RBS 2012 Annual Report Download - page 432

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Notes on the consolidated accounts continued
22 Accruals, deferred income and other liabilities
2012 2011 2010
£m £m £m
Notes in circulation 1,684 1,683 1,793
Current tax 527 700 723
Accruals 3,579 4,941 6,773
Deferred income 875 3,481 4,766
Provisions for liabilities and charges (see table below) 3,147 1,311 624
Other liabilities (1) 4,989 11,009 8,410
14,801 23,125 23,089
Note:
(1) Other liabilities include £24 million (2011 - £15 million; 2010 - £18 million) in respect of share-based compensation.
Payment
Protection
Insurance (1)
Interest Rate
Hedging
Products (2)
Other
customer
redress (3) LIBOR (4)
Other
regulatory
provisions (5) Litigation (6)
Technology
incident
redress (7) Property (8) Other Total
Provisions for liabilities and charges £m £m £m £m £m £m £m £m £m £m
At 1 January 2012 745 — — — — 5 — 381 180 1,311
Transfer from accruals and other liabilities — — 119 — 125 111 — — 94 449
745 — 119 — 125 116 — 381 274 1,760
Transfers to disposal groups — — — — — — — — (1) (1)
Currency translation and other movements — — — — — (4) 1 (2) 1 (4)
Charge to income statement
- continuing operations 1,110 700 141 381 75 190 175 153 34 2,959
Releases to income statement
- continuing operations — — (2) — — (8) — (50) — (60)
Provisions utilised (960) (24) (96) — — (126) (148) (90) (63) (1,507)
At 31 December 2012 895 676 162 381 200 168 28 392 245 3,147
Notes:
(1) In April 2011, following dismissal by the High Court of a Judicial Review application by the British Bankers’ Association, the Group reached
agreement with the FSA and the Financial Ombudsman Service on the handling of Payment Protection Insurance (PPI) complaints in accordance
with FSA Policy Statement PS 10/12. The statement sets out the framework for reviewing individual complaints. It also requires firms to undertake
root cause analysis; proactive contact exercises are required for certain categories of customer if systemic issues are identified.
The principal assumptions underlying the Group’s provision in respect of PPI sales are: assessment of the total number of complaints that the Group
will receive; the proportion of these that will result in redress; and the average cost of such redress. The number of complaints has been estimated
from an analysis of the Group’s portfolio of PPI policies sold by vintage and by product. Estimates of the percentage of policyholders that will lodge
complaints (the take up rate) and of the number of these that will be upheld (the uphold rate) have been established based on recent experience,
guidance in the FSA policy statements and expected rate of responses from proactive customer contact. The average redress assumption is based
on recent experience and the calculation rules in the FSA statement.
The table below shows the sensitivity of the provision to changes in the principal assumptions (all other assumptions remaining the same).
Sensitivity
Assumption
Change in
assumption
%
Consequential
change in provision
£m
Take up rate +/-5 +/-300
Uphold rate +/-5 +/-35
Average redress +/-5 +/-35
Interest that will be payable on successful complaints has been included in the provision as has the estimated cost to the Group of administering the
redress process. The Group expects the majority of the cash outflows associated with this provision to have occurred by the end of 2013. There are
uncertainties as to the eventual cost of redress which will depend on actual complaint volumes, take up and uphold rates and average redress costs.