RBS 2012 Annual Report Download - page 111

RBS GROUP 2012
109
Our business and our strategy
Our approach to risk management
Except as otherwise indicated by an asterisk (*), the information in the
Risk and balance sheet management section (pages 107 to 293) is within
the scope of the Independent auditor’s report.
In the balance sheet, all assets and liabilities of disposal groups are
presented as a single line. In the risk and balance sheet management
section, balances and exposures relating to disposal groups are included
within risk measures for all periods presented. Refer to pages 105 and
106 for analysis of balance sheet pre and post disposal groups.
Strategic risk objectives*
Risk management plays an integral role in the delivery of the Group’s
strategic goal to be a safe and secure banking group. The
implementation of a stronger and more effective culture of risk
management and control provides the platform necessary to address
historical vulnerabilities, rebuild upon the Group’s core strengths and
position it on a sustainable and profitable path for future growth.
Financial strength and resilience are at the heart of the Group’s Strategic
Plan. The Group has defined this level of robustness as that which is
capable of achieving and sustaining a standalone credit rating (i.e.
without government support) that is in line with those of its strongest
international peers.
Given this central aim, in 2009 the Group Board set out four key strategic
objectives, aligned to the Group’s Strategic Plan. These are to:
x Maintain capital adequacy: to ensure that the Group has sufficient
capital resources to meet regulatory requirements and to cover the
potential for unexpected losses in its asset portfolio;
x Deliver stable earnings growth: to ensure that strategic growth is
based around a longer-term risk versus reward consideration, with
significantly lower volatility in underlying profitability than was seen
over the previous five years;
x Ensure stable and efficient access to funding and liquidity: such that
the Group has sufficient funding to meet its obligations, taking
account of the constraint that some forms of funding may not be
available when they are most needed; and
x Maintain stakeholder confidence: to ensure that stakeholders have
confidence in the Group’s recovery plan, its ability to deliver its
strategic objectives and the effectiveness of its business culture and
operational controls.
Each objective is essential in its own right, but also mutually supportive of
the others.
These strategic risk objectives are the bridge between the Group-level
business strategy and the frameworks, limits and tolerances that are
used to set risk appetite and manage risk in the business divisions on a
day-to-day basis.
We set risk appetite at Group level. This establishes the level and type of
risks that we are able and willing to take to meet our strategic objectives
and our wider obligations to stakeholders. We cascade and embed this
risk appetite across the Group, allowing:
x each business to understand its acceptable levels of risk; and
x commercial strategies to be aligned with the use of available
financial resources.
By setting a clear risk appetite and embedding a strong risk culture
throughout our businesses, we can identify, measure and control risk
exposures and respond effectively to shocks.
Key developments
In 2012, the Group continued to strengthen its approach to risk
management amidst a challenging and ever-changing external
environment. Areas of progress included:
x reducing exposures in line with the objective of being safe and
sustainable;
x improving the quality of data, including forward-looking measures;
x developing a framework for the effective management of conduct
risk;
x strengthening the credit risk and country risk appetite and
management frameworks and ensuring consistent application
across the Group; and
x further realigning the Group Policy Framework to the business
model and continuing assurance.
This is how the Group brings the Strategic Plan to life in the management
of risk.
More detailed discussions on how the Group strengthened its approach
to risk management in 2012 and the areas of focus going forward is
contained within the relevant sub-sections on the following pages.
Business review Risk and balance sheet management
*unaudited
Day-to-day risk management
Risk frameworks and limits
Key risk appetite measures
Strategic risk objectives