RBS 2003 Annual Report Download - page 78

Operating and financial review continued
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Operating and financial review
Corporate Banking and Financial Markets
2003 2002* 2001*
£m £m £m
Net interest income excluding funding cost of rental assets 2,653 2,631 2,338
Funding cost of rental assets (329) (282) (200)
Net interest income 2,324 2,349 2,138
Fees and commissions receivable 1,537 1,394 1,250
Fees and commissions payable (220) (157) (165)
Dealing profits (before associated direct costs) 1,661 1,338 1,349
Income on rental assets 1,088 931 748
Other operating income 307 197 137
Non-interest income 4,373 3,703 3,319
Total income 6,697 6,052 5,457
Direct expenses
– staff costs 1,410 1,230 1,091
– other 394 375 350
– operating lease depreciation 518 461 434
2,322 2,066 1,875
Contribution before provisions 4,375 3,986 3,582
Provisions 755 725 502
Contribution 3,620 3,261 3,080
* prior periods have been restated following the transfer of certain activities to Manufacturing
£bn £bn £bn
Total assets** 219.0 203.4 187.7
Loans and advances to customers** – gross
– banking book 99.3 92.1 82.7
– trading book 5.0 3.6 1.0
Rental assets 10.1 7.0 5.5
Customer deposits** 68.6 62.2 56.4
Weighted risk assets – banking 140.0 125.2 105.8
Weighted risk assets – trading 12.6 11.3 12.5
** excluding repos and reverse repos
2003 compared with 2002
Contribution increased by 11% or £359 million to £3,620
million. As well as in the UK, the division also achieved good
growth in Europe and North America.
Total income was up 11% or £645 million to £6,697 million with
strong growth across all business areas.
Average loans and advances to customers of the banking
business increased by 9% or £7.5 billion to £94.3 billion.
Lending margin was maintained. Average customer deposits
within the banking businesses increased by 7% or £4.1 billion
to £61.0 billion; however, the lower interest rate environment
adversely affected deposit margins as it reduced the benefit of
interest free funds. Net interest income was further impacted
by the effect of implementing from 1 January 2003 the pricing
remedies agreed following the Competition Commission inquiry
into SME banking and by lower money market income, due to
less favourable market conditions.
The asset rental business comprising operating leases and
investment properties, grew strongly. Average rental assets
increased to £8.1 billion and net income after deducting
funding costs and operating lease depreciation increased by
28%, £53 million to £241 million.
Fees receivable rose by £143 million, 10% to £1,537 million
due to growth in fees related to lending and from the
expansion and success of capital markets activities. Fees
payable including brokerage were up £63 million to £220
million due to higher volumes in Financial Markets.
Dealing profits which is income before associated direct costs
from our role in servicing customer demand for interest and
currency rate protection and mortgage backed securitisation
rose by 24% to £1,661 million providing incremental profit
contribution of some £170 million. There has been steady
growth in underlying customer volumes in all product areas.
While first half performance was particularly strong given the
unusually high levels of demand for mortgage backed
securities in the United States, dealing revenues in the second
half were up 10% on the prior year period, in line with the
growth in income for the division as a whole.
Other operating income was up £110 million, 56% to £307
million partially due to the full year effect of the inclusion of
Dixon Motors’ gross profit.
Direct expenses increased by 12% or £256 million to £2,322
million. Excluding the effect of the acquisition of Nordisk
Renting and Dixon Motors and operating lease depreciation,