RBS 2014 Annual Report Download - page 140

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RBS – Interim Results 2015
Appendix 1 Capital and risk management
Capital management
RBS aims to maintain an appropriate level of capital to meet its business needs and regulatory requirements,
and operates within an agreed risk appetite. The appropriate level of capital is determined based on the dual
aims of: (i) meeting minimum regulatory capital requirements; and (ii) ensuring RBS maintains sufficient
capital to uphold customer, investor and rating agency confidence in the organisation, thereby supporting its
business franchises and funding capacity. For a description of the capital management framework,
governance and basis of preparation refer to Capital management in the 2014 Annual Report and Accounts.
Pillar 2A and MDA
RBS’s current Pillar 2A requirement is 3.4% of RWAs (31 December 2014 - 3.5%). From 1 January 2015,
56% of the total Pillar 2A or 1.9% of RWAs is required to be met from CET1 capital. Pillar 2A is a point in
time regulatory assessment of the amount of capital that is required to be held to meet the overall financial
adequacy rules. This PRA assessment may change over time, including as a result of at least an annual
assessment and supervisory review of RBS’s Internal Capital Adequacy Assessment Process (ICAAP); the
latest ICAAP based on the end of 2014 data was completed in May 2015.
RBS’s capital risk appetite framework, which informs its capital targets, includes consideration of the
maximum distributable amount (MDA) requirements. These requirements are expected to be phased in from
2016, with full implementation by 2019.
Based on current capital requirements, on the illustrative assumption that current estimates of Pillar 2A
remain constant, RBS estimates that its ‘fully phased’ CET1 MDA requirement would be 10.4% in 2019,
assuming RBS’s current risk profile is unchanged. It should be noted that this estimate does not reflect the
anticipated impact of RBS’s planned restructuring and balance sheet risk reduction programmes, changes in
the regulatory framework or other factors that could impact target CET1 ratios. This estimated 2019 MDA
requirement comprises:
● 4.5% Pillar 1 minimum CET1 ratio;
● 2.5% Capital conservation buffer;
● 1.9% Pillar 2A CET1 ratio; and
● 1.5% Global Systemically Important Institution buffer.
Based on the assumptions above, assuming a 13% steady state CET1 capital ratio is achieved, RBS
currently estimates that it would have headroom of 2.6% to fully phased MDA trigger in 2019. This headroom
will be subject to ongoing review to accommodate regulatory and other changes.