RBS 2011 Annual Report Download - page 145

RBS Group 2011 143
Wholesale market exposures
As set out in the table below, the Group receives collateral for reverse repurchase transactions and for derivatives, typically in the form of cash, quoted
debt securities or equities. The risks inherent in both types of transaction are further mitigated through master bilateral netting arrangements. Industry
standard documentation such as master repurchase agreements and credit support annexes accompanied by legal opinion, is used for financial
collateral taken as part of trading activities.
2011 2010 2009
£bn £bn £bn
Reverse repurchase agreements 100.9 95.1 76.1
Securities received as collateral (1) (98.9) (94.3) (74.0)
Derivative assets gross exposure 529.6 427.1 441.5
Counterparty netting (441.6) (330.4) (358.9)
Cash collateral held (37.2) (31.1) (33.7)
Securities received as collateral (5.3) (2.9) (3.6)
Note:
(1) In accordance with normal market practice, at 31 December 2011 £95.4 billion (2010 - £93.5 billion; 2009 - £73.0 billion) had been resold or re-pledged as collateral for the Group’s own transactions.
Retail exposures
Within the Group’s retail book, mortgage and home equity lending
portfolios are secured by residential property. The Group’s portfolio of US
automobile loans is secured by motor cars or other vehicles. Student
loans and credit card lending are all unsecured. The vast majority of
personal loans are also unsecured.
All borrowing applications, whether secured or not, are subject to
appropriate credit risk underwriting processes including affordability
assessment. Pricing is typically higher on unsecured than secured loans.
For secured loans, pricing will typically vary by LTV. Higher LTV products
are typically subject to higher interest rates commensurate with the
associated risk.
The value of a property intended to secure a mortgage is assessed
during the loan underwriting process using industry-standard
methodologies. Property values supporting home equity lending reflect
either an individual appraisal or valuations generated by statistically valid
automated valuation models. Property values are updated each quarter
using the relevant house price index (the Halifax Quarterly Regional
House Price Index in the UK, the Case-Shiller Home Value Index in the
US, and the Central Statistics Office Residential Property Price Index and
the Nationwide House Price Index in Ireland).
For automobile lending in the US, new vehicles are valued at cost and
used vehicles at the average trade-in value. At 31 December 2011 this
portfolio amounted to £4.8 billion (2010 - £5.1 billion; 2009 - £5.7 billion),
all of which was fully secured and predominantly (over 99%) in the
performing book.
The existence of collateral has an impact on provisioning levels. Once a
secured loan is classified as non-performing, the realisable value of the
underlying collateral and the costs associated with repossession are
used to estimate the provision required.
Residential mortgages
The table belowshows period end LTVs for the Group’s residential mortgage portfolio split between performing and non-performing and calculated on a
value basis. Loan balances are as at the end of the year whereas property values are calculated using the appropriate index at 30 September 2011.
2011 2010 2009
Residential mortgages by average LTV Performing
£m
Non-performing
£m
Performing
£m
Non-performing
£m
Performing
£m
Non-performing
£m
<= 70% 60,799 1,137 59,598 1,036 55,920 791
>70% and <= 90% 42,923 1,022 41,964 906 38,807 697
>90% and <= 110% 17,856 990 20,104 951 23,853 754
>110% and <= 130% 5,809 573 7,211 622 8,604 507
> 130% (1) 6,684 1,188 3,793 507 3,059 269
Total 134,071 4,910 132,670 4,022 130,243 3,018
Total portfolio average LTV (by value) 73.2% 101.4% 72.4% 91.7% 73.5% 90.1%
Note:
(1) 83% of residential mortgages with LTV > 130% are within Ulster Bank due to the continued challenging economic environment in Ireland.