RBS 2010 Annual Report Download - page 121

Risk and balance sheet management
In this section (pages 119 to 224) of the Business review certain
information has been audited and is part of the Group’s financial
statements as permitted by IFRS 7. Other disclosures are unaudited and
labelled with an asterisk (*). Key points within this section relate to the
Group before RFS Holdings minority interest (RFS MI) for 2009 and 2008
data.
Introduction*
All the disclosures in this section (pages 119 to 125) are unaudited as
indicated by an asterisk (*). Risk Management has an integral role to play
in the delivery of the strategic plan through the creation and management
of appropriate frameworks as illustrated below:
With the need for financial strength and resilience at the heart of this and
in order to support the Group’s stated objective of standalone strength by
2013, the Group Board agreed in 2009 the key strategic risk objectives
which are aligned to all other elements of the plan. These are:
xmaintain capital adequacy;
xmaintain market confidence;
xdeliver stable earnings growth; and
xstable and efficient access to funding and liquidity.
These strategic risk objectives are the bridge between the Group level
business strategy and the frameworks, measures and metrics which are
used to set appetite and manage risk in the business divisions. The risk
appetite framework is aligned with business objectives, with underlying
and cascading frameworks and limits, which are described in this section.
Enhancements have been made through the year and are ongoing.
Risk appetite
Risk appetite is an expression of the level of risk that the Group is
prepared to accept to deliver its business objectives. Risk and balance
sheet management across the Group is based on the risk appetite
approved by the Board, who will agree targets for each division and
regularly review and monitor the Group's performance in relation to risk.
Risk appetite is defined in both quantitative and qualitative terms and
serves as a way of tracking risk management performance in
implementing the agreed strategy.
xquantitative: encompassing scenario stress testing, risk
concentrations, VaR, liquidity and credit related metrics, operational,
business risk and regulatory measures.
xqualitative: ensuring that the Group applies the correct principles,
policies and procedures, manages reputational risk and develops
risk control and culture.
Akey part of the Group’s risk appetite is the macro reshaping of the
balance sheet through the downsizing of Non-Core. The Group will
manage down previous concentrations in line with the strategic objectives
for 2013. This will be discharged by Non-Core but with Risk Management
playing an integral role in executing the plan. Non-Core assets and their
movements are shown separately in the pages which follow.
*unaudited
119RBS Group 2010
Business review
Risk and balance sheet management
Strategy & policy
■Alignment – risk and business strategy
■Group policy framework
■Capital/risk adjusted performance
Risk architecture
■Risk, finance and treasury architecture
■Risk data quality
■Analytics and modelling
■Risk information and reporting
Operating Model
■Governance
■Organisation, people and culture
■One risk community
■Regulatory and operational risk coverage
Risk appetite and framework
■Credit risk approval and control
■Market risk limits and controls
■Risk concentrations
■Asset and product class
■Country risk
■Treasury risk management
■Scenario testing
Deliver 5 year plan with strong risk
and balance sheet management