RBS 2012 Annual Report Download - page 534

Impairment losses - (a) for impaired financial assets measured at
amortised cost, impairment losses - the difference between carrying
value and the present value of estimated future cash flows discounted at
the asset's original effective interest rate - are recognised in profit or loss
and the carrying amount of the financial asset reduced by establishing a
provision (allowance) (b) for impaired available-for-sale financial assets,
the cumulative loss that had been recognised directly in equity is
removed from equity and recognised in profit or loss as an impairment
loss.
Individually assessed loan impairment provisions - impairment loss
provisions for individually significant impaired loans assessed on a case-
by-case basis, taking into account the financial condition of the
counterparty and any guarantor and the realisable value of any collateral
held.
Insurance risk - the risk of financial loss through fluctuations in the timing,
frequency and/or severity of insured events, relative to the expectations
at the time of underwriting.
Internal Capital Adequacy Assessment Process (ICAAP) - the Group’s
own assessment, as part of Basel II requirements, of its risks, how it
intends to mitigate those risks and how much current and future capital is
necessary having considered other mitigating factors.
International Accounting Standards Board (IASB) - the independent
standard-setting body of the IFRS Foundation. Its members are
responsible for the development and publication of International Financial
Reporting Standards (IFRSs) and for approving Interpretations of IFRS
as developed by the IFRS Interpretations Committee.
Interest rate swap - a contract under which two counterparties agree to
exchange periodic interest payments on a predetermined monetary
principal, the notional amount.
Interest spread - the difference between the gross yield and the interest
rate paid on average interest-bearing liabilities.
Internal funding of trading business - the internal funding of the trading
book comprises net banking book financial liabilities that fund financial
assets in the Group’s trading portfolios. Interest payable on these
financial liabilities is charged to the trading book.
Investment grade - generally represents a risk profile similar to a rating of
BBB-/Baa3 or better, as defined by independent rating agencies.
Key management - directors of RBSG and members of the Group
Management Committee.
Latent loss provisions - loan impairment provisions held against
impairments in the performing loan portfolio that have been incurred as a
result of events occurring before the balance sheet date but which have
not been identified as impaired at the balance sheet date.
Level 1: quoted price - level 1 financial instruments are valued using
unadjusted quoted prices in active markets, for identical financial
instruments. Examples include G10 government securities, listed equity
shares, certain exchange-traded derivatives and certain US agency
securities.
Level 2: valuation technique using observable inputs - level 2 financial
instruments are valued using techniques based significantly on
observable market data. Instruments in this category are valued using:
(a) quoted prices for similar instruments or identical instruments in
markets which are not considered to be active; or (b) valuation
techniques where all the inputs that have a significant effect on the
valuations are directly or indirectly based on observable market data.
Level 3: valuation technique with significant unobservable inputs - level 3
financial instruments are valued using a valuation technique where at
least one input which could have a significant effect on the instrument’s
valuation, is not based on observable market data. Where inputs can be
observed from market data without undue cost and effort, the observed
input is used. Otherwise, the Group determines a reasonable level for the
input. Level 3 financial instruments include cash instruments which trade
infrequently, certain syndicated and commercial mortgage loans, unlisted
equity shares, certain residual interests in securitisations, super senior
tranches of high grade and mezzanine CDOs, other mortgage-based
products and less liquid debt securities, certain structured debt securities
in issue, and OTC derivatives where valuation depends upon
unobservable inputs such as certain credit and exotic derivatives.
Leveraged finance - funding (leveraged finance) provided to a business
resulting in an overall level of debt in relation to cash flow that exceeds
that which would be considered usual for the business or for the industry
in which it operates. Leveraged finance is commonly employed to
achieve a specific, often temporary, objective: to make an acquisition, to
effect a buy-out or to repurchase shares.
Loan impairment provisions - loan impairment provisions are established
to recognise incurred impairment losses on a portfolio of loans classified
as loans and receivables and carried at amortised cost. It has three
components: individually assessed loan impairment provisions,
collectively assessed loan impairment provisions and latent loss
provisions.
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Glossary of terms continued