RBS 2007 Annual Report Download - page 191

RBS Group • Annual Report and Accounts 2007 189
Financial statements
Management of term structure
The Group evaluates on a regular basis its structural liquidity
risk and applies a variety of balance sheet management and
term funding strategies to maintain this risk within its normal
policy parameters.
The degree of maturity mismatch within the overall long-term
structure of the Group’s assets and liabilities is managed
within internal policy guidelines, to ensure that term asset
commitments may be funded on an economic basis over their
life. In managing its overall term structure, the Group analyses
and takes into account the effect of retail and corporate
customer behaviour on actual asset and liability maturities
where they differ materially from the underlying contractual
maturities.
Stress testing
The Group performs stress tests to simulate how events may
impact its funding and liquidity capabilities. Such tests inform
the overall balance sheet structure and help define prudent
limits for control of the risk arising from the mismatch of
maturities across the balance sheet and from undrawn
commitments and other contingent obligations. The nature
of stress tests is kept under review in line with evolving
market conditions.
Daily management
The short-term maturity structure of the Group’s liabilities and
assets is managed daily to ensure that all material or potential
cash flow obligations arising from undrawn commitments and
other contingent obligations, can be met. Potential sources
include cash inflows from maturing assets, new borrowing or
the sale of various debt securities held (after allowing for
appropriate haircuts).
Short-term liquidity risk is generally managed on a
consolidated basis with internal liquidity mismatch limits set for
all subsidiaries and non-UK branches which have material
local treasury activities, thereby assuring that the daily
maintenance of the Group’s overall liquidity risk position is not
compromised. ABN AMRO, Citizens Financial Group and RBS
Insurance manage liquidity locally, given different regulatory
regimes, subject to review by Group Treasury. As integration of
ABN AMRO’s businesses within the Group proceeds, the
liquidity risk policies, parameters and metrics used will be
progressively aligned within a single framework.
Net customer activity
2007 2006
£m £m
Loans and advances to customers (gross, excluding reverse repos) 693,331 407,918
Customer accounts (excluding repos) 547,449 320,238
Customer lending less customer accounts 145,882 87,680
Loans and advances to customers as a % of customer accounts (excluding repos) 126.6% 127.4%