RBS 2011 Annual Report Download - page 150

148 RBS Group 2011
Risk management: Credit risk continued
Credit risk measurement*: Credit risk assets by sector and geographical region continued
2009
UK
£m
Western
Europe
(excl. UK)
£m
North
America
£m
Asia
Pacific
£m
Latin
America
£m
Other (1)
£m
Total
£m
Core
£m
Non-Core
£m
Personal 120,193 23,597 37,680 1,374 63 897 183,804 165,143 18,661
Banks 7,850 36,705 4,975 9,121 1,378 2,137 62,166 58,246 3,920
Other financial institutions 14,800 14,125 17,697 4,820 8,441 1,473 61,356 43,762 17,594
Sovereign (2) 18,172 27,421 4,038 3,950 414 2,217 56,212 53,595 2,617
Property 72,768 35,558 11,221 3,507 3,127 1,440 127,621 74,892 52,729
Natural resources 7,876 9,460 9,817 3,029 3,523 4,972 38,677 26,058 12,619
Manufacturing 11,197 14,875 8,718 3,695 1,306 2,633 42,424 33,400 9,024
Transport (3) 14,097 7,033 7,287 5,294 2,604 7,140 43,455 28,362 15,093
Retail and leisure 25,811 8,236 6,148 3,602 1,205 1,691 46,693 35,580 11,113
Telecommunications, media and technology 6,128 8,340 4,854 2,040 680 1,409 23,451 13,645 9,806
Business services 20,497 6,772 6,950 1,137 1,439 903 37,698 32,375 5,323
319,389 192,122 119,385 41,569 24,180 26,912 723,557 565,058 158,499
Notes:
(1) Comprises Central and Eastern Europe, Middle East, Central Asia and Africa, and supranationals such as the World Bank.
(2) Includes central bank exposures.
(3) Excludes net investment in operating leases in shipping and aviation portfolios as they are accounted for as property, plant and equipment. However, operating leases are included in the monitoring
and management of these portfolios.
(4) 2010 data were restated due to supranational counterparties being re-mapped from Western Europe to Other.
Key points
xConditions in the financial markets and the Group’s focus on risk
appetite and sector concentration had a direct impact on the
composition of its Core portfolio during the year. The following key
trends were observed:
(i) A 35% increase in exposure to sovereigns, driven by the
significant deposits placed with central banks;
(ii) A 10% reduction in exposure to the property sector, driven by
tightened controls in Core as well as by a reduction in Non-
Core;
(iii) A modest reduction in exposure to other corporate and
financial institution sectors, driven by subdued borrowing
activity by larger corporates; and
(iv) A broadly flat exposure to the personal sector.
xThe Group’s sovereign portfolio comprises central governments,
central banks and sub-sovereigns such as local authorities, primarily
in the Group’s key markets in the UK, Western Europe and the US.
Exposure predominantly comprises cash balances placed with
central banks such as the Bank of England, the Federal Reserve
and the Eurosystem (including the European Central Bank and
central banks in the eurozone) and consequently, the asset quality
of this portfolio is high. Exposure to sovereigns fluctuates according
to the Group’s liquidity requirements and cash positions, which
determine the level of cash placed with central banks. However,
during 2011, there was a marked increase in these balances as the
Group boosted its regulatory liquidity position. Information on the
Group’s exposure to sovereigns, including eurozone peripheral
sovereigns, can be found in the Country risk section on page 208.
xThe bank sector is one of the largest in the Group’s portfolio but the
sector is well diversified geographically, largely collateralised and
tightly controlled through a combination of the single name
concentration framework and a suite of credit policies specifically
tailored to the sector and country limits. The largest segment of
exposure to the sector remains to globally systemically important
financial institutions. The environment remains challenging as a
result of low economic growth in advanced economies, higher costs
due to increased regulatory requirements and the growing difficulty
of returning to historical levels of profitability. Over 2011, there was
modest increase in exposure to banks due to mark-to-market
movements in derivatives. However, the Group’s portfolio was in
general characterised by declining limits, a rising number of
counterparties subject to heightened credit monitoring due to the
problems faced by the peripheral eurozone countries and a
corresponding deterioration in asset quality, balanced to some
extent by the improved stability of banks outside the eurozone.
Business review Risk and balance sheet management continued