 53% 63% 53% 53% 54% 53% 64% 53% 53% 54% - Stage 1 52% 60% 53% 53% 53% 53% 58% 53% 52% 53% - Stage 2 58% 68% 58% 48% 59% 57% 72% 53% 57% 60% - Stage 3 59% 76% 61% 67% 68% 58% 78% 68% 75% 71% Gross new mortgage lending 13,957 612 1,015 173 15,757 29,555 1,015 1,846 353 32,769 of which: Owner occupied exposure 13,480 606 929 113 15,128 28,608 1,004 1,689 241 31,542 Weighted average LTV 70% 75% 64% 73% 70% 69% 73% 62% 68% 69% Buy-to-let exposure 477 5 86 60 628 947 11 157 112 1,227 Weighted average LTV 62% 59% 57% 64% 61% 61% 57% 55% 61% 60% Interest only variable rate 13 - 309 3 325 43 - 697 13 753 Interest only fixed rate 567 - 500 30 1,097 1,189 - 764 43 1,996 Mixed (1) 461 - - - 461 912 1 - - 913 Mortgage forbearance Forbearance flow 254 169 9 3 435 446 210 11 16 683 Forbearance stock 1,289 2,429 7 12 3,737 1,338 2,645 8 17 4,008 Current 683 1,265 4 10 1,962 724 1,291 6 14 2,035 1-3 months in arrears 351 204 3 1 559 350 261 - 1 612 >3 months in arrears 255 960 - 1 1,216 264 1,093 2 3 1,362 Notes: (1) Includes accounts which have an interest only sub-account and a capital and interest sub-account to provide a more comprehensive view of interest only exposures. (2) For UK PB this excludes a non material amount of provisions held on relatively small legacy portfolios. (3) Other lending comprises unsecured lending except for Private Banking, which includes both secured and unsecured lending. Other Lending excludes loans that that are commercial in nature. Appendix 1 Capital and risk management Credit risk - Banking activities continued Personal portfolio (Within the scope of EY's review report) Key points ● The overall credit risk profile of the Personal portfolio, and its performance against credit risk appetite, remained stable during 2019. ● In UK PB, lending grew by £2.7 billion in the first six months with new lending partly offset by mortgage redemptions and repayments. In Ulster Bank RoI, the reduction in the mortgage portfolio was primarily driven by the completion of the remainder of Ulster Bank RoI's 2018 sale of non-performing loans in H1 2019, as well as portfolio amortisation and redemptions outweighing new lending in the first half of 2019. ● New mortgage lending was higher than in H1 2018. The existing mortgage stock and new business were closely monitored against agreed risk appetite parameters. These included loan-to-value ratios, loan-to-income ratios, buy-to-let concentrations, new-build concentrations and credit quality. Underwriting standards were maintained during the period. ● Mortgage growth was driven by the owner-occupied portfolio. New mortgages in the buy-to-let portfolio remained subdued as tax and regulatory changes in the UK affected borrower activity. ● The mortgage portfolio loan-to-value ratio increased slightly in the UK, reflecting slower UK house price growth. ● The stock of lending in Greater London and the South East was 42% of the UK PB portfolio. (31 December 2018 - 42%). The average weighted loan-to-value for these regions was 52% (31 December 2018 - 51%) compared to 57% for all regions. ● By value, the proportion of mortgages on interest only and mixed terms (capital and interest only) reduced, driven by fewer buy-to-let mortgages and low volumes of owner occupier interest only new business. ● As at 30 June 2019, 85% of customers in the UK PB mortgage portfolio were on fixed rates (47% on five-year deals). In addition, 97% of all new mortgage completions were fixed-rate deals (62% of which were five-year deals), as customers sought to minimise the impact of potential rate rises. ● The growth in unsecured lending during the first six months of 2019 was driven by the UK PB unsecured loans portfolio. The bank also reintroduced 0% balance transfer credit cards during the period which has increased credit card exposure. Unsecured new business increased 2% in the first half of 2019 (compared to H2 2018), reflecting product offering differences, pricing initiatives, and increased marketing activity. ● Unsecured credit quality improved modestly, reflecting active portfolio management with tightening implemented across loan and credit card portfolios in H1 2019 to ensure that performance of higher risk customers remained within risk appetite. Appendix 1 Capital and risk management Credit risk - Banking activities continued Personal portfolio (Within the scope of EY's review report) Mortgage LTV distribution by stage The table below shows gross mortgage lending and related ECL by LTV band. Mortgage lending not within the scope of IFRS 9 ECL reflected portfolios carried at fair value. Mortgages ECL provisions ECL provisions coverage (2) Not within Of which: IFRS 9 ECL Gross new UK PB Stage 1 Stage 2 Stage 3 scope Total lending Stage 1 Stage 2 Stage 3 Total (1) Stage 1 Stage 2 Stage 3 Total 30 June 2019 £m £m £m £m £m £m £m £m £m £m % % % % ≤50% 46,571 3,362 511 140 50,584 2,045 1 18 63 82 - 0.5 12.3 0.2 >50% and ≤70% 44,371 3,679 465 40 48,555 3,873 2 25 38 65 - 0.7 8.2 0.1 >70% and ≤80% 21,454 1,702 153 8 23,317 3,578 2 12 12 26 - 0.7 8.0 0.1 >80% and ≤90% 13,419 1,191 84 4 14,698 3,868 2 12 8 22 - 1.0 9.7 0.1 >90% and ≤100% 3,210 241 25 5 3,481 511 1 5 3 9 - 2.0 11.8 0.2 >100% and ≤110% 50 36 9 1 96 - - 2 2 4 0.1 4.3 17.5 3.2 >110% and ≤130% 57 36 9 2 104 - - 2 2 4 0.1 5.4 24.1 3.9 >130% and ≤150% 22 23 6 - 51 - - 1 1 2 0.1 5.7 15.4 4.4 >150% 4 9 4 - 17 - - - 1 1 0.1 5.2 30.6 10.2 Total with LTVs 129,158 10,279 1,266 200 140,903 13,875 8 77 130 215 - 0.7 10.3 0.2 Other 22 3 1 - 26 82 - - - - 0.1 4.5 48.1 2.2 Total 129,180 10,282 1,267 200 140,929 13,957 8 77 130 215 - 0.7 10.3 0.2 31 December 2018 ≤50% 47,111 3,423 516 153 51,203 4,779 2 16 64 82 - 0.5 12.4 0.2 >50% and ≤70% 44,037 3,632 459 49 48,177 8,535 2 23 39 64 - 0.6 8.5 0.1 >70% and ≤80% 20,345 1,490 135 15 21,985 7,434 1 11 11 23 - 0.7 8.1 0.1 >80% and ≤90% 12,733 1,118 81 12 13,944 7,524 2 12 8 22 - 1.1 10.0 0.2 >90% and ≤100% 2,343 178 24 7 2,552 1,104 1 4 3 8 - 2.4 12.1 0.3 >100% and ≤110% 57 35 8 1 101 - - 2 1 3 0.1 4.6 14.1 2.8 >110% and ≤130% 53 41 9 2 105 - - 2 1 3 0.1 5.4 14.6 3.4 >130% and ≤150% 23 23 6 - 52 - - 1 1 2 0.1 6.2 13.4 4.3 >150% 3 9 3 - 15 - - 1 1 2 0.1 6.2 17.3 7.2 Total with LTVs 126,705 9,949 1,241 239 138,134 29,376 8 72 129 209 - 0.7 10.4 0.2 Other 96 13 4 3 116 179 - 1 2 3 - 4.7 53.5 2.6 Total 126,801 9,962 1,245 242 138,250 29,555 8 73 131 212 - 0.7 10.5 0.2 For the notes to this table refer to the following page. Appendix 1 Capital and risk management Credit risk - Banking activities continued Personal portfolio (Within the scope of EY's review report) Mortgages ECL provisions ECL provisions coverage (2) Ulster Bank RoI Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total 30 June 2019 £m £m £m £m £m £m £m £m % % % % ≤50% 4,120 333 518 4,971 2 5 79 86 - 1.4 15.2 1.7 >50% and ≤70% 3,537 252 448 4,237 1 4 70 75 - 1.4 15.6 1.8 >70% and ≤80% 1,392 134 233 1,759 1 2 48 51 - 1.5 20.6 2.9 >80% and ≤90% 1,077 121 241 1,439 1 2 61 64 0.1 1.8 25.4 4.4 >90% and ≤100% 540 97 204 841 - 2 64 66 0.1 1.9 31.1 7.8 >100% and ≤110% 247 59 158 464 - 2 52 54 0.1 2.9 33.2 11.7 >110% and ≤130% 149 44 168 361 - 1 69 70 0.2 3.2 40.9 19.5 >130% and ≤150% 19 8 51 78 - - 25 25 0.3 5.9 49.3 33.1 >150% 8 2 21 31 - - 11 11 0.3 10.2 52.7 36.3 Total with LTVs 11,089 1,050 2,042 14,181 5 18 479 502 0.1 1.7 23.4 3.5 31 December 2018 ≤50% 3,818 374 463 4,655 1 5 40 46 - 1.4 8.6 1.0 >50% and ≤70% 3,567 365 459 4,391 2 10 47 59 - 2.7 10.3 1.3 >70% and ≤80% 1,564 190 241 1,995 1 11 52 64 0.1 5.5 21.5 3.2 >80% and ≤90% 1,059 184 272 1,515 2 15 82 99 0.2 8.3 30.2 6.5 >90% and ≤100% 570 154 261 985 2 17 99 118 0.4 11.1 37.7 11.9 >100% and ≤110% 197 80 207 484 2 10 85 97 0.9 12.8 41.1 20.1 >110% and ≤130% 51 35 179 265 - 6 84 90 0.8 16.6 47.0 34.0 >130% and ≤150% 5 5 37 47 - 1 20 21 0.3 19.1 54.7 45.2 >150% 10 1 13 24 - 1 7 8 2.1 27.2 58.9 33.5 Total with LTVs 10,841 1,388 2,132 14,361 10 76 516 602 0.1 5.4 24.2 4.2 Notes: (1) Excludes a non-material amount of provisions held on relatively small legacy portfolios. (2) ECL provisions coverage is ECL provisions divided by drawn exposure. Key points ● The UK mortgage portfolio LTV ratio increased slightly reflecting slower UK house price growth. In Ulster Bank RoI the small changes to portfolio level LTVs were mainly driven by the implementation of an enhanced indexation methodology that improves the granularity of information at individual mortgage account level. ● ECL coverage rates increased through the LTV bands with both UK PB and Ulster Bank RoI having only limited exposures in the highest LTV bands. The relatively high coverage level in the lowest LTV band for UK PB included the effect of the modelling approach that recognised an element of expected loss on mortgages that are not subject to formal repossession activity, and also discounting expected recoveries over time. Similarly in Ulster Bank RoI, the relatively high coverage level in the lower LTV bands is driven by the implementation of a new modelling methodology that applies higher losses to these LTV bands. Appendix 1 Capital and risk management Credit risk - Banking activities continued Personal portfolio (Within the scope of EY's review report) UK PB Mortgage LTV distribution by region 50% 80% 100% Weighted ≤50% ≤80% ≤100% ≤150% >150% Total average LTV Other Total Total LTV ratio value £m £m £m £m £m £m % £m £m % 30 June 2019 South East 13,336 18,064 4,099 11 - 35,510 56 8 35,518 25 Greater London 13,792 9,442 837 4 - 24,075 47 4 24,079 17 Scotland 3,591 5,987 1,188 2 - 10,768 58 1 10,769 8 North West 4,029 7,830 2,140 5 - 14,004 60 3 14,007 10 South West 4,265 7,089 1,323 7 - 12,684 57 2 12,686 9 West Midlands 2,791 5,653 1,735 5 - 10,184 61 1 10,185 7 Rest of the UK 8,780 17,807 6,856 218 17 33,678 63 7 33,685 24 Total 50,584 71,872 18,178 252 17 140,903 57 26 140,929 100 31 December 2018 South East 14,699 17,147 2,843 8 - 34,697 53 27 34,724 25 Greater London 12,928 9,614 1,298 3 - 23,843 48 19 23,862 17 Scotland 3,205 5,612 1,844 11 - 10,672 60 8 10,680 8 North West 4,163 7,756 1,970 6 - 13,895 59 12 13,907 10 South West 4,231 6,843 1,292 8 - 12,374 57 9 12,383 9 West Midlands 3,036 5,642 1,192 4 - 9,874 58 7 9,881 7 Rest of the UK 8,942 17,548 6,056 217 16 32,779 62 34 32,813 24 Total 51,204 70,162 16,495 257 16 138,134 56 116 138,250 100 Commercial real estate (CRE) The CRE portfolio comprises exposures to entities involved in the development of, or investment in, commercial and residential properties (including house builders but excluding housing associations, construction and the building materials sub-sector). The sector is reviewed regularly at senior executive committees. Reviews include portfolio credit quality, capital consumption and control frameworks. All disclosures in the CRE section are based on current exposure (gross of provisions). Current exposure is defined as: loans; the amount drawn under a credit facility plus accrued interest; contingent obligations; the issued amount of guarantee or letter or credit; derivatives - the mark-to-market value, netted where netting agreements exist and net of legally enforceable collateral. 30 June 2019 31 December 2018 UK RoI Other Total UK RoI Other Total By geography and sub sector (1) £m £m £m £m £m £m £m £m Investment Residential (2) 4,571 382 27 4,980 4,426 363 54 4,843 Office (3) 3,014 150 621 3,785 2,889 164 651 3,704 Retail (4) 5,239 52 126 5,417 5,168 40 92 5,300 Industrial (5) 2,351 54 106 2,511 2,270 51 176 2,497 Mixed/other (6) 3,340 214 38 3,592 3,221 180 123 3,524 18,515 852 918 20,285 17,974 798 1,096 19,868 Development Residential (2) 2,639 152 20 2,811 2,715 122 124 2,961 Office (3) 118 - - 118 192 - - 192 Retail (4) 103 7 1 111 94 7 1 102 Industrial (5) 120 2 - 122 119 2 12 133 Mixed/other (6) 27 3 - 30 32 2 - 34 3,007 164 21 3,192 3,152 133 137 3,422 Total 21,522 1,016 939 23,477 21,126 931 1,233 23,290 Notes: (1) Geographical splits are based on country of collateral risk. (2) Residential properties including houses, flats and student accommodation. (3) Office properties including offices in central business districts, regional headquarters and business parks. (4) Retail properties including high street retail, shopping centres, restaurants, bars and gyms. (5) Industrial properties including distribution centres, manufacturing and warehouses. (6) Mixed usage or other properties that do not fall within the other categories above. Mixed generally relates to a mixture of retail/office with residential. Appendix 1 Capital and risk management Credit risk: Banking activities continued Commercial real estate CRE LTV distribution by stage (Within the scope of EY's review report) The table below shows CRE current exposure and related ECL by LTV band. Current exposure (gross of provisions) (1,2) ECL provisions ECL provisions coverage (4) Not within IFRS 9 ECL Stage 1 Stage 2 Stage 3 scope (3) Total Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total 30 June 2019 £m £m £m £m £m £m £m £m £m % % % % ≤50% 8,836 264 45 794 9,939 8 5 12 25 0.1 1.8 26.3 0.3 >50% and ≤70% 4,674 464 79 781 5,998 6 6 12 24 0.1 1.3 14.9 0.5 >70% and ≤80% 266 92 36 15 409 1 1 9 11 0.3 1.1 24.8 2.7 >80% and ≤90% 70 7 22 2 101 - - 4 4 0.4 4.7 16.3 4.2 >90% and ≤100% 14 4 24 1 43 - 1 12 13 0.7 15.1 50.4 29.3 >100% and ≤110% 24 4 12 - 40 - - 4 4 0.4 5.0 36.1 11.7 >110% and ≤130% 13 12 114 4 143 - 1 29 30 0.7 5.0 24.7 20.9 >130% and ≤150% 7 3 5 - 15 - - 2 2 1.0 14.1 48.4 20.2 >150% 37 5 30 - 72 - 1 20 21 0.6 10.8 68.4 29.3 Total with LTVs 13,941 855 367 1,597 16,760 15 15 104 134 0.1 1.7 28.2 0.9 Total portfolio average LTV (%) 44% 55% 101% 48% 46% n/a n/a n/a n/a n/a n/a n/a n/a Other (5) 2,217 283 716 309 3,525 3 4 51 58 0.1 1.6 7.1 1.8 Development (6) 2,667 194 144 187 3,192 10 3 73 86 0.4 1.7 50.8 2.9 Total 18,824 1,332 1,227 2,093 23,477 28 22 228 278 0.2 1.6 18.6 1.3 31 December 2018 ≤50% 8,229 245 52 795 9,321 7 4 14 25 0.1 1.7 26.4 0.3 >50% and ≤70% 4,769 297 78 703 5,847 6 6 14 26 0.1 2.0 17.8 0.5 >70% and ≤80% 394 43 33 6 476 1 1 8 10 0.3 2.6 23.4 2.1 >80% and ≤90% 55 11 24 2 92 - - 5 5 0.3 3.4 20.9 6.1 >90% and ≤100% 31 7 20 1 59 - - 7 7 0.6 5.1 34.9 12.9 >100% and ≤110% 53 4 15 - 72 - - 5 5 0.3 4.2 34.6 7.6 >110% and ≤130% 22 3 111 4 140 - - 22 22 0.4 5.4 19.4 16.0 >130% and ≤150% 6 10 10 - 26 - 1 4 5 0.9 6.3 40.6 18.1 >150% 30 6 42 - 78 - 1 29 30 0.5 9.8 69.6 38.1 Total with LTVs 13,589 626 385 1,511 16,111 14 13 108 135 0.1 2.1 27.9 0.9 Total portfolio average LTV (%) - 1 1 - - n/a n/a n/a n/a n/a n/a n/a n/a Other (5) 2,655 133 784 185 3,757 4 5 50 59 0.2 4.0 6.3 1.7 Development (6) 2,865 205 178 174 3,422 11 3 80 94 0.4 1.6 44.8 2.9 Total 19,109 964 1,347 1,870 23,290 29 21 238 288 0.2 2.3 17.6 1.3 Notes: (1) Comprises gross lending, interest rate hedging derivatives and other assets carried at fair value that are managed as pert of the overall CRE portfolio. (2) The exposure in Stage 3 mainly related to legacy assets. (3) Includes exposures relating to non-modelled portfolios and other exposures carried at fair value, including derivatives. (4) ECL provisions coverage is ECL provisions divided by current exposure. (5) Relates mainly to business banking, rate risk management products and unsecured corporate lending. The low Stage 3 ECL provisions coverage was driven by a single large exposure, which has been written down to the expected recoverable amount. (6) Related to the development of commercial and residential properties. LTV is not a meaningful measure for this type of lending activity. Key points ● Overall - The majority of the CRE portfolio was managed in the UK within Commercial Banking and Private Banking. Business appetite and strategy remain aligned across the segments. ● 2019 trends - The portfolio remained broadly unchanged in size and composition, although activity in the commercial property market in H1 2019 has been slower than in previous years. While the office and industrial sub-sectors have remained relatively resilient to date, rents and values in the retail sub-sector and market liquidity have declined significantly. The risk of a disorderly exit from the EU persists. The mainstream residential CRE market remained resilient, supported by high employment and a competitive mortgage market. However, liquidity has been markedly reduced for higher value homes and values in London reduced slightly from recent highs. The build to rent market continues to grow, backed by very strong demand from institutional investors. ● Credit quality - Despite the challenges in the sub-sector, the CRE retail portfolio had a low default rate, with a limited number of new defaults. The sub-sector was monitored on a regular basis and credit quality was in line with the wider CRE portfolio. ● Risk appetite - Lending criteria for commercial real estate are considered conservative, with lower leverage required for new London office originations, in addition to parts of the retail sector. Appendix 1 Capital and risk management Credit risk - Banking activities continued Flow statements (Within the scope of EY's review report) The flow statements that follow show the main ECL and related income statement movements. They also show the changes in ECL as well as the changes in related financial assets used in determining ECL. Due to differences in scope, exposures in this section may therefore differ from those reported in other tables in the credit risk section, principally in relation to exposures in Stage 1 and Stage 2. These differences do not have a material ECL impact. Other points to note: · Financial assets presented in the flow statements include treasury liquidity portfolios, comprising balances at central banks and debt securities, as well as loans. Both modelled and non-modelled portfolios are included. · Stage transfers (for example, exposures moving from Stage 1 to Stage 2) are a key feature of ECL movements, with the net re-measurement cost of transitioning to a worse stage being a primary driver of income statement charges. Similarly there is an ECL benefit for accounts improving stage. · Changes in risk parameters shows the reassessment of the ECL within a given stage, including any ECL overlays and residual income statement gains or losses at the point of write-off or accounting write-down. · Other (P&L only items) includes any subsequent changes in the value of written-down assets (for example, fortuitous recoveries) along with other direct write-off items such as direct recovery costs. Other (P&L only items) affects the income statement but does not affect balance sheet ECL movements. · Amounts written-off - represent the gross asset written-down against accounts with ECL, including the net asset write-down for any debt sale activity. · There were small ECL flows from Stage 3 to Stage 1. This does not however indicate that accounts returned from Stage 3 to Stage 1 directly. On a similar basis, there were flows from Stage 1 to Stage 3 including transfers due to unexpected default events. The small number of write-offs in Stage 1 and Stage 2 reflect the effect of portfolio debt sales and also staging at the start of the analysis period. · The impact of model changes during H1 2019 was not material at a RBS Group-wide level or in the portfolios disclosed below. · Reporting enhancements since 31 December 2018 now mean all movements are captured monthly and aggregated. Previously, for example, the main Personal portfolios were prepared on a six month movement basis. Stage 1 Stage 2 Stage 3 Total Financial Financial Financial Financial assets ECL assets ECL assets ECL assets ECL Group total £m £m £m £m £m £m £m £m At 1 January 2019 422,541 297 27,360 772 7,796 2,327 457,697 3,396 Currency translation and other adjustments 227 (2) (2) (2) 97 - 322 (4) Transfers from Stage 1 to Stage 2 (13,427) (54) 13,427 54 - - - - Transfers from Stage 2 to Stage 1 10,781 167 (10,781) (167) - - - - Transfers to Stage 3 (216) (3) (1,663) (136) 1,879 139 - - Transfers from Stage 3 241 15 727 64 (968) (79) - - Net re-measurement of ECL on stage transfer (140) 279 307 446 Changes in risk parameters (model inputs) (37) (138) 172 (3) Other changes in net exposure (7,654) 37 (2,257) (40) (892) (32) (10,803) (35) Other (P&L only items) - - (85) (85) Income statement (releases)/charges (140) 101 362 323 Amounts written-off - - (4) (4) (448) (448) (452) (452) Other movements - - (46) (46) At 30 June 2019 412,493 280 26,807 682 7,464 2,340 446,764 3,302 Net carrying amount 412,213 26,125 5,124 443,462 Appendix 1 Capital and risk management Credit risk - Banking activities continued Flow statements (Within the scope of EY's review report) The following flow statements show the material portfolios underpinning the Group flow statements. Stage 1 Stage 2 Stage 3 Total Financial Financial Financial Financial assets ECL assets ECL assets ECL assets ECL UK PB - mortgages £m £m £m £m £m £m £m £m At 1 January 2019 127,671 10 10,241 74 1,216 132 139,128 216 Transfers from Stage 1 to Stage 2 (3,535) (1) 3,535 1 - - - - Transfers from Stage 2 to Stage 1 2,507 8 (2,507) (8) - - - - Transfers to Stage 3 (8) - (324) (11) 332 11 - - Transfers from Stage 3 12 1 188 15 (200) (16) - - Net re-measurement of ECL on stage transfer (8) 15 9 16 Changes in risk parameters (model inputs) - (2) 32 30 Other changes in net exposure 1,559 (1) (742) (6) (119) (7) 698 (14) Other (P&L only items) - - (14) (14) Income statement (releases)/charges (9) 7 20 18 Amounts written-off - - (1) (1) (11) (11) (12) (12) Other movements - - (18) (18) At 30 June 2019 128,206 9 10,390 77 1,218 132 139,814 218 Net carrying amount 128,197 10,313 1,086 139,596 Key points ● ECL remained broadly stable across all stages. ● ECL transfers from Stage 3 back to Stage 1 and Stage 2 were higher than those in unsecured lending, due to the higher cure activity typically seen in mortgages. ● The increase in Stage 3 ECL changes in risk parameters reflected the monthly assessment of the loss requirement, capturing underlying portfolio movements. ● Write-off occurs once the repossessed property has been sold and there is a residual shortfall balance remaining outstanding. Write-off would typically be within five years from default but can be longer. Appendix 1 Capital and risk management Credit risk - Banking activities continued Flow statements (Within the scope of EY's review report) Stage 1 Stage 2 Stage 3 Total Financial Financial Financial Financial assets ECL assets ECL assets ECL assets ECL UK PB - credit cards £m £m £m £m £m £m £m £m At 1 January 2019 2,632 36 1,226 118 106 71 3,964 225 Transfers from Stage 1 to Stage 2 (617) (11) 617 11 - - - - Transfers from Stage 2 to Stage 1 522 35 (522) (35) - - - - Transfers to Stage 3 (10) - (65) (21) 75 21 - - Transfers from Stage 3 - - 5 3 (5) (3) - - Net re-measurement of ECL on stage transfer (25) 73 28 - 76 Changes in risk parameters (model inputs) (10) (51) 8 - (53) Other changes in net exposure 23 9 (64) - (15) (1) (56) 8 Other (P&L only items) - - (5) (5) Income statement (releases)/charges (26) 22 30 26 Amounts written off - - - - (35) (35) (35) (35) Other movements - - (3) (3) At 30 June 2019 2,550 34 1,197 98 126 86 3,873 218 Net carrying amount 2,516 1,099 40 3,655 Key points ● Overall ECL reduced slightly over the period. This was mainly due to lower Stage 2 ECL, reflecting a recalibration of the modelled loss rate to align to observed experience. The increase in Stage 3 exposures and ECL reflected the impact of business-as-usual default flows, which have been broadly stable in 2019. ● The portfolio continued to experience cash recoveries after write-off which are reported in other (P&L only items). These benefited the income statement without affecting ECL. The level has reduced compared to prior years reflecting the debt sales executed in 2018. ● Charge-off (analogous to partial write-off) typically occurs after 12 missed payments. UK PB - Other personal unsecured At 1 January 2019 5,073 54 1,970 239 495 394 7,538 687 Currency translation and other adjustments 217 - 10 - 6 2 233 2 Transfers from Stage 1 to Stage 2 (1,213) (20) 1,213 20 - - - - Transfers from Stage 2 to Stage 1 593 40 (593) (40) - - - - Transfers to Stage 3 (6) - (161) (56) 167 56 - - Transfers from Stage 3 2 - 18 5 (20) (5) - - Net re-measurement of ECL on stage transfer (31) 114 48 - 131 Changes in risk parameters (model inputs) 2 (23) 56 - 35 Other changes in net exposure 736 11 (296) (17) (18) (4) 422 (10) Other (P&L only items) - - (19) (19) Income statement (releases)/charges (18) 74 81 137 Amounts written off - - - - (43) (43) (43) (43) Other movements - - (12) (12) At 30 June 2019 5,402 56 2,161 242 587 492 8,150 790 Net carrying amount 5,346 1,919 95 7,360 Key points ● The overall increase in ECL was driven by Stage 3 exposures which included the effect of a loss rate model adjustment. Furthermore, the value of new defaults was higher than write-offs and customer debt repayments, and unlike in 2018, there were no debt sales in H1 2019. ● There was a modest increase in the rate of default over the last six months from a low level addressed through the tightening of risk appetite. ● Stage 1 and Stage 2 ECL remained broadly stable. ● The portfolio continued to experience cash recoveries after write-off which are reported in other (P&L only items). These benefited the income statement without affecting ECL. The level has reduced compared to prior years reflecting the debt sales executed in 2018. ● Write-off occurs once recovery activity with the customer has been concluded and there are no further recoveries expected, but no later than six years after default. Appendix 1 Capital and risk management Credit risk - Banking activities continued Flow statements (Within the scope of EY's review report) Stage 1 Stage 2 Stage 3 Total Financial Financial Financial Financial assets ECL assets ECL assets ECL assets ECL Ulster Bank RoI - mortgages £m £m £m £m £m £m £m £m At 1 January 2019 10,782 11 1,394 75 2,137 516 14,313 602 Currency translation and other adjustments 4 (1) (8) (2) (2) (1) (6) (4) Transfers from Stage 1 to Stage 2 (739) (3) 739 3 - - - - Transfers from Stage 2 to Stage 1 889 14 (889) (14) - - - - Transfers to Stage 3 (35) (2) (236) (25) 271 27 - - Transfers from Stage 3 8 - 121 22 (129) (22) - - Net re-measurement of ECL on stage transfer (11) 1 - (10) Changes in risk parameters (model inputs) (4) (40) 23 (21) Other changes in net exposure 96 1 (64) - (177) (2) (145) (1) Other (P&L only items) - - 20 20 Income statement (releases)/charges (14) (39) 41 (12) Amounts written off - - (2) (2) (55) (55) (57) (57) Other movements - - (7) (7) At 30 June 2019 11,005 5 1,055 18 2,045 479 14,105 502 Net carrying amount 11,000 1,037 1,566 13,603 Key points ● The overall ECL reduction reflected the completion of the remainder of Ulster Bank RoI's 2018 sale of non-performing loans in H1 2019 and ongoing improvements in underlying portfolio performance. ● The transfers into Stage 3 were reflective of the implementation of an enhanced Stage 3 definition, with £230 million of exposures re-classified as Stage 3 assets under the new definition. ● The reduction in Stage 2 ECL was driven by the implementation of the enhanced Stage 3 definition and the re-allocation of post-model adjustments to Stage 3 assets. ● Write-off generally occurs once the repossessed property has been sold and there is a residual shortfall balance remaining outstanding which has been deemed irrecoverable. There is no set time period within which write-offs can occur. Appendix 1 Capital and risk management Credit risk - Banking activities continued Flow statements (Within the scope of EY's review report) Stage 1 Stage 2 Stage 3 Total Financial Financial Financial Financial assets ECL assets ECL assets ECL assets ECL Commercial Banking - excluding business banking £m £m £m £m £m £m £m £m At 1 January 2019 81,485 108 9,393 155 2,358 785 93,236 1,048 Currency translation and other adjustments 86 (3) (10) 1 94 (3) 170 (5) Inter-Group transfers (319) - 19 - (1) 13 (301) 13 Transfers from Stage 1 to Stage 2 (5,804) (10) 5,804 10 - - - - Transfers from Stage 2 to Stage 1 4,801 43 (4,801) (43) - - - - Transfers to Stage 3 (107) - (716) (11) 823 11 - - Transfers from Stage 3 189 10 363 8 (552) (18) - - Net re-measurement of ECL on stage transfer (43) 41 185 183 Changes in risk parameters (model inputs) (5) (1) 22 16 Other changes in net exposure 2,453 6 (982) (7) (403) 1 1,068 - Other (P&L only items) - - (15) (15) Income statement (releases)/charges (42) 33 193 184 Amounts written off - - - - (247) (247) (247) (247) Other movements - - - - Unwinding of discount - - (3) (3) At 30 June 2019 82,784 106 9,070 153 2,072 746 93,926 1,005 Net carrying amount 82,678 8,917 1,326 92,921 Key points ● ECL decreased with write-offs exceeding the level of impairment charges on new into default cases. ● Stage 1 and Stage 2 ECL remained largely unchanged during H1 2019. Changes to risk parameters in Stage 1 and Stage 2 largely reflected improvements in underlying credit risk metrics which were partially offset by regular updates to certain underlying models. ● Growth in Stage 1 assets represented new business during the period. Stage 2 balances reduced as new transfers-in were offset by repayments and loans transferring to Stage 1. ● Stage 3 income statement charges increased during the period compared to 2018. This was due to a small number of individually significant impairment charges which also impacted the transfers to Stage 3 during the period. Commercial - business banking At 1 January 2019 6,303 22 897 43 235 153 7,435 218 Currency translation and other adjustments - - 1 - - - 1 - Transfers from Stage 1 to Stage 2 (483) (3) 483 3 - - - - Transfers from Stage 2 to Stage 1 353 10 (353) (10) - - - - Transfers to Stage 3 (9) - (70) (10) 79 10 - - Transfers from Stage 3 4 1 13 3 (17) (4) - - Net re-measurement of ECL on stage transfer (9) 25 26 42 Changes in risk parameters (model inputs) (6) (16) 28 6 Other changes in net exposure 199 2 (130) (4) (33) (5) 36 (7) Other (P&L only items) - - (21) (21) Income statement (releases)/charges (13) 5 28 20 Amounts written off - - - - (29) (29) (29) (29) Other movements - - (2) (2) At 30 June 2019 6,367 17 841 34 235 177 7,443 228 Net carrying amount 6,350 807 58 7,215 Key points ● The overall increase in ECL was driven by Stage 3 including the effect of a loss rate model adjustment. The reduction in Stage 1 and Stage 2 ECL was driven by calibrations to the ECL models. ● The flow of new defaults in the period increased slightly compared to 2018. This increase reflected an uplift in default rates within the Business Banking portfolio (in particular for low value, unsecured lending, representing 14% of Business Banking stock), which has been addressed through a tightening of risk appetite. ● The portfolio continues to benefit from cash recoveries post write-off, which are reported as other (P&L only items). ● Write-off occurs once recovery activity with the customer has been concluded and there are no further recoveries expected, but no later than five years after default. Appendix 1 Capital and risk management Credit risk - Banking activities continued Flow statements (Within the scope of EY's review report) Stage 1 Stage 2 Stage 3 Total Financial Financial Financial Financial assets ECL assets ECL assets ECL assets ECL NatWest Markets (1) £m £m £m £m £m £m £m £m At 1 January 2019 32,758 7 732 14 708 112 34,198 133 Currency translation and other adjustments 38 1 (2) - - (1) 36 - Inter-Group transfers (57) - 8 - 1 (13) (48) (13) Transfers from Stage 1 to Stage 2 (190) - 190 - - - - - Transfers from Stage 2 to Stage 1 281 2 (281) (2) - - - - Net re-measurement of ECL on stage transfer (2) 1 - (1) Changes in risk parameters (model inputs) (2) (1) (6) (9) Other changes in net exposure 1,204 2 (193) (2) 1 - 1,012 - Other (P&L only items) - - (26) (26) Income statement releases (2) (2) (32) (36) Amounts written-off - - - - (11) (11) (11) (11) Other movements - - - - At 30 June 2019 34,034 8 454 10 699 81 35,187 99 Net carrying amount 34,026 444 618 35,088 Note: (1) Reflects NatWest Markets segment and includes NWM N.V.. Key points ● Stage 3 financial assets included £193 million (31 December 2018 - £166 million) purchased or originated credit impaired (POCI) assets. No ECL impairment was held on these positions and a £27 million impairment recovery was recognised on these POCI assets during H1 (included in other (P&L only items). ● Stage 1 and Stage 2 changes to risk parameters reflected an improvement in underlying credit risk metrics. ● The increase in Stage 1 exposure was due to a combination of new transactions and increased short-term placements with governments and central banks following changes made for ring-fencing. Private Banking At 1 January 2019 13,950 14 519 10 232 19 14,701 43 Currency translation and other adjustments (3) - - (1) - 1 (3) - Transfers from Stage 1 to Stage 2 (284) (1) 284 1 - - - - Transfers from Stage 2 to Stage 1 304 4 (304) (4) - - - - Transfers to Stage 3 (25) - (48) - 73 - - - Transfers from Stage 3 7 - 1 4 (8) (4) - - Net re-measurement of ECL on stage transfer (3) 1 - (2) Changes in risk parameters (model inputs) (3) (1) 6 2 Other changes in net exposure 532 1 (33) (1) (86) (3) 413 (3) Other (P&L only items) - - - - Income statement (releases)/charges (5) (1) - 3 (3) Amounts written off - - (1) (1) (1) (1) Unwinding of discount - - - - - - At 30 June 2019 14,481 12 419 9 210 19 15,110 40 Net carrying amount 14,469 410 191 15,070 Key points ● ECL reduced marginally due to an improvement in underlying Stage 1 and Stage 2 credit quality. ● Stage 1 exposure increased during the period reflecting growth in mortgages with minimal ECL impact due to high credit quality. The reduction in Stage 2 exposure was a result of both repayment of debt and the transfer of assets to Stage 1. Appendix 1 Capital and risk management Credit risk - Banking activities continued Flow statements (Within the scope of EY's review report) Stage 1 Stage 2 Stage 3 Total Financial Financial Financial Financial assets ECL assets ECL assets ECL assets ECL RBS International £m £m £m £m £m £m £m £m At 1 January 2019 26,749 6 276 4 95 17 27,120 27 Currency translation and other adjustments (55) - (1) - 1 - (55) - Inter-Group transfers (598) - (27) (1) - - (625) (1) Transfers from Stage 1 to Stage 2 (342) (2) 342 2 - - - - Transfers from Stage 2 to Stage 1 276 3 (276) (3) - - - - Transfers to Stage 3 (10) - (17) - 27 - - - Transfers from Stage 3 8 - 6 - (14) - - - Net re-measurement of ECL on stage transfer (3) 1 - (2) Changes in risk parameters (model inputs) (1) - 3 2 Other changes in net exposure 1,424 1 132 (1) (14) (2) 1,542 (2) Other (P&L only items) - - (1) (1) Income statement releases (3) - - (3) Amounts written off - - - - (2) (2) (2) (2) Other movements - - - - At 30 June 2019 27,452 4 435 2 93 16 27,980 22 Net carrying amount 27,448 433 77 27,958 Key points ● The level of ECL reduced in all stages during the period. ● In Stage 1, the increase in exposure was partly due to new lending, but mainly due to the management of a liquidity portfolio across banks and sovereign bond holdings, with low credit risk and minimal ECL. ● The increase in Stage 2 exposure was driven by a combination of flows from Stage 1 and balance increases on a small number of individual exposures in the Wholesale portfolio where credit quality deteriorated in the period. Increases in Stage 2 exposures were largely limited to specific sectors. ● Stage 2 ECL reduced in the period because exposure transferring in carried lower ECL than exposure that transferred from Stage 2. Appendix 1 Capital and risk management Credit risk - Banking activities continued Stage 2 decomposition - arrears status and contributing factors The tables below show Stage 2 decomposition for the Personal and Wholesale portfolios. UK mortgages RoI mortgages Other mortgages Credit cards Other Total Loans ECL Loans ECL Loans ECL Loans ECL Loans ECL Loans ECL 30 June 2019 £m £m £m £m £m £m £m £m £m £m £m £m Personal Currently in arrears (>30 DPD) 529 12 31 2 - - 15 5 91 19 666 38 Currently up-to-date 9,973 66 1,016 16 1 - 1,195 95 2,080 232 14,265 409 - PD deterioration 4,058 54 338 11 - - 765 73 1,324 182 6,485 320 - Up-to-date, PD persistence 1,365 3 40 - - - 327 14 465 28 2,197 45 - Other driver (adverse credit, forbearance etc) 4,550 9 638 5 1 - 103 8 291 22 5,583 44 Total Stage 2 10,502 78 1,047 18 1 - 1,210 100 2,171 251 14,931 447 31 December 2018 Personal Currently in arrears (>30 DPD) 658 10 90 10 3 - 17 6 88 22 856 48 Currently up-to-date 9,612 64 1,292 66 - - 1,226 114 1,985 225 14,115 469 - PD deterioration 3,855 54 680 44 - - 778 85 1,255 176 6,568 359 - Up-to-date, PD persistence 1,448 5 54 1 - - 337 17 440 26 2,279 49 - Other driver (adverse credit, forbearance etc) 4,309 5 558 21 - - 111 12 290 23 5,268 61 Total Stage 2 10,270 74 1,382 76 3 - 1,243 120 2,073 247 14,971 517 Key points ● ECL coverage remained higher for accounts that are more than 30 days past due. Also in line with expectations, accounts exhibiting PD deterioration have a higher ECL coverage than accounts in Stage 2 for other reasons. ● The ECL reduction in the Ulster Bank RoI mortgages portfolio reflected the movement of exposures into Stage 3 following a regulatory driven revision to the definition of default in that business. Property Corporate FI Other Total 30 June 2019 Loans ECL Loans ECL Loans ECL Loans ECL Loans ECL £m £m £m £m £m £m £m £m £m £m Wholesale Currently in arrears (>30 DPD) 182 7 316 6 1 - - - 499 13 Currently up-to-date 1,968 34 7,826 179 475 9 6 - 10,275 222 - PD deterioration 865 21 4,712 123 384 7 4 - 5,965 151 - Up-to-date, PD persistence 45 1 152 3 2 - - - 199 4 - Other driver (forbearance, RoCL etc) 1,058 12 2,962 53 89 2 2 - 4,111 67 Total Stage 2 2,150 41 8,142 185 476 9 6 - 10,774 235 31 December 2018 Wholesale Currently in arrears (>30 DPD) 255 7 315 5 1 - - - 571 12 Currently up-to-date 1,622 32 8,438 195 473 7 22 - 10,555 234 - PD deterioration 924 23 5,564 138 281 6 8 - 6,777 167 - Up-to-date, PD persistence 57 1 170 5 4 - - - 231 6 - Other driver (forbearance, RoCL etc) 641 8 2,704 52 188 1 14 - 3,547 61 Total Stage 2 1,877 39 8,753 200 474 7 22 - 11,126 246 Key points ● The ECL coverage was broadly consistent in total. Coverage can, however, vary across categories or sectors reflecting the individual characteristics of the customer and exposure type. ● The reduction in Stage 2 exposure was primarily due to improvements in PDs in the corporate portfolio. An increase in the RoCL portfolio, driven by a small number of large cases, increased the other driver category. Appendix 1 Capital and risk management Credit risk - Banking activities continued Stage 2 decomposition by a significant increase in credit risk trigger UK mortgages RoI mortgages Other mortgages Credit cards Other Total 30 June 2019 £m % £m % £m % £m % £m % £m % Personal trigger (1) PD movement 4,458 42.5 362 34.5 - - 780 64.5 1,379 63.5 6,979 46.7 PD persistence 1,366 13.0 40 3.8 - - 328 27.1 467 21.5 2,201 14.7 Adverse credit bureau recorded with credit reference agency 3,124 29.7 - - - - 58 4.8 96 4.4 3,278 22.0 Forbearance support provided 189 1.8 4 0.4 - - - - 13 0.6 206 1.4 Customers in collections 147 1.4 96 9.2 - - 3 0.2 34 1.6 280 1.9 Other reasons (2) 1,110 10.6 545 52.1 1 100 41 3.4 157 7.2 1,854 12.4 Days past due >30 108 1.0 - - - - - - 25 1.2 133 0.9 10,502 100 1,047 100 1 100 1,210 100 2,171 100 14,931 100 31 December 2018 Personal trigger (1) PD movement 4,273 41.6 767 55.6 - - 793 63.8 1,307 63.0 7,140 47.7 PD persistence 1,450 14.1 54 3.9 - - 338 27.2 440 21.2 2,282 15.2 Adverse credit bureau recorded with credit reference agency 2,996 29.2 - - - - 61 4.9 101 4.9 3,158 21.1 Forbearance support provided 206 2.0 2 0.1 - - - - 13 0.6 221 1.5 Customers in collections 144 1.4 57 4.1 - - 5 0.4 36 1.7 242 1.6 Other reasons (2) 982 9.6 502 36.3 - - 46 3.7 151 7.3 1,681 11.2 Days past due >30 219 2.1 - - 3 100 - - 25 1.2 247 1.6 10,270 100 1,382 100 3 100 1,243 100 2,073 100 14,971 100 Key point ● PD remained the primary driver of credit deterioration, which including persistence, accounted for the majority of movements to Stage 2. High risk back-stops, for example, forbearance and adverse credit bureau, provide additional valuable discrimination particularly in mortgages. Property Corporate FI Other Total 30 June 2019 £m % £m % £m % £m % £m % Wholesale trigger (1) PD movement 883 40.9 4,756 58.3 384 80.7 4 66.7 6,027 55.9 PD persistence 45 2.1 153 1.9 2 0.4 - - 200 1.9 Risk of Credit Loss 767 35.7 2,162 26.6 66 13.9 - - 2,995 27.8 Forbearance support provided 62 2.9 159 2.0 - - - - 221 2.1 Customers in collections 10 0.5 44 0.5 - - - - 54 0.5 Other reasons (3) 227 10.6 634 7.8 23 4.8 2 33.3 886 8.2 Days past due >30 156 7.3 234 2.9 1 0.2 - - 391 3.6 2,150 100 8,142 100 476 100 6 100 10,774 100 31 December 2018 Wholesale trigger (1) PD movement 940 50.1 5,617 64.2 281 59.3 8 36.4 6,845 61.5 PD persistence 57 3.0 171 2.0 4 0.8 - - 232 2.1 Risk of Credit Loss 321 17.1 1,964 22.4 103 21.7 - - 2,388 21.5 Forbearance support provided 65 3.5 209 2.4 - - - - 274 2.5 Customers in collections 9 0.5 43 0.5 - - - - 52 0.5 Other reasons (3) 251 13.4 525 6.0 85 17.9 14 63.6 875 7.9 Days past due >30 234 12.5 224 2.6 1 0.2 - - 460 4.1 1,877 100 8,753 100 474 100 22 100 11,126 100 Notes: (1) The table is produced on a hierarchical basis from top to bottom, for example, accounts with PD deterioration may also trigger backstop(s) but are only reported under PD deterioration. (2) Includes customers that have accessed payday lending, interest only mortgages past end of term, a small number of mortgage customers on a highly flexible mortgage significantly behind outline repayment plan and customers breaching risk appetite thresholds for new business acquisition. In the RoI mortgage portfolio, this reflected customers who remained in probation following the conclusion of forbearance support, exposures breaching risk appetite thresholds for new business acquisition and exposures classified as non-performing exposures under European Banking Authority requirements. (3) Includes customers where a PD assessment cannot be undertaken due to missing PDs. Key point ● PD remained the primary driver of credit deterioration, which including persistence, accounted for 58% of Stage 2 exposure. The Risk of Credit Loss framework accounted for a further 28%, an increase from 22% at 31 December 2018, driven by a small number of large cases. Appendix 1 Capital and risk management Credit risk - Banking activities continued Stage 3 vintage analysis The table below shows estimated vintage analysis of the material Stage 3 portfolios totalling 90% of the Stage 3 loans of £7.3 billion. 30 June 2019 31 December 2018 UK PB Ulster Bank RoI UK PB Ulster Bank RoI mortgages mortgages Wholesale mortgages mortgages Wholesale Stage 3 loans (£bn) 1.3 2.0 3.2 1.2 2.1 3.4 Vintage (time in default): <1 year 28% 16% 30% 26% 7% 22% 1-3 years 22% 27% 13% 21% 12% 19% 3-5 years 12% 12% 8% 14% 14% 9% 5-10 years 32% 41% 49% 35% 63% 50% >10 years 6% 4% - 4% 4% - 100% 100% 100% 100% 100% 100% Key points ● Mortgages - The proportion of the Stage 3 defaulted population which have been in default for over five years reflected RBS's support for customers in financial difficulty. When customers continue to engage constructively with RBS making regular payments, RBS continues to support them. RBS's provisioning approach can retain customers in Stage 3 for a life-time loss provisioning calculation even when their arrears status reverts to below 90 days past due. ● Wholesale - The value of Stage 3 loans in default for 5-10 years mainly reflects customers in a protracted formal insolvency process or subject to litigation or a complaints process. Asset quality (Within the scope of EY's review report) The table below shows asset quality bands of gross loans and ECL by stage for the Personal portfolio. Gross loans ECL provisions ECL provisions coverage Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total 30 June 2019 £m £m £m £m £m £m £m £m % % % % UK mortgages AQ1-AQ4 95,880 3,640 99,520 5 10 15 0.01 0.27 0.02 AQ5-AQ8 44,773 6,053 50,826 5 46 51 0.01 0.76 0.10 AQ9 44 809 853 - 22 22 - 2.72 2.58 AQ10 1,316 1,316 148 148 11.25 11.25 140,697 10,502 1,316 152,515 10 78 148 236 0.01 0.74 11.25 0.15 RoI mortgages AQ1-AQ4 5,356 161 5,517 2 1 3 0.04 0.62 0.05 AQ5-AQ8 5,730 598 6,328 4 11 15 0.07 1.84 0.24 AQ9 3 288 291 - 6 6 - 2.08 2.06 AQ10 (1) 1,983 1,983 479 479 24.16 24.16 11,089 1,047 1,983 14,119 6 18 479 503 0.05 1.72 24.16 3.56 Other mortgages AQ1-AQ4 698 1 699 - - - - - - AQ5-AQ8 163 - 163 - - - - - - AQ9 - - - - - - - - - AQ10 3 3 - - - - 861 1 3 865 - - - - - - - - Credit cards AQ1-AQ4 24 - 24 - - - - - - AQ5-AQ8 2,803 1,152 3,955 36 85 121 1.28 7.38 3.06 AQ9 4 58 62 - 15 15 - 25.86 24.19 AQ10 140 140 88 88 62.86 62.86 2,831 1,210 140 4,181 36 100 88 224 1.27 8.26 62.86 5.36 Other personal AQ1-AQ4 1,014 56 1,070 4 6 10 0.39 10.71 0.93 AQ5-AQ8 6,046 1,889 7,935 54 185 239 0.89 9.79 3.01 AQ9 84 226 310 3 60 63 3.57 26.55 20.32 AQ10 628 628 512 512 81.53 81.53 7,144 2,171 628 9,943 61 251 512 824 0.85 11.56 81.53 8.29 Total personal AQ1-AQ4 102,972 3,858 106,830 11 17 28 0.01 0.44 0.03 AQ5-AQ8 59,515 9,692 69,207 99 327 426 0.17 3.37 0.62 AQ9 135 1,381 1,516 3 103 106 2.22 7.46 6.99 AQ10 4,070 4,070 1,227 1,227 30.15 30.15 162,622 14,931 4,070 181,623 113 447 1,227 1,787 0.07 2.99 30.15 0.98 For the notes to this table refer to the following page. Appendix 1 Capital and risk management Credit risk - Banking activities continued Asset quality (Within the scope of EY's review report) Gross loans ECL Provisions ECL provisions coverage Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total 31 December 2018 £m £m £m £m £m £m £m £m % % % % UK mortgages AQ1-AQ4 95,618 3,621 99,239 6 11 17 0.01 0.30 0.02 AQ5-AQ8 42,771 5,845 48,616 6 46 52 0.01 0.79 0.11 AQ9 32 804 836 - 17 17 - 2.11 2.03 AQ10 1,541 1,541 - 151 151 - 9.80 9.80 138,421 10,270 1,541 150,232 12 74 151 237 0.01 0.72 9.80 0.16 RoI mortgages AQ1-AQ4 5,164 226 5,390 4 5 9 0.08 2.21 0.17 AQ5-AQ8 5,668 717 6,385 7 32 39 0.12 4.46 0.61 AQ9 12 439 451 - 39 39 - 8.88 8.65 AQ10 (1) 2,124 2,124 515 515 24.25 24.25 10,844 1,382 2,124 14,350 11 76 515 602 0.10 5.50 24.25 4.20 Other mortgages AQ1-AQ4 359 1 360 - - - - - - AQ5-AQ8 136 2 138 - - - - - - AQ10 1 1 - - - 495 3 1 499 - - - - - - - - Credit cards AQ1-AQ4 34 1 35 - - - - - - AQ5-AQ8 2,810 1,180 3,990 38 103 141 1.35 8.73 3.53 AQ9 7 62 69 - 17 17 - 27.42 24.64 AQ10 122 122 72 72 59.02 59.02 2,851 1,243 122 4,216 38 120 72 230 1.33 9.65 59.02 5.46 Other personal AQ1-AQ4 997 43 1,040 4 5 9 0.40 11.63 0.87 AQ5-AQ8 5,889 1,847 7,736 55 186 241 0.93 10.07 3.12 AQ9 56 183 239 2 56 58 3.57 30.60 24.27 AQ10 563 563 420 420 74.60 74.60 6,942 2,073 563 9,578 61 247 420 728 0.88 11.92 74.60 7.60 Total personal AQ1-AQ4 102,172 3,892 106,064 14 21 35 0.01 0.54 0.03 AQ5-AQ8 57,274 9,591 66,865 106 367 473 0.19 3.83 0.71 AQ9 107 1,488 1,595 2 129 131 1.87 8.67 8.21 AQ10 4,351 4,351 1,158 1,158 26.61 26.61 159,553 14,971 4,351 178,875 122 517 1,158 1,797 0.08 3.45 26.61 1.00 Note: (1) AQ10 includes £0.7 billion (31 December 2018 - £0.6 billion) RoI mortgages which are not currently considered defaulted for capital calculation purposes for RoI but included in Stage 3. Key points ● Overall credit quality remained broadly stable with some movements at product level. Mortgage exposures have a higher proportion in AQ1-AQ4 than unsecured borrowing. ● The relatively high level of Stage 3 impaired assets (AQ10) in RoI mortgages reflected their legacy mortgage portfolio and the residual effects from the financial crisis. For UK mortgages, the reduction in value of Stage 3 exposures included the effect of a methodology change. ● In other personal, the relatively high level of exposures in AQ10 reflected the fact that impaired assets can be held on balance sheet with commensurate ECL provision for up to six years after default. The increase in ECL included the effect of a loss rate model adjustment. Furthermore, the value of new defaults was higher than write-offs and customer debt repayments, and unlike in 2018, there were no debt sales in H1 2019. ● ECL provisions coverage shows the expected pattern with higher coverage in the poorer asset quality bands, and also by stage. ● In Ulster Bank RoI mortgages, the reduction in Stage 1 and Stage 2 ECL was driven by the movement of exposures into Stage 3 following a regulatory driven revision to the definition of default in that business. The corresponding increase in Stage 3 ECL was offset by the completion of the remainder of Ulster Bank RoI's 2018 sale of non-performing loans in H1 2019. Appendix 1 Capital and risk management Credit risk - Banking activities continued Asset quality (Within the scope of EY's review report) The table below shows asset quality bands of gross loans and ECL by stage for the Wholesale portfolio. Gross loans ECL provisions ECL provisions coverage Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total 30 June 2019 £m £m £m £m £m £m £m £m % % % % Property AQ1-AQ4 15,375 365 15,740 7 8 15 0.05 2.19 0.10 AQ5-AQ8 17,838 1,710 19,548 37 27 64 0.21 1.58 0.33 AQ9 39 75 114 - 6 6 - 8.00 5.26 AQ10 1,516 1,516 339 339 22.36 22.36 33,252 2,150 1,516 36,918 44 41 339 424 0.13 1.91 22.36 1.15 Corporate AQ1-AQ4 22,324 837 23,161 11 15 26 0.05 1.79 0.11 AQ5-AQ8 39,298 6,932 46,230 91 156 247 0.23 2.25 0.53 AQ9 232 373 605 1 14 15 0.43 3.75 2.48 AQ10 1,712 1,712 762 762 44.51 44.51 61,854 8,142 1,712 71,708 103 185 762 1,050 0.17 2.27 44.51 1.46 Financial institutions AQ1-AQ4 25,527 265 25,792 5 7 12 0.02 2.64 0.05 AQ5-AQ8 1,010 209 1,219 6 1 7 0.59 0.48 0.57 AQ9 - 2 2 - 1 1 - 50.00 50.00 AQ10 22 22 12 12 54.55 54.55 26,537 476 22 27,035 11 9 12 32 0.04 1.89 54.55 0.12 Sovereign AQ1-AQ4 7,570 4 7,574 9 - 9 0.12 - 0.12 AQ5-AQ8 148 2 150 - - - - - - AQ9 1 - 1 - - - - - - AQ10 5 5 - - - - 7,719 6 5 7,730 9 - - 9 0.12 - - 0.12 Total AQ1-AQ4 70,796 1,471 72,267 32 30 62 0.05 2.04 0.09 AQ5-AQ8 58,294 8,853 67,147 134 184 318 0.23 2.08 0.47 AQ9 272 450 722 1 21 22 0.37 4.67 3.05 AQ10 3,255 3,255 1,113 1,113 34.19 34.19 129,362 10,774 3,255 143,391 167 235 1,113 1,515 0.13 2.18 34.19 1.06 31 December 2018 Property AQ1-AQ4 15,740 393 16,133 8 9 17 0.05 2.29 0.11 AQ5-AQ8 17,397 1,418 18,815 35 26 61 0.20 1.83 0.32 AQ9 8 66 74 - 4 4 - 6.06 5.41 AQ10 1,685 1,685 506 506 30.03 30.03 33,145 1,877 1,685 36,707 43 39 506 588 0.13 2.08 30.03 1.60 Corporate AQ1-AQ4 21,814 773 22,587 13 14 27 0.06 1.81 0.12 AQ5-AQ8 40,004 7,647 47,651 93 171 264 0.23 2.24 0.55 AQ9 26 333 359 1 15 16 3.85 4.50 4.46 AQ10 1,643 1,643 634 634 38.59 38.59 61,844 8,753 1,643 72,240 107 200 634 941 0.17 2.28 38.59 1.30 Financial institutions AQ1-AQ4 22,150 247 22,397 5 5 10 0.02 2.02 0.04 AQ5-AQ8 2,352 222 2,574 7 2 9 0.30 0.90 0.35 AQ9 - 5 5 - - - - - - AQ10 35 35 22 22 62.86 62.86 24,502 474 35 25,011 12 7 22 41 0.05 1.48 62.86 0.16 Sovereign AQ1-AQ4 6,780 22 6,802 1 - 1 0.01 - 0.01 AQ5-AQ8 161 - 161 - - - - - - AQ10 4 4 - - - - 6,941 22 4 6,967 1 - - 1 0.01 - - 0.01 Total AQ1-AQ4 66,484 1,435 67,919 27 28 55 0.04 1.95 0.08 AQ5-AQ8 59,914 9,287 69,201 135 199 334 0.23 2.14 0.48 AQ9 34 404 438 1 19 20 2.94 4.70 4.57 AQ10 3,367 3,367 1,162 1,162 34.51 34.51 126,432 11,126 3,367 140,925 163 246 1,162 1,571 0.13 2.21 34.51 1.11 Key points ● Across the Wholesale portfolio, the asset quality band distribution differed reflecting the diverse nature of differing sectors, but remained broadly unchanged during the first half of 2019. ● The reduction in Stage 3 provision coverage in property was driven by the write-off of defaulted debt that carried a higher than average level of impairment compared to the rest of the portfolio. The lower coverage level in this sector reflected the secured nature of the exposure. Appendix 1 Capital and risk management Credit risk - Trading activities This section covers the credit risk profile of RBS's trading activities. Securities funding transactions and collateral (Within the scope of EY's review report) The table below shows securities funding transactions in NWM and Treasury. Balance sheet captions include balances held at all classifications under IFRS 9. Reverse repos Repos Outside Outside Of which netting Of which netting Total can be offset arrangements Total can be offset arrangements 30 June 2019 £m £m £m £m £m £m Gross 80,146 75,389 4,757 85,931 83,534 2,397 IFRS offset (49,125) (49,125) - (49,125) (49,125) - Carrying value 31,021 26,264 4,757 36,806 34,409 2,397 Master netting arrangements (1,191) (1,191) - (1,191) (1,191) - Securities collateral (24,808) (24,808) - (33,078) (33,078) - Potential for offset not recognised under IFRS (25,999) (25,999) - (34,269) (34,269) - Net 5,022 265 4,757 2,537 140 2,397 31 December 2018 Gross 68,044 65,057 2,987 70,097 68,940 1,157 IFRS offset (39,737) (39,737) - (39,737) (39,737) - Carrying value 28,307 25,320 2,987 30,360 29,203 1,157 Master netting arrangements (762) (762) - (762) (762) - Securities collateral (24,548) (24,548) - (28,441) (28,441) - Potential for offset not recognised under IFRS (25,310) (25,310) - (29,203) (29,203) - Net 2,997 10 2,987 1,157 - 1,157 Appendix 1 Capital and risk management Credit risk - Trading activities continued Derivatives (Within the scope of EY's review report) The table below shows derivatives by type of contract. The master netting agreements and collateral shown below do not result in a net presentation on the balance sheet under IFRS 9. A significant proportion (more than 90%) of the derivatives relate to trading activities in NatWest Markets. The table below also includes hedging derivatives in Treasury. 30 June 2019 31 December 2018 Notional GBP USD Euro Other Total Assets Liabilities Notional Assets Liabilities £bn £bn £bn £bn £bn £m £m £bn £m £m Gross exposure 153,424 151,725 138,390 135,673 IFRS offset (7,830) (10,028) (5,041) (6,776) Carrying value 3,014 6,317 5,214 1,942 16,487 145,594 141,697 13,979 133,349 128,897 Of which: Interest rate (1) Interest rate swaps 91,365 88,255 81,855 74,004 Options purchased 18,124 - 14,481 - Options written - 15,847 - 16,371 Futures and forwards 68 73 74 69 Total 2,627 4,550 4,603 872 12,652 109,557 104,175 10,536 96,410 90,444 Exchange rate Spot, forwards and futures 19,350 20,177 17,904 18,610 Currency swaps 10,079 10,453 11,322 12,062 Options purchased 6,329 - 7,319 - Options written - 6,617 - 7,558 Total 386 1,760 600 1,070 3,816 35,758 37,247 3,426 36,545 38,230 Credit 1 6 11 - 18 266 254 16 346 208 Equity and commodity - 1 - - 1 13 21 1 48 15 Carrying value 16,487 145,594 141,697 13,979 133,349 128,897 Counterparty mark-to-market netting (116,595) (116,595) (106,762) (106,762) Cash collateral (19,927) (17,592) (17,937) (15,227) Securities collateral (3,997) (3,364) (4,469) (3,466) Net exposure 5,075 4,146 4,181 3,442 Of which outside netting arrangements 1,891 3,874 2,061 1,708 Banks (2) 258 903 362 443 Other financial institutions (3) 1,472 1,311 1,054 1,144 Corporate (4) 2,994 1,832 2,510 1,817 Government (5) 351 100 255 38 Net exposure 5,075 4,146 4,181 3,442 UK 2,635 1,332 1,935 1,304 Europe 1,280 2,460 1,308 1,465 US 844 80 588 298 RoW 316 274 350 375 Net exposure 5,075 4,146 4,181 3,442 Notes: (1) The notional amount of interest rate derivatives includes £7,843 billion (31 December 2018 - £5,952 billion) in respect of contracts cleared through central clearing counterparties. (2) Transactions with certain counterparties with whom RBS has netting arrangements but collateral is not posted on a daily basis; certain transactions with specific terms that may not fall within netting and collateral arrangements; derivative positions in certain jurisdictions for example China where the collateral agreements are not deemed to be legally enforceable. (3) Transactions with securitisation vehicles and funds where collateral posting is contingent on RBS's external rating. (4) Mainly large corporates with whom RBS may have netting arrangements in place, but operational capability does not support collateral posting. (5) Sovereigns and supranational entities with one-way collateral agreements in their favour. Appendix 1 Capital and risk management Credit risk - Trading Activities continued Debt securities (Within the scope of EY's review report) The table below shows debt securities held at mandatory fair value through profit or loss by issuer as well as ratings based on the lowest of Standard & Poor's, Moody's and Fitch. A significant proportion (more than 95%) of these positions are trading securities in NatWest Markets. Central and local government Financial UK US Other institutions Corporate Total 30 June 2019 £m £m £m £m £m £m AAA - - 3,198 1,928 4 5,130 AA to AA+ 5,365 6,093 3,686 811 95 16,050 A to AA- - - 4,508 628 46 5,182 BBB- to A- - - 4,861 818 467 6,146 Non-investment grade - - 88 517 294 899 Unrated - - - 505 121 626 Total 5,365 6,093 16,341 5,207 1,027 34,033 Short positions (5,589) (1,773) (15,811) (1,652) (189) (25,014) 31 December 2018 AAA - - 2,093 1,459 7 3,559 AA to AA+ 6,834 4,689 3,161 773 120 15,577 A to AA- - - 4,571 482 51 5,104 BBB- to A- - - 3,592 802 285 4,679 Non-investment grade - - 81 832 237 1,150 Unrated - - - 572 8 580 Total 6,834 4,689 13,498 4,920 708 30,649 Short positions (6,394) (2,008) (13,500) (1,724) (201) (23,827) Credit risk - Cross border exposure Cross border exposures comprise both banking and trading activities, including reverse repurchase agreements. Exposures comprise loans, including finance leases and instalment credit receivables, and other monetary assets, such as debt securities. The geographical breakdown is based on the country of domicile of the borrower or guarantor of ultimate risk. Cross border exposures include non-local currency claims of overseas offices on local residents but exclude exposures to local residents in local currencies. The table below shows cross border exposures greater than 0.05% of RBS's total assets. Government Banks Other Total Short positions Net of short positions 30 June 2019 £m £m £m £m £m £m Western Europe 22,879 10,801 21,062 54,742 16,480 38,262 Of which: France 3,892 2,363 2,471 8,726 3,982 4,744 Of which: Germany 7,535 3,790 1,401 12,726 3,892 8,834 Of which: Netherlands 1,858 663 5,157 7,678 1,454 6,224 Of which: Italy 2,965 720 1,759 5,444 2,405 3,039 Of which: Spain 1,587 522 1,917 4,026 1,947 2,079 United States 14,093 5,657 8,582 28,332 1,868 26,464 Japan 4,611 3,512 431 8,554 13 8,541 Jersey - - 3,858 3,858 1 3,857 31 December 2018 Western Europe 21,121 19,003 16,741 56,865 14,103 42,762 Of which: France 3,396 10,209 1,579 15,184 1,626 13,558 Of which: Germany 8,023 3,086 1,145 12,254 5,397 6,857 Of which: Netherlands 1,142 675 3,739 5,556 985 4,571 Of which: Italy 2,179 248 584 3,011 1,796 1,215 Of which: Spain 891 450 1,848 3,189 1,164 2,025 United States 13,558 5,458 8,379 27,395 2,103 25,292 Japan 4,857 2,327 405 7,589 11 7,578 Jersey - 5 3,064 3,069 2 3,067 Appendix 1 Capital and risk management Non-traded market risk Non-traded market risk is the risk to the value of assets or liabilities outside the trading book, or the risk to income, that arises from changes in market prices such as interest rates, foreign exchange rates and equity prices, or from changes in managed rates. Key developments ● Non-traded market risk is now managed separately on both sides of the ring-fence. However, it continues to be aggregated and monitored against risk appetite at RBS level. ● Five- and ten-year sterling interest-rate swap rates fell by 0.35%-0.40% in H1 2019. The structural hedge provides some protection against volatility in interest rates and the yield remained stable, falling by only 0.02% in H1 2019 from 1.23% to 1.21%. ● Following the Alawwal bank merger, RBS holds a minority equity holding in SABB. This investment in the newly-merged entity is held in NWM Plc. The investment is held at fair value. Changes in value are recognised in reserves. This exposure is now captured in the VaR table below. ● By 30 June 2019, the disposal of the lender-option/borrower-option loan portfolio was materially complete, reducing RBS's exposure to changes in the credit spread compared to the 2018 year-end. Value-at-risk (Within the scope of EY's review report) The following table shows one-day internal banking book VaR at a 99% confidence level, split by risk type. Half year ended 30 June 2019 30 June 2018 31 December 2018 Period Period Period Average Maximum Minimum end Average Maximum Minimum end Average Maximum Minimum end £m £m £m £m £m £m £m £m £m £m £m £m Interest rate 11.9 14.0 9.3 9.9 19.4 28.2 8.9 19.2 9.3 11.6 7.3 11.6 Euro 1.2 1.8 0.7 1.8 2.7 3.9 1.3 2.9 1.4 2.4 1.0 1.0 Sterling 11.5 14.1 9.5 9.9 18.7 26.0 11.2 19.9 10.3 13.7 7.9 13.3 US dollar 4.7 6.0 3.8 3.8 5.6 6.8 1.5 1.5 3.7 8.7 1.4 8.7 Other 0.3 0.4 0.2 0.4 0.4 0.7 0.3 0.3 0.5 0.7 0.3 0.7 Credit spread 54.9 58.0 49.2 56.6 56.9 60.8 49.4 49.4 62.4 77.8 53.9 77.8 Foreign exchange 20.0 23.8 7.2 7.2 12.8 32.7 5.9 16.6 14.0 16.4 12.2 13.0 Equity 38.6 38.6 38.6 38.6 - - - - - - - - Pipeline risk 0.3 0.5 0.2 0.3 0.6 1.3 0.3 0.4 0.6 0.8 0.4 0.4 Diversification (1) (70.5) (50.7) (29.3) (22.6) (20.6) (20.5) Total 55.2 61.9 48.1 61.9 60.4 69.8 54.9 63.0 65.7 82.3 61.4 82.3 Note: (1) RBS benefits from diversification across various financial instrument types, currencies and markets. The extent of the diversification benefit depends on the correlation between the assets and risk factors in the portfolio at a particular time. The diversification factor is the sum of the VaR on individual risk types less the total portfolio VaR. Key point ● The increase in total VaR at the end of June 2019 compared to the average, reflected the equity exposure to SABB following the Alawwal bank merger in June 2019. The inclusion of this exposure outweighed the decrease in the foreign exchange VaR at 30 June 2019 resulting from lower sensitivity to the Saudi Riyal exchange rate following the merger. Appendix 1 Capital and risk management Non-traded market risk continued Structural hedging RBS has the benefit of a significant pool of stable, non and low interest-bearing liabilities, principally comprising equity and money transmission accounts. These balances are usually hedged, either by investing directly in longer-term fixed-rate assets (such as fixed-rate mortgages or UK government gilts) or by using interest rate swaps, which are generally booked as cash flow hedges or floating rate assets, in order to provide a consistent and predictable revenue stream. After hedging the net interest rate exposure of the bank externally, RBS allocates income to equity or products in structural hedges by reference to the relevant interest rate swap curve. Over time, this approach has provided a basis for stable income attribution to products and interest rate returns. The programme aims to track a time series of medium-term swap rates, but the yield will be affected by changes in product volumes and RBS's capital composition. The table below shows the incremental income allocation (above three-month LIBOR), total income allocation (including three-month LIBOR), the period end and average notional balances and the total yield (including three-month LIBOR) associated with the structural hedges managed by RBS. Half year ended 30 June 2019 30 June 2018 31 December 2018 Incremental Total Spot Average Overall Incremental Total Spot Average Overall Incremental Total Spot Average Overall income income notional notional yield income income notional notional yield income income notional notional yield £m £m £bn £bn % £m £m £bn £bn % £m £m £bn £bn % Equity 197 332 29 29 2.31 257 335 29 28 2.40 212 338 29 30 2.28 Product (1) 82 558 111 111 1.01 225 545 108 108 1.01 143 558 110 109 1.03 Other 27 84 21 21 0.79 50 80 21 21 0.75 39 86 22 22 0.78 Total 306 974 161 161 1.21 532 960 158 157 1.22 394 982 161 161 1.23 Note: (1) Refer to the next table for a segmental split. Key points ● The five year sterling swap rate fell to 0.83% at the end of June 2019 from 1.22% at December 2018. The ten-year sterling swap rate also fell to 0.97% from 1.35%. However, the yield of the structural hedge was relatively stable. At 1.21% the overall yield was also higher than market swap rates at 30 June 2019. ● Incremental income in excess of three-month LIBOR fell in H1 2019 compared to H2 2018. This was primarily due to higher three-month LIBOR fixings, resulting in less income benefit from the hedge. Equity structural hedges refer to income attributed to the hedging of equity and reserves, primarily in NatWest Markets Plc and NatWest Holdings. Product structural hedges refer to income allocated to customer products, for example current accounts, in NatWest Holdings. Other structural hedges refer to hedges managed by the subsidiaries. Approximately 37% of other structural hedges are euro-denominated. The following table presents the incremental income associated with product structural hedges at segment level. Half year ended 30 June 2019 30 June 2018 31 December 2018 £m £m £m UK Personal Banking 38 101 65 Commercial and Business Banking 44 122 78 Other - 2 - Total 82 225 143 Note: (1) For further detail on incremental income related to product structural hedges refer to the table below. Restated. Refer to Note 1 of the main announcement for further details. Appendix 1 Capital and risk management Non-traded market risk continued Sensitivity of net interest earnings Net interest earnings are sensitive to changes in the level of interest rates because changes to coupons on some customer products do not always match changes in market rates of interest or central bank policy rates. The sensitivity of the net interest income table shows the expected impact, over 12 months, to an immediate upward or downward change of 25 and 100 basis points to all interest rates. Yield curves are expected to move in parallel, though interest rates are assumed to floor at zero per cent or, for euro rates, at the current negative rate. The methodology, assumptions and limitations relating to the following two earnings sensitivity tables did not change materially in H1 2019. For further details, refer to pages 154-155 of the 2018 Annual Report and Accounts. Parallel shifts in yield curve +25 basis points -25 basis points +100 basis points -100 basis points 30 June 2019 £m £m £m £m Euro 23 5 88 9 Sterling 201 (142) 707 (706) US dollar 15 (9) 51 (52) Other (2) 2 (9) 15 Total 237 (144) 837 (734) 30 June 2018 Euro 6 4 26 4 Sterling 156 (173) 673 (674) US dollar 9 (6) 43 (29) Other 4 (3) 16 (7) Total 175 (178) 758 (706) 31 December 2018 Euro 29 (3) 114 (1) Sterling 152 (201) 651 (717) US dollar 15 (8) 63 (42) Other 1 2 2 3 Total 197 (210) 830 (757) Refer to the key points under the next table for analysis. Appendix 1 Capital and risk management Non-traded market risk continued The table below shows the net interest earnings sensitivity on a one-year, two-year and three-year forward-looking basis to a parallel upward or downward shift in interest rates of 25 basis points. The projection is a simplified sensitivity in which the balance sheet is assumed to be constant, with no change in customer behaviour or margin management strategy as a result of rate changes. The impact of the rate shock on structural hedges increases as maturing hedges are replaced at higher or lower rates through the three-year period. +25 basis points parallel upward shift -25 basis points parallel downward shift Year 1 Year 2 (1) Year 3 (1) Year 1 Year 2 (1) Year 3 (1) 30 June 2019 £m £m £m £m £m £m Structural hedges 32 99 171 (30) (97) (168) Managed margin (2) 213 241 243 (129) (104) (108) Other (8) - - 15 - - Total 237 340 414 (144) (201) (276) 31 December 2018 Structural hedges 32 98 170 (32) (98) (167) Managed margin (2) 150 171 170 (177) (189) (163) Other 15 - - (2) - - Total 197 269 340 (210) (287) (330) Notes: (1) The projections for Year 2 and Year 3 consider only the main drivers of earnings sensitivity, namely structural hedging and margin management. (2) Primarily current accounts and savings accounts. Key points ● Changes to earnings sensitivity to rate shocks between December 2018 and June 2019 were mainly driven by changes to estimates of how product pricing will respond to interest rate shocks. These estimates are regularly reviewed and are influenced by the overall level of interest rates, the Group's competitive position and other strategic considerations. ● Sensitivity to a 100 basis point downward shift in yield curves was also affected by the changes in the level of interest rates. In the shock scenario, rates fell less at 30 June 2019 before hitting an assumed zero per cent floor compared to 31 December 2018. This resulted in a slightly lower adverse impact at 30 June 2019. Appendix 1 Capital and risk management Non-traded market risk continued Foreign exchange risk (Within the scope of EY's review report) The table below shows structural foreign currency exposures. Net Structural Net investments foreign currency Residual investments in foreign Net exposures structural in foreign operations investment pre-economic Economic foreign currency operations NCI (1) excluding NCI hedges hedges hedges (2) exposures 30 June 2019 £m £m £m £m £m £m £m US dollar 1,412 - 1,412 (33) 1,379 (1,379) - Euro 6,935 3 6,932 (1,711) 5,221 - 5,221 Other non-sterling 1,492 - 1,492 (145) 1,347 - 1,347 Total 9,839 3 9,836 (1,889) 7,947 (1,379) 6,568 31 December 2018 US dollar 553 - 553 (4) 549 (549) - Euro 6,428 33 6,395 (853) 5,542 - 5,542 Other non-sterling 2,600 710 1,890 (1,249) 641 (81) 560 Total 9,581 743 8,838 (2,106) 6,732 (630) 6,102 Notes: (1) Non-controlling interests (NCI) represents the structural foreign exchange exposure not attributable to owners' equity. (2) Economic hedges of US dollar net investments in foreign operations represent US dollar equity securities that do not qualify as net investment hedges for accounting purposes. They provide an offset to structural foreign exchange exposures to the extent that there are net assets in overseas operations available. Economic hedges of other currency net investments in foreign operations represent monetary liabilities that are not booked as net investment hedges. Key points ● Other non-sterling net investments in foreign operations fell. This reflected the Alawwal bank merger. The minority equity stake in Saudi British Bank is too small to be consolidated as a net investment in a foreign operation. The increase in euro net investments in foreign operations also partly resulted from the gain on the sale of NWM N.V.'s equity stake in SABB to NWM Plc. NWM Plc has increased the capitalisation of its US branch. This has reduced the branch's debt funding and NWM Plc's regulatory exposure to fluctuations in the US dollar exchange rate against sterling. ● Changes in exchange rates affect equity in proportion to structural foreign currency exposures. At 30 June 2019, a 5% strengthening in all foreign currencies against sterling would result in a £0.4 billion increase in equity reserves, while a 5% weakening in all foreign currencies against sterling would result in a £0.4 billion reduction in equity reserves. Traded market risk Traded market risk is the risk arising from changes in fair value on positions, assets, liabilities or commitments in trading portfolios as a result of fluctuations in market prices. Traded internal VaR (Within the scope of EY's review report) The table below shows one-day internal value-at-risk (VaR) for RBS's trading portfolios, split by exposure type. Half year ended 30 June 2019 30 June 2018 31 December 2018 Period Period Period Average Maximum Minimum end Average Maximum Minimum end Average Maximum Minimum end Traded VaR (1-day 99%) £m £m £m £m £m £m £m £m £m £m £m £m Interest rate 10.3 16.9 6.9 9.8 15.0 27.3 10.4 16.5 13.6 19.9 9.2 13.0 Credit spread 9.4 12.7 7.0 9.9 13.2 24.2 9.1 10.4 8.9 14.6 6.9 8.2 Currency 3.6 5.8 2.0 3.8 3.2 7.6 1.4 3.5 3.0 6.3 1.7 5.3 Equity 0.7 2.2 0.3 0.5 0.6 0.9 0.3 0.8 1.0 1.6 0.5 0.8 Commodity 0.2 0.5 - 0.2 0.4 1.0 0.1 0.5 0.2 0.6 - 0.1 Diversification (1) (9.3) (10.6) (11.2) (11.9) (9.9) (8.8) Total 14.9 21.5 12.1 13.6 21.2 35.6 15.4 19.8 16.8 26.8 11.7 18.6 Note: (1) RBS benefits from diversification across various financial instrument types, currencies and markets. The extent of the diversification benefit depends on the correlation between the assets and risk factors in the portfolio at a particular time. The diversification factor is the sum of the VaR on individual risk types less the total portfolio VaR. Key points ● Traded VaR remained broadly unchanged on an average basis during H1 2019 compared to H2 2018. ● The decrease, on an average basis compared to H1 2018, is attributed to peaks in H1 2018 due to long euro rates positioning and bond syndication activity. Appendix 1 Capital and risk management Other risks Operational risk ● RBS continues to develop its cyber risk management and defence strategies, including tracking prominent threat groups and working with the National Cyber Security Centre through its Industry 100 initiative. ● There was also continued oversight of the Group's preparations for the UK's exit from the EU to ensure that processes and systems are in place to ensure continuity of service for customers. Additionally, continuing improvements to the Group's control environment, including further embedding of the operational risk management framework and refresh of the risk appetite framework, were also a focus. Compliance and Conduct risk ● Embedding the compliance and conduct risk framework across RBS was a key focus in H1 2019. The complementary compliance and conduct risk manual was also launched to support this work. Training was completed across all three lines of defence, supported by business-specific case studies. ● Work continued on concluding most of RBS's material remediation projects in 2019. Some material projects remain under active management, with plans in place to conclude the majority by the end of the year. Meeting the PPI closure deadline of 29 August 2019, and ensuring the effective and timely management of residual work thereafter, remains a key focus with the current timeline being end of Q2 2020. Climate risk ● RBS reclassified climate change as a top risk and work continued on integrating climate-related financial risks into the core risk framework. This included work on scenario-based analysis for both physical and transition risks. In March 2019, RBS also joined the Climate Financial Risk Forum, established by the FCA and PRA to develop practical tools to address climate-related financial risks. Appendix 2 Non-IFRS financial measures Appendix 2 Non-IFRS financial measures As described in Note 1 on page 23, RBS prepares its financial statements in accordance with IFRS as issued by the IASB which constitutes a body of generally accepted accounting principles (GAAP). The Interim Results contain a number of adjusted or alternative performance measures, also known as non-GAAP or non-IFRS performance measures. These measures are adjusted for certain items which management believe are not representative of the underlying performance of the business and which distort period-on-period comparison. These non-IFRS measures are not measures within the scope of IFRS and are not a substitute for IFRS measures. These measures include: Non-IFRS financial measures Measure Basis of preparation Additional analysis or reconciliation RBS return on tangible equity Annualised profit for the period attributable to ordinary shareholders divided by average tangible equity. Average tangible equity is total equity less intangible assets and other owners' equity. Note 1 Segmental return on tangible equity Segmental operating profit adjusted for tax and for preference share dividends divided by average notional equity, allocated at an operating segment specific rate, of the monthly average of segmental risk-weighted assets incorporating the effect of capital deductions (RWAes). Note 1 Operating expenses analysis - management view The management analysis of strategic disposals in other income and operating expenses shows strategic costs and litigation and conduct costs in separate lines, these amounts are included in staff, premises and equipment and other administrative expenses in the statutory analysis. Note 2 Cost:income ratio Total operating expenses less operating lease depreciation divided by total income less operating lease depreciation. Note 3 Commentary - adjusted periodically for specific items Group and segmental business performance commentary have been adjusted for the impact of specific items such as the Alawwal bank merger, additional authorised push payments fraud costs, notable items(detailed on Page 3), strategic, litigation and conduct costs(detailed on Page 14 to 18). Notable items - Page 3 Strategic, litigation and conduct costs - Pages 14 to 18. Aggregation of business segments into franchises Personal & Ulster franchise results, combining the reportable segments of UK Personal Banking (UK PB) and Ulster Bank RoI, Commercial & Private Banking (CPB) franchise results, combining the reportable segments of Commercial Banking and Private Banking. Page 26 Note 4 Bank net interest margin (NIM) Net interest income of the banking business less the NatWest Markets element as a percentage of interest-earning assets of the banking business less the NatWest Markets element. Note 4 Performance metrics not defined under IFRS(1) Measure Basis of preparation Additional analysis or reconciliation Loan:deposit ratio Net customer loans held at amortised cost divided by total customer deposits. Note 5 Tangible net asset value Tangible equity divided by the number of ordinary shares in issue. Tangible equity is ordinary shareholders' interest less intangible assets. Page 2 NIM Net interest income of the banking business as a percentage of interest-earning assets of the banking business. Pages 14 -18. Funded assets Total assets less derivatives. Page 14 -18. ECL loss rate The annualised loan impairment charge divided by gross customer loans. Pages 35. Note: (1) Metric based on GAAP measures, included as not defined under IFRS and reported for compliance with ESMA adjusted performance measure rules. Appendix 2 Non-IFRS financial measures 1. Return on tangible equity Half year ended Quarter ended and as at and as at 30 June 30 June 30 June 31 March 30 June RBS return on tangible equity 2019 2018 2019 2019 2018 Profit attributable to ordinary shareholders (£m) 2,038 888 1,331 707 96 Adjustment for Alawwal bank merger gain (£m) 764 - - - - Adjusted profit attributable to ordinary shareholders (£m) 1,274 - - - - Annualised profit attributable to ordinary shareholders (£m) 4,076 1,776 5,324 2,828 384 Annualised adjusted profit attributable to ordinary shareholders (£m) 2,548 - - - - Average total equity (£m) 46,310 48,773 46,179 46,516 48,578 Adjustment for other owners equity and intangibles (£m) (12,528) (15,019) (12,410) (12,581) (15,056) Adjusted total tangible equity (£m) 33,782 33,754 33,769 33,935 33,522 Return on tangible equity (%) 12.1% 5.3% 15.8% 8.3% 1.1% Return on tangible equity adjusting for impact of Alawwal bank merger (%) 7.5% UK Ulster Commercial & Private Personal Bank Commercial Private RBS NatWest Half year ended 30 June 2019 Banking RoI Banking Banking International Markets Operating profit (£m) 1,037 23 701 155 194 300 Adjustment for tax (£m) (290) - (196) (43) (27) (84) Preference share cost allocation (£m) (36) - (82) (8) - (30) Adjusted attributable profit (£m) 711 23 423 104 167 186 Annualised adjusted attributable profit (£m) 1,422 46 846 207 334 372 Adjustment for Alawwal merger gain (£m) - - - - - (299) Annualised adjusted profit attributable to ordinary shareholders (£m) 1,422 46 846 207 334 73 Monthly average RWAe (£bn) 37.0 14.3 79.6 9.6 7.0 49.2 Equity factor 15.0% 15.0% 12.0% 13.0% 16.0% 15.0% RWAe applying equity factor (£bn) 5.5 2.1 9.6 1.2 1.1 7.4 Return on equity (%) 25.6% 2.1% 8.8% 16.6% 29.7% 1.0% Half year ended 30 June 2018 Operating profit (£m) 1,129 86 1,215 156 173 46 Adjustment for tax (£m) (316) - (340) (44) (24) (13) Preference share cost allocation (£m) (40) - (94) (12) (8) (54) Adjusted attributable profit (£m) 773 86 781 100 141 (21) Annualised adjusted attributable profit (£m) 1,546 172 1,562 200 282 (42) Monthly average RWAe (£bn) 32.8 17.7 86.5 9.4 6.9 56.4 Equity factor 15.0% 14.0% 12.0% 13.5% 16.0% 15.0% RWAe applying equity factor (£bn) 4.9 2.5 10.4 1.3 1.1 8.5 Return on equity 31.4% 7.0% 15.1% 15.8% 25.7% -0.5% * Restated. Refer to Note 1 for further details. Appendix 2 Non-IFRS financial measures 1. Return on tangible equity continued UK Ulster Commercial & Private Personal Bank Commercial Private RBS NatWest Quarter ended 30 June 2019 Banking RoI Banking Banking International Markets Operating profit (£m) 539 3 264 75 101 362 Adjustment for tax (£m) (151) - (74) (21) (14) (101) Preference share cost allocation (£m) (18) - (41) (4) - (30) Adjusted attributable profit (£m) 370 3 149 50 87 231 Annualised adjusted attributable profit (£m) 1,480 12 596 199 345 924 Adjustment for Alawwal merger gain (£m) - - - - - (598) Annualised adjusted profit attributable to ordinary shareholders (£m) 1,480 12 596 199 345 326 Monthly average RWAe (£bn) 37.2 14.3 80.1 9.6 7.0 49.1 Equity factor 15.0% 15.0% 12.0% 13.0% 16.0% 15.0% RWAe applying equity factor (£bn) 5.6 2.1 9.6 1.2 1.1 7.4 Return on equity 26.5% 0.6% 6.2% 15.9% 30.8% 4.4% Quarter ended 31 March 2019 Operating profit (£m) 498 20 437 80 93 (62) Adjustment for tax (£m) (139) - (122) (23) (13) 17 Preference share cost allocation (£m) (18) - (41) (4) - - Adjusted attributable profit (£m) 341 20 274 53 80 (45) Annualised adjusted attributable profit (£m) 1,364 80 1,096 212 320 (180) Monthly average RWAe (£bn) 36.8 14.2 79.1 9.6 7.0 49.4 Equity factor 15.0% 15.0% 12.0% 13.0% 16.0% 15.0% RWAe applying equity factor (£bn) 5.5 2.1 9.5 1.2 1.1 7.4 Return on equity 24.7% 3.8% 11.5% 17.1% 28.6% -2.4% Quarter ended 30 June 2018 Operating profit (£m) 585 76 664 94 95 (51) Adjustment for tax (£m) (164) - (186) (26) (13) 14 Preference share cost allocation (£m) (20) - (47) (6) (4) (27) Adjusted attributable profit (£m) 401 76 431 62 78 (64) Annualised adjusted attributable profit (£m) 1,604 304 1,724 248 310 (256) Monthly average RWAe (£bn) 32.4 17.4 87.4 9.5 6.9 56.4 Equity factor 15.0% 14.0% 12.0% 13.5% 16.0% 15.0% RWAe applying equity factor (£bn) 4.9 2.4 10.5 1.3 1.1 8.5 Return on equity 33.0% 12.5% 16.4% 19.3% 27.9% -3.0% *Restated. Refer to Note 1 for further details. Appendix 2 Non-IFRS performance measures 2. Operating expenses analysis Statutory analysis (1,2) Half year ended Quarter ended 30 June 30 June 30 June 31 March 30 June 2019 2018 2019 2019 2018 Operating expenses £m £m £m £m £m Staff expenses 2,028 2,086 1,017 1,011 1,031 Premises and equipment 558 644 293 265 274 Other administrative expenses 863 1,636 445 418 1,237 Administrative expenses 3,449 4,366 1,755 1,694 2,542 Depreciation and amortisation 621 338 377 244 175 Write down of other intangible assets 30 31 30 - 7 Total operating expenses 4,100 4,735 2,162 1,938 2,724 Non-statutory analysis Half year ended Quarter ended 30 June 30 June 30 June 31 March 30 June 2019 2018 2019 2019 2018 Operating expenses £m £m £m £m £m Staff expenses 1,841 1,903 905 936 939 Premises and equipment 493 574 245 248 288 Other administrative expenses 673 760 318 355 413 Strategic costs (1) 629 350 434 195 141 Litigation and conduct costs (2) 60 801 55 5 782 Administrative expenses 3,696 4,388 1,957 1,739 2,563 Depreciation and amortisation 399 316 200 199 154 Write down of other intangible assets 5 31 5 - 7 Total 4,100 4,735 2,162 1,938 2,724 Notes: (1) On a statutory, or GAAP, basis, strategic costs are included within staff, premises and equipment, depreciation and amortisation, write-down of other intangible assets and other administrative expenses. (2) On a statutory, or GAAP, basis, litigation and conduct costs are included within other administrative expenses. 3. Cost:income ratio UK Commercial & Private Personal Ulster Bank Commercial Private RBS NatWest Central items RBS Banking RoI Banking Banking International Markets & other Group Half year ended 30 June 2019 £m £m £m £m £m £m £m £m Operating expenses (1,229) (281) (1,262) (232) (119) (678) (299) (4,100) Operating lease depreciation - - 68 - - - - 68 Adjusted operating expenses (1,229) (281) (1,194) (232) (119) (678) (299) (4,032) Total income 2,447 283 2,165 384 310 942 586 7,117 Operating lease depreciation - - (68) - - - - (68) Adjusted total income 2,447 283 2,097 384 310 942 586 7,049 Cost:income ratio (%) 50.2% 99.3% 56.9% 60.4% 38.4% 72.0% nm 57.2% Half year ended 30 June 2018 * Operating expenses (1,291) (252) (1,140) (225) (114) (671) (1,042) (4,735) Operating lease depreciation - - 57 - - - - 57 Adjusted operating expenses (1,291) (252) (1,083) (225) (114) (671) (1,042) (4,678) Total income 2,551 312 2,390 382 284 721 62 6,702 Operating lease depreciation - - (57) - - - - (57) Adjusted total income 2,551 312 2,333 382 284 721 62 6,645 Cost:income ratio (%) 50.6% 80.8% 46.4% 58.9% 40.1% 93.1% nm 70.4% * Restated. Refer to Note 1 for further details. Appendix 2 Non-IFRS performance measures 3. Cost:income ratio continued UK Commercial & Private Personal Ulster Bank Commercial Private RBS NatWest Central items RBS Banking RoI Banking Banking International Markets & others Group Quarter ended 30 June 2019 £m £m £m £m £m £m £m £m Operating expenses (594) (145) (622) (115) (60) (344) (282) (2,162) Operating lease depreciation - - 34 - - - - 34 Adjusted operating expenses (594) (145) (588) (115) (60) (344) (282) (2,128) Total income 1,202 138 1,083 191 159 686 621 4,080 Operating lease depreciation - - (34) - - - - (34) Adjusted total income 1,202 138 1,049 191 159 686 621 4,046 Cost:income ratio 49.4% 105.1% 56.1% 60.2% 37.7% 50.1% nm 52.6% Quarter ended 31 March 2019 Operating expenses (635) (136) (640) (117) (59) (334) (17) (1,938) Operating lease depreciation - - 34 - - - - 34 Adjusted operating expenses (635) (136) (606) (117) (59) (334) (17) (1,904) Total income 1,245 145 1,082 193 151 256 (35) 3,037 Operating lease depreciation - - (34) - - - - (34) Adjusted total income 1,245 145 1,048 193 151 256 (35) 3,003 Cost:income ratio 51.0% 93.8% 57.8% 60.6% 39.1% 130.5% nm 63.4% Quarter ended 30 June 2018 * Operating expenses (605) (124) (545) (104) (55) (322) (969) (2,724) Operating lease depreciation - - 26 - - - - 26 Adjusted operating expenses (605) (124) (519) (104) (55) (322) (969) (2,698) Total income 1,253 166 1,232 198 147 284 120 3,400 Operating lease depreciation - - (26) - - - - (26) Adjusted total income 1,253 166 1,206 198 147 284 120 3,374 Cost:income ratio 48.3% 74.7% 43.0% 52.5% 37.4% 113.4% nm 80.0% * Restated. Refer to Note 1 for further details. 4. Net interest margin Half year ended Quarter ended 30 June 30 June 30 June 31 March 30 June 2019 2018 2019 2019 2018 £m £m £m £m £m RBS net interest income 4,004 4,326 1,971 2,033 2,180 NWM net interest income 122 (67) 91 31 (31) Net interest income excluding NWM 4,126 4,259 2,062 2,064 2,149 Annualised net interest income 8,074 8,724 7,906 8,245 8,744 Annualised net interest income excluding NWM 8,320 8,589 8,271 8,371 8,620 Average interest earning assets (IEA) 440,309 431,211 444,800 435,768 434,928 NWM average IEA 33,261 27,134 34,436 32,072 26,981 Average IEA excluding NWM 407,048 404,077 410,364 403,696 407,947 Net interest margin 1.83% 2.02% 1.78% 1.89% 2.01% Bank net interest margin (excluding NWM) 2.04% 2.13% 2.02% 2.07% 2.11% 5. Loan:deposit ratio As at 30 June 31 March 31 December 2019 2019 2018 £bn £bn £bn Loans to customers - amortised cost 310.6 306.4 305.1 Customer deposits 361.6 355.2 360.9 Loan:deposit ratio (%) 86% 86% 85% Legal Entity Identifier: 2138005O9XJIJN4JPN90 This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com. END IR CKDDBNBKBKFK