RBS 2012 Annual Report Download - page 282

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Business review Risk and balance sheet management continued
Country risk: Country risk exposure continued
Eurozone non-periphery
Key points*
x The Group holds a major and diversified portfolio in eurozone non-
periphery countries with significant exposures to financial institutions
and corporates, notably in Germany, the Netherlands and France,
and a sizeable liquidity portfolio with the German central bank.
x Exposure decreased in most product categories and to most client
groups during 2012, particularly in lending to corporates, contingent
liabilities and commitments, as a result of currency movements and
de-risking of the portfolio.
Government and central bank
x The Group holds significant short-term surplus liquidity with central
banks for liquidity, credit risk and capital considerations as well as
due to limited alternative investment opportunities. This exposure
also fluctuates as part of the Group’s asset and liability management.
In the third quarter of 2012 the Group transferred part of its euro
payment activity from the RBS N.V. account with the Dutch central
bank to the RBS plc account with the German central bank, as part
of strategic plans to migrate most of the RBS N.V. balance sheet,
activities and exposures to RBS plc.
x Germany - Net long HFT positions in German bonds in Markets
increased during 2012, driven by market opportunities. Concurrently,
German AFS bond positions in Group Treasury were reduced in the
first half of the year, in line with internal liquidity management
strategies.
x France - The Group reduced its long and short HFT positions in
Markets throughout 2012 while reducing its net long HFT position in
the first half of the year and increasing it again in the second half of
the year, in anticipation of changes in credit spreads. AFS bond
positions in Group Treasury were gradually reduced as part of
general risk management and in line with internal liquidity
management strategies.
x Belgium - Net HFT government debt exposure increased by £0.7
billion on balance over 2012, as part of regular fluctuations in the
Markets business. AFS debt securities exposures increased by £0.1
billion and the negative AFS reserve declined by the same amount
as a result of recovery in bond prices.
Financial institutions
x France - Lending exposure to banks increased as a result of a
transfer of bank account services for Group Treasury secured
funding transactions from in-house to an external bank, for
£1.7 billion. Derivatives exposure to banks decreased by £1.4 billion,
spread over a number of banks.
Corporate
x Germany - Lending to corporate clients fell by £2.9 billion, largely as
a result of reductions in Non-Core exposure to the transport,
commercial real estate, electricity and media sectors.
x The Netherlands - Lending to corporate clients decreased by £1.1
billion due to reductions in the commercial real estate and
telecommunications sectors, with half of this reduction in the Non-
Core portfolio.
x France - Lending to corporate clients decreased by £1.3 billion due
to reductions in the telecommunications, commercial real estate and
construction sectors, half of this reduction is in the Non-Core
portfolio.
Non-Core (included above)
x Germany - Non-Core lending exposure was £2.8 billion at 31
December 2012, down £2.6 billion since 31 December 2011. Most of
the lending was in the commercial real estate (64%) and natural
resources (12%) sectors.
x The Netherlands - Non-Core lending exposure was £2.0 billion at 31
December 2012, down £0.5 billion since 31 December 2011. Most of
the lending was in the commercial real estate (56%) and
securitisations (21%) sectors.
x France - Non-Core lending exposure was £1.6 billion at 31
December 2012, a decline of £0.7 billion since 31 December 2011.
The lending portfolio mainly comprised public sector (30%),
commercial real estate (23%) and construction (13%) exposures.
*unaudited