RBS 2012 Annual Report Download - page 535

RBS GROUP 2012
533
Loan-to-deposit ratio - the ratio of loans and advances to customers net
of provision for impairment losses and excluding reverse repurchase
agreements to customer deposits excluding repurchase agreements.
Loan-to-value ratio - the amount of a secured loan as a percentage of the
appraised value of the security e.g. the outstanding amount of a
mortgage loan as a percentage of the property's value.
Loss given default (LGD) - an estimate of the amount that will not be
recovered by the Group in the event of default, plus the cost of debt
collection activities and the delay in cash recovery.
Market risk - the risk that the value of an asset or liability will change as a
result of market factors such as foreign exchange rates, commodity
prices, interest rates, credit spreads and equity prices.
Master netting agreement - an agreement between two counterparties
that have multiple derivative contracts with each other that provides for
the net settlement of all contracts through a single payment, in a single
currency, in the event of default on, or termination of, any one contract.
Medium term notes (MTNs) - debt securities usually with a maturity of five
to ten years, but the term may be less than one year or as long as 50
years. They can be issued on a fixed or floating coupon basis or with an
exotic coupon; with a fixed maturity date (non-callable) or with embedded
call or put options or early repayment triggers. MTNs are generally issued
as senior unsecured debt.
Monoline insurers (monolines) - entities that specialise in providing credit
protection against the notional and interest cash flows due to the holders
of debt instruments in the event of default. This protection is typically in
the form of derivatives such as credit default swaps.
Mortgage-backed securities - asset-backed securities for which the
underlying asset portfolios are loans secured on property. See
Residential mortgage backed securities and Commercial mortgage
backed securities.
Mortgage servicing rights - the rights of a mortgage servicer to collect
mortgage payments and forward them, after deducting a fee, to the
mortgage lender.
Mortgage vintage - the year in which a mortgage loan was made to the
customer.
Negative equity mortgages - mortgages where the value of the property
mortgaged is less than the outstanding balance on the loan.
Net interest income - the difference between interest receivable on
financial assets classified as loans and receivables or available-for-sale
and interest payable on financial liabilities carried at amortised cost.
Net interest margin - net interest income as a percentage of average
interest-earning assets.
Non-conforming mortgages - mortgage loans that do not meet the
requirements for sale to US Government agencies or US Government
sponsored enterprises. These requirements include limits on loan-to-
value ratios, loan terms, loan amounts, borrower creditworthiness and
other requirements.
Non-performing loans - loans classified as Risk elements in lending and
Potential problem loans. They have a 100% probability of default and
have been assigned an AQ10 internal credit grade.
Operational risk - the risk of loss resulting from inadequate or failed
processes, people, systems or from external events.
Option - an option is a contract that gives the holder the right but not the
obligation to buy (or sell) a specified amount of the underlying physical or
financial commodity, at a specific price, at an agreed date or over an
agreed period. Options can be exchange-traded or traded over-the-
counter.
Over-the-counter (OTC) derivatives - derivatives with tailored terms and
conditions negotiated bilaterally, in contrast to exchange traded
derivatives that have standardised terms and conditions.
Own credit adjustment - the effect of the Group’s own credit standing on
the fair value of financial liabilities.
Past due - a financial asset such as a loan is past due when the
counterparty has failed to make a payment when contractually due.
Payment concession - an agreed temporary reduction in, or elimination
of, the periodic (usually monthly) repayment on a loan. At the end of the
concessionary period, the principal amount and accrued interest
outstanding are scheduled for repayment over an agreed period.
Pillar 1 - the part of Basel II that sets out the process by which regulatory
capital requirements should be calculated for credit, market and
operational risk.
Pillar 2 - the part of the Basel II that sets out the process by which a bank
should review its overall capital adequacy and the processes under which
the supervisors evaluate how well financial institutions are assessing their
risks and take appropriate actions in response to the assessments.
Pillar 3 - the part of Basel II that sets out the information banks must
disclose about their risks, the amount of capital required to absorb them,
and their approach to risk management. The aim is to strengthen market
discipline.