RBS 2004 Annual Report Download - page 157

section
03
155
Annual Report and Accounts 2004
Notes on the accounts
Financial
statements
13 Provisions for bad and doubtful debts
2004 2003
Specific General Total Specific General Total
£m £m £m £m £m £m
At 1 January 3,363 566 3,929 3,330 597 3,927
Currency translation and other adjustments (22) (76) (98) (23) (39) (62)
Acquisition of subsidiary 222 68 290 44 6 50
Amounts written off (1,468) –– (1,468) (1,519) — (1,519)
Recoveries of amounts written off in previous periods 147 –– 147 72 — 72
Charge to profit and loss account 1,412 16 1,428 1,459 2 1,461
At 31 December 3,654 574 4,228 3,363 566 3,929
14 Interest in suspense
In certain cases, interest may be charged to a customer’s account but, because its recoverability is in doubt, not recognised in the
Group’s consolidated profit and loss account. Such interest is held in a suspense account and netted off against loans and advances
in the consolidated balance sheet.
2004 2003
£m £m
Loans and advances on which interest is being placed in suspense:
– before specific provisions 2,558 1,938
– after specific provisions 1,203 930
Loans and advances on which interest is not being applied:
– before specific provisions 2,225 2,494
– after specific provisions 850 980
(ii) Mortgage securitisations – following the acquisition of First
Active in 2004, the Group is party to a number of mortgage
securitisations that qualify for linked presentation. Mortgages
have been transferred to special purpose vehicles, held
ultimately by charitable trusts, funded principally through the
issue of floating rate notes. The Group is not obliged, and does
not intend, to support losses that may be suffered by the note
holders. There are no arrangements for the Group to
repurchase the mortgages. The note holders have agreed that
they will be paid, as to interest and principal, only to the extent
that sufficient funds are generated by the mortgage loans and
their underlying security. The Group has entered into arm's
length fixed/floating interest rate swaps with the securitisation
vehicles and provides mortgage management and agency
services to the vehicles. On repayment of the financing, any
further amounts generated by the mortgages will be paid to
the Group. At 31 December 2004, mortgages of £1,519 million
are subject to non-recourse finance of £1,479 million. During
the year the Group recognised net income of £26 million
comprising interest receivable of £72 million less interest
payable and other expenses of £46 million.
(iii) Securitisation of housing association loans – the Group has
arranged the securitisation of housing association loans. The
loans were acquired by special purpose vehicles, held ultimately
by charitable trusts, funded principally through the issue of
floating and fixed rate notes. The Group is not obliged, and
does not intend, to support losses that may be suffered by the
note holders. The note holders have agreed that they will be
paid, as to interest and principal, only to the extent that sufficient
funds are generated by the loans and their underlying security.
Any proceeds from the loans in excess of the amounts required
to service and repay the notes are payable to the Group after
deduction of expenses. At 31 December 2004, gross loans
amounted to £1,412 million (2003 – £1,450 million) and notes
held by third parties were £1,012 million (2003 – £861 million).
During the year the Group recognised net income of £37 million
(2003 – £39 million; 2002 – £40 million) comprising interest
receivable of £116 million (2003 – £119 million; 2002 – £118
million) less interest payable and other expenses of £79 million
(2003 – £80 million; 2002 – £78 million).
(iv) Mortgage banking activities - the Group sells originated
mortgage loans to US Agencies in return for securities
backed by these loans and guaranteed by the Agency whilst
retaining the rights to service the mortgages. These securities
may be subsequently sold. The purchaser has recourse to the
Group for losses up to pre-determined levels on certain
designated mortgages. The Group is not obliged, and does
not intend, to support losses that may be suffered by the
Agencies. Under the terms of the sale agreements, the
Agencies have agreed to seek repayment only from the cash
from the mortgage loans. Once the securities exchanged for the
loans have been sold the Group's exposure is restricted to the
amount of the recourse and the transaction qualifies for the
linked presentation. At 31 December 2004 mortgages
amounting to £472 million had been sold with recourse and
the related securities sold. Recourse is limited to a maximum
of £6 million. No amounts were recognised in the profit and loss
account except for income from the servicing of the mortgages.
(v) Loan transfer – during 2004, loans originated by the Group
and another bank were transferred to a special purpose
vehicle which funded the purchase through the issue of notes.
The Group is not obliged, and does not intend, to support
losses that may be suffered by the note holders. There are no
arrangements for the Group to repurchase the loan. The note
holders have agreed that they will be paid, as to interest and
principal, only to the extent that sufficient funds are generated
by the loans. At 31 December 2004, the gross loan amounted
to £301 million and the non-recourse financing of £301 million.
Gross and net income in 2004 were less than £1 million.