RBS 2011 Annual Report Download - page 484

482 RBS Group 2011
Glossary of terms continued
Over-the-counter (OTC) derivatives - are derivatives with tailored terms
and conditions negotiated bilaterally, in contrast to exchange traded
derivatives that have standardised terms and conditions.
Own credit adjustment - the effect of the Group’s own credit standing on
the fair value of financial liabilities.
Past due - a financial asset such as a loan is past due when the
counterparty has failed to make a payment when contractually due.
Potential problem loans (PPL) - loans for which an impairment event has
taken place but no impairment provision is required. This category is
used for fully collateralised advances which are not past due 90 days or
revolving credit facilities where identification as 90 days overdue is not
feasible.
Prime -prime mortgage loans generally have low default risk and are
made to borrowers with good credit records and a monthly income that is
at least three to four times greater than their monthly housing expense
(mortgage payments plus taxes and other debt payments). These
borrowers provide full documentation and generally have reliable
payment histories.
Private equity investments - equity investments in operating companies
not quoted on a public exchange. Capital for private equity investment is
raised from retail or institutional investors and used to fund investment
strategies such as leveraged buyouts, venture capital, growth capital,
distressed investments and mezzanine capital.
Probability of default (PD) -the likelihood that a customer will fail to make
full and timely repayment of credit obligations over a one year time
horizon.
Regular way purchase or sale - a purchase or sale of a financial asset
under a contract whose terms require delivery of the asset within the time
frame established generally by regulation or convention in the
marketplace concerned.
Regulatory capital -the amount of capital that the Group holds,
determined in accordance with rules established by the FSA for the
consolidated Group and by local regulators for individual Group
companies.
Renegotiated loans - loans are generally renegotiated either as part of
the ongoing banking relationship with a creditworthy customer or in
response to a borrower's financial difficulties. In the latter case,
renegotiation encompasses not only revisions to the terms of a loan such
as a maturity extension, a payment moratorium, a concessionary rate of
interest but also the restructuring of all or part of the exposure including
debt forgiveness or a debt for equity swap. Loans renegotiated as part of
the ongoing banking relationship with a creditworthy customer are treated
as new loans.
Repurchase agreement (Repo) - see Sale and repurchase agreements.
Residential mortgage backed securities (RMBS) - asset-backed
securities for which the underlying asset portfolios are residential
mortgages.
Restructured loans - see Renegotiated loans.
Retail loans - loans made to individuals rather than institutions. The loans
may be for car purchases, home purchases, medical care, home repair,
holidays and other consumer uses.
Return on equity - profit attributable to ordinary and B shareholders
divided by average shareholders’ equity as a percentage.
Reverse repurchase agreement (Reverse repo) - see Sale and
repurchase agreements.
Risk appetite - an expression of the maximum level of risk that the Group
is prepared to accept to deliver its business objectives.
Risk asset ratio (RAR) - total regulatory capital as a percentage of risk-
weighted assets.
Risk elements in lending (REIL) - impaired loans and accruing loans
which are contractually overdue 90 days or more as to principal or
interest.
Risk-weighted assets (RWAs) -assets adjusted for their associated risks
using weightings established in accordance with the Basel Capital Accord
as implemented by the FSA. Certain assets are not weighted but
deducted from capital.
Sale and repurchase agreements - in a sale and repurchase agreement
one party, the seller, sells a financial asset to another party, the buyer, at
the same time the seller agrees to reacquire and the buyer to resell the
asset at a later date. From the seller's perspective such agreements are
repurchase agreements (repos) and from the buyer's reverse repurchase
agreements (reverse repos).
Securitisation - aprocess by which assets or cash flows are transformed
into transferable securities. The underlying assets or cash flows are
transferred by the originator or an intermediary, typically an investment
bank, to a special purpose entity which issues securities to investors.
Asset securitisations involve issuing debt securities (asset-backed
securities) that are backed by the cash flows of income-generating assets
(ranging from credit card receivables to residential mortgage loans).
Liability securitisations typically involve issuing bonds that assume the
risk of a potential insurance liability (ranging from a catastrophic natural
event to an unexpected claims level on a certain product type).
Shareholder information continued