RBS 2011 Annual Report Download - page 134

132 RBS Group 2011
Balance sheet management: Interest rate risk continued
Sensitivity of net interest income*
The Group seeks to mitigate the effect of prospective interest rate
movements, which could reduce future net interest income (NII) in the
Group’s businesses, whilst balancing the cost of such activities on the
current net revenue stream. Hedging activities also consider the impact
on market value sensitivity under stress.
The following table shows the sensitivity of NII, over the next twelve
months, to an immediate upward or downward change of 100 basis
points to all interest rates. In addition, the table includes the impact of a
gradual 400 basis point steepening and a gradual 300 basis point
flattening of the yield curve at tenors greater than a year. This scenario
differs from that applied in the previous year in both the severity of the
rate shift and the tenors to which this is applied.
Potential favourable/(adverse) impact on NII 2011
£m
2010
£m
2009
£m
+100 basis points shift in yield curves 244 232 510
–100 basis points shift in yield curves (183) (352) (687)
Bear steepener 443
Bull flattener (146)
Key points*
xThe Group’s interest rate exposure remains slightly asset sensitive,
driven in part by changes to underlying business assumptions as
rates rise. The impact of the steepening and flattening scenarios is
largely driven by the investment of net free reserves.
xThe reported sensitivity will vary over time due to a number of
factors such as market conditions and strategic changes to the
balance sheet mix and should not therefore be considered predictive
of future performance.
*unaudited
Business review Risk and balance sheet management continued