RBS 2004 Annual Report Download - page 179

section
03
177
Annual Report and Accounts 2004
Notes on the accounts
Financial
statements
2004 2004 2003 2003
Carrying Fair Carrying Fair
amount value amount value
Trading business Note £m £m £m £m
Assets
Treasury bills and other eligible bills (1) 2,921 2,921 1,869 1,869
Loans and advances to banks and customers (1) 98,142 98,142 59,608 59,608
Debt securities (1) 54,726 54,726 37,575 37,575
Equity shares (1) 486 486 428 428
Derivatives (2) 17,884 17,884 14,087 14,087
Liabilities
Deposits by banks and customer accounts (3) 80,815 80,815 52,300 52,300
Debt securities in issue (1) 1,760 1,760 1,117 1,117
Short positions in securities (1) 28,923 28,923 19,128 19,128
Subordinated loan capital (1) 54 54 59 59
Derivatives (2) 19,034 19,034 15,173 15,173
2004 2004 2003 2003
Carrying Fair Carrying Fair
amount value amount value
Banking business Note £m £m £m £m
Assets
Cash and balances at central banks (1) 4,293 4,293 3,822 3,822
Items in the course of collection from other banks (1) 2,629 2,629 2,501 2,501
Treasury bills and other eligible bills (1) 3,189 3,189 2,977 2,977
Loans and advances to banks and customers (4) 305,587 307,805 244,814 246,244
Debt securities (5) 36,485 36,299 42,374 42,195
Equity shares (5) 2,474 2,916 1,872 2,289
Liabilities
Items in the course of transmission to other banks (1) 802 802 958 958
Deposits by banks and customer accounts (3) 303,328 303,210 251,986 252,360
Debt securities in issue (6) 57,200 57,199 39,899 39,897
Subordinated loan capital (7) 20,312 21,652 16,939 17,522
Non-equity minority interests (7) 3,671 3,899 2,724 2,867
Non-equity shareholders’ funds (7) 4,520 4,811 2,923 3,245
Derivatives – net (2) 403 331 297 266
Notes:
(1) Financial assets and financial liabilities carried at fair value or where carrying value approximates to fair value because they are of short maturity or repricing date.
(2) Fair values of derivatives are determined by market prices where available. Otherwise fair value is based on current market information using appropriate valuation models.
(3) The fair value of deposits repayable on demand is equal to their carrying value. The fair values of term deposits and time certificates of deposit are estimated by discounting
expected future cash flows using rates currently offered for deposits of similar remaining maturities.
(4) For loans which reprice frequently or are linked to the Group’s base rate, and for which there has been no significant change in credit risk since inception, carrying value
represents a reasonable estimate of fair value. For other loans, fair values are estimated by discounting expected future cash flows, using current interest rates appropriate to the
type of loan, and making adjustments for credit risk.
(5) Fair values of marketable securities are based on quoted market prices. Where these are unavailable, fair value is estimated using other valuation techniques.
(6) The fair value of short-term debt securities in issue is approximately equal to their carrying value. The fair value of other debt securities in issue is based on quoted market
prices where available, or where these are unavailable, is estimated using other valuation techniques.
(7) The fair value of loan capital, non-equity minority interests and preference shares is based on quoted market prices where available. For unquoted loan capital, fair value has
been estimated using other valuation techniques.
(8) Fair values are not given for financial commitments and contingent liabilities. The diversity of the fee structures, the lack of an established market and the difficulty of separating
the value of the instruments from the value of the overall relationship involve such uncertainty that it is not meaningful to provide an estimate of their fair value. (The principal
amounts of these instruments are given in Note 41).
Fair values of financial instruments
The following tables set out the fair values of the Group’s
financial instruments. Fair value is the amount at which an
instrument could be exchanged in a current transaction between
willing parties, other than in a forced or liquidation sale. Quoted
market values are used where available; otherwise, fair values
have been estimated based on discounted expected future cash
flows and other valuation techniques. These techniques involve
uncertainties and require assumptions and judgements covering
prepayments, credit risk and discount rates. Changes in these
assumptions would significantly affect estimated fair values.
The fair values reported would not necessarily be realised in
an immediate sale; nor are there plans to settle liabilities prior
to contractual maturity. As there is a wide range of valuation
techniques, it may be inappropriate to compare the Group’s
fair value information to independent markets or other financial
institutions’ fair value.