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Re-building and RecoveryQ1 2010 ResultsDebt Investor Presentation

2

Important Information

Certain sections in this presentation contain ‘forward-looking statements’

as that term is defined in the United States Private Securities

Litigation Reform Act of 1995, such as statements that include the

words ‘expect’, ‘estimate’, ‘project’, ‘anticipate’, ‘believes’, ‘should’, ‘intend’, ‘plan’, ‘probability’, ‘risk’, ‘Value-at-Risk (VaR)’, ‘target’, ‘goal’, ‘objective’, ‘will’, ‘endeavour’, ‘outlook’, ‘optimistic’, ‘prospects’

and

similar expressions or variations on such expressions.

In particular, this document includes forward-looking statements relating, but not limited, to: the Group’s restructuring plans, capitalisation, portfolios, capital ratios, liquidity, risk weighted assets, return on

equity, cost-to-income ratios, leverage and loan-to-deposit ratios, funding and risk profile; the Group’s future financial performance; the level and extent of future impairments and write-downs; the protection

provided by the APS; and the Group’s potential exposures to various types of market risks, such as interest rate risk, foreign exchange rate risk and commodity and

equity price risk. Such statements are

subject to risks and uncertainties. For example, certain of the market risk disclosures are dependent on choices about key model

characteristics and assumptions and are subject to various limitations. By

their nature, certain of the market risk disclosures are only estimates and, as a result, actual future gains and losses could differ materially from those that have been estimated.

Other factors that could cause actual results to differ materially from those estimated by the forward-looking statements contained in this document include, but are not limited to: general economic conditions

in the UK and in other countries in which the Group has significant business activities or investments, including the United States; developments in the global financial markets, and their impact on the

financial industry in general and on the Group in particular; the full nationalisation of the Group or other resolution procedures under the Banking Act 2009; the monetary and interest rate policies of the Bank

of England, the Board of Governors of the Federal Reserve System

and other G7 central banks; inflation; deflation; unanticipated

turbulence in interest rates, foreign currency exchange rates, commodity

prices and equity prices; changes in UK and foreign laws, regulations and taxes, including changes in regulatory capital regulations; a change of UK Government or changes to UK Government policy;

changes in the Group’s credit ratings; the Group’s participation in the APS and the effect of such scheme on the Group’s financial and capital position; the conversion of the B Shares

in accordance with their

terms; the ability to access the contingent capital arrangements

with Her Majesty’s Treasury (“HM Treasury”); limitations on, or additional requirements imposed on, the Group’s activities as a result of HM

Treasury’s investment in the Group; changes in competition and pricing environments; the financial stability of other financial institutions, and the Group’s counterparties and borrowers; the value and

effectiveness of any credit protection purchased by the Group; the extent of future write-downs and impairment charges caused by depressed asset valuations; the ability to achieve revenue benefits and

cost savings from the integration of certain of the businesses and assets of RBS Holdings, N.V. (formerly ABN AMRO); natural and

other disasters; the inability to hedge certain risks economically; the ability

to access sufficient funding to meet liquidity needs; the ability to complete restructurings on a timely basis, or at all, including the disposal of certain non-core assets and assets and businesses required as

part of the EC State aid approval; the adequacy of loss reserves; acquisitions or restructurings; technological changes; changes

in consumer spending and saving habits; and the success of the Group in

managing the risks involved in the foregoing.

The forward-looking statements contained in this presentation speak only as of the date of this presentation, and the Group does not undertake to update any forward-looking statement to reflect events or

circumstances after the date hereof or to reflect the occurrence

of unanticipated events.

The information, statements and opinions contained in this presentation do not constitute a public offer under any applicable legislation or an offer to sell or solicitation of an offer to buy

any securities or

financial instruments or any advice or recommendation with respect to such securities or other financial instruments.

3

Concluding remarks

RBS compared to peers

Funding & Liquidity

Reducing and managing risk

Agenda

Introduction to RBS, the strategic vision and Q110 highlights

Building blocks of the RBS RecoveryExternal factors Internal metrics

Appendices

The New RBS –

What we aspire to be

5

To be one of the world’s most admired, valuable and stable universal banks

To return to >15% sustainable RoEs, powered by market-leading businesses in large customer-driven markets

The business mix to produce an attractive blend of profitability, stability and sustainable growth –

anchored in the UK and in retail and commercial banking together with customer driven wholesale banking, and with credible growth prospects geographically and by business line

Management hallmarks to include an open, investor-friendly approach, discipline and proven execution effectiveness, strong risk management and a central focus on the customer

To deliver its strategy from a stable AA category risk profile and balance sheet

RBS’s 2013 vision

What did we set out to achieve in February 2009?

6

How are we going to do it?

Focus on UK and US franchises, and move balance of Group towards UK Retail and Commercial businessesResize and refocus GBM on corporate and financial institutions franchises and core locationsReposition other overseas businesses to align with Group competencies and reduce riskUse smaller balance sheet with muchless wholesale funding relianceUnderstand and manage down our Non-Core bank effectively

A cost base that is reduced, controlled and transparentReturns and balance sheet use targeted and measured A strong risk management organisation and processesA management framework and incentives to reward longer-term performanceManagement and accounting mechanisms for Non-Core assets

A reshaped business

New management disciplines

RBS’s Strategic Plan

7

2011

Return to Group profitabilityInitial cost reduction programmes completedInterest rates start to rise

2009

Formation of the Strategic PlanCreation of Non-Core£2.5bn cost saving programme announcedBusiness restructuring and reinvestmentNew Management and BoardAPS entered into and Recapitalisation completed‘Tools for the job’ in place

2010

Execution and implementation phase of the plan‘Roll up our sleeves’Economic recovery takes holdRetail & Commercial starts to rebound

Ongoing revenue and cost initiativesCompletion of Non-Core run-down2013 targets achieved

–

Returns–

Risk–

Franchise

Progress to date

Core profits build, Non-Core losses fall

2011 onwards

Target >15% RoE

Strategic plan timeline

8

Progress to date

1 As at 1 January 2008. 2 As at October 2008 3

Amount of unsecured wholesale funding under 1 year. 2009 includes £109bn of bank deposits and £141bn of other wholesale funding. 2013 target is for <£65bn of bank deposits, <£85bn of other wholesale funding. 4 As at December 2008 5 Eligible assets held for contingent liquidity purposes including

cash, government issued securities and other securities eligible with central banks. 6

Funded tangible assets divided by Tier 1 Capital. 7

As at June 2008 8

Group return on tangible equity for 2008 9 Indicative Core attributable profit taxed at 28% on attributable

core spot tangible equity (c70% of Group tangible equity based on RWAs). 10

2008

Key performance indicator

Worst point

FY 09 Actual

2013 Target

Core Tier 1 Capital 4%(1) 11.0% >8%

Loan : deposit ratio (net of provisions) 154%(2) 135% c100%

Wholesale funding reliance(3) £343bn(4) £250bn <£150bn

Liquidity reserves(5) £90bn(4) £171bn c£150bn

Leverage ratio(6) 28.7x(7) 17.0x <20x

Return on Equity (RoE) (31%)(8) Core 13%(9) >15%

Cost : income ratio net of claims 97%(10) Core 53% Core <50%

Q1 10 Actual

10.6%

131%

£222bn

£165bn

17.6x

Core 15%(9)

Core 54%

Current position versus 2013 targets

9

Core Business (Retail & Commercial, GBM, GTS and Insurance)–

Core customer franchises remain strong –

UK Retail now serves >12.8m current account customers

–

Operating profit: £2.3bn, +92% vs Q409 driven by seasonally strong results in GBM and improving Retail & Commercial trends

–

ROE: 15%, in line with long run targets

–

NIM: 2.11%, +5bps vs Q409 driven by GBM

–

Credit profile: ongoing improvement, impairment losses reduced 25% q-o-q to £971m

–

RWAs: £421bn, +7%, driven by ABN AMRO migration

Group Profile–

Group operating profit of £713m vs loss of £1.4bn Q409

–

Impairments: £2.7bn, -14% q-o-q driven by improvements in Core and Non-Core

–

Non-Core run off: tracking to plan, a further 4% (£8bn) reduction in TPAs in Q1

–

Core Tier 1 ratio 10.6%, RBS remains a highly capitalised bank

–

Good progress made against key metrics published in our Strategic Plan

Key Q1 10 Results Highlights

1 Note: All financial information contained in these materials in relation to the performance of the Group in the first quarter of the calendar year 2010, and comparisons of such data with the

fourth quarter of the calendar year 2009, the first quarter of the calendar year 2009 or any other period, are extracted without amendment from the announcement on 7 May 2010 of the financial results

of the Group for the end of the first quarter of the calendar year 2010

in its Interim Management Statement Q1 2010, disseminated to the London Stock Exchange via RNS announcement on that date.

Core Business (Retail & Commercial, GBM, GTS and Insurance)

Group profile

10

Funding–

Short Term wholesale funding reduced to £222bn (£128bn excluding bank deposits) in Q1 2010, on the way to target of under £150bn in 2013

–

c. £8bn of unguaranteed long-term issuance in Q1 2010 (£21bn 2009) covering a range of maturities.

–

Re-introducing issuance of different currencies to the funding platform and building the yield curve in existing markets for RBS name

–

Limited impact of run-off of Government funding schemes. Asset reduction outpaces maturities of CGS and SLS

–

Establishment of an FSA regulated RBS residential mortgage-backed Covered Bond programme launched on April 1st

2010

Liquidity–

Net Stable Funding Ratio1

of 90% as at Q110

-

up from 79% in at FY08

–

Significant increase in liquidity reserves; increasing from £90bn in FY08 to £165bn in Q110, with higher quality of liquidity

–

FSA-eligible government bonds portfolio in the Plc will increase under the current plan from £25bn at Q1 2010 to £50bn at 2013 to strengthen Group liquidity (£1bn FY08, £20bn FY09)

–

Ongoing collateral enablement effort to expand and diversify secured funding resources

Key Q1 10 Results Highlights

Funding

Liquidity

1

Net Stable Funding Ratio measures the level of net stable funding divided by long-term assets (RBS Definition)

Building blocks of the RBS Recovery

12


Internal metrics

We have strong franchises in large customer-driven markets

Sustained and improving customer satisfaction levels

Remain well capitalised and can deliver our funding plan

Non-Core run-off drives the decline in risk concentrations and wholesale funding reliance

Strategic plan, investment and income initiatives drive sustainable growth

We can deliver good cost efficiency

Liability margins to improve –

asset margins to hold

Management execute the plan well and drive cultural change

Impairments trend to “normalised”

levels

External factors

World economic recovery continues

Strong but rational competition going forward

Interest rates normalise

Path of regulatory change will be phased and sensible

What are the necessary external factors and internal metrics to achieve the plan?

13


External Factors

Internal Metrics

14

Current position

Building blocks of the RBS Recovery –

External factors

Possible risks

Outlook is better than expected 6-12 months agoUS and UK current account and savings deficits are starting to improveUK housing market has performed better than expectedConfidence in markets has improved but will remain sensitive to news flow and market developmentsLow interest rates have improved liquidity which could continue


Economic growth faltersEconomic imbalancesSovereign credit risksWholesale funding, liquidity risksHarsh capital and liquidity regimes hinder growthInterest rates, inflation rise rapidly

Strong but rational competition - competitors have similar capital, funding and return targetsBanking, similar to other mature capital intensive industries, is relatively concentratedNew business margins are broadly consistent with industry return targetsIncreased industry funding costs e.g. liquidity, capital and funding need to be reflected as interest rates normaliseBanks are capital intensive and becoming more so and cannot survive without moving to exceed cost of capital (CoE 10-15%)


New market entrants / return of foreign banksIrrational behaviour from established competitorsReturn of irrational wholesale and securitisation marketsBanks move up risk profile again to generate increased returnsRegulatory intervention

Proposals published, but subject to consultation and impact assessment

Implementation likely phased so as not to destabilise Banking System


More penal at implementation

Shortened timeline for introduction

Failure to gain global agreement, UK or EU ‘goes it alone’

UK and other Governments have been supportive

UK Government, through UKFI, has remained a constructive shareholder and operated in line with shareholder best practice

Government policy

Debates around industry structure, bank specific taxes and levies and Basel III capital / liquidity proposals

Impact of consumer legislation – e.g. overdraft fees

15


External Factors

Internal Metrics

16

Our franchises have sustained market positions, with customer numbers steady or growing


Internal metrics

1 2010 Greenwich Associates H209 data (Large Corporate Banking study), rankings relate to Total Relationships. 2 Partnership, broker and other policies

UK Retail>12.8m current accounts

10m savings accounts#2 Current Accounts £4.9bn £89.4bn

Q1 Customer Numbers Market Positions Income FY09 Deposits Q110

UK Corporate

1.2m Business, Commercial & Corporate customers

#1 SME#1 Corporate & Commercial £3.6bn £91.4bn

Wealth 258,000 UK Wealth customers #1 Private Banking in the UK £1.1bn £36.4bn

GBM #1 UK, #3 Europe, #6 USA, #7 APAC1 Top tier in key product areas £11.0bn £47.0bn

Ulster 1.9m customer accounts#1 in Northern Ireland#3 in island of Ireland

£1.0bn £23.7bn

US R&C3.9m Retail

0.5m SME & CorporateTop 5 in 8 of top 10 markets in

which we operate £2.7bn £62.5bn

Insurance11.1m own brand policies

6.6m other policies2 #1 Motor insurance £4.5bn n.a.

GTS >1.2m customers#5 Trade Finance

#4 Merchant Acquirer£2.5bn £64.6bn

We have strong franchises in large customer-driven markets

17

Current Position

Mar

gin

To achieve the plan:

Current new business asset margins hold steady

Interest rates rise towards end of plan period

Group NIM 1.92% 1.83%

R&C NIM1 3.01% 3.01%

Q110 Q409

Outlook

Overall margin

Liability margins

R&C margin

GBM margin

Non-Core margin

Impact of funding & liquidity

Overall deposit margin

2011-13

Asset margins

Possible risks:Irrational competitionInterest rates remain near zero for extended period

GBM 1.11% 0.89%

Non-Core 1.25% 1.17%


Internal metrics

1 Underlying, adjusted for days in month; 2.97% (Q110) and 3.04% (Q409) on a reported basis

Liability margins to improve –

asset margins to hold

18

Investment -

major programmes underwayNon Interest Income -

Leveraging for growth

Investment In systems, proposition, technologies and staff

Cross-sell

Leverage group capabilities e.g:New affluent proposition in UK RetailGBM Capital Market products in UK CorporateNew Bancassurance platform in UlsterGTS products available across the corporate franchise

Customer relationships

Leveraging client relationships e.g:GBM – deepening corporate and FI relationships, focus on core clientsRetail & Commercial – increasing share of wallet through client cross-sell

5 year spend > £6bn to foster growth & efficiency

Example projects:

Multi-channel / internet development – c12% of spend–

UK Retail; build new channel platforms & capabilities–

UK Retail; migrate customers to remote channels & improve productivity

–

GTS; on-line portals/cash mgt/trade services

Reduce cost to serve – c55% of spend–

Group -

process efficiencies across business areas–

GBM -

automation of operational processes

Improve MI systems – c4% of spend

Improve & integrate infrastructure – c10% of spend –

UK Retail –

new sales management platform –

GBM –

enhanced trading platforms


Internal metrics

Strategic plan, investment and income initiatives drive sustainable growth

19

FY09 Cost reduction

programme

Impact of Disposals

Inflation Volume and

other1

Core costs broadly flat over the planning horizonImpact of inflation & volume growth in Core offset by business re-investment & cost reductionRump of Non-Core costs of c£300-400m expected in 2013, falling away rapidly thereafterTarget cost:income ratio of less than 50%

15.0

2.4

17.4

Non-CoreCore

£bn

Non-Core roll-off


Internal metrics

1 Includes FX impact

We can deliver good cost efficiency

20

Trend back towards historic levelsHistoric levels flattered by high loan growth in 2003-07 periodLarge Non-Core impairment reduction as portfolio runs off – small impairment charges remain in 2013-14

Recovery path not sustainedEvent risk – individual significant shocks

Outlook

Possible Risks

Impairments –

returning to normalised levels

Impairment as a % of net L&A

‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09

2003-07 avg: 0.5%

1998-2008 avg: 0.6%

~‘13

1.1%

2.5%


Internal metrics

Non-Core

Core

£bn

9.2

4.7

% of L&A

5.7

1.1

Impairments trend to “normalised”

levels

Reducing and managing riskFocus on composition of the RBS loan book

22

Reducing & managing risk

Improved risk policies & framework

Non-Core reduction on track

GBM de-leveraged and de-risked

Prime Core credit portfolios

23

The New Risk Agenda

Risk agenda –

delivering the 5 year plan with strong risk management

Strategy & PolicyAlignment – risk & business strategyGroup policy frameworkCapital / risk adjusted performance

Risk ArchitectureRisk systemsRisk data architectureAnalytics and modellingRisk information & reporting

Operating modelGovernanceOrganisation, people & cultureOne risk communityRegulatory and operational risk coverage

Risk Appetite & FrameworkCredit approvalMarket risk limits and controlsRisk concentrationsCountry riskScenario testing

New Head of Restructuring & Risk appointed in H1 2009 bringing significant changes to senior leadership in risk management function

Adoption of new, enhanced risk management framework and architecture including appointment of Board Risk Committee and Executive Risk Forum (ERF)

Disciplined RWA usage in the Core bank (value not volume) and total balance sheet size controlled and liquidity surprise avoided

Introduction of new and enhanced risk concentration limits –

reduced single name, sector and country limits

Appointment of Board Risk Committee and Executive Risk Forum (ERF)

Ongoing work to fully embed improved risk management framework

The Group has seen significant change in risk culture and process

Ongoing work to fully embed improved risk management framework including new reporting systems to increase transparency

24

Reduced exposures to CDPCs, monolines and conduits

Counterparty credit market exposures Total assets held by sponsored conduits

£bn

FY08 FY09 Q110

MonolinesCDPCs8.3

2.6 2.5

Group Credit Risks (REILs1)Significant reduction in exposure to monolines and CDPCs since FY08Exposure to loss from sponsored conduits has also been managed downNPLs2 are showing signs of stabilisation however our outlook remains cautious.Provisions as a percentage of NPLs2 have increased from 43% at FY09 to 46% as at Q110

£bnStabilising but our outlook remains cautious

0

20

40

60

FY07 FY08 H109 Q309 FY09 Q110

£bn

FY08 Q209 Q309 FY09 Q110

CoreNon Core

49.9

35.030.5 27.4 24.1

1

Risk Elements In Lending

2

Non Performing Loans

Risk profile –

worst should be past

25

1 Country and Sector charts are based on Credit Risk Assets –

see Report and Accounts for further details. Country chart shows ten largest countries rated A+ or below by domicile of borrower.

New frameworks, polices and limits in placeGood progress on de-risking, with proactive management of both Core and Non-Core exposuresReduced concentrations overall but more remains to be doneExposure to higher risk economies reducedGreek exposure is small, with <£1bn of credit risk assets and c. £1.5bn of Greek government debt securities (as at 31/3/10)

Reducing credit risk concentrations

Sector1Country1

Dec 2008 Dec 2008

Top 10 A+ and lower countries by credit risk assets

Top 10 Corporate industry sectors by credit risk assets

0 2 4 6 8 10 12

Italy

India

China

Turkey

South Korea

Russia

Poland

Mexico

Romania

Portugal

£bn 0 20 40 60 80 100 120£bn

Transport & Storage

Wholesale & Retail

Tourism & Leisure

Power, Water & Waste

Natural Resources & Nuclear

Property

Manufacturing

TMT

Public Sector

Building

March 2010 March 2010

Portfolio concentrations continue to reduce

26

0

100

200

300

400

500

600

Q408 Q109 Q209 Q309 Q409 Q1100

1

2

3

4

5

6

7

8

9

0

5

10

15

20

25

30

35

40

Q109 Q209 Q309 Q409 Q1100%

1%

2%

3%

4%

Impairments outlook

Group credit trends, Q109 –

Q110No. & value of wholesale cases transferred to Recoveries Units globally, Q408-Q110 (monthly average)

Impairments as a % of gross L&A (annualised)REILs

1

Average value transferred

Other1

Transport & StorageManufacturingConstruction

Wholesale & Retail TradeProperty

Average value transferred inc Ulster

Transfer to GRG reflecting revised management of Ulster non-core property portfolio

£bn

NPLs increased by 4%No individual large names in Q1Ulster Bank Core & Non-Core drove Q1 growth

Q1 continues previous trends seen in 2009No large individual casesUptick in commercial customers having problems –classic late cycle phenomenon

1 Other is spread across a large number of sectors and includes TMT, Tourism & Leisure and Business Services

Impairments appear to have peaked in Q209 but remain elevated

27






28

Plan revised to reflect removal of c. £30 billion APS securitisation, which is no longer viable under final terms of APSFY 2013 targets revised to £20-40 billion, reflecting removal of securitisation that is partially offset by additional salesSales selected for pricing and capital preservation

Rollovers & drawings

Impairments

Asset sales

Breakdown of changes in TPAs2009-2013

Non Core third party assets (TPAs excluding derivatives & Sempra) run-off targets, £bn

252

143 11882

1871

20-40

2013

13

2012

19

2011

23

2010

29

2009

36

2008

85

c. 212

TPAsUndrawn commitments

Run-off

FX

(60)-(80)

(20)-(30)

20-30

(110)-(130)

(10)-(20)

Non-Core long term run-off targets

1 Excluding Sempra which had £14bn of assets as at 31 December 2009

Run-off is key to reducing risk on the balance sheet

29

Non-Core run-off1

current progress

£bn

Run-OffDisposalsImpairmentsFY 09

Non-Core assets reduced 4% (£8bn) during Q1 2010 on a reported basis

Excluding negative FX moves (£5bn), TPAs reduced 7% (£13bn)

Run-off driven by CRE, Corporate and Markets

Asset sales primarily Corporate

C. £40bn targeted reduction pa. Excluding the FX movement Q110 is ontrack for FY2010

1 Third party assets excluding Sempra, excluding mark to market derivatives2 Run-off, MTM, disposals, impairments and FX

187

Mvmt2FY08 FX Q110

(2) (2) (9) 5 179

252 (65)

Significant progress already achieved on Non-Core run-off

301 Excluding MTM derivatives and Sempra

Based on data from RBS risk systems Total Assets = £252bn Total Assets = £187bn

2008 Y/E TPAs1

by asset class

Project & Export Finance £21.3bnAsset Finance £24.2bnLeveraged Finance £15.9bnCorp & Warehouse Loans £41.6bn

UK £26.0bn Ireland £9.9bnRest of Europe £15.1bnUS £7.3bnAPAC £2.9bn

Structured Credit Portfolio £20.1bnEquities £5.0bnCredit Collateral Financing £8.6bnExotic Credit Trading £1.4bnOther £6.2bn

UK Mortgages & Personal Lending £3.2bnUS Mortgages & Personal Lending £11.0bnIreland Mortgages £6.5bn

RBS Insurance £2.0bnRetail & Commercial Countries £6.7bnBank of China / Linea Directa £4.5bnOther Whole businesses £4.2bnABN AMRO Shared Assets £1.5bnAsset Management £1.9bn

Corporate

Commercial Property

Markets

Retail

Other2009 Y/E TPAs1

by asset class

Project & Export Finance £20.6bn Asset Finance £22.2bnLeveraged Finance £13.1bnCorp & Warehouse Loans £23.2bn

UK £23.6bn Ireland £8.1bnEurope £13.0bnUS £4.7bnAPAC £2.3bn

Structured Credit Portfolio £14.9bnEquities £2.0nCredit Collateral Financing £4.8bnOther £2.9bn

UK Mortgages & Personal Lending £2.4bnUS Mortgages & Personal Lending £7.8bnIreland Mortgages £6.1bn

Corporate

Commercial Property

Markets

Retail

Other

12

16

25

52 3

79

RBS Insurance £1.5bnRetail & Commercial Countries £4.3bnOther Whole Businesses £3.3bnABN AMRO Shared Assets £1.3bnAsset Management £1.6bn

SMEUK SME £2.3bnUS SME £1.6bn

SMEUK SME £1.9bnUS SME £0.9bn

21

21

41

61

103

4

Good run-off progression across all asset classes

Non-Core make up by division

31

Non-Core impairments1

stabilised in Q1

Property Manufacturing OtherCorporate

Mortgages Other personal Other Total Non-Core

Q109 Q309 Q409 Q110

Non-Core impairments by asset type Q109, Q409 & Q1102, £bn

1.8 1.7

Q110£m

Q110% L&A1

Q409% L&A1

FY09% L&A1

Q1 10 Key Sector Impairments:

UK Retail 5 0.8 1.1 2.1 Mortgage & Personal lending

UK Corporate 155 1.9 3.9 4.8 Property & construction 34% of total

Ulster Bank2 552 13.0 7.0 8.3 Property £461m, 84% of total

US R&C 208 7.4 7.6 9.7 SBO/Home Equity £102m, and CRE £63m -

80% of total

GBM 753 3.6 4.1 4.9 Property £472m, 62% of total

Other 31 3.7 6.5 9.3 Mainly Wealth

Total 1,704 4.6 4.6 5.7 Absence of large individual cases but with Ulster Bank remaining at elevated levels

1.8

1 Excludes Available for sale impairments. 2

Includes EMEA.

2.1Non-Core provision coverage of 39%, +300bps q-o-q

Impairments appear to have stabilised, albeit at elevated levels

32






33

GBM -

Strategy

GBM Summary –

FY07 vs FY09 & Q110FY07

“Old”

GBM Core GBM FY09 Q110

Income, £bn 9.11 6.7 11.0 2.8

Costs, £bn (5.8)2 (5.1) (4.7) (1.3)

Profit, £bn 3.21 1.5 5.7 1.5

ROE, % 10.8% 10.4% 30.7% 28.4%

Balance Sheet, £bn 873.8 617.3 412.2 443.7

People 24,100 20,900 16,8003 n.d

Distribution of Core Clients

57%43%

FI’s

Corporates

Core GBM

~5,800

“Old GBM”

26,000+ Client base

Focus on core clients

Top 5 wholesale bank in chosen marketsFewer, deeper client relationshipsClear product choicesGlobal, focused on major hubs

Financing and risk management-led “Flow monster”Leadership in fixed incomeEnhanced equity and advisory

Tight risk, capital and funding control

Sustainable efficient platform

New management team

GBM strategy refocused to a capital efficient business model

1

Core + Non Core2

Source: GBM Finance (Core only, excluding Sempra)3 Source: Published FY09 financials (Core only, excluding Sempra)

34

GBM –

De-leveraged and de-risked

GBM balance sheet, £bn

FY07 ‘Old GBM’

R C

FY09 GBM Core

R C

Q110 GBM Core

CR

874

412360

444381

R –

ReportedC –

Constant CurrencyReverse ReposLoans & Advances

Securities

OtherSettlement balances

Continued focus on de-leveraging

56% reduction from FY07 CFX

Remaining within target range of c£400-450bn

FX driving £11bn (33%) of Q110 growth

Settlement Balances driving £12bn (37%) of Q110 growth

Excluding FX and Settlement Balances, total assets declined 1% Q-o-Q

Continuing focus on deleveraging and risk management

Loan Impairments by quarter (£m)269

(31)

272

130

32

Recent impairments lower than Q109 & Q309 peaks,Future quarterly trend likely to be ‘lumpy’ given nature of counterpartiesRisk for larger impairments in 2010 remains high, outer-year outlook will develop alongside the developing economic picture

Q109 Q209 Q309 Q409 Q110

35






36

Group loan portfolio breakdown

Breakdown of Loans & Advances (Q110 Gross, £612bn)1

UK Retail17%

UK Corporate19%

Wealth2%

GBM22%

GTS2%

Ulster6%

US R&C8%

Non-Core24%

Loan Impairments (£bn)3

A well diversified portfolio with UK Retail and Corporate representing c. 36%, GBM c. 22% and other divisions c. 18% of gross loansNon Core loans < 25% of assets, but approximately two thirds of impairments per quarterImpairments plateauing in Core and demonstrating improvements in Non Core though volatility remains likely

1.0 1.1 1.2 1.31.0

1.8

3.5

2.11.8 1.7

Q109 Q209 Q309 Q409 Q110

Core impairments Non Core impairments

1 Gross loans and advances including provisions.

2 GBM loans and advances include L&A to banks 3

Figures represent loan impairments as percentage of gross loans

& advances

2

Well diversified loan portfolio across geographies and customer segments

2.8%

8.2%

5.4%

4.6% 4.6%

0.8% 0.9% 1.0% 1.2%

0.9%

37

Core Retail1

Loan Book

Core Retail L&A by geography (Q110 Gross, £168bn) Core Retail L&A by product

76 % 76 % 77 % 78 % 78 %

12% 12% 12% 11% 12%

4% 4% 4% 4% 4%

9% 8% 8% 7% 7%

Q109 Q209 Q309 Q409 Q110Retail / Secured Personal

UK71%

Ulster11%

US18%

Strategic focus shifted to generating mortgages through retail branch networks with secured lending now representing over 78% of the book – share of UK mortgage market increased significantly in 2008/09Ulster Bank represents 11% of retail loans with the balance originating in the USUnsecured personal loans and credit cards gradually declining through exit from non-bank channels and falling demand as customers reduce overall debt levels

Cards Other

1 Retail comprises UK Retail, Wealth, and retail parts of Ulster and US R&C

Core Retail exposure dominated by secured, prime residential mortgages

£164bn £159bn £164bn £165bn £168bn

38

UK

Ret

ail4

Mortgage Book Loan To Values

98% of the UK mortgage book is Core and only 7% buy-to-letAverage LTV of 59% (67% for the buy-to-let portfolio)Rising house prices in H2 09 led to reduction in value of houses over 95% LTV

61

32 2715 11 85813

2227

54

1115192935

61 Dec-08 Jun-09 Dec-09

>50% >90%>80%>75% >95% >100%

Cumulative LTV distribution as % of book volume1

%

Uls

ter B

ank4 59

40 3729 24 20

913182732

53

1519243236

56Dec-08 Jun-09 Dec-09

>50% >90%>80%>75% >95% >100%

Cumulative LTV distribution as % of book volume2

%

US

R&

C5

919

34

5161

70

1730

4457

6674 Dec-08 Dec-09

>50% >80%>70%>60% >90% >100%

Cumulative LTV distribution as % of book volume %

Average indexed LTV of 63%Mortgage impairments 0.8% of loans and advancesContinued stress in the Irish residential mortgage market since H2 09

Average LTV of 72%, 67.5% excluding SBO3

SBO3 portfolio fully moved into Non CoreAverage FICO of 737Origination focused in mature and stable markets of New England and Mid-Atlantic

1Excludes wealth and business offset mortgages

2 LTV basis current value by volume

3 Serviced by others

4 Core

5

Including Core and Non-Core

Mortgage lending further protected by low average LTVs

39

Core Retail1

Loan Impairments by product (£m) RBS UK mortgage arrears vs. CML2

88 106167

77 106

195

299247

282 233

137

130 131

134106

82

60 3262

72

0

100

200

300

400

500

600

Q109 Q209 Q309 Q409 Q110Mortgages4 Personal

2 Council of Mortgage Lenders

3 3 months average 4 Including Home Equity

-

0.5 %

1.0 %

1.5 %

2.0 %

2.5 %

3.0 %

Q4 '03 Q4 '04 Q4 '05 Q4 '06 Q4 '07 Q4 '08 Q4 '09

CML 3+ % RBS & NW 3+ %Cards Other

Overall retail impairments are seen to be plateauing, albeit at elevated levelsImpairment reduction seen predominantly through the unsecured area; derived from a combination of exiting non-bank channels and reduced demand as households de-leverRBS’s mortgage impairments are stable in absolute terms and are trending below industry trends

3

1 Retail comprises UK Retail, Wealth, and retail parts of Ulster and US R&C

Mortgage arrears trending below industry average

Core Retail credit trends

502

595 577 555 517

40

Core Corporate Loan Book

Core Corporate1

L&A by geography (Q110 Gross, £155bn) Core Corporate L&A by sector (£bn)2

36.6 35.2 34.7 34.2 33.8

5.1 4.9 4.9 4.6 4.78.5 8.5 8.5 8.5 8.87 6.7 6.8 6.4 6.4

10.5 10.1 10.1 9.8 10.14.6 4.5 6.3 6.56.3 6.1 6 5.7 5.8

38.1 36.6 36.8 36.1 38.2

24.220.5 20.5 19.5 20.5

22.821.2 21.9 21.1 20.3

6.1

0

50

100

150

Q109 Q209 Q309 Q409 Q110

Property Housebuilding & constructionAsset & invoice finance Hotels & restaurantsWholesale & retail trade, repairs Banks & FIManufacturing OtherUS Corporate Ulster Corporate

UK74%

Ulster13%

US13%

Corporate loan book well diversified by productUK Corporate represents circa 74% of the corporate lending portfolioPortfolio concentration reducing towards a more balanced business mix

1 Corporate comprises UK Corporate and Corporate sections of Ulster and US R&C

2 US and Ulster Corporate sector breakdown not provided

164154 156 152 155

Core Corporate1

loan book (£155bn as at Q110)

41

0 10 20 30 40 50 60

Total

Other

ResidentialDevelopment

CommercialDevelopment

ResidentialInvestment

CommercialInvestment

Q110FY09

Total Commercial Real Estate Exposure

1 Includes Core and Non-Core portfolios

3 Investment properties are income generating, ie occupied with a tenant 2 2009 restated on a comparable basis

4

Development is any stage through construction but will include speculative deals that remain empty.

GBM3%

UK Corporate37%

Ulster11%

US R&C5%

Non-Core44%

Global exposure has remained broadly stable (£85.2bn at Q110 vs £86.3bn at FY 09) of which 44% has been transferred to Non CoreGBM interest cover ratio (ICR) 1.60x1, UK Corporate ICR 1.64x1

Exposure principally dominated by commercial investment properties, c. 60% of total exposureLow interest rates are supporting ongoing debt-servicingCredit quality remains under pressure but no major shift from year-end

Global CRE portfolio by division (Q1 10, £85.2bn) Global CRE portfolio by sector (Q1 10, £85.2bn)

5051

1313

910

1211

11

8586

3

3

4

4

Credit quality remains under pressure but no major shift from year-end

42

Core Corporate & Commercial credit trends

Core UK Corporate Loan Impairments by product (£m) UK Business Banking (SME) –

Debtflows1

Q1 09 Q2 09 Q3 09 Q4 09 Q1 10Property Asset & invoice finance

Impairments have risen since Q1 09 reflecting the deteriorating economic environment during the yearQ2 09 impairments included a charge of £271m for latent loss provisioningImpairments charge has been biased towards the housebuilding, property and construction sectorsExcluding latent loss provisioning, impairments appear to have stablised in recent quarters albeit at high levels; though the financial condition of many clients remains delicate

1 Debt flow rate is calculated by looking at the monthly default balances (also known as transfer into recoveries or debt flow) as

a

% of total Loans & Receivables in that month

0.00%

0.05%

0.10%

0.15%

0.20%

0.25%

0.30%

Dec-07 Jun-08 Dec-08 Jun-09 Dec-09

Debtflow as % of balances

Housebuilding & Construction Hotels & RestaurantsOther

100

450

187 190 186

Core Corporate impairments are stabilising albeit at elevated levels

Total Portfolio £18.5bn; Core £16.3bn, Non-Core £2.2bn

Funding & LiquidityGood progress made, more to do

44

FY07

1,322

1 Tier 1 leverage ratio is based on total tangible assets (after netting derivatives) divided by Tier 1 capital2 Tangible equity leverage ratio is based on total tangible equity

divided by total tangible assets (after netting derivatives) 3 Excluding Sempra

£bn

1,084

FY09

Funded balance sheet road map FY07 –

Q110

1,227

FY08

Total BS decreased by £636bn since FY08 despite £75bn increase in the liquidity portfolio to £165bn at Q110

Long run funded balance sheet target of £1.1trn

Significantly reduced leverage ratio of 17.6x (vs 23x at the worst point)

On-going risk reduction

Key Ratios

FY 2009 Q1 2010

Leverage ratio1 17.0x 17.6x

Tangible common equity ratio2 5.2% 5.1%

Tangible equity per share 51.3p 51.5p

Core Tier 1 Ratio 11.0% 10.6%

0

1,500

FX vs FY09Liquidity portfolio

Q110

1,121

Overall deleveraging progress in line with plan

Ongoing de-leveraging

45

Funding and Liquidity

1

Net of provisions 2 Net loans & advances to customers less customer deposits (excluding repos)1

Net of provisions 2 Net loans & advances to customers less customer deposits (excluding repos)

Wholesale funding maturity£bn

0

50

100

150

200

250

300

350

FY08 HY09 FY09 Q110

> 5 years 1 - 5 years < 1 year

Reduction of £42bn in overall wholesale funding requirements between FY08 and Q110 Absolute wholesale funding greater than 1 year remains stable despite total wholesale funding requirement declining. Mix of wholesale funding greater than 1 year increases to 53%, +3% from FY09 Strong term issuance programme with over £8bn of public and private unguaranteed issuance in Q110 €15bn covered bond programme registered with the FSA on 01 April 2010

Stable >1yr absolute funding

Reduction in funding

requirement seen in short term bucket

55% 53% 50% 47%

Key Funding Metrics Key Funding Metrics

H109 FY09 Q110

Loan:deposit ratio (Group)1 143% 135% 131%

Core 110% 104% 102%

Loan:deposit gap (Group)2 £180bn £142bn £131bn

Core £41bn £16bn £10bn

Liquidity reserves £121bn £171bn £165bn

Of which central govt bond portfolio: £7bn £20bn £25bn

Net Stable Funding Ratio3 83% 90% 90%

Wholesale funding > 1 year4 47% 50% 53%

3

Net Stable Funding Ratio measures the level of net stable funding divided by long-term assets4

Excluding bank deposits

Reducing wholesale funding requirements

46

0

50

100

150

200

250

300

TPAs2008 1H09 2012e2011eFY09 2010e 2013e

Non-Core third party assets (TPAs excl MTMs) run-

off targets1

trend with the Group Loan:Deposit gap

1

Run-off at constant year-end 2008 FX rates2

Net customer loans less customer deposits excluding repos3 Maturing term funding includes government guaranteed MTNs, unguaranteed MTNs and subordinated debt. Figures exclude RBS NV (£15bn total)

Loan to deposit gap2

0

10

20

30

40

50

Run-off of Non-Core TPAs p.a.

Refinancing requirement outweighed by run-off in

Non-Core third party assets2

Reduction in the loan to deposit gap expected to continue trending closely with the run-off of Non-Core TPAsFuture wholesale funding requirement is significantly outweighed by the level of run-off from Non-Core TPAs

2012e2011e2010e 2013eGroup maturing term funding p.a.3

£bn £bn

Funding and Liquidity

Refinancing requirement outweighed by run-off in Non-Core

BenchmarkingWell capitalised, funding & liquidity still improving

48

Well capitalised, funding & liquidity still improving

UK Banks (FY09)

RBS Core

BarclaysHSBCLloyds Banking Group

Standard Chartered

European Banks (FY09)Credit SuisseDeutsche BankSantander

UBS

Loan

to

Dep

osit

Rat

io

104%

130%77%

80%

169%

83%100%135%

75%

Fund

ing

Gap

£(16)bn

£(109)bn£146bn

£29bn

£(289)bn

£29bn£8bn

£(172)bn

£60bn

Impa

irmen

t ch

arge

to

Gro

ss L

oans

1.1%

1.7%2.7%

3.4%

1.0%

0.2%1.0%1.4%

0.6%

Prov

isio

ns

cove

rage

of

NPL

s

67%

42%57%

44%

71%

61%37%73%

39%

Liqu

idity

R

eser

ve

£127bn£58bn

£151bn

n/d

n/d£49bn£89bn

n/d

10.0%9.4%

8.1%

8.9%

11.2%8.7%8.6%

11.9%

Cor

e Ti

er 1

ra

tio

Green

–

Better than RBS

Blue –

In-line with RBS Red

–

Worse than RBS

RBS Group 135% £(142)bn 2.3% 43% £171bn 11.0%

Further to go Middle of the pack Amongst the best

RBS remains among the best capitalised banks compared to the UK and European peer group

RBS in the middle of the pack for impairments against UK peers

Majority of our impairments (63%) generated by the Non-Core division which is meeting its reduction targets

Group loan:deposit ratio is improving, reducing from 151% at FY08 to 131% at Q1 2010

Core loan:deposit ratio already at 102%

Among the best capitalised banks in the peer group

US Banks (FY09)

Bank of America MLCitiJP MorganWells Fargo

87%66%64%92%

£56bn£151bn£136bn£25bn

5.4%6.6%4.5%2.8%

108%107%160%91%

£75bnn/an/an/a

7.8%10.9%8.8%6.5%

RBS Rank (Core/Group)

RBS Rank (Core/Group)

RBS Rank (Core/Group) 3rd/4th 3rd/4th 2nd/3rd 2nd/4th 1st 1st

4th/~4th 4th/4th 5th/5th 2nd/4th 1st 3rd

5th/5th 5th/5th 1st/1st 5th/5th n/m 1st

RBS Overall Rank 10th/~11th 10th/11th 6th/7th 7th/10th 1st 3rd

Concluding remarks

50

Conclusion

Leading positions in all our customer businesses

Strong, predictable and resilient business performance

Top tier market franchises

Complementary portfolio with clear cohesion logic and synergies

Balanced by geography, growth, risk profile and business cycleBalanced portfolio

Commitment to RoE >15% on an expanded equity base

Attractive and sustainable income characteristics

Solid profitability and attractive return potential

Clean balance sheet with a CT1 target >8%

Criteria for standalone AA category rating met

Low volatility underpinned by strong balance sheet

Proven management track record, universal disciplines in place

Roadmap to orderly UK Government stake sell down

Standalone strength and solid foundations

Transparent and responsive communication with few negative surprises

Clearly articulated strategy with evidence of it workingInvestor friendly

Delivering the plan should create an attractive investment case

The New RBS in 2013

Appendices

52

Appendices

Funding programmes

Core Impairments

Risk

External factors

Peer group credit ratings

GBM

Funding and liquidity

53

Subdued loan growth as economies recover slowly and customers delever

RBS deposit growth marginally ahead of nominal GDP growth; c4-5% p.a.

Interest rates move and “normalise” from 2011

1

Consensus economics (April 2010 survey)2 Claimants count

Outlook is better than expected 6-12 months ago

US and UK current account and savings deficits are starting to improve

UK housing market has performed better than expected

Confidence in markets has improved but will remain sensitive to news flow and market developments

Low interest rates have improved liquidity which could continue

Economic growth falters

Economic imbalances

Sovereign credit risks

Wholesale funding, liquidity risks

Harsh capital and liquidity regimes hinder growth

Interest rates, inflation rise rapidly

Current position

Possible Risks

Assumptions

Consensus Economic Data1

UK (%) 2009 2010 2011 2012 2013

GDP1 -4.9 1.3 2.3 2.1 2.4

Unemployment2 5.2 5.2 n.a. n.a. n.a.

Inflation (CPI)1 2.2 2.7 1.7 2.1 2.5

US (%) 2009 2010 2011 2012 2013GDP1 -2.4 3.2 3.1 3.4 3.2

Unemployment 2 9.6 9.1 n.a. n.a. n.a.


External factors


54

Strong but rational competition

Banking, similar to other mature capital intensive industries, is relatively concentrated

New business margins are broadly consistent with industry return targets

Increased industry funding costs e.g. liquidity, capital and funding need to be reflected as interest rates normalise

Competitors have similar capital, funding and return targets

Banks are capital intensive and becoming more so and cannot survive without moving to exceed cost of capital (CoE 10-15%)

Current position and outlook

New market entrants / return of foreign banks

Irrational behaviour from established competitors

Return of irrational wholesale and securitisation markets

Banks move up risk profile again to generate increased returns

Regulatory intervention

Possible risks


External factors


55

Capital –

RWA

impacts

2010 2011 2012 2013

BASEL II CHANGES e.g.:Stressed VaRCorrelation Trading Book

CHANGES TO CAPITAL DEDUCTIONS e.g.:Deferred Tax AssetsMaterial holdingsPension deficit

Observations:Proposals published, but subject to consultation and impact assessmentImplementation likely phased so as not to destabilise Banking System

2014

To be phased in from 2012

Liquidity LIQUIDITY REQUIREMENTS:Increased liquidity reservesCosts of holding

Risks:More penal at implementationShortened timeline for introductionFailure to gain global agreement, UK or EU ‘goes it alone’

Counterparty & OTC Derivative reforms expected to impact RWAs from 2012


External factors


56

UK and other Governments have been supportive ̶ Liquidity and funding support can now wind down̶ Crucial task for RBS to provide opportunity for UK Government to

sell down stake profitably

UK Government, through UKFI, has remained a constructive shareholder and operated in line with shareholder best practice

Debates around:̶ Industry structure̶ Bank specific taxes and levies̶ Basel III capital and liquidity proposals

Impact of consumer legislation – e.g. overdraft fees

Lending commitments 2010: ̶ Residential lending –

make available £8bn net ̶ Business lending –

make available £50bn gross new facilitiesCompetition – EU mandated sales

Risks

RBSCommitments

Support


External factors

Government policy

57

Appendices

Funding programmes

Core Impairments

Risk

External factors


GBM


58

Peers ratings sorted in descending order by Moody’s ratingRatings correct as at 20th

May 2010

Credit Agency Ratings –

LT Issuer Ratings

Peer’s Ratings Moody’s S&P Fitch

JPMorgan Chase Bank NA Aa1 AA- AA-

Credit Suisse AG Aa1 A+ AA-

BNP Paribas Aa2 AA AA

HSBC Bank plc Aa2 AA AA

Santander Aa2 AA AA

BBVA Aa2 AA AA-

Société

Génerale Aa2 A+ A+

Barclays Bank Aa3 AA- AA-

RBS Aa3 A+ AA-

Bank of Scotland Plc Aa3 A+ AA-

Lloyds TSB Bank Aa3 A+ AA-

Nationwide Aa3 A+ AA-

Deutsche Bank Aa3 A+ AA-

Bank of America NA Aa3 A+ A+

ING Bank NV Aa3 A+ A+

UBS Aa3 A+ A+

Commerzbank AG Aa3 A A+

Goldman Sachs Aa3 A A+

Citibank NA A1 A+ A+

Morgan Stanley Bank NA A1 A+ A+

UniCredit Bank AG A1 A A+

Standard Chartered Bank A2 A+ A+

RBS Group Ratings Moody’s S&P Fitch

RBS (Bank Level) Aa3 A+ AA-

RBS (Group Level) A1 A AA-

NatWest (Bank) Aa3 A+ AA-

RBS Citizens A2 A- A+

Ulster Bank Ltd A2 A A+

Ulster Bank Ireland Ltd A2 A A+

RBS NV A2 A+ AA-

59

Appendices

Funding programmes

Core Impairments

Risk

External factors


GBM


60

RBS NV

S&P: A+/A-1/StableMoody’s: A2/P-1/StableFitch: AA-/F1+/Stable

RBS plc

S&P: A+/A-1/StableMoody’s: Aa3/P-1/StableFitch: AA-/F1+/Stable

RBS Group plc

S&P: A/A-1/StableMoody’s: A1/P-1/StableFitch: AA-/F1+/Stable

Ulster

S&P: A/A-1/StableMoody’s: A2/P-1/NegativeFitch: A+/F1+/Stable

CP/CD

MTN

Securitisation

Covered Bond

Diversity of wholesale funding programmes, across maturities and

markets to support Group needs

€10bn ECP$10bn USCP

€20bn ECP€20bn French CD $12.5bn USCP

A$20bn Australian ECP & ECD€25bn ECP€20bn French CD

€12bn ECP€10bn French CD

£90bn EMTN$35bn USMTNWKSI SEC Shelf No Limit

£90bn EMTN$35bn USMTNWKSI SEC Shelf No Limit

Securitisation programme

€15bn CB programme registered with FSA on 01 April 2010

£90bn EMTN, $35bn USMTN & WKSI SEC Shelf can be issued out of either RBSG or RBS plc

Wholesale Funding Issuance Programmes

61

Appendices

Funding programmes

Core Impairments

Risk

External factors


GBM


62

Wholesale residual maturity excl. bank deposits (£271bn)Total funding (£796bn)

Capital securities,

£31.9bn, 4%

Securitisations, £18.6bn, 2%

MTNs, £126.6bn, 16%

CDs, £57.4bn, 7%

CP, £36.6bn, 5%Bank deposits, £100.2bn, 13%

Customer deposits,

£425.1bn, 53%

Wholesale funding requirement, Q110

Strong progress on terming out of wholesale funding requirements with 53% of funding greater than 1 year versus 45% at FY08, driven in the main by a reduction in the wholesale funding requirement1 from £313bn to £271bnFunding across a number of different currencies including GBP (c. 20%), USD (c. 40%), EUR (c.25%) and Other (c. 15%)2

1

Excluding bank deposits

2

Approximate figures

Less than 1 year, 127.9bn,

47%

1-5 years, 79.9bn, 30%

More than 5 years, 62.3bn,

23%

63

20 25

28 20

10 14

52 42

4246

2017

Central Group Treasury Portfolio Treasury BillsOther government securities Cash and central bank balancesUnencumbered collateral Other liquid assets

Build-up of liquidity reserves

RBS’s contingent liquidity reserves continue to grow in line with new regulatory liquidity reformsCredit risk associated with liquidity reserves is well controlledFSA eligible liquidity portfolio will constitute UK, US and G10 European government bond issues only

£165bn£171bn

£90bn

Q110Q409FY08 Q209 Q309

£140bn

£121bn

Continued progress in increasing the strength of liquidity reserves

Liquidity reserves

64

Appendices

Funding programmes

Core Impairments

Risk

External factors


GBM


65

UK Retail UK Corporate Ulster Bank US R&C GBM Total Core

Q109 Q209 Q309 Q409 Q110

Core impairments by division Q109 –

Q1103, £bn

1.3

1 Impairments as a % of L&A excludes Available for Sale 2 Includes Wealth, GTS, RBS Insurance and Central Items.

Q110£m

Q110% L&A1

Q409% L&A1

FY09% L&A1

Q110 Key Sector Impairments:

UK Retail 387 1.5 1.8 1.6 A reduction in unsecured charges; mortgage growth reflects increased provisions

UK Corporate 186 0.7 0.7 0.8 Broadly spread, but property related sectors most prominent

Ulster Bank 218 2.3 3.5 1.6 Lower, primarily as a result of a Q409 non recurring latent provision

US R&C 143 1.0 1.3 1.4 Broadly stable performance; good improvement in Corporate & Commercial

GBM 32 0.1 0.6 0.6 Minimal charge reflecting absence of large single name provisions

Other2 5 n.m. 0.2 0.3 Small charge in Wealth

Total Core 971 0.9 1.2 1.1 25% decline sequentially driven by improving trends in UK & US Retail

1.0

1.11.2

1.0

Core provision coverage of 59%, +200bps q-o-q

Core impairments

66

Appendices

Funding programmes

Core Impairments

Risk

External factors


GBM


67

Risk Management risk agenda

Market risk framework

Integrated stress testing and scenarios

Activity

Operating Model

Regulatory risk and operational risk framework & controls

Strategy & Policy

Alignment of risk & business strategy

One risk community

Rationalise group policy framework

Improved governance

Organisation, people & culture

Capital / risk adjusted performance

Risk Appetite & Framework

Credit approval framework

Concentration risk framework & limits

Country risk framework

Risk appetite and framework

Operating Model

Strategy and Policy

Risk architecture

EmbeddingDevelopment

2009 2010 2011 2012

Risk Architecture

Regulatory risk and operational risk framework & controls

Risk systemsRisk data architectureAnalytics and modellingRisk information and reporting

68

Adopting a new Risk Framework

Strategic Risk Profile Maintain Capital Adequacy

Deliver Stable Earnings Growth

Stable / Efficient Access to Funding

Maintain Market Confidence

Key Risk Appetite Measures RWA Mgmt

Capital Allocation

Stressed ratios

Leverage Ratios

Earnings Volatility

Value at Risk

Credit Volatility

Cost of Funding

Leverage Ratios

Stressed measures

Target Agency Rating of AA

Reputation Risk

Credit Risk Single Name Concentration

Sector Concentration

Asset Class and Product

Market Risk Value at Risk

Sensitivities

Treasury Capital

Balance Sheet Risks Funding & Liquidity

Operational Risk

Policy Standards

Regulatory Risk

Policy Standards

Country Risk Policy Standards

A

C

BBoard Risk Committee

Risk ManagementDay to day risk

management

Det

aile

d R

isk

App

etite

Stra

tegy

and

hi

gh le

vel R

isk

App

etite

Key Risk Appetite Measures

B

Risk Limits

C

Group Strategy

Strategic Risk Profile

A Board

ERF

69

1

Exposures are defined as credit risk assets consisting of loans and advances (including overdraft facilities), instalment credit, finance lease receivables and other traded instruments across all customer types. Asset Quality (AQ) bands allow the internal reporting and oversight of risk assets by differentiating on the basis of the key drivers of default for a customer type. Bands also map to asset quality and wholesale exposure scales, enabling detailed internal and external reporting of risk depending on audience and business need

2

A further £31bn of assets are covered by the standardised approach for which a PD equivalent to those assigned to assets covered by the internal ratings based approach is not available.

Normal monitoring

Non-performing bookHeightened monitoring

Portfolio performance

£bn

Normal monitoring

o/w Financial institutions

o/w Corporates andPersonal

Heightened monitoring



Defaulted assets

Total

491

362

50

12

38

16

557

493

107

386

72

27

45

13

578

HY 2009 FY 2009

129

Exposure by division

Portfolio by division, %

0 10 20 30 40

Other

GTS

Wealth

Ulster Bank

US R&C

UK Retail

UK Corporate

GBM

£110bn

£103bn

£52bn

£42bn

£16bn

£7bn

£3bn

Exposure1,2 risk rating

Portfolio by grade, %

0 5 10 15 20 25

AQ10

AQ9

AQ8

AQ7

AQ6

AQ5

AQ4

AQ3

AQ2

AQ1

Average AQ = 4.4

£124bn

£13bn

£27bn

£85bn

£108bn

£78bn

£43bn

£21bn

£11bn

£16bn

£224bn

Portfolio quality –

Core overview

70

Portfolio performance

£bn

Normal monitoring


o/w Corporates andpersonal




Defaulted assets

Total

Exposure by division

Portfolio by division, %

0 25 50 75 100

Non-Core

Normal monitoring

Non-performing bookHeightened monitoring

98

10

88

41

8

33

21

160

HY 2009

98

13

85

30

6

24

23

151

FY 2009

£151bn

Exposure1 risk rating

Portfolio by grade, %

0 10 20

AQ2

AQ1

AQ10

AQ9

AQ8

AQ7

AQ6

AQ5

AQ4

AQ3

Average AQ = 5.6

£2bn

£17bn

£6bn

£21bn

£27bn

£19bn

£6bn

£14bn

£5bn

£23bn

1

Exposures are defined as credit risk assets consisting of loans and advances (including overdraft facilities), instalment credit, finance lease receivables and other traded instruments across all customer types. Asset Quality (AQ) bands allow the internal reporting and oversight of risk assets by differentiating on the basis of the key drivers of default for a customer type. Bands also map to asset quality and wholesale exposure scales, enabling detailed internal and external reporting of risk depending on audience and business need

2

A further £11bn of assets are covered by the standardised approach for which a PD equivalent to those assigned to assets covered by the internal ratings based approach is not available.

Portfolio quality –

Non-Core overview

71

Exposure by sector

Portfolio by sector, %0 5 10 15 20 25 30

Agriculture and Fisheries

Business Services

Power, Water & Waste

Tourism and Leisure

Natural Resourcesand Nuclear

Building

Public Sectors & Quasi-Government TMT

Wholesale and retail trade Transport and Storage Manufacturing Property Banks, other FIsPersonal

1

Exposures are defined as credit risk assets consisting of loans and advances (including overdraft facilities), installment credit, finance lease receivables and other traded instruments across all customer types

Normal monitoring


Non-performing book

Exposure by region

Portfolio by region, %0 10 20 30 40 50

Middle East & Africa

CEE & Central Asia

Latin America

Asia & Pacific

North America

Western Europe(Excluding UK)

United Kingdom £272bn

£134bn

£89bn

£29bn

£14bn

£10bn

£9bn

£165bn

£134bn

£57bn

£31bn

£31bn

£25bn

£17bn

£22bn

£19bn

£16bn

£13bn

£12bn

£12bn

£3bn

Core portfolio quality –

by region and sector

72

Exposure by sectorExposure by region

0 10 20 30 40

Middle East & Africa

CEE & Central Asia

Latin America

Asia & Pacific

North America

Western Europe(Excluding UK)

United Kingdom

0 5 10 15 20 25 30 35

Agriculture and FisheriesBusiness Services

Public Sectors & Quasi-Government

Tourism and Leisure

Natural Resources and Nuclear

Wholesale and retail trade

Power, Water & Waste Building

Manufacturing

TMT

Transport and Storage Banks, other FIsPersonal Property

1

Exposures are defined as credit risk assets consisting of loans and advances (including overdraft facilities), installment credit, finance lease receivables and other traded instruments across all customer types

Normal monitoring


Non-performing book

Portfolio by region, % Portfolio by sector, %

£50bn

£25bn

£48bn

£10bn

£9bn

£6bn

£3bn

£46bn

£21bn

£19bn

£15bn

£6bn

£5bn

£5bn

£4bn

£3bn

£2bn

£0bn

£7bn

£8bn

£10bn

Non-core portfolio quality –

by region and sector

73

Appendices

Funding programmes

Core Impairments

Risk

External factors


GBM


74

+

–

Profit days (#) Loss days (#) Total Profit days (%) Loss days (%)H2 08 94 38 132 71% 29%H1 09 123 2 125 98% 2%H2 09 115 14 129 89% 11%

Note: Chart data shows GBM’s daily Markets revenues (excluding Sempra)

1 July 08 31 Dec 091 Jan 09 1 July 09

■

Radical upgrading of front office risk management frameworks

■

Moved VaR to 99 percentile tail risk

■

Created a market leading Counterparty Exposure Management business

■

GBM’s daily profitability improved considerably in 2009

Progress to date -

Risk revolution

75

GBM –

De-leveraged and de-risked

46

94

1231

73

74

82

Q409

188224 205

155 156128

225 166161

156 164

137

207

8981

75 75

73

35

2029

5264

74

Q308 Q408 Q109 Q209 Q309 Q409

1

Short Term Markets and Financing (“STMF”) includes repo financing and Money Markets.2 Cash collateral posted in relation to derivative liabilities across GBM.3 Deals pending settlement4 Lending portfolio also includes a proportion of assets that could be liquidated swiftly, prices depend on market conditions.

Loan

Trading Assets

Reverse Repo

Cash & T- bills

GBM Core Assets

Lending portfolio4

Debt Securities

Derivative collateral (booked in CEM)2

Equity sharesOther (mainly DPS3)

Reverse Repo

Cash & T-bills

31%

22%

26%

3%Flow Credit9%

MortgageTrading

9%

OtherEmerging Markets

STMF

Flow Rates Trading

12%

69%

11%

STMF

Flow Rates Trading

Equities8%

Other

Proportion of liquidity in GBM Core Assets (Q409)

Debt Securities & Reverse Repo held by businesses

476

438459

655

499

Note: Reverse repo in Flow Rates Trading is managed by STMF

412

2

Significant reduction in debt securities and reverse repo in H208

80% of GBM Core Assets in Q409 are liquid assets

STMF1 + Flow Rates Trading = 80%

These are high grade, very short term assets

STMF + Flow Rates Trading = 53%

These are high grade debt securities

Also highly liquid

76

11

50

27

144254

Other3

23

EquitiesL&AT billsDebt securities & reverse

repos

Non- derivative

trading assets

90.1

291.3

25.3

10.8

54.8

16.0

94.2

FY08 £bn % change

Reverse repos1

GBM Core2

Other

Equities

Loans & advances

T Bills

Debt securities

Asset

£bn

(23%)

(13%)

(10%)

(1%)

(8%)

66%

(21%)

FY09 £bn

69.5

253.9

22.7

10.7

50.3

26.5

74.2

1 Trading book reverse repos2

Excludes Non-Core portfolio of £32.5bn3

Mainly comprises of DPS (deals pending settlement)

GBM -

Non-Derivative trading book assets

77

39

73

34

Only 4% of portfolio (£2.9bn) in Non-Core

Total reverse repos

CustomersBanks

% of total MTM

< 6 months

< 1 year

Total 100

0.0

4.4

3.9

91.7

FY09

12.1

4.4

100

0.8

82.6

FY08

> 1 year

< 3 months

Maturity profile

88.8

32

57

FY08 £bn

(18%)Total 73.3

39

34

FY09 £bn

22%Reverse repos –

Customers

(40%)Reverse repos –

Banks

% changeExposure by counterparty

Total

Other

100.0

3.4

85.9

10.7

FY09 %

Corporates

Government

100.0

3.5

89.3

7.2

FY08 %Collateral quality distribution

£bn

1 Including assets transferred to non-core. Banking and trading book repos.Note:Collateral quality distribution and tenor distribution are calculated based on gross reverse repos

GBM -

Reverse repos1

78

224

11

24

70

UnratedBB+ and

below

BBB- and

below

AAAAAA

£bn

FY09 £bn

Banks & Building Society

Debt Securities total

Mortgage & asset-backed securities

Central & Local Government

Treasury & other bills

Asset

7.2

113

30.6

41.9

28.3

–

Majority of non-related linked to exposures in ABS, Fund derivatives and Corporates

–

Excess liquidity invested in Treasury and Other Bills

Corporate (inc Financials) 5

1 Core debt securities –

banking book & trading book, excludes £13.5bn of unanalysed securitiesGBM debt securities total consists of £32.5bn T Bills included in Cash & T-Bills and £94bn Debt Securities on summary slide 17

GBM -

Debt securities1

791

Exposures are defined as credit risk assets consisting of loans

and advances (including overdraft facilities), installment credit, finance lease receivables and other traded instruments across all customer types.

46%

4%8%

15%

14%

4%2% 1%1%5%

13%

2%

6%

15%

24%

12%

1%4%

14%

9%

AQ1 AQ2 AQ3 AQ4 AQ5 AQ6 AQ7 AQ8 AQ9 AQ10

Core

Non Core

Average rating AQ3.0

Average rating AQ5.4

GBM – Credit grade exposures1

38%

14%9%

6%

3%6%

4%

4%

12%

4%

GBM – Sector exposures1

4%

16%

11%

10%

26%

9%

5%2%

11%

6%

Banks and Building Societies Financial IntermediariesManufacturing Transport and StorageProperty TMTPower, Water & Waste Natural Resources and NuclearPublic Sectors Other

Non Core £87.7bn

Core £224.4bn

Property: 3%

Property: 26%

GBM -

Credit portfolio by credit grade

re-building and recovery/media/files/r/rbs... · fsa-eligible government bonds portfolio in the plc...

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