RBS 2011 Annual Report Download - page 220

218 RBS Group 2011
Risk management: Country risk continued
Spain continued
Key points*
xThe Group maintains strong relationships with Spanish government
entities, banks, other financial institutions and large corporate clients.
The exposure to Spain is driven by corporate lending and a large
MBS covered bond portfolio.
xExposure fell in most categories in 2011, particularly in corporate
lending, as a result of steps to de-risk the portfolio.
Central and local government and central bank
xThe Group’s exposure to the government was negative at 31
December 2011, reflecting net short held-for-trading debt securities.
Financial institutions
xAsizeable covered bond portfolio of £6.5 billion is the Group’s
largest exposure to the Spanish financial sector. The portfolio
continued to perform satisfactorily in 2011. Stress analysis
conducted to date on these available-for-sale debt securities
indicated that this exposure is unlikely to suffer material credit losses.
However, the Group continues to monitor the situation closely.
xAfurther £1.9 billion of the Group’s exposure to financial institutions
consists of derivatives exposure to Spanish international banks and
afew of the large regional banks, the majority of which is
collateralised. This increased £0.4 billion in 2011, due partly to
market movements.
xLending to banks consists mainly of short-term uncommitted credit
lines with the top two international Spanish banks.
Corporate
xExposure to corporate clients declined during 2011, with reductions
in lending of £1.2 billion and in off-balance sheet items of £0.4 billion,
driven by reductions in exposure to property, transport and
technology, media and telecommunications sectors. The majority of
REIL relates to commercial real estate lending and decreased over
the year, reflecting disposals and restructurings.
Non-Core (included above)
Refer to tables on pages 211 and 212 for details.
xAs at 31 December 2011, Non-Core had lending exposure of £3.7
billion to Spain, a reduction of £0.8 billion or 18% since 31
December 2010. The real estate (66%), construction (11%),
electricity (7%) and land transport (3%) sectors account for the
majority of this lending exposure.
*unaudited
Business review Risk and balance sheet management continued