RBS 2011 Annual Report Download - page 204

202 RBS Group 2011
Risk management: Credit risk continued
Balance sheet analysis: REIL, provisions and reserves continued
Non-Core
2009
Gross
loans
£m
REIL
£m
Provisions
£m
REIL
as a % of
gross loans
%
Provisions
as a %
of REIL
%
Provisions
as a % of
gross loans
%
Impairment
charge
£m
Amounts
written-off
£m
Central and local government 1,532 — — — — — — —
Finance
-banks 1,360 38 22 2.8 58 1.6 22 —
- other 9,713 501 160 5.2 32 1.6 630 579
Residential mortgages 12,932 614 210 4.7 34 1.6 604 496
Personal lending 6,358 596 366 9.4 61 5.8 701 604
Property 50,372 12,552 2,954 24.9 24 5.9 2,879 613
Construction 5,258 1,775 388 33.8 22 7.4 421 257
Manufacturing 14,402 2,640 1,897 18.3 72 13.2 1,384 691
Service industries and business
activities 33,638 3,546 1,191 10.5 34 3.5 1,464 916
Agriculture, forestry and fishing 553 47 27 8.5 57 4.9 6 1
Finance leases and instalment credit 11,956 591 302 4.9 51 2.5 219 35
Interest accruals 549 — — — — — — —
Latent — — 735 — — — 193 —
148,623 22,900 8,252 15.4 36 5.6 8,523 4,192
of which:
UK 79,043 8,400 2,713 10.6 32 3.4 2,709 1,279
Europe 41,096 10,783 3,740 26.2 35 9.1 2,520 381
US 19,546 2,618 1,144 13.4 44 5.9 2,460 2,080
RoW 8,938 1,099 655 12.3 60 7.3 834 452
Group before RFS MI 148,623 22,900 8,252 15.4 36 5.6 8,523 4,192
Impairment loss provision methodology
Afinancial asset or portfolio of financial assets is impaired and an
impairment loss incurred if there is objective evidence that an event or
events since initial recognition of the asset have adversely affected the
amount or timing of future cash flows from the asset.
For retail loans, which are segmented into collective, homogenous
portfolios, time-based measures, such as days past due, are typically
used as evidence of impairment. For these portfolios, the Group
recognises an impairment at 90 days past due.
For corporate portfolios, given their complexity and nature, the Group
relies not only on time-based measures but also on management
judgement to identify evidence of impairment. Other factors considered
may include: significant financial difficulty of the borrower; a breach of
contract; a loan restructuring; a probable bankruptcy; and any observable
data indicating a measurable decrease in estimated future cash flows.
Depending on various factors as explained below, the Group uses one of
the following three different methods to assess the amount of provision
required: individual; collective; and latent.
xIndividually assessed provisions: provisions required for individually
significant impaired assets are assessed on a case-by-case basis. If
there is objective evidence that an impairment loss has been
incurred, the amount of the loss is measured as the difference
between the assets carrying amount and the present value of the
estimated future cash flows discounted at the financial asset’s
original effective interest rate. Future cash flows are estimated
through a case-by-case analysis of individually assessed assets.
This assessment takes into account the benefit of any guarantee or
other collateral held. The value and timing of cash flow receipts are
based on available estimates in conjunction with facts available at
that time. Timings and amounts of cash flows are reviewed on
subsequent assessment dates, as new information becomes
available. The asset continues to be assessed on an individual basis
until it is repaid in full, transferred to the performing portfolio or
written-off.
Business review Risk and balance sheet management continued