RBS 2010 Annual Report Download - page 84

UK Retail continued
2009 compared with 2008
Operating profit of £229 million was £494 million lower than in 2008.
Profit before impairments was up £166 million or 10%, but impairments
rose by £660 million as the economic environment deteriorated, albeit
with signs of conditions stabilising in the second half of the year.
The division has focused in 2009 on growing secured lending to meet its
Government targets while at the same time building customer deposits,
thereby reducing the Group's reliance on wholesale funding. Loans and
advances to customers grew 10%, with a change in mix from unsecured
to secured as the Group sought actively to reduce its risk profile, with
15% growth in mortgage lending and an 8% reduction in unsecured
lending.
xMortgage growth was due to good retention of existing customers
and new business sourced predominantly from the existing
customer base. Gross mortgage lending market share increased to
12% from 7% in 2008, with the Group on track to exceed its
Government targets on net lending by £3 billion.
xCustomer deposits grew 11% on 2008 reflecting the strength of the
UK Retail customer franchise, which outperformed the market in an
increasingly competitive environment. Savings balances grew by £6
billion or 11% and account acquisition saw a 20% increase, with 2.2
million accounts opened. Personal current account balances
increased by 12% on 2008 with a 3% growth in accounts to 12.8
million.
Net interest income increased significantly by 8% to £3,452 million, driven
by strong balance sheet growth. Net interest margin was flat at 3.59%,
with decreasing liability margins in the face of stiff competition for
deposits offsetting wider asset margins. The growth in mortgages and the
reduction in higher margin unsecured balances also had a negative
impact on the blended net interest margin.
Non-interest income declined 15% to £1,495 million, principally reflecting
the withdrawal of the single premium payment protection insurance
product and the restructuring of current account overdraft fees in the final
quarter of 2009, with the annualised impact of the overdraft fee
restructuring further affecting income in 2010. The weak economic
environment presented little opportunity in 2009 to grow credit card,
private banking and bancassurance fees.
Expenses decreased by 5%, with the cost:income ratio improving from
62% to 60%.
xDirect staff costs declined by 9%, as the division benefited from
strong cost control, a focus on process re-engineering and a 10%
reduction in headcount.
xRBS continues to progress towards a more convenient, lower cost
operating model, with over 4 million active users of online banking
and a record share of new sales achieved through direct channels.
More than 5.5 million accounts have switched to paperless
statements and 254 branches now utilise automated cash deposit
machines.
Impairment losses increased 65% to £1,679 million reflecting the
deterioration in the economic environment, and its impact on customer
finances.
xThe mortgage impairment charge was £124 million (2008 - £31
million) on a total book of £83.2 billion. Mortgage arrears rates
stabilised in the second half of 2009 and remain well below the
industry average, as reported by the Council of Mortgage Lenders.
Repossessions show only a small increase on 2008, as the Group
continues to support customers facing financial difficulties.
xThe unsecured lending impairment charge was £1,555 million (2008
-£988 million) on a book of £19.8 billion. Industry benchmarks for
cards arrears showed a slightly improving trend in the final quarter of
2009, which is consistent with the Group's experience. RBS
continues to perform better than the market on arrears.
Risk-weighted assets increased by 12% to £51.3 billion due to higher
lending and the upward pressure from procyclicality, more than offsetting
the adoption of a through-the-cycle loss given default approach for
mortgages.
RBS Group 201082
Business review continued