RBS 2012 Annual Report Download - page 257

RBS GROUP 2012
255
Country risk: Country risk exposure
All the data tables and related definitions in this section are audited.
The tables that follow show the Group’s exposure by country of
incorporation of the counterparty at 31 December 2012. Countries shown
are those where the Group’s balance sheet exposure (as defined in this
section) to counterparties incorporated in the country exceeded £1 billion
and the country had an external rating of A+ or below from Standard and
Poor’s, Moody’s or Fitch at 31 December 2012, as well as selected
eurozone countries. The exposures are stated before taking into account
mitigants, such as collateral (with the exception of reverse repos),
insurance or guarantees, which may have been taken to reduce or
eliminate exposure to country risk events. Exposures relating to ocean-
going vessels are not included due to their multinational nature.
Definitions
Lending - Comprises gross loans and advances to: central and local
government (Govt); central banks, including cash balances; other banks
and financial institutions (FI), incorporating overdraft and other short-term
facilities; corporates, in large part loans and leases; and individuals,
comprising mortgages, personal loans and credit card balances. Lending
includes risk elements in lending.
Risk elements in lending (REIL) - Comprises impaired loans and accruing
past due 90 days or more as to principal or interest. Impaired loans are
all loans (including renegotiated) for which an impairment provision has
been established. Accruing past due 90 days or more comprise loans
past due 90 days where no impairment loss is expected and those
awaiting individual assessment. A latent provision is established for the
latter.
Debt securities - Comprise securities classified as available-for-sale
(AFS), loans and receivables (LAR), held-for-trading (HFT) and
designated as at fair value through profit or loss (DFV). All debt securities
other than LAR securities are carried at fair value. LAR debt securities
are carried at amortised cost less impairment. HFT debt securities are
presented as gross long positions (including DFV securities) and short
positions per country. Impairment losses and exchange differences
relating to AFS debt securities, together with interest, are recognised in
the income statement. Other changes in the fair value of AFS securities
are reported within AFS reserves, which are presented gross of tax.
Derivatives (net) - Comprise the mark-to-market (mtm) value of such
contracts after the effect of legally enforceable netting agreements but
before the effect of collateral. Figures shown include the effect of
counterparty netting used within the regulatory capital model.
Repos (net) - Comprises the mtm value of repo and reverse repo
contracts after the effect of legally enforceable netting agreements and
collateral. Counterparty netting is applied within the regulatory capital
model used.
In addition and as a memorandum item, the mtm value of derivatives and
repos gross of netting referred to above are disclosed.
Balance sheet - Comprises lending, debt securities, derivatives (net) and
repo (net) exposures, as defined above.
Off-balance sheet - Comprises letters of credit, guarantees, other
contingent obligations and committed undrawn facilities.
Credit default swaps (CDSs) - Under a CDS contract, the credit risk on
the reference entity is transferred from the buyer to the seller. The fair
value, or mtm value, represents the balance sheet carrying value. The
mtm value of CDSs is included within derivatives against the counterparty
of the trade, as opposed to the reference entity. The notional is the par
value of the credit protection bought or sold and is included against the
reference entity of the CDS contract.
The column CDS notional less fair value represents the instantaneous
increase in exposure arising from sold positions netted against the
decrease arising from bought positions should the CDS contracts be
triggered by a credit event and assuming there is a zero recovery rate on
the reference exposure. For a sold position, the change in exposure
equals the notional less fair value amount and represents the amount the
Group would owe to its CDS counterparties. Positive recovery rates
would tend to reduce the gross components (increases and decreases) of
those numbers.
Due to their bespoke nature, exposures relating to credit derivative
product companies and related hedges have not been included, as they
cannot be meaningfully attributed to a particular country or a reference
entity. Nth-to-default basket swaps have also been excluded as they
cannot be meaningfully attributed to a particular reference entity.
Exposures to CDPCs are disclosed on page 223.
Government - Comprises central, regional and local government.
Asset quality (AQ) - For the probability of default range relating to each
internal asset quality band, refer to page 205.
Eurozone periphery - Comprises Ireland, Spain, Italy, Portugal, Greece
and Cyprus.
Other eurozone - Comprises Austria, Estonia, Finland, Malta, Slovakia
and Slovenia.
Refer to page 218 for country analysis of equity shares.