RBS 2007 Annual Report Download - page 81

Business review
79
RBS Group • Annual Report and Accounts 2007
Summary of loan impairment provisions
Including
ABN AMRO
net of
Including minority Excluding
ABN AMRO interest ABN AMRO
2007 2007 2007 2006 2005
Loan impairment provisions (1) £m £m £m £m £m
Latent loss provisions 1,050 734 600 593 543
Collectively assessed provisions 3,834 3,167 2,996 2,645 2,587
Individually assessed provisions 1,554 1,060 637 695 754
Total provisions 6,438 4,961 4,233 3,933 3,884
Total provision as a % of customer loans and advances – gross (2) 0.9% 0.9% 0.9% 1.0% 1.0%
Notes:
(1) Excludes provisions against loans and advances to banks of £3 million (2006 – £2 million; 2005 – £3 million).
(2) Gross of provisions and excluding reverse repurchase agreements.
As at 31 December 2007 total customer provisions were £6,438 million. Excluding ABN AMRO minority interest, total customer provisions
were £4,961 million, up £1,028 million (26%) from 31 December 2006.
Provisions coverage
The Group’s provision coverage ratios are shown in the table below.
Including
ABN AMRO
net of
Including minority Excluding
ABN AMRO interest ABN AMRO
2007 2007 2007 2006 2005
Total provision expressed as a:
% of REIL 60% 60% 61% 62% 65%
% of REIL and PPL 56% 59% 61% 62% 65%
The coverage ratio of closing provisions to REIL and PPL decreased from 62% to 56% during 2007. Excluding ABN AMRO minority
interest, the coverage ratio was 59%. The lower coverage ratio reflects amounts written-off and the changing mix from unsecured to
secured exposures.
Movement in loan impairment provisions balance
The movement in provisions balance is shown in the table below.
2007 2006
£m £m
Balance as at 1 January 3,935 3,887
Currency translation and other adjustments 137 (61)
Acquisition of subsidiaries
– ABN AMRO excluding minority interest 657 —
– ABN AMRO minority interest 1,547 —
– Other 6 —
Amounts written-off (2,171) (1,841)
Recoveries of amounts previously written-off 390 215
Charge to income statement 2,106 1,877
Discount unwind (1) (166) (142)
Balance as at 31 December (2) 6,441 3,935
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 (2006 – £2 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.