RBS 2009 Annual Report Download - page 334

RBS Group Annual Report and Accounts 2009332
Notes on the accounts continued
Banking commitments and contingent obligations, which have been
entered into on behalf of customers and for which there are
corresponding obligations from customers, are not included in assets and
liabilities. The Group’s maximum exposure to credit loss, in the event of
non-performance by the other party and where all counterclaims,
collateral or security proves valueless, is represented by the contractual
nominal amount of these instruments included in the table above. These
commitments and contingent obligations are subject to the Group’s
normal credit approval processes.
Contingent liabilities
Guarantees – the Group gives guarantees on behalf of customers. A
financial guarantee represents an irrevocable undertaking that the Group
will meet a customer’s obligations to third parties if the customer fails to
do so. The maximum amount that the Group could be required to pay
under a guarantee is its principal amount as disclosed in the table above.
The Group expects most guarantees it provides to expire unused.
Other contingent liabilities – these include standby letters of credit,
supporting customer debt issues and contingent liabilities relating to
customer trading activities such as those arising from performance and
customs bonds, warranties and indemnities.
Commitments
Commitments to lend – under a loan commitment the Group agrees to
make funds available to a customer in the future. Loan commitments,
which are usually for a specified term may be unconditionally
cancellable or may persist, provided all conditions in the loan facility are
satisfied or waived. Commitments to lend include commercial standby
facilities and credit lines, liquidity facilities to commercial paper conduits
and unutilised overdraft facilities.
Other commitments – these include documentary credits, which are
commercial letters of credit providing for payment by the Group to a
named beneficiary against presentation of specified documents,
forward asset purchases, forward deposits placed and undrawn note
issuance and revolving underwriting facilities, and other short-term trade
related transactions.
32 Memorandum items
Contingent liabilities and commitments
The amounts shown in the table below are intended only to provide an indication of the volume of business outstanding at 31 December. Although the
Group is exposed to credit risk in the event of non-performance of the obligations undertaken by customers, the amounts shown do not, and are not
intended to, provide any indication of the Group’s expectation of future losses.
Group
More than More than
1 year but 3 years but
Less than less than less than Over
1 year 3 years 5 years 5 years 2009 2008 2007
£m £m £m £m £m £m £m
Contingent liabilities:
Guarantees and assets pledged as collateral security 23,995 6,354 2,821 6,838 40,008 49,262 46,441
Other contingent liabilities 6,057 3,265 1,103 3,587 14,012 22,275 15,479
30,052 9,619 3,924 10,425 54,020 71,537 61,920
Commitments:
Undrawn formal standby facilities, credit lines and
other commitments to lend
– less than one year 127,423 — — — 127,423 166,572 181,914
– one year and over 19,864 80,906 37,238 26,203 164,211 185,826 150,897
Other commitments 2,597 77 11 3,322 6,007 9,326 5,368
149,884 80,983 37,249 29,525 297,641 361,724 338,179