RBS 2011 Annual Report Download - page 236

234 RBS Group 2011
Risk management: Market risk continued
Non-trading portfolios
The table below analyses the risk for the Group’s non-trading portfolios.
VaR is not always the most appropriate measure of risk for assets in the
banking book and particularly for those in Non-Core, which will diminish
over time as the asset inventory is sold down.
In order to better represent the risk of the non-traded portfolios, the table
below analyses the VaR for the non-trading portfolios but excludes the
Non-Core structured credit portfolio (SCP). These assets are shown
separately on a drawn notional and fair value basis by maturity profile
and asset class. The risk in this portfolio is managed on both a third party
asset and RWA basis.
Also excluded from the non-traded VaR are the loans and receivable
products that are managed within the credit risk management framework.
2011 2010 2009
Non-trading VaR Average
£m
Period end
£m
Maximum
£m
Minimum
£m Average £m
Period end
£m
Maximum
£m
Minimum
£m
Average
£m
Period end
£m
Maximum
£m
Minimum
£m
Interest rate 8.8 9.9 11.1 5.7 8.7 10.4 20.5 4.4 13.0 13.9 26.3 7.7
Credit spread 18.2 13.6 39.3 12.1 32.0 16.1 101.2 15.4 81.7 100.3 131.5 39.7
Currency 2.1 4.0 5.9 0.1 2.1 3.0 7.6 0.3 1.4 0.6 7.0 0.2
Equity 2.1 1.9 3.1 1.6 1.2 3.1 4.6 0.2 3.3 2.2 5.8 1.6
Diversification (1) (13.6) (15.9) (20.4)
19.7 15.8 41.6 13.4 30.9 16.7 98.0 13.7 80.4 96.6 126.9 46.8
Core 19.3 15.1 38.9 13.5 30.5 15.6 98.1 12.8 78.4 95.9 126.9 46.8
Non-Core 3.4 2.5 4.3 2.2 1.3 2.8 4.1 0.2 3.5 1.9 16.9 —
Note:
(1) The Group benefits from diversification, which reflects the risk reduction achieved by allocating investments across various financial instrument types, industry counterparties, currencies and regions.
The extent of diversification benefit depends on the correlation between the assets and risk factors in the portfolio at a particular time. Diversification has an inverse relationship with correlation. The
diversification factor is the sum of the VaR on individual risk types less the total portfolio VaR.
Key points
xThe Group’s total non-trading VaR at 31 December 2011 was
significantly lower than at 31 December 2010, due to the exceptional
volatility of the 2008/2009 financial crisis dropping out of the two-
year time series data used in the VaR calculation.
xThe maximum credit spread VaR was considerably lower in 2011
than in 2010. This was due to the implementation in early 2011 of
the relative price-based mapping scheme for the Dutch RMBS
portfolio. The availability of more granular data provided a better
reflection of the risk in the portfolio.
Business review Risk and balance sheet management continued