RBS 2013 Annual Report Download - page 186
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Business review Risk and balance sheet management
184
Risk appetite*
Risk appetite is both a key business tool and an integral part of the
Group’s enterprise-wide approach to risk management. It is aligned with
the Group’s strategic objectives, aiming to strike an optimal balance
between building a sustainable risk profile and creating long-term value
for the Group’s customers, investors and wider stakeholders. The risk
appetite framework seeks to ensure that each business can withstand
significant deteriorations in economic and market conditions.
The Group’s risk appetite is set and owned by the Group Board which
identifies and establishes the level and types of risks the Group is able
and willing to take in order to meet its:
• Strategic objectives - the Group’s strategic plan is built on the core
foundations of serving customers well, building a sustainable risk
profile and creating long-term value for its shareholders; and
• Wider obligations to stakeholders - a bank that is safe and sound
and puts serving customers at the heart of its thinking will also
perform well for its owners, employees, regulators and communities.
Risk appetite is cascaded and embedded across the Group. The risk
appetite framework provides each business with a greater understanding
of acceptable risk levels, aligning commercial strategies with the most
effective use of financial resources, such as capital, funding and risk
capacity. Risk appetite provides a solid platform that allows the Group to
focus on its key business strengths and competitive advantages over the
long term.
The Board Risk Committee reviews the Group’s risk appetite framework
and targets on an annual basis to ensure they remain aligned with
strategic objectives, business performance, emerging risks and changes
in the external environment.
*unaudited
Strategic risk objectives
Risk management plays an integral role in the delivery of the Group’s
strategic goal. The implementation of a stronger and more effective
culture of risk management and control provides the platform necessary
to address vulnerabilities, rebuild on core strengths and position the
Group on a sustainable and profitable path for future growth.
Financial strength and resilience are at the heart of the Group’s strategic
plan. The Group has defined this level of robustness as that which is
capable of achieving and sustaining a standalone credit rating (i.e.
without government support) that is in line with those of its strongest
international peers.
Given this central aim, in 2009 the Group Board set out four key strategic
objectives, aligned with the Group’s strategic plan.
• Maintain capital adequacy. To ensure that the Group has sufficient
capital resources to meet regulatory requirements and to cover the
potential for unexpected losses in its asset portfolio.
• Deliver stable earnings growth. To ensure that strategic growth is
based around a longer-term risk versus reward consideration, with
significantly lower volatility in underlying profitability than was seen
during the financial crisis.
• Ensure stable and efficient access to funding and liquidity. To
ensure that the Group has sufficient funding to meet its obligations,
taking account of the constraint that some forms of funding may not
be available when they are most needed.
• Maintain stakeholder confidence. To ensure that stakeholders have
confidence in the Group’s recovery plan, its ability to deliver its
strategic objectives and the effectiveness of its business culture and
operational controls.
Each objective is essential in its own right, but also mutually supportive of
the others. The strategic risk objectives are the bridge between the
Group-level business strategy and the frameworks, limits and tolerances
that are used to set risk appetite and manage risk in the business
divisions on a day-to-day basis.