RBS 2007 Annual Report Download - page 55

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RBS Group • Annual Report and Accounts 2007
Business review
Retail Markets
2007 2006 2005
£m £m £m
Net interest income 4,760 4,604 4,404
Non-interest income 4,030 3,851 3,678
Total income 8,790 8,455 8,082
Direct expenses
– staff costs 1,699 1,616 1,539
– other 742 748 788
2,441 2,364 2,327
Insurance net claims 518 488 486
Contribution before impairment losses 5,831 5,603 5,269
Impairment losses 1,200 1,311 1,148
Contribution 4,631 4,292 4,121
Allocation of Manufacturing costs 1,748 1,724 1,665
Operating profit 2,883 2,568 2,456
£bn £bn £bn
Total banking assets 125.1 118.4 113.0
Loans and advances to customers – gross
– mortgages 72.0 69.7 64.6
– personal 21.5 20.5 21.0
– cards 8.4 8.2 8.7
– business 20.2 18.1 16.7
Customer deposits* 130.4 115.5 105.2
Investment management assets – excluding deposits 42.1 34.9 31.4
Risk-weighted assets 80.8 77.0 79.2
* customer deposits exclude bancassurance
2007 compared with 2006
Retail Markets delivered a strong performance in 2007 with
operating profit rising by 12% to £2,883 million as a result of
good income growth, tight expense control and reduced
impairment costs. Total income rose 4% to £8,790 million, and
income net of claims also grew by 4% to £8,272 million.
These strong results reflect the emphasis on savings and
investment products, our focus on profitability rather than
volume in consumer lending, and significant investment in our
Wealth Management business in the UK and Asia. Customer
deposits increased by 13% to £130.4 billion, while loans and
advances grew by 5% to £122.1 billion.
The full year results show momentum developing in the
business, with operating profit in the second half of the year
14% higher than in the same period of 2006.
Expenses have been kept under tight control, with efficiency
gains allowing us to invest and grow the business. Impairment
losses maintained the improvement witnessed in the first half
of the year, falling by 8% for the year as a whole. Arrears
trends on credit cards and unsecured personal loans
continued to improve, as did the quality of our asset base.
Risk-weighted assets rose by 5% to £80.8 billion at the end
of 2007.
2006 compared with 2005
Retail Markets achieved a good performance in 2006, with
total income rising by 5% to £8,455 million. Contribution
before impairment losses increased by 6% to £5,603 million,
contribution by 4% to £4,292 million and operating profit by
5% to £2,568 million.
Responding to evolving demand from its customers, Retail
Markets has added to its capabilities in deposits and investment
products and has been rewarded by strong growth in these
areas. Lending growth has been centred on high quality
residential mortgages and small business loans, while personal
unsecured lending was flat, as we limited our activity in the direct
loans market and customer demand remained subdued. We
have used our full range of brands to address markets flexibly,
focusing on the most appropriate products and channels in the
light of prevailing market conditions. Expenses have been kept
under tight control, with additional investment in our business
offset by efficiency gains and the benefits of combining Retail
Banking and Direct Channels into a unified business.
Customer recruitment has been centred on our branch
channels, where we have achieved good growth in savings
accounts and are joint market leader for personal current
accounts. Our commitment to customer service, through the
largest network of branches and ATMs in the UK, is reflected
in our industry-leading customer satisfaction ratings.
Average risk-weighted assets fell by 3%, reflecting a change in
business mix toward mortgage lending as well as careful balance
sheet management, including increased use of securitisations.