RBS 2013 Annual Report Download - page 31

Financial strength and
resilience are at the heart
of our Strategic Plan.
29
Risk overview
Risk overview
Key themes of 2013
Safety and soundness
The Group continued to pursue its safety and
soundness agenda during 2013, with Non-
Core’s assets falling to £28 billion and Markets
repositioning its business, both resulting in
risk reduction and lower RWAs.
Whilst the continued deleveraging led to a
significant reduction in RWAs, this was more
than offset by the impact of the regulatory and
redress provisions and increased impairment
losses reflecting the establishment of RCR.
Our Core Tier 1 capital ratio improved over
the year, increasing from 10.3% to 10.9%. The
fully loaded Basel III Common Equity Tier 1
ratio also improved in the year to 8.6%.
The Group’s liquidity position continued to
strengthen and at the end of the year, the
liquidity portfolio of £146 billion was more
than four times greater than its short-term
wholesale funding of £32 billion. The
loan:deposit ratio continued to improve and
was 94% at the end of the year.
Loan impairment charges were £8.4 billion
during 2013 of which £4.5 billion related to
the creation of RCR. Underlying impairment
losses fell by £1.4 billion and provisions
coverage of risk elements in lending increased
to 64%, up from 52% a year ago. The Group
continued to reduce risk concentrations,
notably in commercial real estate. Exposure to
eurozone periphery countries also continued
to fall, down by 11% to £53 billion at the end of
the year. Of this, 70% related to Ireland. The
Group still has significant credit risk exposures
in absolute terms with credit risk RWAs at £313
billion, following a 16% reduction in the year.
The Group’s exposure to market risk continued
to fall, with average trading VaR declining to
£79 million from £97 million. Market risk RWAs
at £30 billion are now less than half their end
2010 level of £80 billion.
Conduct risk is one of the most significant
issues facing the bank, and the Group
continued to suffer from legacy conduct
issues during 2013, notably in relation to
PPI, Interest Rate Hedging Products and
mortgage-backed and other securities
litigation. During the year, the Group focused
on embedding good conduct at the heart
of its business, working to complete the
development of its conduct risk framework
and promoting staff understanding of
conduct issues. It also worked to enhance
its assessment of operational risk to identify
important vulnerabilities.
Strategic review
The Group launched a strategic review in
the fourth quarter of 2013 to reshape the
business to deliver superior customer service.
This involved a wide-ranging review of core
activities, resulting in the formulation of a
plan to address the business challenges of
the next five years. While the Group believes
the resulting strategy is appropriate, risks
remain; the strategy may prove inadequate
or the Group may be unable to execute
it successfully. Its successful execution,
despite increasing regulatory demands and
scrutiny as well as a challenging economic
environment, is key to the future success of
the Group.