RBS 2010 Annual Report Download - page 387

The APS is a single contract providing credit protection in respect of a
portfolio of financial assets. Under IFRS, credit protection is treated either
as a financial guarantee contract or as a derivative financial instrument
depending on the terms of the agreement and the nature of the protected
assets and exposures. The Group has concluded, principally because the
covered portfolio includes significant exposure in the form of derivatives,
that the APS does not meet the criteria to be treated as a financial
guarantee contract. The contract has been accounted for as a derivative
financial instrument. It is recognised at fair value of £550 million (2009 -
£1,400 million) and included within the Derivative asset balance sheet
caption. Changes in fair value of £1,550 million (2009 - nil) were
recognised in profit or loss within Income from trading activities. Details of
the valuation methodology for the APS are set out in Note 12 Financial
instruments on pages 320 and 321.
There is no change in the recognition and measurement of the covered
assets as a result of the APS. Impairment provisions on covered assets
measured at amortised cost are assessed and charged in accordance
with the Group’s accounting policy; held-for-trading assets, assets
designated at fair value and available-for-sale assets within the APS
portfolio continue to be measured at fair value with no adjustments to
reflect the protection provided by the APS. There is no change in how
gains and losses on the covered assets are recognised in the income
statement or in other comprehensive income.
The Group also participates in a number of schemes operated by the
Bank of England and the UK Government and made available to eligible
banks and building societies.
Bank of England facilities include:
xOpen market operations - these provide market participants with
funding at market rates on a tender basis in the form of short and
long-term repos on a wide range of collateral and outright purchases
of high-quality bonds to enable them to meet the reserves that they
must hold at the Bank of England.
xThe special liquidity scheme - this was launched in April 2008 to
allow financial institutions to swap temporarily illiquid assets for
treasury bills, with fees charged based on the spread between 3-
month LIBOR and the 3-month gilt repo rate. The scheme will
operate for up to three years after the end of the drawdown period
(30 January 2009) at the Bank of England's discretion.
As at 31 December 2010, the Group's utilisation of these facilities
amounted to £16.1 billion (2009 - £21.4 billion; 2008 - £41.8 billion).
Government credit guarantee scheme
Announced in October 2008, the scheme provides a guarantee on
eligible new debt issued by qualifying institutions for a fee. The fee,
payable to HM Treasury on guaranteed issues is based on a per annum
rate of 50 basis points plus 100% of the institution's median five-year
credit default swap (CDS) spread during the twelve months to 7 July
2008.
As at 31 December 2010, the Group had obtained funding from the Bank
of England and issued debt guaranteed by the Government totalling
£41.5 billion (2009 - £51.5 billion; 2008 - £32.2 billion).
Other related parties
a) In their roles as providers of finance, Group companies provide
development and other types of capital support to businesses.
These investments are made in the normal course of business and
on arm's length terms. In some instances, the investment may
extend to ownership or control over 20% or more of the voting rights
of the investee company. However, these investments are not
considered to give rise to transactions of a materiality requiring
disclosure under IAS 24.
b) The Group recharges The Royal Bank of Scotland Group Pension
Fund with the cost of administration services incurred by it. The
amounts involved are not material to the Group.
c) In accordance with IAS 24, transactions or balances between Group
entities that have been eliminated on consolidation are not reported.
d) The captions in the primary financial statements of the parent
company include amounts attributable to subsidiaries. These
amounts have been disclosed in aggregate in the relevant notes to
the financial statements.
44 Post balance sheet events
There have been no significant events between the year end and the
date of approval of these accounts which would require a change to or
disclosure in the accounts.
385RBS Group 2010
Financial statements