RBS 2013 Annual Report Download - page 339
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Business review Risk and balance sheet management
337
Product hedging*
Product structural hedges are used to minimise the volatility on earnings
related to specific products, primarily money transmission accounts.
The table below shows the element of net interest income associated
with product hedges managed by Group Treasury, relating to the main
UK banking divisions, except Wealth. The amount represents the
incremental contribution of the hedge relative to LIBOR cash rates.
2013 2012
Net interest income £m £m
Product hedges
UK Retail 306 359
UK Corporate 206 214
International Banking 73 83
Total product hedges 585 656
Key point
• The yield on product structural hedges declined in 2013 due to the low interest rate environment as maturing hedges were reinvested at lower
interest rates.
Equity hedging*
Equity structural hedges are used to minimise the impact of earnings volatility on equity. These hedges contributed £0.8 billion to the UK banking
divisions in 2013 (2012 - £0.8 billion), which is an incremental benefit relative to LIBOR cash rates.
Foreign exchange risk
The table below shows the Group’s structural foreign currency exposures.
Net assets o
f
Net investments Net Structural foreign Residual structural
overseas RFS in foreign investment currency exposures Economic foreign currency
operations MI operations hedges pre-economic hedges hedges (1) exposures
2013 £m £m £m £m £m £m £m
US dollar 16,176 — 16,176 (1,581) 14,595 (3,808) 10,787
Euro 6,606 9 6,597 (190) 6,407 (2,226) 4,181
Other non-sterling 4,233 372 3,861 (3,185) 676 — 676
27,015 381 26,634 (4,956) 21,678 (6,034) 15,644
2012
US dollar 17,313 1 17,312 (2,476) 14,836 (3,897) 10,939
Euro 8,903 2 8,901 (636) 8,265 (2,179) 6,086
Other non-sterling 4,754 260 4,494 (3,597) 897 — 897
30,970 263 30,707 (6,709) 23,998 (6,076) 17,922
2011
US dollar 17,570 1 17,569 (2,049) 15,520 (4,071) 11,449
Euro 8,428 (3) 8,431 (621) 7,810 (2,236) 5,574
Other non-sterling 5,224 272 4,952 (4,100) 852 — 852
31,222 270 30,952 (6,770) 24,182 (6,307) 17,875
Note:
(1) Economic hedges represent US dollar and euro preference shares in issue that are treated as equity under IFRS and do not qualify as hedges for accounting purposes.
*unaudited