RBS 2005 Annual Report Download - page 95

section
01
Operating and
financial review
93
Operating and financial review
Annual Report and Accounts 2005
1 January 31 December
2005 2005 2004
REIL and PPL £m £m £m
Non-accrual loans(1) 5,926 5,836 4,733
Accrual loans past due 90 days(2) 952 713
Troubled debt restructurings(3) 2—24
Total REIL 5,937 5,888 5,470
PPL(4) 19 11 280
Total REIL and PPL 5,956 5,899 5,750
REIL and PPL as % of lending to customers loans and advances – gross(5) 1.60% 1.84% 1.92%
* following the implementation of IAS 39, the sub-categories of REIL and PPL are calculated as per notes 1 to 4 below.
(1) All loans against which an impairment provision is held are reported in the non-accrual category.
(2) Loans where an impairment event has taken place but no impairment recognised. This category is used for over-collateralised non-revolving credit facilities.
(3) Troubled debt restructurings represent loans that have been restructured following the granting of a concession by the Group to the borrower.
(4) Loans for which an impairment event has occurred but no impairment provision is necessary. This category is used for over-collateralised advances and revolving credit facilities
where identification as 90 days overdue is not feasible.
(5) Gross of provisions and excluding reverse repurchase agreements.
REIL as at 31 December 2005 was £5,937 million (1 January 2005 – £5,888 million), an increase of £49 million (1%) during the year.
As a % of customer lending, REIL and PPL in aggregate show an improving trend, amounting to 1.60% of customer loans and
advances at 31 December 2005 (1 January 2005 – 1.84%).
REIL by division
The table below shows REIL by division.
1 January 31 December
2005 2005 2004
REIL £m £m £m
Corporate Markets 1,465 2,098 1,892
Retail Banking 2,988 2,526 2,399
Retail Direct 889 671 601
Wealth Management 58 65 99
Ulster Bank 342 389 341
Citizens 195 136 135
RBS Insurance — 33
Total REIL 5,937 5,888 5,470
During 2005 REIL in Corporate Markets reduced by £633 million reflecting continued favourable conditions in the corporate
environment in UK, Europe and the US. This was offset by a combined increase in REIL in Retail Banking and Retail Direct of £680
million (21%) due to the weakening of the consumer environment in the UK.
Loan impairment
The Group classifies impaired assets as either Risk Elements in Lending (“REIL”) or Potential Problem Loans (“PPL”). REIL represents
non-accrual loans, loans that are accruing but are past due 90 days and restructured loans. PPL represent impaired assets which
are not included in REIL but where known information about possible credit problems causes management to have serious doubts
about the future ability of the borrower to comply with loan repayment terms.
Both REIL and PPL are reported gross of the value of any security held, which could reduce the eventual loss should it occur, and
gross of any provision marked. Therefore impaired assets which are highly collateralised, such as mortgages, will have a low
coverage ratio of provisions held against reported impaired balance.
The adoption of IAS 39 under IFRS at the start of 2005 resulted in changes to the methodology used to identify impaired assets and
therefore the way that REIL is calculated. Comparative financial information is given in the following tables for both 1 January 2005
and 31 December 2004. Commentary is based on comparison with information at 1 January 2005, which reflects the impact of IAS
32, IAS 39 and IFRS 4.
The table below sets out the Group’s loans that are classified as REIL and PPL: