RBS 2012 Annual Report Download - page 156

Liquidity and funding risk: Analyses: Non-traded interest rate risk continued
Sensitivity of net interest income*
Earnings sensitivity to rate movements is derived from a central forecast
over a twelve month period. Market implied forward rates and new
business volume, mix and pricing consistent with business assumptions
are used to generate a base case earnings forecast.
The following table shows the sensitivity of net interest income, over the
next twelve months, to an immediate upward or downward change of 100
basis points to all interest rates. In addition, the table includes the impact
of a gradual 400 basis point steepening and a gradual 300 basis point
flattening of the yield curve at tenors greater than a year.
Euro Sterling US dollar Other Total
2012 £m £m £m £m £m
+ 100 basis points shift in yield curves (29) 472 119 27 589
í 100 basis points shift in yield curves (20) (257) (29) (11) (317)
Bear steepener 216
Bull flattener (77)
2011
+ 100 basis points shift in yield curves (19) 190 59 14 244
í 100 basis points shift in yield curves 25 (188) (4) (16) (183)
Bear steepener 443
Bull flattener (146)
2010
+ 100 basis points shift in yield curves 25 186 11 10 232
í 100 basis points shift in yield curves (33) (212) (99) (8) (352)
Bear steepener (30)
Bull flattener (22)
Key points
x The Group’s interest rate exposure remains asset sensitive, in that
rising rates have a positive impact on net interest margins. The
scale of this benefit has increased since 2011.
x The primary contributors to the increased sensitivity to a 100 basis
points parallel shift in the yield curve are changes to underlying
business pricing assumptions and assumptions in respect of the risk
of early repayment of consumer loans and deposits. The latter
incorporates revisions to pricing strategies and consumer behaviour.
x The impact of the steepening and flattening scenarios is largely
driven by the reinvestment of structural hedges. The year on year
change reflected a change to a longer term hedging programme
implemented in 2010.
x The reported sensitivities will vary over time due to a number of
factors such as market conditions and strategic changes to the
balance sheet mix and should not therefore be considered predictive
of future performance.
154
Business review Risk and balance sheet management continued
*unaudited