RBS 2003 Annual Report Download - page 69

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Operating and financial review
Annual Report and Accounts 2003
Analysis of results
Net interest income
2003 2002 2001
£m £m £m
Interest receivable 13,998 13,561 14,421
Interest payable (5,697) (5,712) (7,575)
Net interest income 8,301 7,849 6,846
%% %
Gross yield on interest-earning assets of the banking business 5.0 5.4 6.6
Cost of interest-bearing liabilities of the banking business (2.3) (2.7) (4.0)
Interest spread of the banking business 2.7 2.7 2.6
Benefit from interest-free funds 0.3 0.4 0.5
Net interest margin of the banking business 3.0 3.1 3.1
Yields, spreads and margins of the banking business % %%
Gross yield
Group 5.0 5.4 6.6
UK 5.2 5.6 6.6
Overseas 4.4 5.0 6.4
Interest spread
Group 2.7 2.7 2.6
UK 2.7 2.7 2.6
Overseas 2.7 2.7 2.5
Net interest margin
Group 3.0 3.1 3.1
UK 3.0 3.1 3.2
Overseas 3.0 3.1 3.0
The Royal Bank of Scotland plc base rate 3.7 4.0 5.1
London inter-bank three month offered rates:
Sterling 3.7 4.1 5.0
Eurodollar 1.2 1.8 3.8
Euro 2.3 3.3 4.3
Notes:
(1) Gross yield is the interest rate earned on average interest-earning assets of the banking business.
(2) Interest spread is the difference between the gross yield and the interest rate paid on average interest-bearing liabilities of the banking business.
(3) Net interest margin is net interest income of the banking business as a percentage of average interest-earning assets of the banking business.
2003 compared with 2002
Net interest income increased by 6%, £452 million, to £8,301
million. Average interest-earning assets of the Group’s banking
business increased by 12%, £29.1 billion, to £279.7 billion.
Within this, average loans and advances to customers were up
12%, £23.3 billion, to £213.3 billion due to growth in both
corporate and personal lending.
Interest spread for the Group as a whole was unchanged at
2.7%. Interest-free balances fell partly due to the outcome of
the Competition Commission inquiry into SME banking. This,
together with the lower interest rate environment contributed to
the reduction in the benefit of interest-free funds from 0.4% to
0.3% giving a decline in net interest margin from 3.1% to 3.0%.
UK – Interest spread remained unchanged at 2.7% with
product margins remaining stable despite growth in the
relatively lower margin mortgage business. The reduced
benefit of interest-free funds due to the rate and volume
impact described above resulted in the decrease in net
interest margin from 3.1% to 3.0%.
Overseas – Interest spread was unchanged at 2.7%. Asset
spreads tightened in the US due to lower interest rates;
however, this was offset by overall mix and volume
improvements elsewhere. Lower interest rates led to a
reduction in the benefit from interest-free funds, resulting
in the decline in net interest margin from 3.1% to 3.0%.
2002 compared with 2001
Net interest income increased by 15%, £1,003 million, to
£7,849 million. Average interest-earning assets of the Group’s
banking business increased by 14%, £30.3 billion, to £250.6
billion. Within this, average loans and advances to customers
were up 14%, £23.9 billion, to £190.0 billion due to growth in
both corporate and personal lending.
Interest spread rose 0.1% to 2.7% with growth in higher-yielding
customer lending offsetting the effects of the low interest rate
environment.
Despite the increase in net interest-free funds of the banking
business, up 28%, £8.6 billion, to £38.9 billion, the decline in
interest rates led to a lower benefit from interest-free funds
offsetting the rise in interest spread, leaving net interest margin
of the banking business unchanged at 3.1%.