RBS 2011 Annual Report Download - page 251

RBS Group 2011 249
First loss utilisation
The Group has agreed with HM Treasury modifications to the Scheme
rules, which affect most APS portfolios in Global Banking & Markets and
an APS portfolio in UK Corporate that relates to larger clients. All other
APS portfolios in the Group are unaffected. The overall economic aspects
of the Scheme are unchanged, including value and term of cover, credit
derivative valuation and capital effects.
The modified rules for recognition of triggered assets align more closely
to the Group’s normal accounting and risk management procedures and
will reduce the administrative burden of operating the Scheme. For the
portfolios subject to these changes, the calculation of loss now takes into
account expected recoveries in addition to those already received. This
has resulted in a reduction in first loss utilisation. A comparison of losses
arising under the original Scheme rules with those arising under the
modified Scheme rules is set out below. This covers the period from the
Scheme inception to 31 March 2011 (the last point at which the original
rules applied for the affected assets).
£m
Original first loss utilisation 38,961
Assets not triggered under modified rules (1) (4,126)
Assets triggered under modified rules (2) 997
Expected recoveries (3) (6,272)
Revised first loss utilisation 29,560
Notes:
(1) Assets that had triggered under the original Scheme rules but were not impaired or defaulted are not triggered under the modified rules.
(2) Assets that had not yet triggered under the original Scheme rules but had impaired or defaulted are triggered under the modified rules.
(3) For assets which have triggered under both original and modified rules, this amount represents the excess of expected recoveries over cash recoveries received to date.
The table below shows the first loss utilisation under the original and modified rules.
2011 2010
Original Scheme rules
Modified
Scheme rules Original Scheme rules
Modified
Scheme rules
Gross loss
amount
Cash
recoveries
to date
Net
triggered
loss
Net
triggered
total
Gross loss
amount
Cash
recoveries
to date
Net
triggered
loss
Net
triggered
total
£m £m £m £m £m £m £m £m
Core 8,451 (2,240) 1,567 7,778 6,865 (1,042) 1,559 7,382
Non-Core 17,486 (2,992) 8,158 22,652 13,946 (1,876) 6,923 18,993
25,937 (5,232) 9,725 30,430 20,811 (2,918) 8,482 26,375
Loss credits 1,802 1,241
32,232 27,616
Key points
xThe cumulative first loss is £32.2 billion however, the Group does not expect to claim under the Scheme, which has a first loss of £60 billion.
xThe Group received loss credits of £0.6 billion in 2011 which related to disposals. Cumulative loss credits at 31 December 2011 were £1.8 billion.
xThe Group continues to expect an average recovery rate of approximately 40% across all portfolios.
Risk-weighted assets
The table below analyses risk-weighted assets (RWAs) covered by the APS.
2011 2010 2009
£bn £bn £bn
Core 40.2 54.7 76.1
Non-Core 28.9 50.9 51.5
APS RWAs 69.1 105.6 127.6
Key point
xThe decrease of £36.5 billion in RWAs covered by the Scheme reflects pool movements, assets moving into default and changes in risk
parameters.