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RBS Group • Annual Report and Accounts 2006
Operating and financial review
Average customer deposit balances were 9% higher, driven by
personal savings balances up 12% and accelerating growth in
business deposits, up 7%. Average mortgage lending was up
8%, with stronger volumes in the second half leading to a 7%
market share of net lending in that period. Our offset
mortgage product continues to perform well. For the year as a
whole, average personal unsecured and credit card lending
was flat, reflecting the slower UK consumer demand and our
concentration on quality business with existing customers. In
the second half we further reduced our activity in the direct
loans market, but unsecured balances from our RBS and
NatWest customers are broadly in line with the first half.
Average business lending rose 5%, reflecting our cautious
credit stance.
Non-interest income rose by 4% to £3,492 million. There was
strong growth in our investments and private banking
businesses as well as business banking fees, mitigating the
slowdown in personal loan related insurance income.
Despite investments for future growth, total expenses rose by
just 2%, to £3,573 million, whilst direct expenses were held flat
at £2,005 million. Staff costs increased by 3% to £1,349
million, reflecting sustained investment in customer service and
the expansion of our bancassurance and investment
businesses. We continue to make efficiency gains as a result
of the consolidation of our retail businesses. Other costs, such
as marketing expenses, fell by 6% to £656 million, also
benefiting from consolidation.
Impairment losses increased by 15% to £1,343 million, but
were lower in the second half of the year than in the first. The
year-on-year change in impairment losses slowed from 18% in
the first half to 11% in the second half. Credit card arrears
have stabilised, while the rate of increase in arrears on
unsecured personal loans continued to slow. Mortgage
arrears remain very low – the average loan-to-value ratio of
Retail’s mortgages was 46% overall and 64% on new
mortgages written in 2006. Small business credit quality
remains steady.
Bancassurance
Bancassurance has had an excellent year with sales
increasing by 56% to £267 million annual premium equivalent.
The growth reflects the continued increase in focus on the
recruitment of Financial Planning Managers, up 25% and
productivity levels, up 43%. Increased sales of collective
investments on the back of a successful ISA season and
strong individual pensions growth, boosted by A-Day, helped
underpin the outturn. Sales of guaranteed bonds were also
particularly strong, and helped support a new business margin
which improved significantly over the period. The product
proposition was strengthened across all lines. Latest market
share data shows an increase from 6.6% to 9.0%. On a UK
GAAP embedded value basis for life assurance, investment
contracts and open ended investment companies, adjusted for
investment market volatility, pre tax profit was £78 million
compared with £42 million in 2005.
Net claims, which include maturities, surrenders and liabilities
to policyholders, were stable at £488 million compared with
£486 million in 2005.