RBS 2012 Annual Report Download - page 64

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Business review continued
Impairment losses
Managed (1) Statutory
2012 2011 2010 2012 2011 2010
£m £m £m £m £m £m
New impairment losses 5,620 7,966 9,667 5,620 9,234 9,646
Less: recoveries of amounts previously written-off (341) (527) (411) (341) (527) (411)
Charge to income statement 5,279 7,439 9,256 5,279 8,707 9,235
Comprising:
Loan impairment losses 5,315 7,241 9,144 5,315 7,241 9,144
Securities
- sovereign debt impairment — — — — 1,099 —
- interest rate hedge adjustments on impaired available-for-sale
sovereign debt — — — — 169 —
- other (36) 198 112 (36) 198 91
Charge to income statement 5,279 7,439 9,256 5,279 8,707 9,235
Note:
(1) Managed basis excludes sovereign debt impairment and interest rate hedge adjustments on available-for-sale sovereign debt.
2012 compared with 2011 - managed and statutory
Loan impairment losses declined by £1,926 million to £5,315 million,
primarily driven by a £1,518 million fall in Non-Core impairments, mostly
in the Ulster Bank and commercial real estate portfolios.
Core loan impairments were down £408 million, or 12%, largely due to
lower default rates in UK Retail and an improved credit environment for
US Retail & Commercial, which helped drive impairment reductions of
£259 million and £165 million respectively. Core Ulster Bank impairments
stabilised, though still at a very high level (£1,364 million in 2012 versus
£1,384 million in 2011).
Loan impairments as a percentage of gross loans and advances
improved by 30 basis points, principally reflecting the improved credit
profile in Non-Core and the better US credit environment.
Loan impairment provisions rose to £21.3 billion, increasing coverage of
risk elements in lending to 52%, compared with 49% in 2011.
2011 compared with 2010 - managed
Impairment losses decreased by 20% compared with 2010, driven largely
by a £1,569 million reduction in Non-Core loan impairments, despite
continuing challenges in Ulster Bank and corporate real estate portfolios.
Retail & Commercial impairment losses fell by £153 million, driven by
improving credit metrics in UK Retail and US Retail & Commercial
partially offset by increases in Ulster Bank, largely reflecting a
deterioration in credit metrics on the mortgage portfolio, and a single
name provision in International Banking.
Total Core and Non-Core Ulster Bank impairment losses decreased by
4%, as the £223 million increase in Core Ulster Bank losses was more
than offset by a decrease in losses recognised in Non-Core.
2011 compared with 2010 - statutory
Impairment losses decreased by 6% compared with 2010, driven largely
by a £1,569 million reduction in Non-Core loan impairments, despite
continuing challenges in Ulster Bank and corporate real estate portfolios.
This was partially offset by impairments taken on the Group’s available-
for-sale bond portfolio, as a result of the decline in the value of Greek
sovereign bonds.
Retail & Commercial impairment losses fell by £227 million, driven by
improving credit metrics in UK Retail and US Retail & Commercial
partially offset by increases in Ulster Bank, largely reflecting a
deterioration in credit metrics on the mortgage portfolio, and a single
name provision in International Banking.
Total Core and Non-Core Ulster Bank impairment losses decreased by
4%, as the £223 million increase in Core Ulster Bank losses was more
than offset by a decrease in losses recognised in Non-Core.
The Group held Greek government bonds with a notional amount of
£1.45 billion. As a result of Greece’s continuing fiscal difficulties, the
Group recorded impairment charges on these bonds totalling £1,099
million during the year. These charges were recorded to write the bonds
down to their market price as at 31 December 2011 (c.21% of notional).