RBS 2011 Annual Report Download - page 215

RBS Group 2011 213
Key points*
Reported exposures are affected by currency movements. Over the year,
sterling fell 0.3% against the US dollar and rose 3.1% against the euro.
xExposure to most countries shown in the table declined over 2011
as the Group maintained a cautious stance and many bank clients
reduced debt levels. Decreases were seen in balance sheet and off-
balance sheet exposures in many countries. Increases in derivatives
and repos were in line with the Group’s strategy, driven partly by
customer demand for hedging solutions and partly by market
movements; risks are generally mitigated by active collateralisation.
xIndia - strong economic growth in 2011 resulted in increased
exposure across most product types until the fourth quarter, when a
decline took place, driven by a Global Transaction Services (GTS)
exercise in the region to manage down risk-weighted assets, natural
run-offs/maturities and a sharp rupee depreciation. Year-on-year
increases in lending to corporate clients (£0.3 billion) and the central
bank (£0.3 billion) were offset by reductions in lending to banks
(£0.7 billion) and other financial institutions (£0.3 billion).
xChina - lending to Chinese banks increased in the first three
quarters of the year, supporting trade finance activities and on-shore
regulatory needs, but by the end of 2011 exposure had decreased
close to December 2010 levels. The Group reduced lending in the
interbank money markets over the final quarter. This reduction in
lending was offset by significant growth in repo trading with Chinese
financial institutions helping to support the Group’s funding
requirements, with highly liquid US Treasuries being the main
underlying security. A reduction in off-balance sheet exposures,
including guarantees and undrawn commitments, was in part due to
the run-off of performance bonds in respect of shipping deliveries
and also due to reduced appetite for trade finance assets.
xSouth Korea - exposure decreased by £1.6 billion during 2011. This
was partly due to a reduction in debt securities as the Group
managed its wrong-way risk exposure. The Group maintained a
cautious stance given the current global economic downturn.
xTurkey - exposures were managed down in most categories, with
the non-strategic (mid-market) portfolio significantly reduced in 2011.
Nonetheless, Turkey continues to be one of the Group’s key
emerging markets. The strategy remains client-centric, with the
product offering tailored to selected client segments across large
Turkish international corporate clients and financial institutions as
well as Turkish subsidiaries of global clients.
xMexico - asset sales and a number of early repayments in the
corporate portfolio led to exposure falling £0.8 billion in the year.
This decline also reflects the Group’s cautious approach to new
business following its decision to close its onshore operation in
Mexico.
xEurozone periphery (Ireland, Spain, Italy, Greece and Portugal) -
exposure decreased across most of the periphery, with derivatives
(gross of collateral) and repos being the only component that still
saw some increases (partly an effect of market movements on
existing positions). Most of the Group’s country risk exposure to the
eurozone periphery countries arises from the activities of GBM and
Ulster Bank (with respect to Ireland). The Group has some large
holdings of Spanish bank and financial institution mortgage-backed
security bonds and smaller quantities of Italian bonds and Greek
sovereign debt. GTS provides trade finance facilities to clients
across Europe including the eurozone periphery.