RBS 2013 Annual Report Download - page 225
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Business review Risk and balance sheet management
223
Encumbrance
The Group reviews all assets against the criteria of being able to finance
them in a secured form (encumbrance) but certain asset types lend
themselves more readily to encumbrance. The typical characteristics that
support encumbrance are an ability to pledge those assets to another
counterparty or entity through operation of law without necessarily
requiring prior notification, homogeneity, predictable and measurable
cash flows, and a consistent and uniform underwriting and collection
process. Retail assets including residential mortgages, credit card
receivables and personal loans display many of these features.
From time to time the Group encumbers assets to serve as collateral to
support certain wholesale funding initiatives. The three principal forms of
encumbrance are own asset securitisations, covered bonds and
securities repurchase agreements.
The Group categorises its assets into three broad groups; assets that
are:
• already encumbered and used to support funding currently in place
via own asset securitisations, covered bonds and securities
repurchase agreements.
• not currently encumbered but can for instance be used to access
funding from market counterparties or central bank facilities as part
of the Group’s contingency funding.
• not currently encumbered. In this category, the Group has in place
an enablement programme which seeks to identify assets which are
capable of being encumbered and to identify the actions to facilitate
such encumbrance whilst not impacting customer relationships or
servicing.
The Group’s encumbrance ratios are set out below.
2013 2012 2011
Encumbrance ratios % % %
Total 17 18 19
Excluding balances relating to derivative transactions 19 22 26
Excluding balances relating to derivative and securities financing transactions 11 13 19
Key points
• The Groups total encumbrance ratio dropped to 17%.
• 31% of the Group’s residential mortgage portfolio was encumbered
as at 31 December 2013.
• Unencumbered financial assets covered unsecured liabilities
excluding derivatives.
• In addition to the £451.4 billion on-balance sheet assets available to
support future funding and collateral requirements there is £12.7
billion net off-balance sheet collateral available from reverse
repurchase and derivative collateral transactions.