RBS 2012 Annual Report Download - page 82

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Business review continued
Ulster Bank continued
2012 compared with 2011
Operating loss increased by £56 million primarily reflecting a reduction in
income driven by lower interest earning asset volumes.
Total expenses fell by £26 million, reflecting the benefits of cost saving
initiatives.
Impairment losses remained elevated, as weak underlying credit metrics
prevailed. Falling asset values throughout most of 2012 and high levels of
unemployment coupled with weak domestic demand continued to
depress the property market. The impairment charge for 2012 was driven
by a combination of new defaulting customers and deteriorating security
values. Risk elements in lending increased by £2 billion during the year
reflecting continued difficult conditions in both the commercial and
residential property sectors.
The loan to deposit ratio improved from 143% to 130%, driven by a
combination of deposit growth and a decrease in the loan book. At
constant currency, the loan book decreased by 2% as a result of natural
amortisation and limited new lending due to low levels of market demand.
Retail and SME deposits increased by 8%; however, this was partly offset
by outflows of wholesale balances driven by market volatility and the
impact of a rating downgrade in the second half of 2011.
2011 compared with 2010
Operating profit before impairment losses decreased by £78 million in
2011 with lower income partially mitigated by cost savings. Impairment
losses of £1,384 million increased by 19% from 2010 resulting in an
operating loss of £984 million, 44% higher than 2010.
Income fell by 10% driven by a contracting performing loan book coupled
with higher funding costs. Loans and advances to customers decreased
by 8% during 2011.
Expenses fell by 5% reflecting tight management of the cost base across
the business.
Impairment losses increased by 19% largely reflecting the deterioration in
credit metrics on the mortgage portfolio driven by a combination of higher
debt flow and further fall in asset prices.
Despite intense competition, retail and small business deposit balances
have grown strongly throughout 2011, driven by the benefits of a focused
deposit gathering strategy. However, total customer deposit balances fell
by 6% largely driven by the outflow of wholesale customer balances due
to rating downgrades.
Risk-weighted assets increased by 15% in 2011 reflecting the
deterioration in credit risk metrics.