RBS 2007 Annual Report Download - page 54

RBS Group • Annual Report and Accounts 2007
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Business review continued
Business review
Corporate Markets – UK Corporate Banking
2007 2006 2005
£m £m £m
Net interest income from banking activities 2,326 2,173 1,955
Non-interest income 1,416 1,289 1,217
Total income 3,742 3,462 3,172
Direct expenses
– staff costs 631 564 489
– other 214 186 165
– operating lease depreciation 319 330 335
1,164 1,080 989
Contribution before impairment losses 2,578 2,382 2,183
Impairment losses 180 189 196
Contribution 2,398 2,193 1,987
Allocation of Manufacturing costs 437 431 416
Operating profit 1,961 1,762 1,571
£bn £bn £bn
Total assets* 102.7 88.7 78.3
Loans and advances to customers – gross* 100.6 86.8 76.7
Customer deposits* 86.6 78.5 66.4
Risk-weighted assets 104.6 93.1 82.6
* excluding repos and reverse repos
2007 compared with 2006
UK Corporate Banking (‘UKCB’) had another successful year of
profitable growth, building further on our market-leading
position and achieving significant improvements in customer
satisfaction. Total income rose by 8% to £3,742 million and
contribution by 9% to £2,398 million. Operating profit rose by
11% to £1,961 million.
There has been good growth in customer volumes, with
average loans and advances up 11% and average deposits up
14%. Net interest income from banking activities increased by
7% to £2,326 million as net interest margin narrowed slightly
from the prior year. In recent months we have seen firmer
margins in some areas.
Non-interest income rose by 10% to £1,416 million, as a result
of growth in fees and continued progress in the distribution of
trade and invoice finance products as well as of interest rate
and foreign exchange products.
Total expenses rose by 6% to £1,601 million, with investment
targeted towards improving customer service. Around 600 new
front line roles were created and major new functionality was
added to the Bankline electronic banking platform. These
initiatives have contributed to strongly favourable customer
satisfaction scores in 2007.
Impairment losses totalled £180 million, 5% lower than in 2006,
reflecting the strong quality of the portfolio. Corporate credit
metrics remained stable.
2006 compared with 2005
UK Corporate Banking had a successful year across all its
businesses, strengthening its market leading positions in
corporate and commercial banking and building good
momentum in the provision of a broadening range of financing
and risk management services to its customer base. As a
result UKCB increased its total income by 9% to £3,462 million
and contribution by 10% to £2,193 million. Operating profit
rose by 12% to £1,762 million.
Net interest income from banking activities grew by 11% to
£2,173 million. We achieved an 18% increase in average loans
and advances to customers, with good growth across all
customer segments. We increased average customer deposits
by 21%, demonstrating the attractiveness of our range of
deposit products for commercial and corporate customers.
Changes in the deposit mix and some narrowing of lending
margins, principally in the first half of the year, led to a modest
decline in UKCB’s net interest margin.
Non-interest income rose by 6% to £1,289 million, reflecting
good growth in origination fees and improved distribution of
trade and invoice finance and interest rate and foreign
exchange products.
Total expenses rose by 8% to £1,511 million. The increase in
direct expenses, excluding operating lease depreciation,
reflected the recruitment of additional relationship managers
and other staff to strengthen the quality of service provided to
our expanding customer base, as well as further investment in
our electronic banking proposition.
Impairment losses were 4% lower than in 2005 at £189 million.
Portfolio risk remained stable and the credit environment
benign.