RBS 2011 Annual Report Download - page 118

116 RBS Group 2011
Balance sheet management: Liquidity and funding risk
All disclosures in this section (pages 116 to 133) are audited unless
otherwise indicated with an asterisk (*).
Liquidity risk
Liquidity risk is the risk that the Group is unable to meet its obligations,
including financing maturities as they fall due. Liquidity risk is heavily
influenced by the maturity profile and mix of the Group’s funding base, as
well as the quality and liquidity value of its liquidity portfolio.
Liquidity risk is dynamic, being influenced by movements in markets and
perceptions that are driven by firm specific or external factors. Managing
liquidity risk effectively is a key component of the Group’s risk reduction
strategy. The Group's 2011 performance demonstrates continued
improvements in managing liquidity risk and reflects actions taken in light
of an uncertain economic outlook, which resulted in improvements in key
measures:
xDeposit growth - Core Retail & Commercial deposits rose by 9%,
and together with Non-Core deleveraging, took the Group
loan:deposit ratio to 108%, compared with 118% at the end of 2010.
xWholesale funding - £21 billion of net term wholesale debt was
issued in 2011 from secured and unsecured funding programmes,
across a variety of maturities and currencies.
xShort-term wholesale funding (STWF) - the overall level of STWF
fell by £27 billion to £102 billion, below the 2013 target of circa £125
billion.
xLiquidity portfolio - the liquidity portfolio of £155 billion was
maintained above the 2013 target level of £150 billion against a
backdrop of heightened market uncertainty in the second half of the
year and was higher than STWF. This represents a £53 billion
cushion over STWF.
Funding issuance
The Group has access to a variety of funding sources across the globe,
including short-term money markets, repurchase agreement markets and
term debt investors through its secured and unsecured funding
programmes. Diversity in funding is provided by its active role in the
money markets, along with access to global capital flows through GBM’s
international client base. The Group’s wholesale funding franchise is well
diversified by currency, geography, maturity and type.
The Group has been a regular issuer in the debt capital markets in both
secured and unsecured arrangements. 2011 net new term debt issuance
was £21 billion, with 49% secured and 51% unsecured, of which 71%
were public transactions and 29% were private.
Balance sheet composition
The Group’s balance sheet composition is a function of the broad array of
product offerings and diverse markets served by its Core divisions. The
structural composition of the balance sheet is augmented as needed
through active management of both asset and liability portfolios. The
objective of these activities is to optimise liquidity transformation in
normal business environments, while ensuring adequate coverage of all
cash requirements under extreme stress conditions.
Diversification of the Group’s funding base is central to its balance sheet
management strategy. The Group’s businesses have developed large
customer franchises based on strong relationship management and high
quality service. These customer franchises are strongest in the UK, the
US and Ireland, but extend into Europe and Asia. Customer deposits
provide large pools of stable funding to support the majority of the
Group’s lending. Improvement of the Group’s loan:deposit ratio to 100%
or better, by 2013, is a strategic objective.
The Group also accesses professional markets funding by way of public
and private debt issuances on an unsecured and secured basis. These
debt issuance programmes are spread across multiple currencies and
maturities, to appeal to a broad range of investor types and preferences
around the world. This market-based funding supplements the Group’s
structural liquidity needs and, in some cases, achieves certain capital
objectives.
*unaudited
Business review Risk and balance sheet management continued