RBS 2012 Annual Report Download - page 237

RBS GROUP 2012
235
Provisions and AFS reserves methodology
The Group's consumer portfolios, which consist of high volume, small
value credits, have highly efficient largely automated processes for
identifying problem credits and very short timescales, typically three
months, before resolution or adoption of various recovery methods.
Corporate portfolios consist of higher value, lower volume credits, which
tend to be structured to meet individual customer requirements.
Provisions are assessed on a case by case basis by experienced
specialists with input from professional valuers and accountants. The
Group operates a transparent provisions governance framework, setting
thresholds to trigger enhanced oversight and challenge.
Analyses of provisions are set out on pages 236 to 238.
Available-for-sale financial assets are initially recognised at fair value plus
directly related transaction costs and are subsequently measured at fair
value with changes in fair value reported in owners’ equity until disposal,
at which stage the cumulative gain or loss is recognised in profit or loss.
When there is objective evidence that an available-for-sale financial asset
is impaired, any decline in its fair value below original cost is removed
from equity and recognised in profit or loss.
The Group reviews its portfolios of available-for-sale financial assets for
evidence of impairment, which includes: default or delinquency in interest
or principal payments; significant financial difficulty of the issuer or
obligor; and it becoming probable that the issuer will enter bankruptcy or
other financial reorganisation. However, the disappearance of an active
market because an entity’s financial instruments are no longer publicly
traded is not evidence of impairment. Furthermore, a downgrade of an
entity’s credit rating is not, of itself, evidence of impairment, although it
may be evidence of impairment when considered with other available
information. A decline in the fair value of a financial asset below its cost
or amortised cost is not necessarily evidence of impairment. Determining
whether objective evidence of impairment exists requires the exercise of
management judgement. The unrecognised losses on the Group’s
available-for-sale debt securities are concentrated in its portfolios of
mortgage-backed securities. The losses reflect the widening of credit
spreads as a result of the reduced market liquidity in these securities and
the current uncertain macroeconomic outlook in the US and Europe. The
underlying securities remain unimpaired.
Analyses of AFS debt securities and related AFS reserves are set out on
page 240.
REIL flow statement
REIL are stated without giving effect to any security held that could reduce the eventual loss should it occur or to any provisions marked.
UK
Retail
UK
Corporate Wealth
International
Banking
Ulster
Bank
US Retail &
Commercial Markets Core Non-Core Total
£m £m £m £m £m £m £m £m £m £m
At 1 January 2012 4,599 5,001 211 1,632 5,523 1,007 414 18,387 24,007 42,394
Currency translation and other
adjustments 53 (6)(1) (227)(115)(47)184 (159)(487)(646)
Additions 1,771 4,362 111 286 3,299 660 56 10,545 5,800 16,345
Transfers (1) (33)7 — (110) — — 6 (130) 70 (60)
Transfer to performing book — (133)(8)(624)— — (75)(840) (1,035)(1,875)
Repayments (1,222) (3,265)(50) (90) (1,102) (83)(80) (5,892) (4,860) (10,752)
Amounts written-off (599)(514)(15)(445)(72) (391)(109)(2,145)(2,121)(4,266)
At 31 December 2012 4,569 5,452 248 422 7,533 1,146 396 19,766 21,374 41,140
UK
Corporate
International
Banking
Ulster
Bank
US Retail &
Commercial Other Total
Non-Core (by donating divisions) £m £m £m £m £m £m
At 1 January 2012 3,685 8,051 11,675 486 110 24,007
Currency translation and other adjustments (57)(104)(231) (20) (75)(487)
Additions 1,542 2,210 1,713 323 12 5,800
Transfers 11 59 — — — 70
Transfer to performing book (171)(863)—— (1)(1,035)
Repayments (1,798)(1,379)(1,618)(62) (3)(4,860)
Amounts written-off (590) (1,067)(140) (309)(15)(2,121)
At 31 December 2012 2,622 6,907 11,399 418 28 21,374
Note:
(1) Represents transfers to/from REIL from/to potential problem loans.