RBS 2009 Annual Report Download - page 389

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387RBS Group Annual Report and Accounts 2009
Renegotiated loans – loans are generally renegotiated (‘restructured’)
either as part of the ongoing banking relationship with a creditworthy
customer or in response to a borrower’s financial difficulties. In the latter
case renegotiation may result in an extension of the due date of
payment, a concessionary rate of interest or other changes in the terms
of the loan; the loan continues to be overdue and will be individually
impaired if the renegotiated payments of interest and principal are
insufficient to recover the loan’s original carrying amount.
Repurchase agreement (Repo) see Sale and repurchase agreements.
Residential mortgage backed securities (RMBS) are asset-backed
securities for which the underlying asset portfolios are residential
mortgages.
Retail loans are loans made to individuals rather than institutions. The
loans may be for car purchases, home purchases, medical care, home
repair, holidays and other consumer uses.
Reverse repurchase agreement (Reverse repo) – see Sale and
repurchase agreements.
Risk asset ratio (RAR) – total regulatory capital as a percentage of risk-
weighted assets.
Risk elements in lending (REIL) comprise non-accrual loans, accruing
loans which are contractually overdue 90 days or more as to principal or
interest and troubled debt restructurings.
Risk-weighted assets – assets adjusted for their associated risks using
weightings established in accordance with the Basel Capital Accord as
implemented by the FSA. Certain assets are not weighted but deducted
from capital.
Sale and repurchase agreements – in a sale and repurchase agreement
one party, the seller, sells a financial asset to another party, the buyer, at
the same time the seller agrees to reacquire, and the buyer to resell, the
asset at a later date. From the seller’s perspective such agreements are
repurchase agreements (repos) and from the buyer’s reverse
repurchase agreements (reverse repos).
Securitisation is a process by which assets or cash flows are
transformed into transferable securities. The underlying assets or cash
flows are transferred by the originator or an intermediary, typically an
investment bank, to a special purpose entity which issues securities to
investors. Asset securitisations involve issuing debt securities (asset-
backed securities) that are backed by the cash flows of income-
generating assets (ranging from credit card receivables to residential
mortgage loans). Liability securitisations typically involve issuing bonds
that assume the risk of a potential insurance liability (ranging from a
catastrophic natural event to an unexpected claims level on a certain
product type).
Special purpose entity (SPE) is an entity created by a sponsor, typically
a major bank, finance company, investment bank or insurance company.
An SPE can take the form of a corporation, trust, partnership,
corporation or a limited liability company. Its operations are typically
limited for example in a securitisation to the acquisition and financing of
specific assets or liabilities.
Structured Investment Vehicle (SIV) is a limited-purpose operating
company that undertakes arbitrage activities by purchasing highly rated
medium and long-term, fixed-income assets and funding itself with
short-term, highly rated commercial paper and medium-term notes.
Structured notes are securities that pay a return linked to the value or
level of a specified asset or index. Structured notes can be linked to
equities, interest rates, funds, commodities and foreign currency.
Student loan related assets are assets that are referenced to underlying
student loans.
Subordinated liabilities are liabilities which, in the event of insolvency or
liquidation of the issuer, are subordinated to the claims of depositors
and other creditors of the issuer.
Sub-prime – sub-prime mortgage loans are designed for customers with
one or more high risk characteristics, such as: unreliable or poor
payment histories; loan-to-value ratio of greater than 80%; high debt-to-
income ratio; the loan is not secured on the borrower’s primary
residence; or a history of delinquencies or late payments on the loan.
Super senior CDO is the most senior class of instrument issued by a
CDO vehicle. They benefit from the subordination of all other
instruments, including AAA-rated securities, issued by the CDO vehicle.
Tier 1 capital – core Tier 1 capital plus other Tier 1 securities in issue,
less material holdings in financial companies.
Tier 1 capital ratio – Tier 1 capital as a percentage of risk-weighted
assets.
Tier 2 capital – qualifying subordinated debt and other Tier 2 securities
in issue, eligible collective impairment allowances, unrealised available
for sale equity gains and revaluation reserves less certain regulatory
deductions.
Troubled debt restructurings – comprise those loans that are troubled
debt restructurings but that are not included in either non-accrual loans
or in accruing loans which are contractually overdue 90 days or more as
to principal or interest. A restructuring of a loan is a troubled debt
restructuring if the lender, for economic or legal reasons related to the
borrower’s financial difficulties, grants a concession to the borrower that
it would not otherwise consider.
US Government National Mortgage Association see Ginnie Mae.
Unaudited – unaudited financial information is information that has not
been subjected to the audit procedures undertaken by the Group’s
auditors to enable them to express an opinion on the Group’s financial
statements.
VaR is a technique that produces estimates of the potential change in
the market value of a portfolio over a specified time horizon at given
confidence levels.
Wrapped security – a wrapped security is a debt security where the
holder benefits from credit protection provided by a third party, typically
a financial guarantor or monoline insurer.
Write down – a reduction in the carrying value of an asset to record a
decline in its fair value or value in use.