RBS 2004 Annual Report Download - page 212

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Additional information
Additional information continued
Risk elements in lending and potential problem loans
The Group’s loan control and review procedures do not include the classification of loans as non-accrual, accruing past due,
restructured and potential problem loans, as defined by the SEC in the US. The following table shows the estimated amount of
loans that would be reported using the SEC’s classifications. The figures incorporate estimates and are stated before deducting
the value of security held or related provisions.
2004 2003 2002 2001 2000
£m £m £m £m £m
Loans accounted for on a non-accrual basis (3):
Domestic 3,705 3,221 3,077 2,829 2,482
Foreign 1,075 1,211 1,098 737 344
Total 4,780 4,432 4,175 3,566 2,826
Accruing loans which are contractually overdue 90 days
or more as to principal or interest (4):
Domestic 646 561 363 643 662
Foreign 79 81 129 142 168
Total 725 642 492 785 830
Loans not included above which are classified
as ‘troubled debt restructurings’ by the SEC:
Domestic 14 53 144 26 43
Foreign 10 30 60 116 122
Total 24 83 204 142 165
Total risk elements in lending 5,529 5,157 4,871 4,493 3,821
Potential problem loans (5)
Domestic 173 492 639 801 699
Foreign 107 99 544 279 73
Total potential problem loans 280 591 1,183 1,080 772
Closing provisions for bad and doubtful debts as
a % of total risk elements in lending 76% 76% 80% 81% 82%
Closing provisions for bad and doubtful debts as a % of
total risk elements in lending and potential problem loans 73% 68% 65% 65% 68%
Risk elements in lending as a % of gross loans
and advances to customers 1.58% 2.01% 2.14% 2.31% 2.23%
Notes:
(1) For the analysis above, ‘Domestic’ consists of the UK domestic transactions of the Group. ‘Foreign’ comprises the Group’s transactions conducted through offices outside the UK
and through those offices in the UK specifically organised to service international banking transactions.
(2) The classification of a loan as non-accrual, past due 90 days or troubled debt restructuring does not necessarily indicate that the principal of the loan is uncollectable in whole
or in part. Collection depends in each case on the individual circumstances of the loan, including the adequacy of any collateral securing the loan and therefore classification of
a loan as non-accrual, past due 90 days or troubled debt restructuring does not always require that a provision be made against such a loan. In accordance with the Group’s
provisioning policy for bad and doubtful debts, it is considered that adequate provisions for the above risk elements in lending have been made.
(3) The Group’s UK banking subsidiary undertakings account for loans on a non-accrual basis from the point in time at which the collectability of interest is in significant doubt.
Certain subsidiary undertakings of the Group, principally Citizens, generally account for loans on a non-accrual basis when interest or principal is past due 90 days.
(4) Overdrafts generally have no fixed repayment schedule and consequently are not included in this category.
(5) Loans that are current as to the payment of principal and interest but in respect of which management has serious doubts about the ability of the borrower to comply with
contractual repayment terms. Substantial security is held in respect of these loans and appropriate provisions have already been made in accordance with the Group’s
provisioning policy for bad and doubtful debts.
2004 2003 2002 2001 2000
£m £m £m £m £m
Gross income not recognised but which would have been
recognised under the original terms of non-accrual and
restructured loans
Domestic 237 237 234 173 148
Foreign 58 55 73 60 48
295 292 307 233 196
Interest on non-accrual and restructured loans included in
net interest income
Domestic 58 60 47 42 30
Foreign 737148
65 63 54 56 38