RBS 2005 Annual Report Download - page 97

section
01
Operating and
financial review
95
Operating and financial review
Annual Report and Accounts 2005
£m
Balance as at 1 January 2005 4,145
Currency and other adjustments 51
Amounts written-off (2,040)
Recoveries of amounts previously written-off 172
Charge to income statement 1,703
Discount unwind(1) (144)
Balance as at 31 December 2005(2) 3,887
Notes:
(1) The impact of discounting inherent within the provisions balance is unwound as the time to receiving the expected recovery cash flows draws nearer.
(2) Includes provisions against loans and advances to banks of £3 million (1 January 2005 – £5 million).
An impairment provision calculated using the effective interest rate method leaves a discounted asset; the discount unwinds at a
constant effective rate until the outstanding asset is completely realised.
Summary of loan impairment provisions
A summary of the total customer provisions balance is shown in the table below.
As at 31 December 2005 total customer provisions were £3,884 million, down £256 million (6%) from 1 January 2005. The movement
in provisions balance is shown at the bottom of the page.
Provisions coverage
The Group’s provision coverage ratios are shown in the table below.
The coverage ratio of closing provisions to REIL and PPL decreased from 70% to 65% during 2005. The lower coverage ratio reflects
a change of mix in the portfolios to more secured assets (e.g. residential mortgages) which, due to the level of collateral held,
require a much lower level of provision.
Movement in loan impairment provisions balance
The movement in provisions balance during 2005 is shown in the table below.
1 January 31 December
2005 2005 2004
Loan impairment provisions(1) £m £m £m
Latent loss provisions 543 570
Collectively assessed provisions 2,587 2,484
Individually assessed provisions 754 1,086
Specific provisions 3,607
General provision 561
Total provisions 3,884 4,140 4,168
Total provision as a % of customer loans and advances – gross(2) 1.0% 1.3% 1.4%
1 January 31 December
2005 2005 2004
Total provision expressed as a:
% of REIL 65% 70% 76%
% of REIL and PPL 65% 70% 72%
Notes:
(1) Excludes provisions against loans and advances to banks of £3 million (1 January 2005 – £5 million; 31 December 2004 – £6 million).
(2) Gross of provisions and excluding reverse repurchase agreements.