RBS 2013 Annual Report Download - page 552
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Glossary of terms
550
Commercial real estate - freehold and leasehold properties used for
business activities. Commercial real estate includes office buildings,
industrial property, medical centres, hotels, retail stores, shopping
centres, agricultural land and buildings, warehouses, garages etc.
Common Equity Tier 1 capital - the highest quality form of regulatory
capital under Basel III comprising common shares issued and related
share premium, retained earnings and other reserves excluding the cash
flow hedging reserve, less specified regulatory adjustments.
Constant currency - reported results for the current reporting period are
compared to results for comparative periods retranslated at exchange
rates for the current period.
Contractual maturity - the date in the terms of a financial instrument on
which the last payment or receipt under the contract is due for settlement.
Core Tier 1 capital - called-up share capital and eligible reserves plus
equity non-controlling interests, less intangible assets and other
regulatory deductions.
Core Tier 1 capital ratio - Core Tier 1 capital as a percentage of risk-
weighted assets.
Cost:income ratio - operating expenses as a percentage of total income.
Counterparty credit risk - the risk that a counterparty defaults before the
maturity of a derivative or sale and repurchase contract. In contrast to
non-counterparty credit risk, the exposure to counterparty credit risk
varies by reference to a market factor (e.g. interest rate, exchange rate,
asset price).
Coverage ratio - impairment provisions as a percentage of impaired
loans.
Covered bonds - debt securities backed by a portfolio of mortgages that
are segregated from the issuer's other assets solely for the benefit of the
holders of the covered bonds.
CRD IV - the European Union has implemented the Basel III capital
proposals through the Capital Requirements Regulation (CRR) and the
Capital Requirements Directive (CRD), collectively known as CRD IV.
CRD IV was implemented on 1 January 2014. The European Banking
Authority’s technical standards are still to be finalised through adoption by
the European Commission and implemented within the UK.
Credit default swap (CDS) - a contract where the protection seller
receives premium or interest-related payments in return for contracting to
make payments to the protection buyer upon a defined credit event in
relation to a reference financial asset or portfolio of financial assets.
Credit events usually include bankruptcy, payment default and rating
downgrades.
Credit derivative product company (CDPC) - a structured entity that sells
credit protection under credit default swaps or certain approved forms of
insurance policies. Sometimes they can also buy credit protection.
CDPCs are similar to monoline insurers. However, unlike monoline
insurers, they are not regulated as insurers.
Credit derivatives - contractual agreements that provide protection
against a credit event on one or more reference entities or financial
assets. The nature of a credit event is established by the protection buyer
and protection seller at the inception of a transaction, and such events
include bankruptcy, insolvency or failure to meet payment obligations
when due. The buyer of the credit derivative pays a periodic fee in return
for a payment by the protection seller upon the occurrence, if any, of a
credit event. Credit derivatives include credit default swaps, total return
swaps and credit swap options.
Credit enhancements - techniques that improve the credit standing of
financial obligations; generally those issued by a structured entity in a
securitisation. External credit enhancements include financial guarantees
and letters of credit from third-party providers. Internal enhancements
include excess spread - the difference between the interest rate received
on the underlying portfolio and the coupon on the issued securities; and
over-collateralisation - on securitisation, the value of the underlying
portfolio is greater than the securities issued.
Credit grade - a rating that represents an assessment of the
creditworthiness of a customer. It is a point on a scale representing the
probability of default of a customer.
Credit risk - the risk of financial loss due to the failure of a customer, or
counterparty, to meet its obligation to settle outstanding amounts.
Credit risk mitigation - reducing the credit risk of an exposure by
application of techniques such as netting, collateral, guarantees and
credit derivatives.
Credit valuation adjustment (CVA) - the CVA is the difference between
the risk-free value of a portfolio of trades and its market value, taking into
account the counterparty’s risk of default. It represents the market value
of counterparty credit risk, or an estimate of the adjustment to fair value
that a market participant would make to reflect the creditworthiness of its
counterparty.
Currency swap - an arrangement in which two parties exchange specific
principal amounts of different currencies at inception and subsequently
interest payments on the principal amounts. Often, one party will pay a
fixed rate of interest, while the other will pay a floating rate (though there
are also fixed-fixed and floating-floating arrangements). At the maturity of
the swap, the principal amounts are usually re-exchanged.
Customer accounts - money deposited with the Group by counterparties
other than banks and classified as liabilities. They include demand,
savings and time deposits; securities sold under repurchase agreements;
and other short term deposits. Deposits received from banks are
classified as deposits by banks.