RBS 2013 Annual Report Download - page 183
Download and view the complete annual report
Please find page 183 of the 2013 RBS annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.-
1
-
2
-
3
-
4
-
5
-
6
-
7
-
8
-
9
-
10
-
11
-
12
-
13
-
14
-
15
-
16
-
17
-
18
-
19
-
20
-
21
-
22
-
23
-
24
-
25
-
26
-
27
-
28
-
29
-
30
-
31
-
32
-
33
-
34
-
35
-
36
-
37
-
38
-
39
-
40
-
41
-
42
-
43
-
44
-
45
-
46
-
47
-
48
-
49
-
50
-
51
-
52
-
53
-
54
-
55
-
56
-
57
-
58
-
59
-
60
-
61
-
62
-
63
-
64
-
65
-
66
-
67
-
68
-
69
-
70
-
71
-
72
-
73
-
74
-
75
-
76
-
77
-
78
-
79
-
80
-
81
-
82
-
83
-
84
-
85
-
86
-
87
-
88
-
89
-
90
-
91
-
92
-
93
-
94
-
95
-
96
-
97
-
98
-
99
-
100
-
101
-
102
-
103
-
104
-
105
-
106
-
107
-
108
-
109
-
110
-
111
-
112
-
113
-
114
-
115
-
116
-
117
-
118
-
119
-
120
-
121
-
122
-
123
-
124
-
125
-
126
-
127
-
128
-
129
-
130
-
131
-
132
-
133
-
134
-
135
-
136
-
137
-
138
-
139
-
140
-
141
-
142
-
143
-
144
-
145
-
146
-
147
-
148
-
149
-
150
-
151
-
152
-
153
-
154
-
155
-
156
-
157
-
158
-
159
-
160
-
161
-
162
-
163
-
164
-
165
-
166
-
167
-
168
-
169
-
170
-
171
-
172
-
173
-
174
-
175
-
176
-
177
-
178
-
179
-
180
-
181
-
182
-
183
-
184
-
185
-
186
-
187
-
188
-
189
-
190
-
191
-
192
-
193
-
194
-
195
-
196
-
197
-
198
-
199
-
200
-
201
-
202
-
203
-
204
-
205
-
206
-
207
-
208
-
209
-
210
-
211
-
212
-
213
-
214
-
215
-
216
-
217
-
218
-
219
-
220
-
221
-
222
-
223
-
224
-
225
-
226
-
227
-
228
-
229
-
230
-
231
-
232
-
233
-
234
-
235
-
236
-
237
-
238
-
239
-
240
-
241
-
242
-
243
-
244
-
245
-
246
-
247
-
248
-
249
-
250
-
251
-
252
-
253
-
254
-
255
-
256
-
257
-
258
-
259
-
260
-
261
-
262
-
263
-
264
-
265
-
266
-
267
-
268
-
269
-
270
-
271
-
272
-
273
-
274
-
275
-
276
-
277
-
278
-
279
-
280
-
281
-
282
-
283
-
284
-
285
-
286
-
287
-
288
-
289
-
290
-
291
-
292
-
293
-
294
-
295
-
296
-
297
-
298
-
299
-
300
-
301
-
302
-
303
-
304
-
305
-
306
-
307
-
308
-
309
-
310
-
311
-
312
-
313
-
314
-
315
-
316
-
317
-
318
-
319
-
320
-
321
-
322
-
323
-
324
-
325
-
326
-
327
-
328
-
329
-
330
-
331
-
332
-
333
-
334
-
335
-
336
-
337
-
338
-
339
-
340
-
341
-
342
-
343
-
344
-
345
-
346
-
347
-
348
-
349
-
350
-
351
-
352
-
353
-
354
-
355
-
356
-
357
-
358
-
359
-
360
-
361
-
362
-
363
-
364
-
365
-
366
-
367
-
368
-
369
-
370
-
371
-
372
-
373
-
374
-
375
-
376
-
377
-
378
-
379
-
380
-
381
-
382
-
383
-
384
-
385
-
386
-
387
-
388
-
389
-
390
-
391
-
392
-
393
-
394
-
395
-
396
-
397
-
398
-
399
-
400
-
401
-
402
-
403
-
404
-
405
-
406
-
407
-
408
-
409
-
410
-
411
-
412
-
413
-
414
-
415
-
416
-
417
-
418
-
419
-
420
-
421
-
422
-
423
-
424
-
425
-
426
-
427
-
428
-
429
-
430
-
431
-
432
-
433
-
434
-
435
-
436
-
437
-
438
-
439
-
440
-
441
-
442
-
443
-
444
-
445
-
446
-
447
-
448
-
449
-
450
-
451
-
452
-
453
-
454
-
455
-
456
-
457
-
458
-
459
-
460
-
461
-
462
-
463
-
464
-
465
-
466
-
467
-
468
-
469
-
470
-
471
-
472
-
473
-
474
-
475
-
476
-
477
-
478
-
479
-
480
-
481
-
482
-
483
-
484
-
485
-
486
-
487
-
488
-
489
-
490
-
491
-
492
-
493
-
494
-
495
-
496
-
497
-
498
-
499
-
500
-
501
-
502
-
503
-
504
-
505
-
506
-
507
-
508
-
509
-
510
-
511
-
512
-
513
-
514
-
515
-
516
-
517
-
518
-
519
-
520
-
521
-
522
-
523
-
524
-
525
-
526
-
527
-
528
-
529
-
530
-
531
-
532
-
533
-
534
-
535
-
536
-
537
-
538
-
539
-
540
-
541
-
542
-
543
-
544
-
545
-
546
-
547
-
548
-
549
-
550
-
551
-
552
-
553
-
554
-
555
-
556
-
557
-
558
-
559
-
560
-
561
-
562
-
563
-
564
Business review Risk and balance sheet management
181
(iii) Increased costs arising from a failure to execute successfully major
projects
The Group has a number of major projects underway, the successful
conclusion of which is essential if it is to meet new regulatory and
strategic requirements. These new requirements affect its organisational
structure, its business strategies, its information technology systems, its
operational processes and its product offerings. Given the number, scale
and complexity of these projects, the Group may not complete them
successfully, or at all. This affects all divisions.
Impact on the Group
If the Group does not complete these projects successfully, the interests
of customers may be affected, necessitating customer redress. The
Group may also incur regulatory fines, lose market share and suffer
damage to its reputation.
Mitigants
The Group is working to implement change in line with its project plans
while assessing the risks to implementation and taking steps to mitigate
those risks where possible.
(iv) Increased costs due to an inability to recruit or retain suitable staff
The Group is undergoing significant organisational change, the result of a
need to implement new business strategies and respond to a changing
external environment. The pace of change, coupled with the associated
uncertainty may cause experienced staff members to leave the Group
and prospective staff members not to join. Although these risks concern
all divisions, they particularly affect Markets and US Retail & Commercial.
Impact on the Group
If it cannot retain or attract the necessary staff members, the Group may
be unable to implement its business strategies or meet regulatory
requirements on time, or at all. It may also experience control failures.
The Group’s reputation may suffer as a result.
Mitigants
The Group has communicated expected changes in its organisational
structure to members of staff, implementing plans aimed at minimising
unexpected staff losses. The Group is also working to develop and
implement an enhanced recruitment strategy.
Political risks
The Group and the Royal Bank, its principal operating subsidiary, are
both headquartered and incorporated in Scotland. The Scottish
Government is holding a referendum in September 2014 on the question
of Scottish independence from the UK. Although the outcome of the
referendum is uncertain, subject to any mitigating factors, the
uncertainties resulting from an affirmative vote in favour of independence
would be likely to significantly impact the Group’s credit ratings and could
also impact the fiscal, monetary, legal and regulatory landscape to which
the Group is subject. Were Scotland to become independent, it may also
affect Scotland’s status in the European Union.
The occurrence of any of the impacts above could significantly impact the
Group’s costs and would have a material adverse effect on the Group’s
business, financial condition, results of operations, and prospects.
*unaudited
Stress testing
Governance
Stress testing is the evaluation of a bank’s financial position under severe
but plausible stress scenarios. Stress testing also refers to the broader
framework under which these tests are developed, evaluated and used
within the Group’s decision-making process in the context of the wider
economic environment.
The Group’s stress testing framework is designed to embed stress testing
as a key risk management technique into mainstream risk reporting,
capital planning and business processes at divisional, legal entity and
Group levels.
The Executive Risk Forum (refer to Risk governance on page 176 for
further information) is the main body overseeing the Group's stress
testing approach, processes and results. The forum is primarily
responsible for reviewing and challenging the results of any Group-wide
stress test and ensuring that, where necessary, appropriate management
actions are undertaken.
The Board Risk Committee receives reports detailing stress tests
undertaken as part of the financial planning process. It reviews and
challenges the stress scenarios and considers their impact on the
Group's financial position. These reports outline relevant management
actions as well as the extent to which such actions mitigate the effects of
the stress scenario on the Group’s capital adequacy.
The Board Risk Committee may also request additional stress tests as it
deems necessary. Stress testing forms part of the Group's risk and
capital management framework and is a major component of the Basel III
requirements. It highlights to senior management potential unexpected
adverse outcomes related to a mixture of risks and provides an indication
of how much capital might be required to absorb losses should adverse
scenarios materialise.
Scenario selection
Stress test scenarios target both firm-wide vulnerabilities and negative
global impacts. They consider a five year horizon and include stress
projections for macroeconomic variables such as gross domestic product,
unemployment rates, property prices, stock price indices, interest rates
and inflation. The tests include a variety of scenarios, including some
featuring an intensification of the eurozone’s sovereign debt problems.
Under one of them, there is a severe recession in the UK in 2013/2014, a
sharp rise in unemployment and a marked fall in equity prices. There are
downgrades of UK sovereign debt by two notches, and corresponding
downgrades for UK banks, including the Group, leading to increased
funding costs and lower levels of lending. As the economic environment
deteriorates, there is market concern about losses in the banking sector.
Another test run in 2013 is a high inflation-no growth scenario.
Inflationary pressures surge as a result of the growth in central bank
balance sheets in recent years. Sovereign bond yields rise steeply as
market sentiment sours, and there is a reduction in disposable income
and corporate profits, leading to a global recession. Recovery begins only
in late 2014. As the bank’s risk profile improves as a result of
deleveraging, it should be better able to withstand extreme stress
scenarios.