Annual Report 2014

Annual Report and Accounts 2014
Earning our
customers trust
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RBS is a UK-based banking and financial services

company, headquartered in Edinburgh.
RBS provides a wide range of products and services
to personal, commercial and large corporate and
institutional customers through its two main subsidiaries,
The Royal Bank of Scotland and NatWest, as well as
through a number of other well-known brands including
Citizens, Charter One, Ulster Bank and Coutts.
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Contents
Strategic Report
Detailed information
2014 Performance
02
Our progress in 2014
05
Chairmans statement
06
Chief Executives review
08
Business model and strategy
12
Our Structure
12
Our Strategy
13
Our Plan
13
Our Operating Model
17
Our Values
17
Our Customers
18
Key economic indicators
20
Business review
23
Personal & Business Banking
24
Commercial & Private Banking
26
Corporate & Institutional Banking
28
Citizens Financial Group
30
RBS Capital Resolution
31
Services 32
Governance at a glance
34
Risk overview
36
Sustainability 38
Governance report
42
Business review
103
Capital and risk management
168
Financial statements
335
Additional information
459
Shareholder information
493
Abbreviations and acronyms
504
Glossary of terms
505
Index 513
Important addresses
516
Approval of Strategic Report

The Strategic Report for the year ended 31 December 2014 set out on pages 1 to 41 was
approved by the Board of directors on 25 February 2015.
By order of the Board.
Aileen Taylor
Company Secretary
25 February 2015
Chairman
Philip Hampton
Executive directors
Ross McEwan
Ewen Stevenson
Non-executive directors
Sandy Crombie
Alison Davis
Morten Friis
Robert Gillespie
Penny Hughes
Brendan Nelson
Baroness Noakes
01
02
2014 performance
(3,470m)
3,503m
Attributable loss
Operating profit (1)
2,643m
11.2%
356bn
95%
RWAs
Loan:deposit ratio (3)
28bn
151bn
(4)
4.2%
Leverage ratio
Europe
9%
Common Equity Tier 1 ratio (2)
Profit before tax
Short-term wholesale funding
Total revenue by region 2014
(5)
Liquidity portfolio
RoW
4%
USA
7%
UK
80%
Total income by franchise 2014

Citizens
17%
(8.0%)
Return on tangible equity (6)
68%
2.23%
Cost:income ratio - adjusted (7)
Net interest margin
PBB
38%
CIB
22%
CPB
23%
Financial results
Notes:
(1) Operating profit before tax, own credit
adjustments, gain on redemption of own debt,
write-down of goodwill, strategic disposals and
RFS Holdings minority interest (RFS MI) and
includes the results of Citizens on a
non-statutory basis, which are included in
discontinued operations in the statutory results.
(2) End-point CRR basis.
(3) Includes disposal groups.
(4) Excludes derivative collateral.
(5) Based on end-point CRR Tier 1 capital and
revised 2014 Basel III leverage ratio framework.
(6) Tangible equity is equity attributable to ordinary
and B shareholders less intangible assets.
(7) Cost:income ratio is based on total income
excluding own credit adjustments, gain on
redemption of own debt, strategic disposals,
and RFS MI, and operating expenses excluding
litigation and conduct costs, restructuring
costs, write down of goodwill and RFS MI. Total
income and operating expenses both include
Citizens which is included in discontinued
operations in the statutory results.
RBS reported an attributable loss of

3.5 billion, following a 4.0 billion writedown on Citizens.
Operating profit (1) was 3.5 billion. Significant
progress was made towards building a bank
that is stronger, simpler and better for both
customers and shareholders.
RBS reported an attributable loss of 3,470
million in 2014, compared with a loss of 8,995
million in 2013. The result included a loss from
discontinued operations of 3,445 million,
which reflected a 3,994 million fair value
write-down in relation to the reclassification of
Citizens to disposal groups, and a tax charge
of 1.9 billion which included a 1.5 billion
write-off of deferred tax assets.
Operating profit totalled 3,503 million for
2014, compared with an operating loss
of 7,500 million in 2013. This reflected
improved operating results from the core
domestic businesses together with significant

impairment releases in Ulster Bank and RBS
Capital Resolution (RCR). These results
include 1,257 million of restructuring costs
compared with 656 million in 2013, and
2,194 million of litigation and conduct costs
compared with 3,844 million in the prior year.
UK Personal & Business Banking (UK
PBB) delivered a good performance built
on strong growth from a reinvigorated
mortgage business. Commercial Bankings
efforts to stimulate demand resulted in a
resumption of loan book growth; together
with active management of cost and capital,
this supported a significant improvement in
profitability. Corporate & Institutional Banking
(CIB) made good progress towards a lower
risk model with a further 40 billion reduction
in risk-weighted assets (RWAs) on an endpoint CRR basis.
2014 performance
Personal &
Business Banking
(PBB)
Commercial &
Private Banking
(CPB)
Corporate &
Institutional Banking
(CIB)
Share of
operating
profit
59%
Share of
operating
profit
41%
(25%)
Share of
operating
profit
Performance highlights
2014
2013
Return on equity (%)
17.5
(5.7)
Net interest margin (%)
3.42
3.21
Cost:income ratio (%)
71
78
Loan:deposit ratio (%)
88
91
Risk-weighted assets (bn)
66.6
81.9
2014
2013
11.9
3.7
2.93
2.81
65
73
83
78
75.5
77.8
2014
2013
(4.2)
(12.9)
123
144
107.1
120.4
Note: RWAs at 31 December 2013 are on Basel 2.5 basis and on an end-point CRR basis at 31 December 2014.
Statutory operating profit before tax,

which excludes results from discontinued
operations, was 2,643 million compared with
an operating loss of 8,849 million in 2013.
2014 was a year of significant progress for the
bank, in which we delivered against all our
commitments. In line with the new strategy
it set out in 2014, RBS has:
Implemented a new organisational design
for a more UK-centred bank with focused
international capabilities, built around its
strongest customer franchises.
Exceeded its 2014 cost reduction targets
with savings of 1.1 billion.
Strengthened its Common Equity Tier 1
(CET1) ratio by 2.6 percentage points to
11.2% at the end of 2014, assisted by
4.8 billion of net capital release from
RCR disposals and run-off.
Successfully listed Citizens as a step
towards full divestment by the end of 2016.
Reached agreement with HM Treasury on
the restructuring of the Dividend Access
Share (DAS) and paid an initial dividend

of 320 million.
Completed much of the orderly run-down
and closure of the US asset-backed
product business, removing 15 billion
of RWAs from the balance sheet.
Completed a strategic review of Ulster
Bank and the wealth businesses, launching
a sales process for the international private
banking activities (1).
Continued to rationalise, simplify and
strengthen operating systems and
processes, with a more secure mobile
banking platform, faster overnight batch
processing and key services available to
customers 99.96% of the time.
Made our products simpler and fairer for
customers, ending zero per cent balance
transfers, halting teaser rates on savings
accounts that penalise existing customers
and explaining all charges for personal
and business customers on one side of
A4 paper.
Within the overall strategic shape outlined for

CIB in 2014, RBS is making further changes
to improve its medium-term returns, building
a stronger, safer and more sustainable
business, focused mainly on UK and Western
European customers, both corporates and
financial institutions, supported by trading
and distribution platforms in the UK, US
and Singapore.
These changes will create a more focused
corporate and institutional bank built on
existing product and service strengths.
RBS will have a strong, client-focused
product offering in sterling, US dollar
and euro, including:
Debt financing, with debt capital markets,
structured finance and loans.
Risk management in currency, rates
and inflation.
Transaction services, with UK-focused
cash, payments and trade.
(1) Private banking and wealth management activities where the primary relationship management is conducted outside the British Isles.
03
04
CIB will reduce its geographical footprint to

approximately 13 countries, compared with
38 at the end of 2014, though RBS will also
retain its back office operations in Poland and
India. In addition to its main distribution and
trading hubs in the UK, US and Singapore,
RBS will remain present in a number of
Western European countries with coverage
teams. A small sales team will be retained
in Japan. US operations will shrink, while
retaining the presence required to support
the US dollar needs of RBSs UK and Western
European customers. Priority client sectors will
be targeted in infrastructure, transportation,
financial institutions, energy and resources.
CIB will continue to reduce its balance sheet
and risk profile. RWAs will be reduced by 60%
from 107 billion at 31 December 2014 to 3540 billion in 2019, with a reduction of more
than 25 billion targeted in 2015. Third party
assets will be reduced from 241 billion at the
end of 2014 to 75-80 billion in 2019.
This CIB strategy leaves RBS well-placed
to meet the ring-fencing requirements of
the Banking Reform Act 2013. As previously
indicated, RBS intends to place most banking
services inside the ring fence. CIBs remaining
Markets activities, the operations of RBS
International and some corporate banking
activity are expected to remain outside the
ring-fenced bank in separate legal entities.
For 2015 RBS intends to:
Move towards a capital target of 13%
CET1(1), with risk-weighted assets below
300 billion and 2 billion Additional Tier 1
capital raised.
Deconsolidate Citizens and substantially
complete RCR exit.
Improve customer net promoter scores in
all UK franchises, in line with the long-term
goal of becoming the number 1 bank for
trust, service and advocacy.
Reduce costs by a further 800 million (2),
taking RBS towards a long term
cost:income ratio of under 50%.
Deliver lending growth in strategic
segments equal to or higher than UK
nominal GDP growth.
Raise employee engagement index to
within 8% of the global benchmark so that
staff are fully motivated to contribute to
RBSs long-term success.
2014 performance
Loss attributable to ordinary and B
shareholders was 3,470 million, compared
with a loss of 8,995 million in 2013. The
result included a loss from discontinued
operations of 3,445 million, which
reflected an accounting write-down of

3,994 million taken in relation to Citizens,
which has been written down to fair value
less costs to sell as a consequence of it
being reclassified as held-for-sale in the
statutory results. This write-down does not
affect RBSs capital position.
The tax charge included a net write-off of
deferred tax assets of 1.5 billion relating
to the UK (850 million) and the US
(775 million), reflecting the impact of the
decision to scale back the CIB operations.
This was partially offset by write-backs
relating to Ulster Bank.
Operating profit improved to 3,503 million
for 2014 compared with an operating
loss of 7,500 million in 2013, benefiting
from improved operating results in core
businesses together with significant
impairment releases in Ulster Bank
and RCR.
Restructuring costs of 1,257 million
were up 92% from 2013 but conduct and
litigation costs were 43% lower at 2,194
million and included charges relating
to foreign exchange trading, Payment
Protection Insurance (PPI), customer
redress associated with interest rate
hedging products, IT incident in 2012
and other costs including packaged
accounts and investment products.
Excluding restructuring, conduct and
litigation costs, operating profit was
6,954 million, compared with a loss
of 3,000 million in 2013.
Income totalled 18,197 million, down
6% from 2013, with improvements in net
interest income in PBB and CPB offset by
lower income from trading activities in CIB,
in line with its smaller balance sheet and
reduced risk profile. Net interest margin
was 2.23%, up from 2.01% in 2013, with
improved liability margins partially offset
by pressure on mortgage and corporate
lending margins and by the continuing
shift in mix towards lower margin
secured lending.
Operating expenses, excluding
restructuring, conduct and litigation costs,
were down 1,612 million or 12%. Adjusting
for currency movements and intangible
assets write-offs, cost savings totalled
1.1 billion, in excess of the banks
1 billion target for the year.
Net impairment releases of 1,155 million
were recorded in 2014 compared with
impairment losses of 8,432 million in
2013, which included 4,490 million of
charges recognised in connection with
the creation of RCR. Provision releases
arose principally in Ulster Bank and in the

Irish portfolios managed by RCR, which
benefited from improving Irish economic
and property market conditions
and proactive debt management.
Statutory operating profit before tax
was 2,643 million compared with an
operating loss of 8,849 million in 2013.
Tangible net asset value per ordinary and
B share was 387p at 31 December 2014
compared with 363p at end 2013. Positive
movements in cash flow hedge reserves
(+9p) and available-for-sale reserves
(+5p) were offset by the attributable loss
for the year (-30p). The attributable loss
is adjusted for a loss provision attributed
to Citizens intangible assets (+35p) and
goodwill and other intangible assets (+5p).
Balance sheet and capital
Funded assets totalled 697 billion at 31
December 2014, down 35 billion in the
last quarter and 43 billion over the course
of the year, principally reflecting continued
risk and balance sheet reduction in CIB
and disposals and run-off in RCR.
Including Citizens, which has been
reclassified to disposal groups, net loans
and advances to customers totalled 394
billion at the end of 2014, up 3.0 billion
from the end of 2013, despite a significant
reduction in RCR.
UK PBB lending rose by 2 billion, with
net new mortgage lending of 3.9 billion
partially offset by reduced unsecured
balances.
Commercial Banking balances rose
by 1 billion, with a planned reduction
in real estate finance offset by good
growth in lending to other sectors.
Gross new lending to SMEs totalled
10.3 billion, exceeding RBSs
9.3 billion target by 10%.
Total net lending flows reported within
the scope of the Funding for Lending
Scheme were minus 2.28 billion in Q4
2014, of which net lending to SMEs was
minus 567 million.
Including Citizens, which has been
reclassified to disposal groups, customer
deposits totalled 415 billion at the end of
2014, up 0.4 billion from the end of 2013.
RWAs declined to 356 billion from 429
billion at the end of 2013, primarily driven
by risk and balance sheet reduction in CIB
coupled with disposals and run-off in RCR.
This contributed to the strengthening of the
banks capital ratios, with the CET1 ratio
strengthening by 260 basis points to 11.2%
at the end of 2014 compared with 8.6% at
the end of 2013.
Notes: (1) During the period of CIB restructuring.

(2) Excluding restructuring, conduct and litigation costs, write off of intangible assets and operating expenses of CFG and Williams & Glyn.
05

We have a clear ambition to become No.1 for customer service, trust and advocacy. In 2014, our
focus has been on Cost, Capital, Restructuring and Resilience. We have also begun the process of
making RBS a simpler place to work and an easier bank to do business with.
Fairer
banking
SME funding
Weve ended
Credit Card teaser rates.
Gross new lending

to SMEs totalled
10.3 billion, exceeding our 2014
target by 10%.
Account opening
Weve reduced our current
account opening times
for RBS and NatWest
customers from
five days to one.
GPL system redesign

We simplified our Group Policy
Learning system (GPL). As
a result weve seen a 62%
reduction in the total hours
required to complete
modules, letting us
spend more time
on customers.
RBS and NatWest

launch 1 billion fund for both
new and existing small business
customers across the UK.
Online loans
We launched a
new online loan
application
process for
small businesses.
Simplified
product range
Personal & Business
Banking reduced the
number of on sale products
by 50%.
Launch of Citizens IPO

The biggest bank initial
public offering in US
history successfully
delivered.
Small
Business
Fund
Project
reduction
So far, we have
reduced the number of change
projects we are running from
550 to 182.
Transparency
RBS scored top in
the UK for corporate
transparency in a study
conducted by Transparency
International.
Our 2015 targets
4.86m
Resilience
Mobile record
Weve created a
mirror bank so
customers still have access to
our services during a system
outage. Already we can process
90% of debit and credit card
transactions if there is a
system outage.
Our mobile app

regularly supports
around 4 million
logins a day, with a record being
set on Black Friday 2014 of
4.86 million.
Faster processing
Our overnight batch
processing is now
twice as fast,
processing 20
million transactions
every day.
20
million
Living Our
Values
We launched a
recognition programme Living
Our Values, reducing over 200
local schemes into one and
creating a bank-wide way of
recognising a colleague.
Capital target
Improve NPS
Move towards a capital

target of 13% CET1 ratio (1).
Improve net promoter score in

every UK franchise.
Reduce costs
Lending growth
Our people
Reduce costs by a further

800 million (2), taking
RBS towards a long term
cost:income ratio of
under 50%.
Deliver lending growth in

strategic segments equal to or
higher than UK nominal GDP
growth.
Raise employee engagement

index to within 8% of GFS norm (3).
Notes: (1) During the period of CIB restructuring.

(2) Excludes restructuring, conduct, litigation and intangible write-off charges as well as the operating costs of Citizens Financial Group and Williams & Glyn.
(3) Global Financial Services (GFS) norm currently stands at 83%.
06
Chairmans
statement
2014 was a year of significant
progress for RBS, with a much
improved operating profit and
major achievements in terms
of business reorganisation,
cost reduction, capital build
and improved IT capability. As
Ross McEwan has set out in his
letter, the business continues to
simplify and improve, focusing on
putting its customers at the heart
of its activities.
Chairmans statement
The bank has delivered a good operating

profit of 3.5 billion for 2014, but the costs
associated with completing the restructuring
of RBS mean we are still reporting a bottom
line attributable loss. Although the huge
changes to the size, shape and risk profile
of the business since the financial crisis
are largely complete or in hand, the further
substantial restructuring of our markets
operations and international spread will
require careful management in 2015.
Of course your Board is pleased to see the
improved operating performance, which in
our view reflects the underlying strength of the
business. Looking back, however, we must
acknowledge that we did not fully recognise
the scale of the challenge that awaited us in
2009. At the time, we assumed that a Core
Tier 1 capital ratio of more than 8% by 2013
would be sufficient to constitute undoubted
financial strength in the minds of markets
and regulators; today we have increased
our capital target to 13%. We must also
acknowledge that we did not anticipate the
more than 9 billion of regulatory fines and
customer redress we have borne so far as we
paid, and will continue to pay, the price for our
past conduct failings. These conduct issues
have delayed the re-build of our capital and
directly reduced shareholder value. They have
also caused continuing reputational damage.
I hope as we move beyond these issues we
can fully rebuild the trust of our customers,
and by doing so win more of their business.
The need to continue to rebuild capital

strength means it has taken longer than we
had expected to reach a point at which the
Government could be in a position to start
selling down its stake in RBS. The decision
on timing rests with the Government, through
UK Financial Investments, which manages
its shareholding, but our task is to create the
conditions in which it can do so. In working
towards that end we are also furthering the
interests of RBSs other shareholders, as we
believe that the beginning of the sell-down will
be welcomed by investors.
In particular, I would like to thank Nathan

Bostock, Tony Di Iorio and Philip Scott, who
all stepped down from the Board in 2014 after
providing valuable service, and to welcome
Morten Friis and Ewen Stevenson, who have
joined the Board.
As announced previously I will be leaving

RBS in 2015. The Board is pleased to
announce that Howard Davies will succeed
me as Chairman, and we welcome him to RBS.
He will join the Board at the end
of June and take over from me on 1
September. On the day I joined the Board
in January 2009, the shares traded at 9p,
equivalent to 90p today, and the implications
of the banks financial distress were
unknowable. RBS has transformed itself over
the last several years and continues to do so.
The renewed focus on customer and customer
service will make this a better organisation for
all stakeholders, most especially customers,
staff and shareholders.
Philip Hampton
Chairman
I would like to thank my colleagues on the

RBS Board for their support and dedication in
dealing with the unusual challenges of being
a majority government-owned listed company.
It has been a privilege to serve as Chairman

of RBS and I am confident that the Board and
the many outstanding people in the bank will
continue to work with dedication to restore the
banks standing.
07
08
Chief Executives
review
This is my first letter to you since
we launched a new strategy for
RBS last year. It is a strategy that
sets out to deliver one very simple
aim. To make this a great bank for
our customers; a bank that will earn
back their trust, and in turn win
more of their business.
Its a strategy that provides the
fundamental building blocks to
make RBS an attractive investment,
a great place to work for our
people, and a UK focused bank
that the country can be proud of.
Last year we identified the areas we needed

to improve in order to deliver our strategy cost, complexity, capital, and trust from our
customers. The energy and resolve of our
people has resulted in significant progress on
these, and we have delivered on the goals we
set for 2014.
Our 2014 performance shows a strategy

that is working. It demonstrates the forensic
approach we have taken to evaluate our
businesses against the returns they provide
to shareholders. The strong execution against
the targets we set now gives us a platform to
go further, faster.
We said we would reduce waste and

inefficiency and reorganise ourselves
around the needs of our customers, moving
from seven operating divisions to three
customer businesses. This reorganisation
is complete and we have removed
1.1 billion of cost from the business.
We outlined a programme to rationalise,
simplify and bolster our operating systems
and processes to make them less complex,
more resilient and easier to use. Significant
progress has been made in this area with
our key services available to customers
99.96% of the time during 2014.
We set out a plan to place the bank on a
sure capital footing targeting a CET1 ratio
of 11% by the end of 2015, and 12% or
greater by the end of 2016, so as to remove
any doubts about our fundamental strength
and stability. This capital plan is on track
and we have reached our 2015 target one
year ahead of schedule. This improvement
was driven by a 52% reduction in riskweighted assets in RCR.
We said we would undertake the biggest
bank initial public offering in US history.
Citizens Financial Group was successfully
floated on the New York Stock Exchange.
At the same time we substantially
completed the orderly run-down and
closure of our US asset-backed product
business, removing 15 billion of riskweighted assets from our balance sheet.
We made a commitment to fairness with
our customers. We said that RBS would
no longer compete with other banks in a
number of areas and we would use less
technical language that our customers find
easier to understand. We stopped offering
zero per cent balance transfers on credit
cards that trap customers in spirals of ever
increasing debt, we ended teaser rates that
penalise existing customers, and we now
explain all of our fees and charges on one
side of A4 paper for both our personal and
business customers.
As well as a review of our current performance

I will set out exactly what this bank will
become, what we will do and what we will not
do as we seek to improve shareholder value
and secure our market leading positions. It
involves an acceleration of our strategy to
build on our domestic strengths and a further
reshaping of our CIB business as we seek to
address its unacceptable returns.
As well as being a stronger, simpler and

fairer bank, I said that we would also be a
very different bank. No longer chasing global
market share, but instead focusing squarely
on our core strength, namely our home
market places in the UK and the Republic
of Ireland (RoI).
We have five ambitious new goals for the

second year of our plan and new financial
targets so that you, our shareholders, can hold
us to account for our performance.
2014 financial performance
The earning power of our key customer
businesses lies at the heart of the strong
financial progress RBS made during 2014.
What you can see from these results is that
underneath all the noise of conduct, litigation
and restructuring charges, we have strong
performing customer businesses that are
geared towards delivering sustainable returns
for investors.
We made an operating profit of 3.5 billion
in 2014, the highest since 2010 and a vast
improvement on 2013. Great progress on cost
reduction countered a fall in total income which primarily reflected a smaller risk profile
and lower income from trading activities in
CIB - and led to an overall improvement in
operating efficiency.
Our attributable loss of 3.5 billion, includes
1.3 billion of restructuring charges,
2.2 billion in litigation and conduct
provisions, a 1.5 billion net deferred tax asset
write-off, the initial 320 million dividend for
the Dividend Access Share and a write-down
of 4 billion anticipating the disposal
of Citizens.
It is increasingly clear what is driving
underlying performance at RBS - PBB and
CPB. PBB and CPB are now more important
to RBSs performance than at any time in
the past decade. This year they generated
61% of our income, compared with c.37%
for equivalent businesses in 2009. And they
have been at the forefront of progress towards
our goal of increased operating efficiency,
reducing adjusted operating expense by
2.6% over the year whilst income was up
2.3%. ROEs of 17.5% and 11.9% respectively

demonstrate their value to RBS today.
These franchises are also the custodians of
our core strengths - serving the everyday
banking needs of over 18 million personal and
business customers in the UK and RoI, and
helping these customers meet their ambitions.
Were investing in these franchises with a view
to exceeding customers expectations and
generating sustainable returns.
The performance of CIB reflects the big
changes this business is going through, and
the tough macro-economic conditions and
increasingly high costs of regulation it faces.
Income decreased alongside lower adjusted
operating expenses as we reduced CIBs risk
profile in accordance with our strategy, with
restructuring, litigation and conduct costs
pushing the business to an operating loss. But
CIB has a strong customer franchise serving
our leading UK and Western European clients;
increasingly it is these clients we intend to
focus on. I will set out later in this letter the
steps we will take to do this.
An overarching part of delivering sustainable
returns is controlling operating costs. When
I announced our cost target last year it was
described by some as the most ambitious
cost target in Europe. Well, through our drive
across the bank for greater simplicity we have
over-delivered, and surpassed our target of
1 billion of operating cost savings for the
bank. With a cost:income ratio for the year of
68% on an adjusted basis, we are still behind
our peers on cost efficiency; and there is work
to do to fulfil our desire to take it below 50%.
But we have a strong track record on delivery,
and there is resolve across this bank to get
this done.
I am very pleased with the progress we have
made in 2014 against our stated objectives.
While that progress is evident in the operating
profit line of the results announced, we
are still posting an attributable loss to
our shareholders. This is an accounting
consequence of one of our 2014 achievements
- the successful flotation of Citizens on the
New York Stock Exchange.
Now the deconsolidation of Citizens is finally
within sight, accounting rules require us to
write it down to its estimated disposal value.
This write-down substantially represents the
goodwill previously attached to Citizens. While
I realise that the headlines this generates are
disappointing it is important to emphasise
that this particular accounting loss does not
change our regulatory capital or tangible net
asset value.
09
10
Safety remains a cornerstone of our strategy

A core question for any bank seeking the trust
of its customers is whether its safe and strong
and focused and able to support customers
and the economy. The progress we have
made should mean that it is no longer in any
doubt. The CET1 ratio has improved by 260
basis points to 11.2% over the course of the
year, up from 8.6% as at 31 December 2013.
We reached our full year 2015 CET1 target of
11% one year ahead of schedule, and we are
on track to achieve a revised CET1 target of
13%, which we have set in place for the period
of the CIB restructuring.
We are determined to learn the lessons from

the wrongdoings of the past and ensure that
those responsible are held to account.
We now have considerably more high quality

capital than we had when the financial crisis
hit and this bank was bailed out by the
taxpayer. But we need to meet and exceed
the expectations of the Prudential Regulation
Authority (PRA) and of our shareholders and
bondholders. Stress test results show its
not just how much capital you have, but how
your balance sheet behaves under extreme
economic scenarios.
large corporates and financial institutions

(FIs);
This year our team in RBS Capital Resolution

has managed to accelerate the removal of
some of our most capital intensive assets,
and we are on track to complete our 20142016 RCR run-down targets by the end of
2015, one year ahead of the original target
we set for ourselves. Our capital strength will
be bolstered further when Citizens Financial
Group in the USA is deconsolidated from our
balance sheet. This is also expected in 2015.
In 2015, we also plan to start a programme of
issuing Basel III compliant Additional Tier 1
capital instruments.
Conduct
It has taken far longer than anyone realised to
root out all the past problems, practices and
related fines, and we still have challenges on
the horizon. We are changing the culture of
this bank; our aim is that shareholders are not
exposed to this scale of conduct risk again.
What you will have seen from me over the last
year is the way I will be open and honest with
you and our customers when dealing with
these issues; the way we continue to approach
FX is a good example of this. I will not hide. I
will talk openly about the hurt this wrongdoing
causes me and the many thousands of people
within this bank. I will detail the things we are
doing to put things right for our customers,
and the challenge and change we are driving
through the culture and conduct of our staff.
Building on our strengths

I said this time last year that the days when
global domination mattered more to RBS than
great customer service are well and truly over.
Well, we are not just talking about being a
UK-centred bank; we are a UK-centred bank.
80% of our revenues are generated in the
UK. At the time of the 2008 financial crisis this
number was 48%. Seven years after the crisis
we still have top 3 market positions in
the following UK segments:
Sterling provider in wholesale banking;

SME banking;
Private banking;
Financing for UK infrastructure projects;
and
Personal banking.
We are building on this strength to manage
value for shareholders and deliver the most
resilient future returns.
In last years letter, I told you that where
a business cant deliver value to our
shareholders in a reasonable time period
we will take decisive action. We have put
international private banking activities (1) up for
sale and we are now going further, faster in
reshaping parts of our CIB business.
The investment bank was over-stretched both
in range of product and geography. There
was too much risk for too little return. Given
the increasing regulatory requirements on
this business, it was a strategy that now has
little hope of delivering acceptable returns
to shareholders.
To be a number 1 bank means providing a full
service offering to UK and Western European
corporate and financial institution clients.
It means providing a first class platform to
process payments in the UK and Europe.
And it means having the expertise to help
customers raise finance on the debt capital
markets and manage the high level risks they
face. Serving customers in these areas is an
undisputed area of strength for us - they are
our core capabilities, and are essential to us
providing a first class service. In addition,
trading and distribution hubs in Singapore and
the US will ensure the corridors of commerce
remain open to allow our customers access to
investors in those regions.
Note: (1) Private banking and wealth management activities where the primary relationship management is conducted
outside the British Isles.
We plan to fully exit our Markets businesses

in Central and Eastern Europe, the Middle
East and Africa, and substantially reduce our
presence in Asia Pacific and the US. We will
exit our cash management services outside
the UK and RoI. These businesses are not
essential to our go-forward client franchise,
and their standalone returns are not sufficient
to justify an exception.
In doing so we will be free to grow and
improve the services our customers value
most. And by serving customers better this
franchise can reinforce its competitive position
and deliver sustainable returns above the cost
of equity for our shareholders.
This is a plan for a smaller, more focused,
but ultimately more valuable bank with the
vast majority of its assets in the UK, and for
RBS marks the end of the standalone global
investment bank model.
What I have just outlined will require an
enormous amount of effort from our people.
And I do not for one second take that for
granted. We have a proven track record of
delivering change in our business.
A better bank for customers
Much has been written and discussed about
the root causes of the financial crisis. For me
it came down to one big problem - a failure to
put the customers interest at the heart of our
business and its culture. For too long market
share mattered more than customer care.
It is why over the last year our people have
worked hard to embed this customer first
mentality into everything we do as a bank.
There are some concrete achievements we
can call out for 2014 including: faster account
opening times, a simplified product range
and a clearer pricing structure. And we went
against the rest of the industry and took a
calculated risk by ending teaser rates, and we
now offer our best rates to new and existing
customers across our product range. We may
have lost customers and income as a result,
but we still believe that this was the right thing
to do and will deliver long term value
for shareholders.
I want to assure our customers that the
positive changes we made in 2014 are
not one-off. We strive to do better for our
customers every day, and when we spot an
opportunity to serve customers better, we
will act. For example, customers shouldnt
be penalised because they lose track of the
date and are hit with an unexpected overdraft
charge for the first time. And if we can do

more to help customers through both the ups
and downs in their finances, it is absolutely our
responsibility to do so.
But we recognise that these are chipping
away at the edges, and more radical change
is needed if we are to establish real upward
momentum and achieve our targets. We have
to be constantly asking ourselves what a really
good bank for customers would look like, and
to be constantly improving what we do to take
us towards that goal. In our financial reporting
we will include full details of the progress
we have made as well as providing clear,
independent measures of the banks customer
trust and advocacy scores.
We may have started from further back than
some, but we are determined to reach our
aspiration of being number 1 for customer
service, trust and advocacy. It wont be easy,
but I firmly believe it is doable.
A better bank for shareholders
Critical though it is that we build a bank that is
safe, in capital strength, in structure and
on behaviour, it must also be profitable.
There are good businesses within RBS that
are capable of delivering real value to their
customers. If we do that, our customers will
be happy for us to make a fair and sustainable
profit.
Without sustainable profitability we cannot
ensure our future safety; profit is the best form
of self-replenishing capital.
We remain acutely conscious of how much
was invested to ensure our continued survival
by our private shareholders and, critically, by
the Government. As we reduce the tail risks
our bank is exposed to, repair our overall
profitability and reshape CIB we are creating
the potential to build up excess capital, paving
the way for distributions to the Government
and other shareholders.
Strength and sustainability
Our strategy envisages a capital benefit net

of restructuring costs from 2016. We intend
to return all capital to shareholders above a
CET1 ratio of 13%. This capital return, which
remains subject to regulatory approval at the
time, will only be made once the significant
legacy conduct hurdles are behind us. We
see this as another important step towards
repaying the support of our shareholders,
including the UK tax payer.
2015 Goals and revised targets
I have set out in the table below five new
ambitious business goals for the second year
of our strategic plan to simplify and restructure
this bank, achieving them will stand us in
good stead to reach our goals. We have
also published a revised set of financial and
business targets. These are consistent with
the other changes set out in this letter, and will
enable you, our shareholders, to continue to
track our progress and hold us to account.
playing a key role in implementing the strategy

that will take us forward. There is still work to
do, but Philip will leave on a positive note, with
RBS firmly focussed on serving its customers,
and shareholders.
What you see today is a bank on track
and delivering on its plan. A bank that is
determined to earn the trust of its customers
every day. A bank that helps the smallest
enterprises through to the largest companies
grow and prosper. A bank that is determined
to reward its shareholders for their support.
And a bank that is able to deliver on our
ambition to be number one for customer
service and advocacy in the UK and RoI.
Ross McEwan
Chief Executive
By 2019 RBS intends to be a low cost business

focused on effective, efficient delivery for our
customers. It will be a bank based in the UK
and RoI, with a presence in Western Europe,
the US and Singapore. It intends to be a bank
with leading market positions in each of our
chosen business areas, and a bank that can
generate attractive returns for shareholders on
a sustainable basis.
Conclusion
I would like to take this opportunity to thank
our Chairman, Sir Philip Hampton, as he takes
part in his final Annual Results with the bank.
Philip joined in 2009 amid the global financial
crisis and immediately brought a clear sense
of purpose and direction for the bank at a time
of incredible uncertainty, both for the UK and
RBS. His dedication to making this a great
bank for the country served him well through
the tremendous, but positive, change that
RBS has undergone during his tenure. I want
to express my personal gratitude to Philip for
guiding me during my first year as CEO, and
Our long-term targets
Our 2015 goals
CET1 ratio = 13% during the period of CIB

restructuring
Reduce RWAs to <300bn
Customer experience
No.1 for service, trust a

nd advocacy
Improve NPS in every UK franchise
Simplifying the bank
Cost:income r atio <50%
Reduce costs by 800m (1)
Supporting growth
Leading market positions in every franchise
Lending growth in strategic segments

nominal UK GDP growth
Employee engagement
Employee engagement index GFS norm (2)
Raise employee engagement index to within

8% of GFS norm (2)
Note: (1) Excludes restructuring, conduct and litigation costs, intangible write-off charges as well as the operating costs of Citizens Financial Group and Williams & Glyn.
(2) Global Financial Services (GFS) norm currently stands at 83%.
11
12

Our major source of income in our retail and commercial banking businesses is net interest income.
This is the difference between the income we earn from the loans and advances we have made to
our personal, corporate and institutional customers and on our surplus funds and the interest we pay
on deposits placed with us by our customers and our debt securities we have issued. We also earn
fees from financial services and other products we provide to our customers as well as rental income
from assets we lease to our customers.
Our Corporate & Institutional Banking business earns income from client driven trading activities
particularly Rates, Currencies and Credit.
We do business in competitive markets but we have strong franchises and good growth
opportunities, and we aim to target our investment to maximise these opportunities.
Our Personal & Business Banking and Commercial & Private Banking franchises provide services to over 17 million personal and business
customers in the UK and to over 1 million personal and business customers in the Republic of Ireland. Our Corporate & Institutional Banking
business serves our corporate and institutional clients primarily in the UK and Western Europe, as well as those US and Asian multinationals
with substantial trade and investment links in the region. This businesss strategy has been further refined in 2015 (see page 14 for Reshaping
our CIB business).
Our Structure
We are organised to provide products and services to personal, commercial and large corporate
and institutional customers. Our principal customer-facing businesses are supported by a central
Services function and other Support and Control Functions.
Customer
Commercial & Private
Banking (CPB)
Corporate & Institutional

Banking (CIB)
Services
Customer Support and Control Functions
Finance
Inc. Strategy
Human
Resources
Conduct &
Regulatory
Affairs
Communications
& Marketing
Risk &
Restructuring
Corporate Governance & Secretariat
Legal
Personal & Business

Banking (PBB)
Internal Audit
Customer Businesses
Services
Functions
Our three customer-facing businesses

are primarily responsible for defining the
strategy and financial plan of their business
and ensuring it is aligned with the wider
RBS strategy. Teams define and deliver the
customer proposition and are accountable
for end-to-end customer processes and
products. The teams partner with functions
to specify functional requirements that deliver
on customer needs.
Services, led by the Chief Administrative

Officer, provides business aligned technology,
operations and property services across the
bank. It is also accountable for technology
risk, payments, data, change and the banks
fraud and security functions.
These teams define functional strategy and

the financial plan to support the Customer
Businesses and other functions.
Most functions are a mix of control, expertise,
advisory and transaction services. All
common activities across the organisation
are included and nothing else.
Our Strategy
After five years spent restoring fundamental soundness to the bank, we have created a
strategy and a structure that provides us with an exciting opportunity. Over the next few
years, we are going to focus all of our energy on earning back the trust we lost in 2008.
And in doing so, RBS is going to change the UK banking sector for the better.
Our Priorities
Strength and
sustainability
Customer
experience
Simplifying
the bank
Supporting
growth
Employee
engagement
We have a long way to go to be the bank that our customers deserve. But we are in a period of very significant, positive change. We have millions of
great customers, tens of thousands of outstanding employees, and a home economy that is getting stronger. By building on this foundation, we can
achieve our ambition to be number one for customer service, trust and advocacy in all our chosen markets.
Our Plan
Our overarching ambition is to become the number one bank for customer service, trust and
advocacy. We have set out how we track our progress towards this goal on page 15.
We also track a number of other performance measures and have set long-term targets for these to
keep us on track.
Performance measures (1)

Measure
2013
2014
Long-term
People
Great place to work
78%
72%
Employee engagement
index GFS norm (2)
Efficiency
Cost:income ratio
Adjusted cost:income ratio (3)
95%
72%
87%
68%
Returns
Return on tangible equity
Capital strength (4)
Common Equity Tier 1 ratio
<50%
Negative
Negative
12%+
8.6%
11.2%
13% (5)
Notes:
(1)
This table contains forecasts with significant contingencies. Please refer to Forward-looking statements and Risk factors.
(2)
Global Financial Services (GFS) norm currently stands at 83%.
(3)
Excluding restructuring costs and litigation and conduct costs.
(4)
Based on end-point CRR basis Tier 1 capital and revised 2014 Basel leverage framework.
(5)
During the period of CIB restructuring.
13
14
Reshaping our CIB business

We have announced our plans to go further and faster in reshaping parts of our CIB business. The investment bank was overstretched both in
range of product and geography. We are building a stronger, safer and more sustainable business, focused mainly on UK and Western European
customers, both corporates and financial institutions, supported by trading and distribution platforms in the UK, US and Singapore.
Drivers of changes
Returns are too low
Costs are too high
Capital usage
is too high
Operating risks are outside of

our go-forward risk appetite
Creating a more focused corporate and institutional bank built on existing product/service strengths
Strong focused product offering
Risk management:
Transaction Services:
Debt Financing:
FX, Rates
(USD, GBP and EUR)
UK focused cash, payments & trade
DCM, Structured Finance, Loans (USD,

GBP and EUR)
International capability
Full service to UK and Western European clients/counterparts (9 European sales offices)
Distribution and trading hubs in UK, US and Singapore
Our go-forward business is focused predominantly on UK and EMEA. Based on 2014 numbers, around 74% of CIBs RWAs and 81% of income is
generated in these regions.
2014
Region
UK/Europe
Current CIB
(1)
US (2)
Go-forward
Non-strategic
RWAs (bn)
Income (m)
RWAs (bn)
Income (m)
RWAs (bn)
Income (m)
71
2,488
34
1,630
37
858
24
974
11
274
14
700
APAC
12
487
111
10
376
Total
107
3,949
46
2,015
61
1,934
Countries
38
13
Our product offering will reduce by over a half as will the number of products and desks in our Markets business.
Notes:
(1) EMEA.
(2)
North America.
Based on 2014 financials.
25
Building the number one bank for customer service, trust and advocacy in the UK
We use independent surveys to measure our customers experience and track our progress against our goal in each of our markets.
Net Promoter Score (NPS)

Customers are asked how likely they would be to recommend their bank to a friend or colleague, and respond based on a 0-10 scale with 10 indicating
extremely likely and 0 indicating not at all likely. Customers scoring 0 to 6 are termed detractors and customers scoring 9 to 10 are termed promoters.
The Net Promoter Score (NPS) is established by subtracting the proportion of detractors from the proportion of promoters.
In 2014, we have seen some positive NPS movements in some of our franchises and our plans for 2015 will help to gather momentum across the bank.
Year end
2013
Personal Banking
NatWest (England & Wales)(1)

RBS (Scotland)
(1)
Ulster Bank (Northern Ireland)
(2)
Ulster Bank (Republic of Ireland)(2)

Business Banking
Year end
2014
Year end
2015 target
-16
-13
-10
-31
-24
-21
-20
-18
-15
NatWest (England & Wales)(3)
-11
-11
-7
RBS (Scotland)(3)
-38
-23
-21
-47
-44
-34
-21
-17
-15
-1
12
15
Ulster Bank (Northern Ireland)(4)

Ulster Bank (Republic of Ireland)
(4)
Commercial Banking (5)

Suitable measures for Private Banking and Corporate & Institutional Banking are in development.
Notes:
The only NPS improvements in 2014 that are statistically
using a scale of 0 to 10 where 0 is not at all likely and
business bank and the service they provide. Can you
significant are for Business Banking (RBS Scotland) and
10 is extremely likely.
tell me how likely or unlikely would you be to do the
Commercial Banking.
(3) S
ource: Charterhouse Research Business Banking
(1) S
ource: GfK FRS 6 month rolling data. Latest base sizes:
Survey, based on interviews with businesses with an
following? Again please use a scale of 1 to 10, where 1

is very unlikely and 10 is very likely. How likely are you to
NatWest England & Wales (3,511) RBS Scotland (547).
annual turnover up to 2 million. 12 month rolling data.
Based on the question: How likely is it that you would
Latest base sizes: NatWest England & Wales (529),
recommend (brand) to a relative, friend or colleague in
RBS Scotland (399). Weighted by region and turnover
Survey, based on interviews with businesses with annual
the next 12 months for current account banking?
to be representative of businesses in England & Wales/
turnover between 2 million and 1 billion. Latest base
Scotland.
size: RBSG Great Britain (972). Weighted by region
(2) S ource: Coyne Research 12 month rolling data.

Question: Please indicate to what extent you would be
(4) S ource: PwC Business Banking Tracker. Question:
likely to recommend (brand) to your friends or family
I would like you to continue thinking about your main
recommend them to another business?.

(5) S
ource: Charterhouse Research Business Banking
and turnover to be representative of businesses in

Great Britain.
Customer Trust
We also use independent experts to measure our customers trust in the bank. Each quarter we ask customers to what extent they trust or distrust their
bank to do the right thing. The score is a net measure of those customers that trust their bank (a lot or somewhat) minus those that distrust their bank
(a lot or somewhat).
Year end
2013
Customer Trust (6)
Year end
2014
Year end
2015 target
NatWest (England & Wales)
35%
41%
46%
RBS (Scotland)
-16%
2%
11%
Notes:
(6) Source: Populus (2014) and PSB (2013). Latest quarters data. Measured as a net of those that trust RBS/NatWest to do the right thing, less those that do not. Latest base sizes: NatWest
England & Wales (927), RBS Scotland (206).
The year-on-year improvement in RBS customer trust is largely a reversion to its longer-term trend: there were issues in late 2013 that impacted the
banks reputation and customer trust. There are early signs that customer trust in RBS is stabilising and starting to improve. NatWest has consistently
performed competitively, and has shown early signs of improvement.
We will continue to aim for improvement through a secure, consistent and reliable service, and an unrelenting focus on our customers.
15
16
Our transformation priorities

Cost
Strategic Aim
Key Outcomes and 2015 Goal
Deliver a long term

cost:income ratio of <50%
1.1 billion cost reduction in 2014
Cost:income ratio
95 %
87%
A further cost reduction of

800 million (1) in 2015
<50 %
2013
2014
Long-term target
Note: (1) Excludes restructuring, conduct and litigation costs, intangible write-off charges as well as the operating costs of Citizens Financial Group and Williams & Glyn.
Capital
Strategic Aim
2015 Goals
Successful banks are built on

solid capital.
RWAs reduced to below

300 billion
RCR exit substantially completed
and Citizens deconsolidated
2 billion of AT1 capital raised
We have set out a plan to build

our Capital Ratio (CET1) to 13%
while we are going through the
restructuring of CIB.
CET1 build process

+ 260bps
11.2 %
13 %
8.6 %
2013
2014
during the
period of CIB
restructuring
Reshaping the bank

Strategic Aim
Key Outcomes and Goals
Customer orientation; be easy and effective for customers, with decision

rights as close as possible to the customer.
2014 outcomes:
One bank; be easy and effective for staff, with a unified culture and
leadership.
Fewer duplicated activities
Efficiency; short, simple chains of command with clear individual

accountabilities and empowerment.
Longer Term:
Functionalisation achieved
Reduced Division vs Centre thinking
Minimum committees
Support end-to-end approach to delivering great customer
experience
Operating model fully in place
Our Operating Model

We have a clear set of Organisation Design principles that
underpin our operating model, structures and accountabilities.
Customer orientation
The organisation will...
Meaning
...be easy and

effective for customers.
Primarily organised around customer segments

Delivers the whole bank, seamlessly, to our customers
Decision rights as close as possible to the customer
End-to-end approach to delivering great customer experience
One bank
...be easy and

effective for staff.
No customer units vs functions

Unified culture and leadership
Short simple chains of command
Clear individual accountabilities
Minimum committees to support individual accountabilities
Efficiency
...share all things

that can be shared.
No duplication
Centres of excellence located in primary business or function
Cross-bank sharing of platforms
Disciplined and rigorous
...manage activities
end-to-end in one best way.
Effective process design, ownership and management

Standardisation
Consistent customer experience
Sticking to a long term investment plan to address complex
technology environment
Safety and soundness
...help ourselves to do
the right thing.
Strong control functions

Effective three lines of defence
Straightforward policies
Our Values
Our Values are universal and guide our
actions every day, in every part of our
business. The values are the foundation
of how we work at RBS.
Serving customers
We exist to serve customers.
We earn their trust by focusing
on their needs and delivering
excellent service.
Doing the right thing

We do the right thing.
We take risk seriously and manage
it prudently.
We prize fairness and diversity and
exercise judgement with thought
and integrity.
Working together
We care for each other and work
best as one team.
We bring the best of ourselves to
work and support one another to
realise our potential.
Thinking long term

We know we succeed only when
our customers and communities
succeed.
We do business in an open, direct
and sustainable way.
17
18
Our Customers
Our purpose is to serve customers well and we have moved from seven divisions to
three customer businesses, so we can better deliver on this. Each of our businesses
share the RBS ambition: to be number one for customer service, trust and advocacy.
We have made a number of customer commitments marking our intent to deliver
better service to our customers. RBS is making steady progress towards building a
simpler, smaller and fairer bank, and remains focused on delivering the commitments
for personal and business customers that we announced on 27 February 2014.
We will stop offering deals to new
customers that we are not prepared to offer
to our existing customers.
By the end of 2014 we will cut in half the

number of personal and SME products
on offer.
By the end of 2014, customers will have

access to Mobile Banking and Online
Banking within one day.
Progress:
We now offer our best rates to new and
existing customers across our product
range. There is now no Personal Banking or
Business Banking deal that is not available to
existing customers.
Progress:
We have reduced the number of Personal
and SME products on offer by 50%.
We are becoming a smaller, simpler bank to
do business with.
Progress:
All Personal and Business Banking customers
now have access to online banking by the next
working day. Existing customers with a debit
card now have access to mobile banking the
next working day.
We will also ban teaser rates, including

zero per cent balance transfers in our
credit card business.
Progress:
We have banned teaser rates. We run a fair
and transparent credit card business for
our customers.
We will stop offering different rates to
customers who apply online, in branch or
by phoning our call centres.
Progress:
Across our RBS and NatWest brands, pricing
is consistent.
We will use simple language in our
customer letters, on our websites and
in our branches.
Progress:
Customer letters and emails have been
simplified for our personal and business
customers so they are straightforward and
transparent. We have reduced the number
of pages on our personal banking website
by over 60%. In branches we have fewer,
shorter brochures making it easier for
customers to find information.
We will improve the clarity of our language

to customers. By the end of 2014 we will
be able to explain all of our personal and
SME charges on one side of A4.
Progress:
Fees and charges are explained on one side
of A4 for both our personal and business
customers and will be communicated via our
internet sites by the end of February 2015.
We have a duty to our customers to provide a
straightforward breakdown of all charges.
We will speed up our account opening
process for personal customers. We will
cut how long it takes to open a personal
current account from five days to next day.
Progress:
All customers applying for a personal current
account who have the required ID and pass
our fraud and credit checks can now open
their account the next working day.
We will also improve the process to open
a personal current account online so
customers can upload their identification,
such as their passport, and open their
entire account from home.
Progress:
All customers applying for a personal current
account who have the required ID and pass
our fraud and credit checks can complete
their application online and where required,
are able to upload key ID documents
from home.
We will put Business Bankers back on

the high street. We will have hundreds of
Business Bankers help small business
people open accounts, apply for loans and
get the help they need.
Progress:
82% of Business Banking frontline staff are
immediately above/next to our branches. This
equates to 1,335 Business Banking specialists
in branch today. We are simplifying processes
so that Business Bankers can spend more
time with customers, providing help and
advice in branch or via telephone.
We will start making small business

lending decisions in five days.
Progress:
We are processing lending decisions quicker.
In almost all cases, lending decisions are
made and communicated to the customer in
five days or less with two-thirds of business
lending decisions made locally and/or by
sector specialists.
Independent Lending Review actions

In 2013, RBS and NatWest launched an Independent Lending Review, led by
Sir Andrew Large and management consultants Oliver Wyman. The aim of
the review was to identify steps we could take to enhance our support for SMEs.
We committed to act and report on the recommendations.
The bank will write to thousands more

SMEs setting out clearly how much it is
willing to lend to their business.
Progress:
By the end of December 2014, more than
350,000 pro-active Statements of Appetite
had been issued to SME customers, offering
in excess of 12.4 billion of new or additional
funding.
A dedicated website will be developed to

show clearly what information RBS use
to make a lending decision and set out
simple, clear steps in its lending process.
Progress:
The website has been developed and can
be found at www.businesslending.natwest.
com. Guidance is provided to support you
in making a successful application and the
types of information used to make a decision.
The bank will begin work to enable

bankers to make all but the most complex
lending decisions in just five days of
receipt of all necessary information.
Progress:
In almost all cases, lending decisions are
made and communicated to the customer in
five days or less.
RBS will ensure two thirds of its lending

decisions are made locally and by sector
specialists.
Progress:
Over two thirds of lending decisions are now
made locally and by sector specialists.
RBS will continue to invest in building

the capability of its people with at least
90% of Relationship Managers and Credit
Managers professionally qualified.
road, resulting in faster lending decisions,

declining complaints volumes and reshaping
the objectives of our people.
Progress:
RBS has a milestone plan to achieve this by
the end of 2016. We met our 2014 target with
20% of Relationship Managers and Credit
Managers now professionally qualified.
Customer experience targets will be set for

all staff.
RBS will start a programme to make all

customers whose loan applications are
declined aware of the appeals process,
and will continue to work with the
Independent Appeals Chair to improve
the support it provides to customers
going though this process.
Progress:
A website has been developed and can be
found at www.businesslending.natwest.com.
The section titled Decision explains how to
appeal and alternative financing options.
The bank will commit to pointing

businesses to alternative sources of
finance where it cannot support a loan
application.
Progress:
In January 2015 RBS announced it is set
to give SMEs greater access to finance by
formally referring customers to both Funding
Circle and Assetz Capital, two alternative
finance providers.
RBS aims to become the number one bank

for SME customer service in the UK.
Progress:
Our ambition is to be #1 for service, trust
and advocacy. We made commitments to
our customers in 2014 to help us on this
Progress:
Staff objectives are focussed on providing
a market leading customer experience.
Objectives for 2015 have been shared with all
staff and include measures to ensure we are
providing good customer outcomes.
SME complaints are to be reduced by 50%

Progress:
We have a milestone plan to achieve these
reductions by December 2016. We have
achieved our reduction target in 2014 with
final quarter complaint volumes 22% lower
than average quarterly volumes in 2013
by starting to simplify our processes and
empowering our staff to make more decisions
at first point of contact with our customers.
None of the banks services will be

conditional on customers buying another
product or service with the bank.
Progress:
As at February 2015, none of our SME
products or services are conditional on
customers buying another of the Banks
products or services.
The bank will publicly report on progress

against these commitments annually.
Progress:
We have reported our progress on www.rbs.
com. We will continue to report progress on
actions, which are on-going through 2015.
19
20
Key economic indicators

The key market in which RBS operates is the UK. Lending in the UK is closely linked to GDP and growth in the housing market is highly dependent
on the level of interest rates. Falling unemployment may have a positive impact on lending as more people are able to afford loans. The profitability
of the banking sector is adversely impacted by low interest rates as they squeeze the margin between borrowing and lending. The level of
impairments is affected among other things by GDP growth, movements of unemployment rates and interest rates.
The other key economies in which RBS operates are the US and the Republic of Ireland (RoI).
GDP growth (%)
Unemployment (%)
Consumer Prices Index 12-month rate (%)
6.0
5.0
7.2
4.0
6.0
5.7
Jun - Sep
2014
Oct - Dec
2014
3.0
2.0
1.0
0.0
2013
2014
est
UK
RoI
Oct - Dec
2013
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
Jan Feb Mar Apr May Jun
14
14
14
14
14
14
USA
Jul
14
Aug Sep Oct Nov Dec

14
14
14
14
14
CPI 12-month rate
Source: Office for National Statistics, Feb 2015

Central Statistics Office, Mar 2015
Bureau of Economic Analysis, Feb 2015
Source: Office for National Statistics, Jan 2015
UK GDP was up 2.6% on 2013 1. Ireland GDP growth

is estimated to have improved to 4.8% from 0.2% in
2013. US GDP is estimated to have grown 2.4%.
The unemployment rate in October to December

2014 was 5.7%, lower than for July-September 2014
(6.0%) and lower than for a year earlier (7.2%).
Inflation, measured by the CPI 12-month rate between

December 2013 and December 2014, stood at 0.5%.
The food and motor fuels product groups in total
reduced the CPI 12-month rate by approximately 0.6
percentage points in the year to December 2014.
(1) Second estimate
Selected interest rates in 2013 and 2014 (%)
UK house prices 12 month growth rate (%)
0.80
14.0
0.60
10.0
Average weekly wage annual growth (%)
12.0
2.00
1.60
6.0
1.20
0.20
4.0
0.80
2.0
0.40
0.00
0.0
0.00
Ja
De
/14
14
/11
30
/14
/9/
30
/14
UK Bank Rate
31
/7
/14
31
/5
31
/3
31
/1
/13
ECB Refi Rate
/14
13
/11
30
/13
/9/
30
/13
31
/7
/13
31
/5
31
/3
31
/1
/13
0.40
c1
3
n1
4
Fe
b1
4
Ma
r1
4
Ap
r1
4
Ma
y1
4
Ju
n1
4
Ju
l1
4
Au
g1
4
Se
p1
4
Oc
t1
4
No
v1
4
De
c1
4
8.0
Fed Funds
Source: BoE, ECB, Fed

While UK Bank Rate and Fed Funds remained
unchanged throughout 2013 and 2014 at 0.5% and
0.25% respectively, the ECB cut the refinancing rate
twice in 2014 to 0.05%.
Source: O
ffice for National Statistics, Feb 2015
Jan - Mar
2014
Apr - Jun
2014
Jun - Sep
2014
Oct - Dec
2014
Total pay
Regular pay
(incl. bonuses)
(excl. bonuses)
UK house price inflation increased from 5.5% in

December 2013 to 9.8% in December 2014.
For October to December 2014, regular pay for

employees in Great Britain was 1.7% higher than a
year earlier and total pay for employees in Great
Britain was 2.1% higher than a year earlier.
The UK economy performed relatively well in

2014 with GDP expanding by 2.6% compared
with the previous year. By contrast the
eurozones modest recovery struggled to gain
traction as growth of just 0.9% was realised.
In Q4 2014 UK GDP was estimated to be 3.4%
higher than the pre-crisis peak of Q1 2008.
Inflation fell over the course of 2014 on the back
of falling food and oil prices. The Consumer
Price Index rose just 0.5% in December 2014
compared with December 2013.
year earlier. The unemployment rate was 5.7% the lowest level since the summer of 2008. Real
wage growth turned positive in late 2014 after
falling almost consistently for over six years.
However, this was more a reflection of lower
inflation rather than a significant uplift in wage
settlements. Nominal earnings in the three
months to December 2014 were 2.1% higher
than in the three months to December 2013,
approximately twice the pace of a year earlier
but still very low on a historical basis.
The UK labour market performed strongly. In

October to December 2014, the number of
unemployed people was 486,000 lower than a
UK house prices continued to increase through

most of 2014 and in December 2014 they were
11.5% higher than at the pre-crisis peak in
January 2008. The strength of the UK recovery

in 2014 prompted talk of when interest rates
will begin to rise. Earlier in the year markets
anticipated an increase as soon as in 2014, but
at the end of 2014 market expectations were
for the first increase to take place in early 2016,
given below target UK inflation, exceptionally
weak wage growth, a high household debt
burden, daunting economic challenges in
the eurozone and sluggish global growth.
In addition to renewed concerns over the
eurozone, other risks to the global economic
and financial system continued to build over the
course of 2014.
Summary
21
Customer Case Study
Perfect public sector

payments
Public sector spending contributes a significant
amount to the UK economy. So its important that the
Government and wider Public Sector have access to
a simple, secure and straightforward way of paying for
services.
This year we were awarded a place on the
ePurchasing Card Solution Framework Agreement
for the supply of Commercial card and Management
Information solutions that can be used by
organisations across the UK public sector including
central government, local government, health,
education, devolved administrations, emergency
services, defence and not-for-profit organisations.
Being awarded a place on the ePurchasing Card
Solution Framework Agreement was a true team
effort and were proud to play our part in helping the
UK Government and wider Public Sector to deliver
efficient, transparent payment services for making
quick payments to a wide range of their suppliers, often
including UK SMEs.
22
Mobile banking on the move
Ways to bank
In todays smartphone, tablet enabled, app driven
world, customers are looking for even more choice
and flexibility about how, when and where they do
their banking.
But we know customers still want to speak to a person
for those important life decisions, like buying a home or
starting a new business.
Were responding to the changing needs of our
customers by investing 1 billion over the next three
years to improve our banking services. As part of this
investment were refurbishing our branch network to
create open, bright spaces for customers to talk to us
face to face about the things that matter most to them.
For customers who like to do their banking on the
move were continuing to develop our market-leading
mobile banking app, which is used regularly by more
than three million customers and supports around
3.5 million logons and half a million payments and
transfers every day. Weve also just become the
first bank in the UK to introduce Touch ID fingerprint
logons, offering even better security for our customers.
However, this is just one of the ways were taking our
service to where our customers want us to be. With the
UKs second largest branch network, a 24/7 telephone
banking service, the second largest free to use ATM
network in the UK and an extended relationship
with the Post Office which means customers can
now access our basic services in 11,500 branches,
customers have never had more choice about how
they do their banking.
And for those customers in more remote communities
weve invested in a further five mobile banking vans,
taking our fleet of vans to 23. They join a long, proud
tradition of mobile banking services our first van was
introduced in 1946.
Business review
Business review
RBS is now structured to deliver its ambition by organising itself

around the needs of its customers, so as to combine customer
groups with similar needs into franchises able to deliver
co-ordinated services.
The reorganised bank will be a UK-focused retail and corporate
bank with an international footprint to drive its corporate business.
The previously reported operating divisions are now realigned into
three franchises:

In addition, RBS will continue to manage and report Citizens

Financial Group and RBS Capital Resolution separately until
disposal or wind down.
Total revenue
by region 2014
Europe
9%
Total income
by franchise 2014
RoW
4%
Citizens
17%
PBB
38%
USA
7%
UK
80%
CIB
22%
CPB
23%
23
24
Personal &
Business Banking
Les Matheson
CEO,
38%
Contribution
to income
At the end of December

2014 we had c.3 million
active users of our
Personal Mobile App in
the UK.
Simple transactions can

be done in 11,500 Post
Offices across the UK.
For further
information
see pages
Personal & Business Banking (PBB) serves individual and mass

affluent customers together with small businesses (generally up to
2 million turnover), with more business bankers moving back into
branches. PBB comprises two segments, UK Personal & Business
Banking, including Williams & Glyn, (UK PBB) and Ulster Bank.
Performance overview
PBB recorded an operating profit of
2,056 million, up 2,846 million.
Net interest income increased by 210
million or 4% with strong improvements in
deposit margins and volume growth. This
was partly offset by lower asset margins
linked to the continued change in the mix
of loan book towards secured lending and
lower mortgage margins.
Operating expenses decreased by 279
million or 5%, reflecting lower restructuring
and litigation and conduct costs.
Mortgage balances increased by 2.4
billion or 2%, to 121 billion driven by strong
performance as advisor capacity increased.
Building a better bank that serves
customers well
The strategic goal of PBB is to become the
number one personal and business bank for
customer service, trust and advocacy in the
UK. Following completion of a strategic review,
Ulster Bank was confirmed as a core part of
RBS, offering a good strategic fit with RBSs
retail and commercial strategy.
These included:
extending services to the Post Office
network.
removing 0% teaser deals from its offering
and introducing the new Clear Rate and
cash-back credit cards in 2014. RBS
became the first of the main high street
banks to ensure all of its savers get the
same or better deals as new customers.
further developing online and mobile
banking services to support the upward
trend in digital transaction volumes.
2014
2013
17.5
(5.7)
3.42
3.21
71
78
Net loans and advances to customers (bn)
149.2
150.8
Customer deposits (bn)
169.3
166.6
88
91
66.6
81.9

129 - 135
Throughout 2014, the business has made

steady progress in making banking fairer and
simpler for its customers through a number
of fair banking initiatives and technology
investments.
Note: RWAs at 31 December 2013 are on Basel 2.5 basis and on the end-point CRR basis at 31 December 2014.
Business review
Customer Case Study
Fairer Banking
Weve made a conscious decision to be different from
other banks. In 2014, we made a series of customer
commitments which aimed to make banking simpler,
fairer and clearer for our customers.
In an industry leading move we stopped offering
teaser rates to attract new customers and offered our
customers the same rates online, through a branch
or over the phone. As part of this we became the first
bank on the high street to commit to giving all our
savers the same rates, including proactively moving
our loyal existing customers onto our best rates.
Weve also simplified our products, so its easy for our
customers to find the right one for their needs and
with all our charges explained on just one page.
In March we stopped offering 0% balance transfer
credit cards. This type of card was designed to make it
easier for customers to repay existing credit card debt,
but our research showed that debt tended to increase,
rather than reduce over the term. Stopping these cards
meant around 100,000 customers transferred to a low,
ongoing rate with no chance of being caught out by a
big jump in their interest rate down the line.
Were making changes for business customers too
95% of business lending decisions are now made
within five days and gross business lending is up 30%
from 2013. Plus, weve committed an extra 1 billion
to support small businesses with fee-free, fixed
rate loans.
25
26
Commercial &
Private Banking
Alison Rose
CEO,
23%
Contribution
to income
Commercial & Private Banking (CPB) serves commercial and

mid-corporate customers and high net worth individuals, deepening
relationships with commercial clients, operating overseas through
its market-leading trade and foreign exchange services, while
connecting our private banking brands more effectively to
successful business owners and entrepreneurs. CPB comprises
two reportable segments, Commercial Banking and
Private Banking.
CPB recorded an operating profit of 1,440
million compared with 469 million in the
prior year.
Net interest income increased by 112
million or 4%, largely reflecting re-pricing
activity on deposits partly offset by the
impact of reduced asset margins, a result
of the net transfer in of lower margin legacy
loans (after the cessation of Non-Core).
Total expenses were down 304 million
or 10% reflecting lower litigation and
conduct costs, primarily relating to interest
rate swap redress, and lower underlying
direct costs.
RWAs were 2.3 billion lower at 75.5
billion, primarily reflecting net transfers
to RCR, effective 1 January 2014, and
improving credit quality on the back of UK
economic recovery, offset by loan growth.
Within Commercial Banking

over 120 products were
removed from sale and over
400 process improvements
implemented.
The first of eight accelerator

hubs offering free space,
support and advice to high
growth business owners
opened as part of our plan to
support UK entrepreneurs.
For further
information
see pages
2014
2013
11.9
3.7
2.93
2.81
65
73
Net loans and advances to customers (bn)
101.6
100.2
Customer deposits (bn)
122.9
127.9
83
78
75.5
77.8

136 - 142

customers well
Within Commercial Banking over 120
products were removed from sale and over
400 process improvements implemented.
There has been an improvement in
the Net Promoter Score and rating
of overall service quality across the
business, together with a continuing fall in
complaints.
The first out of eight accelerator hubs
opened in February 2015, offering free
space, support and advice to high growth
business owners.
Within Private Banking the business has
progressed well against key priorities
in 2014. Improvements are evidenced
by several industry awards including:
Best private bank in the UK (PWM/
The Banker) and Most innovative digital
offering (Private Banker International).
Coutts continues to be recognised as a
leader in philanthropy, with its $1 million
donors report receiving significant
media coverage, and its expertise as an
adviser for family businesses and existing
entrepreneurs remains a strong point of
differentiation.
Business review
Customer Case Study
Helping Hertz
The summer season sees a surge in tourists visiting
the UK, many of whom want to hire a car.
For leading car rental company Hertz this poses a
unique challenge - how to efficiently fund the required
increase in its fleet size to meet the demand of the
summer months? A Lombard customer for 30 years,
Hertz turned to us to help them find an answer.
Working with teams across the bank, we were able to
provide a short-term seasonal increase to Hertz UKs
core fleet financing facility giving them the flexibility
they needed to manage their peak requirements in line
with demand.
Chris Cooper, Director of Lombard Strategic Fleet
Finance said, This is an excellent example of us
working together and thinking long term for the benefit
of both the client and the bank. This deal cements our
position as a strategic partner to Hertz and provides a
platform for further seasonal support.
27
28
Corporate &
Institutional Banking
Rory Cullinan
Executive Chairman,
and Capital Resolution
22%
Share of
operating profit
Contribution
to income
Commitment to customers
was demonstrated by the
award of The Bankers Most
Innovative Bank in Risk
Management in Q3 2014.
Winner of IFR magazines

Sterling Bond House of the
year award in Q4 2014.
For further
information
see pages
143 - 145
Corporate & Institutional Banking (CIB) serves our corporate and

institutional clients primarily in the UK and Western Europe, as well
as those US and Asian multinationals with substantial trade and
investment links in the region, with debt financing, risk management
and trade services, focusing on core product capabilities that are
of most relevance to our clients. This businesss strategy has been
revised in 2015 (see page 14 for Reshaping our CIB business).
CIB recorded an operating loss of 892
million compared with a loss of 2,882
million in 2013.
Total income declined by 21%, reflecting
reduced deployment of resources and
difficult trading conditions, characterised by
subdued levels of client activity and limited
market volatility.
Operating expenses fell by 2,360 million
driven primarily by lower litigation and
conduct costs. Adjusted expenses (1)
decreased by 1,006 million, or 22%,
reflecting the continued focus on cost
savings across both business and
support areas.
Net impairment releases totalled 9 million
compared with a net impairment charge of
680 million in 2013, reflecting a reduction
in latent loss provisions and a low level of
new impairments.
Funded assets fell by 10% reflecting the
focus on core product areas including the
wind-down of Credit Trading and the US
ABP businesses.
RWAs were managed down by 40.0 billion
from 147.1 billion on 1 January 2014 to
107.1 billion on 31 December 2014.
Building a better bank

that serves customers well
CIB focused on its strengths in core product
areas during 2014, reducing the scale of the
business and simplifying the operating model.
This allowed CIB to better serve customers
while deploying fewer resources.
The commitment to customers was
demonstrated by the award of The Bankers
Most Innovative Bank in Risk Management
in Q3 2014 and by winning IFR magazines
Sterling Bond House of the year award in
Q4 2014.
The drive to concentrate on core products is
evidenced by the 27% fall in RWAs (compared
with 1 January 2014 on an end-point CRR
basis) and the 22% year on year fall in adjusted
expenses.
Note:
(1) Excluding restructuring and litigation and conduct costs.
2014
2013
(4.2)
(12.9)
123
144
Net loans and advances to customers

excluding reverse repos (bn)
72.8
68.2
Customer deposits excluding repos (bn)
59.4
64.8
107.1
120.4
Business review
29
Customer Case Study
Manchester takes off

Manchester Airports Group (MAG) owns and operates
four UK airports including Manchester, the UKs third
largest airport, and London Stansted, the fastest
growing airport in London. They serve over 45 million
passengers and handle more than 600,000 tonnes of
freight every year, contributing over 4 billion to the
UK economy and directly supporting around 45,000
full-time jobs.
Our long-standing relationship with MAG has seen us
support both their 1.5 billion acquisition of London
Stansted in 2013, and two bond issuances which
raised a total of 810 million. Those funds allowed
MAG to refinance the acquisition debt used to buy
London Stansted, and gave them a platform to invest in
services and facilities at their airports.
A good example of their investment is the multi-million
pound upgrade of the terminal at London Stansted.
The expansion will double the size of the security
space, expand the departure lounge and help create a
new lounge area in the terminal building.
30
Citizens
Financial Group
Bruce Van Saun
Chairman and Chief Executive
Officer, Citizens Financial
Group, Inc.
Citizens Financial Group, Inc. (CFG) provides financial services

primarily through the Citizens and Charter One brands. CFG is
engaged in retail and corporate banking activities through its
branch network in 11 states in the United States and through
non-branch offices in other states.
RBS disposed of 29.5% of its interest in Citizens Financial Group,
Inc. during the second half of 2014 primarily through an initial public
offering in the USA.
17%
Contribution
to income
RBS disposed of 29.5%

of its interest in Citizens
Financial Group, Inc.
during the second half
of 2014.
Performance overview (1)

Operating profit increased by $306 million,
or 32%, to $1,253 million, reflecting the
Q2 2014 gain on the sale of the Illinois
franchise. The former Non-Core portfolio is
now included and indirect expenses are
no longer allocated on a prospective basis
from 1 January 2014. On a comparable
basis, operating profit excluding the
impact of the Illinois sale, $283 million net
gain, and restructuring costs, $169 million
(2013 - $24 million), was up 16% driven
by an increase in net interest income and
a decrease in impairment losses partially
offset by lower non-interest income.
Net interest income was up $357 million,
or 12%, to $3,317 million driven by a larger
investment portfolio, loan growth including
the transfer of assets from Non-Core, the
benefit of interest rate swaps and deposit
pricing discipline.
Excluding restructuring costs of
$169 million (2013 - $24 million), total
expenses were down $96 million, or 3%,
to $3,328 million driven by the removal of
indirect costs in 2014 and the impact of
the Illinois franchise sale partially offset by
lower mortgage servicing rights impairment
release and higher consumer regulatory
compliance costs.
Average loans and advances were up 10%

driven by the $3.4 billion transfer of assets
from Non-Core, commercial loan growth,
auto loan organic growth and purchases
of residential mortgages and auto loans,
which were partially offset by a reduction in
home equity loans.
Average customer deposits were down
2% with planned run-off of high priced
deposits.
customers well
The initial public offering of CFG was
successfully completed in September 2014
and RBSs interest in CFG stood at 70.5% of
shares outstanding at 31 December 2014.
Further share sales are planned in 2015 and
RBS intends to fully divest the business by the
end of 2016.
Note:
(1) 2014 results are not directly comparable with prior
periods; prior year results exclude Non-Core operations
and include indirect expenses. In the context of the
planned disposal of Citizens Financial Group, indirect
expenses are no longer allocated to the segment.
2016
RBS intends to fully divest
the business by the end
of 2016.
For further
information
see pages
2014
2013
6.6
5.7
69
74
Net loans and advances to

customers ($bn)
93.1
83.2
Customer deposits excluding repos ($bn)
94.6
91.1
98
91
106.8
92.8

147 - 149
Risk-weighted assets ($bn)
Business review
RBS Capital
Resolution
Rory Cullinan
Executive Chairman,
and Capital Resolution
2014 saw many of RCRs

larger deals completed around 360 of them.
RBS Capital Resolution (RCR) became fully operational on

1 January 2014 with a pool of c.29 billion of funded assets with
particularly high long-term capital intensity, credit risk and/or
potentially volatile outcomes in stressed environments. RCR brings
assets under common management and increases focus on the run
down so as to release capital.
RCR funded assets were reduced by 14
billion, or 48%, during 2014, driven by
disposals and repayments.
RWA equivalent decreased by 38 billion,
or 58%, during 2014. This primarily reflects
disposals and repayments, supplemented
by methodology changes and lower market
risk RWAs.
Operating profit of 988 million reflects
impairment provision releases and
higher than anticipated sale prices
for assets driven by a combination of
strong execution and favourable market
conditions particularly in Ireland.
The net effect of the 988 million operating
profit and RWA equivalent reduction of 38
billion (1) was CET1 accretion of 4.8 billion.

customers well
RCR is managed and analysed in four asset
management groups - Ulster Bank (RCR
Ireland), Real Estate Finance, Corporate
and Markets. Real Estate Finance excludes
commercial real estate lending in Ulster Bank.
Note:
(1) Capital equivalent: 3.8 billion at an internal CET1 ratio of 10%.
In 2014, RCR reduced its

funded assets from 29
billion to 15 billion.
For further
information
see pages
150 - 154
31 December 2014
1 January 2014
Risk-weighted asset equivalent (bn)
27.3
65.0
22.0
46.7
Funded assets (bn)
14.9
28.9
31
32
Services
Simon McNamara
Chief Administrative Officer
Services plays a vital part in building loyalty with every customer

interaction we have; from putting money in the ATMs, to keeping
our customers safe from fraud, processing trillions of pounds
in payments across the world, and making sure the banks
technology systems are there for our customers when they need
them. We keep RBS running, driving efficiency and resilience in
everything we do to support our customers 24 hours a day, 365
days a year.
Here are just some of the ways weve worked to build customer trust in 2014:
Were more resilient
Our mirror bank capability

now lets our customers access
critical services in the event of
a system outage.
Through our Simplifying

Customer Life programme,
we implemented over 4,000
ideas, generating improvements
covering more than 2.6 million
customer interactions.
We refocused and prioritised our

investment and transformation
plans, reducing the number of
projects we run from 550 to 182.
The performance of our systems has

improved with each one of our 130 services
available to customers over 99.96% of
the time. Through this work, in the second
half of the year we have reduced system
downtime by 79%.
Our mirror bank capability now lets our
customers access critical services in the
event of a system outage. We can now
process 90% of debit and credit card
transactions for customers during an
outage and they can view mini-statements
and balances on mobile and online
banking systems.
We upgraded our service to improve
stability and reduce the risk of outages
associated with our core international
payments infrastructure. This has resulted
in a significant reduction in the number of
outages we experience.
We upgraded the infrastructure that
supports our mobile banking service
improving the stability, capacity and
availability of this service for customers.
On Black Friday our systems supported
high volumes and values across a number
of our customer channels in the UK,
including record-breaking figures for
our mobile banking app.
Were simpler
We transformed 127 branches

through our Points of Presence
programme and installed
Wi-Fi in almost 2,000 sites for
customers and colleagues.
We implemented a new operating model

for Services, fully aligned to the customer
franchises in Personal & Business Banking,
Commercial & Private Banking and
Corporate & Institutional Banking, and RBS
Capital Resolution.
We reduced the number of properties we
use by 200 to 2,500 today, including some
major properties in London.
Through our Simplifying Customer Life
programme, we implemented over 4,000
ideas, generating improvements covering

more than 2.6 million customer interactions.
We used data and analytics to simplify
pricing for our Instant Access Savings
product (reducing from 70 to 2 different
price points) - improving the savings rate
for 4.5 million customers in the process.
Were more efficient
We contributed around 500 million
to the banks cost reduction target.
We refocused and prioritised our
investment and transformation plans,
reducing the number of projects we run
from 550 to 182.
We reduced the amount of cash spend
on third parties by 800 million, a 17%
reduction from 2013.
We have invested in our data and customer
technology, allowing us to personalise
content presented to customers in over
1.2 billion interactions (across digital,
telephony and face to face).
Were more innovative
We initiated 23 proof of concepts, and
generated a pipeline of over 450 ideas,
through our innovation scouting network
around the world.
We teamed up with Silicon Valley-based
start-up TokBox, to trial cutting edge video
conferencing technology, which increases
choice and convenience for customers and
entrepreneurs.
We increased the number of active
mobile banking users by around 600,000
customers to 2.9 million, with over
1 billion logins.
We transformed 127 branches through
our Points of Presence programme and
installed Wi-Fi in almost 2,000 sites for
customers and colleagues.
Business review
Customer Case Study
Malted magic
Muntons supplies malt an important ingredient in
products like beer, whisky and confectionery to a
range of blue-chip customers.
UK owned and based in Suffolk, the firm uses only
British barley to make their malt. To successfully build
their business and compete on a bigger stage, they
knew they would have to increase their global footprint.
A recent joint venture in Thailand has added to their
sales presence in the USA and Asia, supported by us.
Earlier this year Muntons invested 5.4 million in
an anaerobic digestion plant at their Stowmarket
headquarters, partly funded by RBS Invoice Finance
with an asset-based lending package. This facility will
help them manage the major capital spend theyll need
to meet their ambitious growth targets both at home
and abroad.
33
34
Governance
at a glance
Board and committee activity remained busy during 2014 with a number
of key strategic issues taking centre stage including the delivery of the
strategic plan agreed in February 2014. Board committees continued to
play a crucial role in our governance framework, undertaking their
complex work comprehensively and effectively supporting the work of
the Board.
Conduct and regulatory investigations have been key areas of focus
and our 2014 results reflect the impact that conduct related matters
continue to have on financial and operating performance. The Board will
continue to drive cultural change and it is essential that our governance
framework continues to evolve to support this.
During 2015, the Board will continue to focus on our key priorities,
including customers, conduct, capital and funding, risk and delivery
of the strategic plan.
Philip Hampton
Chairman of the Board of directors
Our Board
The Board has ten directors comprising the
Chairman, two executive directors and seven
independent non-executive directors, one of
whom is the Senior Independent Director.
Biographies for each director and details of
which Board Committees they are members of
can be found on pages 46 to 49.
There were a number of changes to the
Boards composition during 2014, details of
which can be found in the Chairmans
Statement on pages 6 and 7.
The Board is collectively responsible for the
long-term success of RBS and delivery of
sustainable shareholder value. Its role is to
provide leadership of RBS within a framework
of prudent and effective controls which
enables risks to be assessed and managed.
We conducted an internal evaluation of the
effectiveness of the Board and its committees
in 2014, led by the Chief Governance Officer
and Board Counsel. The evaluation has
concluded that the Board is operating
effectively but has identified some areas
for improvement which we will focus on
during 2015.
For
biographies
see pages
46 - 49
Our Board committees

In order to provide effective oversight and
leadership, the Board has established a
number of Board committees with particular
responsibilities. The work of the Board
committees is discussed in their
individual reports.
The terms of reference for each of these
committees is available on rbs.com and
copies are also available on request from
RBS Corporate Governance and Secretariat.
Group Audit Committee
Assists the Board in discharging its

responsibilities for monitoring the quality of
the financial statements of RBS. It reviews
the accounting policies, financial reporting
and regulatory compliance practices of RBS.
It also exercises oversight over systems and
standards of internal controls, and monitors
RBSs processes for internal audit and
external audit.
The Group Audit Committee report is set out
on pages 57 to 61.
Group Nominations Committee
Board Risk Committee
Assists the Board in the selection and

appointment of directors. It reviews the
structure, size and composition of the Board,
and membership and chairmanship of Board
committees.
Provides oversight and advice to the Board

on current and potential future risk exposures
of RBS and future risk strategy. It reviews
RBSs compliance with approved risk appetite
and oversees the operation of the RBS Policy
Framework and submissions to regulators.
The Group Nominations Committee report is

set out on pages 55 and 56.
The Board Risk Committee report is set out on

pages 62 to 68.
Board of directors and Executive Committee

Board
Executive Committee
Chairman
Philip Hampton
The Board is supported by the Executive Committee comprising

the executive directors and other senior executives. Details of
the composition of the Executive Committee and biographies of
its members can be found at www.rbs.com>about us>corporate
governance>ceo and board >executive committee
Executive directors
Ross McEwan
Ewen Stevenson
Sandy Crombie
(Senior Independent Director)
Alison Davis
Morten Friis
Penny Hughes
Brendan Nelson
Baroness Noakes
Robert Gillespie
Chief Governance Officer and Board Counsel
Aileen Taylor
(Company Secretary)
RBS Capital Resolution (RCR)

Board Oversight Committee
Group Performance and

Remuneration Committee
Provides oversight of RCRs progress against,

and compliance with, its primary objective and
asset management principles.
Responsible for approving remuneration

policy and reviewing the effectiveness
of its implementation. It also considers
senior executive remuneration and makes
recommendations to the Board on the
remuneration of executive directors.
The RCR Board Oversight Committee report is

The Directors Remuneration report is set out

on pages 73 to 93.
Sustainable Banking Committee
Executive Committee
Responsible for overseeing and challenging

how management is addressing sustainable
banking and reputation issues, considering
the long term interests of all stakeholder
groups.
Supports the Chief Executive in managing

RBSs businesses. It reviews and debates
relevant items before consideration by the
Board. It is responsible for determining and
delivering RBSs strategy and it monitors
and manages financial performance,
capital allocations, risk strategy and policy,
risk management, operational issues and
customer issues.
The Sustainable Banking Committee report is

UK Corporate Governance Code

Throughout the year ended 31 December
2014, RBS has complied with all of the
provisions of the UK Corporate Governance
Code issued by the Financial Reporting
Council dated September 2012 except in
relation to provision (D.2.2) that the Group
Performance and Remuneration Committee
should have delegated responsibility for
setting remuneration for the Chairman and
executive directors. RBS considers that this is
a matter which should rightly be reserved for
the Board.
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36
Risk overview
Capital developments
RBS continued to make good progress in
reducing risk and strengthening its capital
position. The Common Equity Tier 1 (CET1)
ratio improved by 260 basis points to 11.2%
and the leverage ratio by 80 basis points to
4.2%.
The key factors were:
RCR disposals and run-off in 2014 which
led to a reduction in funded assets of 14
billion and in risk-weighted asset equivalent
of 38 billion (58% of the RCR start point).
RCR was established with effect from
1 January 2014 to remove risk from the
balance sheet, reduce volatile outcomes
in stressed environments and to accelerate
the release of capital over a three year
period.
A 40 billion reduction in CIBs riskweighted assets (RWAs), including an
orderly run-down of US asset-backed
product business.
Disposal of 9 billion of legacy availablefor-sale securities, thereby reducing
stressed capital and RWAs.
Despite these and other risk reduction
measures, RBSs capital position was close to
thresholds under adverse stress scenarios, as
evidenced by the European Banking Authority
(EBA) and Bank of England (BoE) stress test

results published in the second half of 2014:
EBA: 2016 CET1 ratio (based on 2013
accounts) under the modelled EBA
adverse scenario was 5.7%, marginally
above the minimum requirement of 5.5%.
BoE: CET1 ratio under the hypothetical
BoE adverse scenario was 4.6% at the
end of 2016, slightly above the 4.5% poststress minimum ratio threshold set by the
BoE. After taking account of management
actions, the adjusted ratio was 5.2%.
Other risk developments
Conduct, regulatory, litigation and
reputational risk: RBS continued to be
affected by conduct issues. Litigation and
conduct costs, including those relating
to Payment Protection Insurance, Interest
Rate Hedging Products, London Interbank
Offered Rate (LIBOR), US mortgage
securitisations and foreign exchange
trading, have exceeded 9 billion since
2011 and continued to demand significant
amount of management attention.
Operational risk: RBSs ongoing
transformation is complex and wideranging, affecting all business areas
and functions. In 2014, a new functional
operating model was implemented to

embed standardisation and consistency
of approach to the management of
operational risk. Significant investments
were made to improve technology
resilience for core banking services. In
addition, enhancements were made to
cyber security programmes.
Liquidity: A strong liquidity position was
maintained, with a liquidity portfolio of
151 billion at the end of 2014 covering
short-term and total wholesale funding by
factors of over five and 1.5 respectively.
Liquidity coverage ratio was 112% and the
net stable funding ratio was 121% at the
end of 2014.
Credit risk: 2014 saw a net release of
1.2 billion of impairment provisions,
principally in RCR and Ulster Bank
reflecting sustained improvements in
economic and asset market conditions
in the UK and Ireland. RBS continued to
reduce its risk concentrations, notably
in commercial real estate and eurozone
periphery countries. RBS still has
substantial credit risk exposures with
credit risk RWAs of 295 billion compared
with 357 billion at the end of 2013, a
17% reduction.
Risk overview
Market risk: RBSs traded market risk

profile decreased significantly, with
market risk limits being reduced across
all businesses. Average trading VaR
decreasing to 27.8 million, 35% of the
2013 average. Market risk RWAs also
decreased by 6.3 billion to 24 billion.
Country risk: RBS maintained a cautious
stance as many clients continued to reduce
debt levels. Total eurozone periphery net
balance sheet exposure decreased by
10 billion or 25% to 31 billion. Total
exposure to Greece was 0.4 billion but
only 120 million after taking into account
collateral and guarantees.
Pension risk: The triennial actuarial funding
valuation of the main scheme, agreed in
May 2014, showed the value of liabilities
exceeded the value of assets by
5.6 billion at 31 March 2013, a ratio of
assets to liabilities of 82%. To eliminate this
deficit, RBS has agreed to pay additional
contributions: 650 million from 2014 to
2016 and 450 million (indexed for inflation)
from 2017 to 2023. These contributions are
in addition to regular annual contributions
of around 270 million.
Top and emerging risk scenarios
A number of top and emerging risk scenarios
attracted particular attention.
Macro-economic and other external risks
Risks related to the macro-economy:
A number of scenarios could have a
significant negative impact on RBSs
revenues and impairments, including a
recession in the UK or any of the other
major markets in which RBS operates,
large falls in UK or Irish property prices,
oil prices, a resumption of the eurozone
crisis, global deflation or major geopolitical
instability. To mitigate these risks, capital,
liquidity and leverage ratios have been
strengthened, and some higher risk and
capital intensive portfolios have been
exited.
An increase in obligations to support
pension schemes: If economic growth
stagnates, and interest rates remain low,
the value of pension scheme assets may
not be adequate to fund the pension
schemes liabilities. The deficit in RBS
pension schemes as determined by
the most recent triennial valuations has
increased, requiring RBS to increase its
current and future cash contributions to the
schemes as noted above. Depending on
the economic and monetary conditions and
longevity of scheme members prevailing
at that time, the deficit may rise further at

the next valuation in 2016. To limit pension
risk, defined benefit pension schemes have
been closed to new members since 2006
and terms for existing members have been
altered in recent years.
The impact of the 2015 UK general election
on performance and strategy: Ahead of the
upcoming UK election in May 2015, there
is uncertainty around how the policies of
a newly elected government may affect
RBS. The implementation of new policies
could significantly affect the operating
employment environment and the fiscal,
monetary, legal and regulatory landscape.
Conduct, litigation and reputational risk
Risks to income, costs and business
models arising from regulatory
requirements: RBS is exposed to the
risk of further increases in regulatory
capital requirements as well as risks
related to new regulations that could
affect its business models. Regulatory
intervention may result from a competition
review of the personal current account
and small business banking markets;
the ring-fencing proposals from the
Independent Commission on Banking or
failure to implement the Basel Committee
on Banking Supervisions Risk Data
Aggregation and Reporting principles. RBS
considers the implications of proposed
or potential regulatory requirements in its
strategic and financial plans.
The impacts of past business conduct:
Future conduct and litigation charges
could be substantial. RBS is involved
in ongoing class action litigation,
securitisation and mortgage-backed
securities related litigation, investigations
into foreign exchange trading and ratesetting activities, continuing LIBOR related
litigation and investigations, anti-money
laundering, sanctions, mis-selling and
compliance related investigations as well
as a number of other matters. Settlements
in relation to foreign exchange may result
in additional financial, non-monetary
penalties and collateral consequences,
which may be material. RBS is embarking
on a programme to embed a strong and
comprehensive risk and compliance
culture.
Risk related to RBSs operations
Impact of Cyber attacks: Cyber attacks
are increasing in frequency and severity
across the industry. RBS has participated
in industry-wide cyber attack simulations
in order to help test and develop defence
planning. To mitigate the risks, a largescale programme to improve user access

controls is in place. Action has also been
taken to reduce the number of external
websites and tighten management of them,
to strengthen anti-virus protections, and to
continue the staff education programme on
information protection.
Failure of information technology systems:
RBSs information technology systems
may be subject to failure. As such
systems are complex, recovering from
failure is challenging. To mitigate these
risks, a major investment programme has
significantly improved the resilience of the
systems and more benefits are expected.
Back-up system sustainability has
improved, and a shadow bank system,
to provide basic services, if needed, has
been created.
Increased losses arising from a failure to
execute major projects successfully: The
successful execution of major projects,
including the transformation plan, the
recently announced restructuring of
CIB and the divestment of Williams
& Glyn, is essential to meet RBSs
strategic objectives. These projects
cover organisational structure, business
strategy, information technology systems,
operational processes and product
offerings. RBS is working to implement
change in line with its project plans while
assessing the risks to implementation and
taking steps to mitigate those risks where
possible.
Inability to recruit or retain suitable staff:
RBS is going through a period of strategic
and organisational change, leading to the
need to implement new business strategies
to respond to a changing external
environment. Strong competition for staff
from peers, the impact of remuneration
regulations, and the implications of the new
Bank of England Senior Managers Regime
may contribute to this risk.
A full description of the principal risks facing
RBS is set out on pages 474 to 492.
For further
information
see pages
168 - 334
37
38
Our ambition is to shape the
communities we serve in a positive
way. We recognise that we still have
a long way to go to achieve this
position across our business.
Sustainability is therefore not just
about the many responsibilities and
obligations that RBS has, but about
taking leadership on a broad range
of issues that are important to our
stakeholders.
Ross McEwan, Chief Executive
Sustainability
Sustainability at RBS means building trust
through long term thinking that focuses on our
customers and supporting the communities
in which they live. We are committed to
being open and transparent regarding the
challenges faced by our business, so all our
stakeholders can see what we are doing to
become a more sustainable bank. You can
read more about the issues raised here, as
well as about our wider sustainability agenda,
at rbs.com/sustainable.
Governance
The sustainability programme at RBS is built
on a robust governance framework that
provides direction to our sustainability
priorities. The Sustainable Banking Committee
is a Group Board Committee and membership
comprises three independent non-executive
directors. The Committee is chaired by
independent non-executive director
Penny Hughes and attended by senior
representatives from the customer-facing
businesses as well as Human Resources,
Sustainability, Risk, Conduct and Regulatory
Affairs, Communications and Marketing,
Corporate Services and Strategy. The
Chairman of the Board also regularly attends
meetings. The work of the Committee is

essential to ensuring that our approach to
issues is managed effectively and debated
at the appropriate level.
The Sustainable Banking Committee has
overseen a number of important developments
within RBS since it was established in 2010. In
2014 the strategic direction of the Committee
was refocused under the themes of bank-wide
reputation and trust, Serving Customers and
Sustainability/Emerging Issues. For more
information see the report of the Committee
Chairman on pages 71 and 72.
Stakeholder engagement
Operating in a sustainable manner is about
managing our business in a way that takes
account of the impact of our activities on
our stakeholders. As such, we work with a
number of stakeholder groups to understand
their views of our organisation, and this helps
shape the way we do business. As a large
company we have many stakeholders and we
engage with them in a variety of ways, from
focus groups to meetings to online forums.
These interactions inform decision making
and ultimately improve RBS.
As part of our wider stakeholder engagement
programme, the Sustainable Banking
Committee runs its own programme of

structured stakeholder engagement sessions.
In 2014, the Committee took part in six of
these stakeholder sessions which act as open
forums where advocacy groups and experts
can discuss key areas of concern with the
most senior decision-makers in RBS.
We will continue to host these sessions to
ensure that we understand our stakeholders
priorities. For more information see the report
of the Committee Chairman on pages 71
and 72.
External commitments
RBS is a signatory to a number of voluntary
sustainability commitments and standards.
We understand that implementing
commitments is an ongoing process, and we
are continuously working to integrate these
into how we run our business.
We are a member of the Equator Principle (EP)
Association Steering Committee. The EPs are
a voluntary set of standards adopted by banks
for determining, assessing and managing
social and environmental responsibilities in
project financing and project related corporate
loans. We will not provide project finance
where the borrower will not, or cannot, comply
with these principles of socially responsible
investment.
Sustainability
Environmental impact table

Assessment Parameters
Baseline year
2011
Consolidation approach
Operational control
Boundary summary
All entities and facilities either owned or under operational control
Emission factor data source
DEFRA (2014), US Environmental Protection Agency eGRID (9th edition)
Assessment methodology
The Greenhouse Gas Protocol revised edition (2004)
Materiality threshold
Materiality was set at group level at 5%
Intensity ratio
Emissions per full time employee (FTE)
Independent assurance
Limited assurance provided by Deloitte LLP over 2014 Scope 1*, 2** and 3 GHG emissions.
GHG Emissions
2011
2012
2013
2014
Change
2011 to 2014
(%)
Total Scope 1 CO2e emissions (tonnes)
61,114
63,809
61,758
52,277
-14%
Change
2013 vs
2014 (%)
-15%
Total Scope 2 CO e emissions (tonnes)
576,422
509,572
451,476
437,152
-24%
-3%
Total Scope 1 & Scope 2 CO2e emissions (tonnes)
637,536
573,381
513,234
489,429
-23%
-5%
Total Scope 1 & Scope 2 CO2e emissions per FTE (tonnes)
4.7
4.5
4.2
4.5
-5%
8%
Scope 3 CO2e emissions from business travel (tonnes)
141,254
94,993
132,307
97,791
-31%
-26%
2,447
9,611
4,758
4,710
93%
-1%
Emissions of ozone-depleting gases

Emissions of ozone-depleting gases (tonnes)
Incidents
Total number of environment incidents, fines and
legal non-compliance
Note on data: Reported figures for previous years have changed in some instances. These changes are due to calculation methodology changes in line with carbon
management best practice and emission factor changes as recommended by the GHG protocol.
* Scope 1: Emissions from fluorinated gas loss and fuel combustion in RBS
premises/vehicles
We are also on the Steering Committee of the

UK United Nations Global Compact (UNGC)
network. The UNGC is the leading platform for
the development, implementation and
disclosure of responsible policies and
practices in the areas of: human rights, labour,
environment and anti-corruption.
Each year RBS receives ratings for its
environmental and social performance by
external indices. RBS has been included in
the Dow Jones Sustainability World Index
(DJSI) every year since its launch in 1999,
maintaining our best ever score of 82 for a
second year in 2014. The DJSI ranks
companies corporate sustainability
performance, based on analysis of economic,
environmental and social issues like corporate
governance, risk management, branding and
climate change.
CDP is an independent, investor-driven
organisation which facilitates the
measurement and disclosure of greenhouse
gas emissions for 2,500 organisations in over
60 countries. In 2014, RBS received a
disclosure score of 98% and a performance
score B.
The FTSE4Good Index Series measures
the performance of companies that meet
globally recognised corporate responsibility
** Scope 2: Emissions from electricity, district heating

and district cooling used in RBS premises
standards. RBS has been included in

the FTSE4Good since it was launched
11 years ago.
Transparency and disclosure
At RBS, we have a long way to go to rebuild
trust after everything that the company has
been through. We are taking a very deliberate
approach to be as open as possible about our
business, including on-going challenges as
well as progress. We were therefore particularly
pleased in 2014 to have been ranked as
the leading UK company in Transparency
Internationals report on transparency in
corporate reporting. In this Strategic Report we
present data on our GHG emissions, diversity
and our approach to human rights. More
sustainability data is contained in our latest
Sustainability Report and online at rbs.com/
sustainable.
Managing our impact on the environment
We aim to be recognised as a leader
among large global financial institutions in
managing our own environmental impacts and
developing financial services that support
sustainable development.
The activities of RBS and those of our clients
can present a number of Environmental,
Social and Ethical (ESE) risks and it is our
responsibility to manage these risks. We have
a robust ESE policy framework, with sector

specific policies relating to high risk sectors
including oil and gas, mining and metals and
forestry. Data on client assessments against
these policies is included in the main RBS
Sustainability Report.
Progress also continues on reducing the
environmental impacts of our operations.
Data to the end of 2014 showed we had
achieved our 2011-2014 targets for energy
(15% reduction), water (12% reduction) and
waste (10% reduction). However we had not
yet met our objective of diverting 70% of our
waste away from landfill. New 2020 targets are
to be announced in the forthcoming 2014 RBS
Sustainability Report.
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40
RBS in the Community

We run a number of targeted programmes focussed on providing support to the communities
where we operate. In addition to this, we have a well established employee volunteering and giving
programme in RBS. As well as supporting local causes in our areas of operation and topping up
employee fundraising, we also support volunteering during work time.
Diversity at RBS
The banks ambition is to be number one for
customer service, trust and advocacy in every
one of our chosen business areas, supported
by a people commitment to make RBS a great
place to work. Valuing difference is therefore
essential for our customers and colleagues.
Our inclusion policy standard applies to all our
people globally; and our strategy for diversity
and inclusion sits with the RBS Board and
Executive Committee.
Our approach during 2014/15 focuses
on building inclusion into all stages of the
employee lifecycle. In 2014 we started rolling
out bank-wide unconscious bias learning for
all employees, which will continue across
2015. Weve introduced a gender target to
increase the number of women in senior roles
across the bank. And we continue to support
our employee-led networks, with membership
across the bank at over 15,000 people.
This year RBS has been recognised for its
work on Equality, Diversity and Inclusion
by retaining our Platinum ranking from
Opportunity Now (gender) for the second
year; increasing our ranking from Silver to
Gold for Race for Opportunity (race); retaining
a position in the Times Top 50 Employers for
Women for the eighth consecutive year; and
improving upon our ranking in the Stonewall
Workplace Equality Index (LGBT).
As at 31 December 2014, of our global

population of 110,027 employees, 50,816
(46%) were male and 59,211 (54%) female.
There were 762 senior managers, which
comprises our executive employee population
and individuals who are directors of our
subsidiaries, of whom 637 (84%) were male
and 125 (16%) female. The RBS Board of
directors has ten members, consisting of
seven male and three female directors.
Our approach to Human Rights
RBS recognises our corporate responsibility
to respect and uphold human rights. We
regularly review our policies and procedures
to ensure that we avoid infringing on the
human rights of others throughout our sphere
of influence. We also participated in projects
with our peers through the Thun Group and
UNEP FI to better understand and implement
the human rights responsibilities of banks
as defined by the UN Guiding Principles on
Business and Human Rights.
We have adopted and contributed to a number
of internationally accepted codes, notably
the Equator Principles and the UN Global
Compact, which specifically address the
management of human rights issues.
The RBS Code of Conduct Our Code sets
out the standards we expect our people to
work to, including a clear commitment to
respecting human rights. We conduct regular

consultations with employees on key aspects
of their working environment, and operate
a confidential helpline facility that allows
employees to discuss any matter of concern
with regards to their wellbeing.
Our Sustainable Procurement Code sets out
our expectations of the companies that we
work with. It clearly states that our suppliers
should not engage in breaches of human
rights or labour rights, or in discrimination.
We are also committed to equal opportunities
for suppliers, and we recognise that diversity
strengthens our supply chain.
Our ESE Risk policies include sector-specific
human rights risk screenings and are
regularly reviewed and updated to ensure
best practice. We conduct due diligence on
clients relating to human rights standards, and
expect our clients to share our commitment
to respecting human rights within their
operations. In all sectors, we will not provide
financial services to companies involved in
harmful child labour or forced labour. In 2014,
we continued to strengthen human rights due
diligence in our ESE policies as well as public
disclosure on the details of these policies.
They can be seen at rbs.com/sustainable.
Sustainability
Partnership Case Study
Accelerate for growth

Over the next two years well be building on our
successful partnership with Entrepreneurial Spark
and increasing our support for entrepreneurs.
Were backing eight new business accelerator
hubs in locations like Birmingham, Bristol, Cardiff,
Leeds, Manchester and Belfast. Each hub will offer
workspace, hands-on mentoring, start-up boot camps
and a free 18 month programme including advice,
support and funding clinics.
The hubs will have physical work spaces for up to 80
entrepreneurs and host two intakes each year, with
a graduation event bringing together entrepreneurs,
investors and business advisors at the end of each
programme. Entrepreneurs from any sector will be
able to join the hub, creating valuable network building
opportunities. Each business will also have the
opportunity to pitch to potential investors and apply for
growth awards of up to 50,000.
The aim is to help ambitious entrepreneurs take their
businesses to the next level, supporting them to create
jobs and growth, boosting the UK economy.
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Governance report
43
45
46
50
55
57
62
69
71
73
90
94
96
102
Letter from the Chairman

Our governance structure
Our Board
Corporate governance
Report of the Group Nominations Committee
Report of the Group Audit Committee
Report of the Board Risk Committee
Report of the RBS Capital Resolution (RCR) Board Oversight Committee
Report of the Sustainable Banking Committee
Directors remuneration report
Other remuneration disclosures
Compliance report
Report of the directors
Statement of directors responsibilities
42
Dear Shareholder,
I am pleased to introduce our Corporate Governance report for the 2014
financial year which outlines the role our Board and Committees have
had in shaping and refining the strategic ambition for the business, and
providing oversight and challenge.
The Group Audit Committee has monitored the quality of RBSs financial
statements and has supported the Board in making its assessment that
the Annual Report and Accounts, taken as a whole, are fair, balanced
and understandable, in accordance with the UK Corporate Governance
Code. The Committee has also exercised close oversight of the
effectiveness of the RBSs control environment, placing particular focus
on the remediation of culture and controls in the former Markets division.
Together with the Board Risk Committee, the Group Audit Committee will
examine managements plans to embed an effective three lines of
defence model within the new organisational construct. During 2014, the
Group Audit Committee also spent additional time overseeing the tender
process for selection of the external auditor for the year commencing 1
January 2016.
In April 2014, we entered into an agreement with Her Majestys Treasury

to provide for the future retirement of the Dividend Access Share (DAS).
Among other benefits, the retirement of the DAS will in future allow the
Board to state more clearly a dividend policy to investors.
The Board Risk Committee welcomed Baroness Noakes as its new

Chairman in April 2014. During the year, it has played a key role in the
oversight of execution risk arising from RBSs strategic agenda, most
notably the Transformation Programme, and will continue to do so in
2015. The Committee has monitored developments in the internal and
regulatory investigations of our activities in foreign exchange markets,
including the resulting disciplinary and accountability process. It has
also overseen the remediation activity following the IT incident in 2012.
The Board Risk Committee has considered the capital and liquidity
position of RBS and related regulatory submissions and dedicated
significant additional time to the consideration of internal and external
stress testing exercises.
In September, we launched the initial public offering (IPO) of our US

subsidiary Citizens Financial Group, Inc. (CFG) which represents a
significant step towards improving our capital position and helping us
create a strong and secure bank that can continue to support the needs
of our customers.
As announced previously, Penny Hughes stood down as Chairman of the

Group Performance and Remuneration Committee and Sandy Crombie
stood down as Chairman of the Sustainable Banking Committee. I would
like to thank Penny and Sandy for their outstanding commitment and
dedication whilst chairing these Committees.
Conduct and regulatory investigations have also been a key area of focus
and our 2014 results reflect the huge cost of dealing with these issues.
The announcements made in November 2014 in relation to settlements
with certain regulators regarding misconduct in foreign exchange trading
were a stark reminder of the importance of culture and integrity in
banking. The Board will continue to drive cultural change and it is
essential that our governance and risk frameworks continue to evolve to
support this.
The Group Performance and Remuneration Committee welcomed Sandy

as its new Chairman. The Committee has played a vital role in ensuring
that our remuneration policy is fair and transparent and supports the work
to rebuild a successful and trusted RBS. During 2014 the Committee had
oversight of the implementation of a limit of variable pay to no more than
100% of fixed pay and the use of deferral and malus, to deliver fair
remuneration outcomes.
Board and Committee activity during 2014 continued to be extremely

busy, focused on the delivery of the strategic plan announced in February
2014.
Systems, controls and resilience were also considered regularly by the

Board, particularly in light of the regulatory investigations in relation to the
2012 IT incident which were settled in November 2014. By the end of
2015 we will have invested an additional 750 million in enhancing

the security and resilience of our IT systems and many
improvements have already been implemented.
Board Committees
Board Committees continued to play a crucial role in our governance
framework during 2014, undertaking their complex work comprehensively
and effectively supporting the work of the Board.
Penny became the new Chairman of the Sustainable Banking Committee

and refocused its strategic direction on three core themes - Bank-wide
Reputation and Trust, Serving Customers and Sustainability/Emerging
issues. The Sustainable Banking Committee has overseen the values
and conduct work in relation to behavioural and cultural issues and the
development of Environmental, Social and Ethical policies, while
continuing its commitment to stakeholder engagement.
The RBS Capital Resolution (RCR) Board Oversight Committee chaired
by Baroness Noakes since 1 April 2014 was established to oversee the
separation and wind-down of RBSs high capital intensive assets and has
implemented a governance structure and delegated authorities for RCR.
The RCR Board Oversight Committee has considered RCRs financial
performance, risk reporting, delivery against targets and asset
management principles and certain remuneration matters.
43
Board changes
There were a number of changes to the Boards composition during
2014.
Ewen Stevenson took over as Chief Financial Officer in May 2014 when
Nathan Bostock left RBS. Ewen has extensive experience of working with
both governments and boards on the steps needed to restore confidence
in financial institutions following the crisis; and his skills and experience
have already been of great benefit to the Board.
Two of our non-executive directors also retired from the Board in 2014.
Tony Di Iorio stood down in March 2014, having served on the Board
since September 2011. Tony made an excellent contribution to the
Board and, in particular, the Board Risk Committee and Group Audit
Committee, and he left with our best wishes for the future. Tony remains
a director of CFG in the US.
Philip Scott stood down in October 2014 having served on the Board
since 2009. I would like to record my thanks to Philip for his outstanding
commitment to the Board having served four years as Chairman of the
Board Risk Committee during a period of enormous change.
In April 2014, we welcomed Morten Friis as a new non-executive director
and a member of the Board Risk Committee and Group Audit Committee.
Morten brings a wealth of experience of the financial services industry
and has an especially strong background in risk. This is already evident
in the contributions he is making to the Board and the committees he sits
on.
On 25 February 2015 the Board approved the appointment of Howard
Davies as a non-executive director with effect from the end of June 2015
and as Chairman from 1 September 2015.
Board effectiveness
This year, we conducted an internal evaluation of the effectiveness of the
Board and its committees, led by the Chief Governance Officer and
Board Counsel. The evaluation has concluded that the Board is operating
effectively but has identified some areas of improvement that we will
focus on during 2015.
The Board also received support from the Chief Governance Officer and
Board Counsel in a number of other areas related to board effectiveness
such as the Prudential Regulation Authoritys review of Board
effectiveness, Board process, information flows and operating rhythm
between the Board and committees, professional development and
induction for new directors.
Our statement of compliance with the UK Corporate Governance Code
(the Code) is set out on page 94.
Finally, as we reflect on another challenging year, I would like to conclude
this letter by recording my sincere thanks towards my fellow Board
members. Being a director of RBS requires extensive time and
commitment, and the readiness to deal with the unusual challenges of a
government controlled listed company. I remain extremely grateful for
their continued support and dedication in working towards the recovery of
RBS.
As announced previously I will be leaving RBS on 31 August 2015.
Howard Davies will join the Board at the end of June and will assume the
role of Chairman with effect from 1 September 2015. It has been a
privilege to serve as Chairman of RBS since 2009 and it is with sadness
that I will leave the Board, but I am confident that the Board will continue
to work with dedication to implement our strategy under the new
Chairman.
Philip Hampton
Chairman of the Board of directors
25 February 2015
44
Our governance structure
Board and Board committee structure
The Board
The Board is collectively responsible for the long-term success of RBS
and delivery of sustainable shareholder value. Its role is to provide
leadership of RBS within a framework of prudent and effective controls
which enables risks to be assessed and managed.
Assists the Board in discharging its responsibilities for monitoring the
quality of the financial statements of RBS. It reviews the accounting
policies, financial reporting and regulatory compliance practices of RBS
and RBSs system and standards of internal controls, and monitors
RBSs processes for internal audit and external audit.
Provides oversight and advice to the Board on current and potential
future risk exposures of RBS and future risk strategy. It reviews RBSs
compliance with approved risk appetite and oversees the operation of
RBS Policy Framework and submissions to regulators.
Group Performance and Remuneration Committee
Responsible for approving remuneration policy and reviewing the
effectiveness of its implementation. It also considers senior executive
remuneration and makes recommendations to the Board on the
remuneration of executive directors.

Assists the Board in the selection and appointment of directors. It reviews
the structure, size and composition of the Board, and membership and
chairmanship of Board committees.
Responsible for overseeing and challenging how management is
addressing sustainable banking and reputation issues, considering the
long term interests of all stakeholder groups.
Executive Committee
Supports the Chief Executive in managing RBSs businesses. It reviews
and debates relevant items before consideration by the Board. It is
responsible for determining and delivering RBSs strategy, and it monitors
and manages financial performance, capital allocations, risk strategy and
policy, risk management, operational issues and customer issues.
RCR Board Oversight Committee
Provides oversight of RCRs progress against, and compliance with, its
primary objective and asset management principles.
45
Our Board
Chairman
Philip Hampton (age 61)
Date of appointment: 19 January 2009 (Board)
3 February 2009 (Chairman)
Experience: Previously chairman of J Sainsbury plc and
group finance director at Lloyds TSB Group, BT Group
plc, BG Group plc, British Gas and British Steel plc, an
executive director of Lazards and a non-executive
director of RMC Group plc and Belgacom SA. He is also
a former chairman of UK Financial Investments Limited,
which manages the UK Governments shareholdings in
banks.
External appointment(s):
Senior Independent director of Anglo
American plc, chairman of its
Remuneration Committee and member of
the Audit Committee
Non-executive director, chairman of the
Nominations Committee and chairman
designate of GlaxoSmithKline plc
Committee membership(s)
Group Nominations Committee (Chairman)
Executive directors
Chief Executive
Ross McEwan (age 57)

Date of appointment: 1 October 2013
None
Experience: He became Chief Executive of The Royal

Executive Committee (Chairman)
Bank of Scotland Group in October 2013.
Between August 2012 and September 2013, he was
Chief Executive Officer for UK Retail, joining from
Commonwealth Bank of Australia where he was Group
Executive for Retail Banking Services for five years. Prior
to this he was Executive General Manager with
responsibility for the branch network, contact centres and
third party mortgage brokers.
Ross has more than 25 years experience in the finance,
insurance and investment industries, and prior to
Commonwealth Bank of Australia, was Managing
Director of First NZ Capital Securities. He was also Chief
Executive of National Mutual Life Association of
Australasia Ltd / AXA New Zealand Ltd. He has an MBA
from Harvard.
Chief Financial Officer
Ewen Stevenson (age 48)

Date of appointment: 19 May 2014.
None
Experience: Previously at Credit Suisse for 25 years

where he was latterly co-Head of the EMEA Investment
Banking Division and co-Head of the Global Financial
Institutions Group. Ewen has over 20 years of
experience advising the banking sector while at Credit
Suisse. He has a Bachelor of Commerce and
Administration majoring in Accountancy and a Bachelor
of Law from Victoria University of Wellington, New
Zealand.
Executive Committee
46
Our Board
Independent non-executive directors

Sandy Crombie (age 66)
Date of appointment: 1 June 2009
(Senior Independent Director)
Member and vice-chairman of the Board of
Governors of The Royal Conservatoire of
Scotland
President of the Cockburn Association
Experience: Previously group chief executive of

Standard Life plc and Chairman of Creative Scotland. He
was also previously a director of the Association of
Committee membership(s):
British Insurers and Chairman of the Edinburgh World
Group Performance and Remuneration
City of Literature Trust. In 2007 he was the Prince of
Committee (Chairman)
Wales Ambassador for Corporate Social Responsibility
in Scotland.
Alison Davis (age 53)
Date of appointment: 1 August 2011
Non-executive director and member of the
audit and compensation committees of
Experience: Previously, she served as a director of City
Unisys Corporation
Non-executive director, chair of the
National Bank and First Data Corporation and as chair of
the board of LECG Corporation. She has also worked at
compensation committee and member of
the audit committee of Diamond Foods Inc.
McKinsey & Company, AT Kearney, as Chief Financial
Non-executive director, and member of the
Officer at Barclays Global Investors (now BlackRock)
and as managing partner of Belvedere Capital, a private
audit committee of Fiserv Inc
Non-executive director, Ooma Inc
equity firm focused on buy-outs in the financial services
sector.
Committee
Morten Friis (age 62)
Date of appointment: 10 April 2014
Member of the Board of Directors of The
Canadian Institute for Advanced Research
Member of the Board of Directors of the
Harvard Business School Club of Toronto
Experience: He has 34 years financial services

experience and has previously held various roles at
Royal Bank of Canada and its subsidiaries including
Associate Director at Orion Royal Bank, Vice President, Committee membership(s):
Business Banking and Vice President, Financial
Institutions. In 1997, he was appointed as Senior Vice
President, Group Risk Management and served as the
Chief Credit Officer then Chief Risk Officer from 2004 to
2014. He was also previously a Director of RBC Bank
(USA), Westbury Life Insurance Company, RBC Life
Insurance Company and of RBC Dexia Investor Services
Trust Company.
47
Our Board

Robert Gillespie (age 59)
Date of appointment: 2 December 2013
Independent Board Director at Ashurst
LLP
Experience: Began his career with Price Waterhouse
Chairman of Council at the University of
(now PricewaterhouseCoopers) where he qualified as a
Durham
Chairman of the Somerset House Trust
chartered accountant. He then moved into banking
joining SG Warburg, specialising in corporate finance,
Chairman of the Boat Race Company
and was appointed as Co-Head and Managing Director
Limited
Director of Social Finance Limited
of its US investment banking business in 1989. Following
the acquisition in 1995 of Warburg by Swiss Bank
Corporation (which subsequently merged with UBS), he Committee membership(s):
then held the roles of Head of UK Corporate Finance,
Head of European Corporate Finance and Co-Head of its
global business and CEO of the EMEA region. He
Committee
relinquished his management roles at the end of 2005,
and was appointed Vice Chairman of UBS Investment
Bank. Robert left UBS to join Evercore Partners, from
where he was seconded to the UK Panel on Takeovers
and Mergers, as Director General, from 2010 to 2013.
He is a non-executive director of Citizens Financial
Group, Inc.
Penny Hughes, CBE (age 55)
Date of appointment: 1 January 2010
Non-executive director, chair of the
corporate compliance and responsibility
committee and member of the audit,
Experience: Previously a director and chairman of the
nomination and remuneration committees
Remuneration Committee of Skandinaviska Enskilda
Banken AB and a non-executive director of Home Retail
of Wm Morrison Supermarkets plc
Group plc and chairman of its Remuneration Committee.
Trustee of the British Museum
She spent the majority of her executive career at CocaCola where she held a number of leadership positions,
latterly as President, Coca-Cola Great Britain and
Ireland. Former non-executive directorships include
(Chairman)
Vodafone Group plc, Reuters Group PLC, Cable &
Wireless Worldwide plc and The Gap Inc.
Brendan Nelson (age 65)
Date of appointment: 1 April 2010
Experience: Former global chairman, financial services
for KPMG. Previously held senior leadership roles within
KPMG including as a member of the KPMG UK board
from 1999 to 2006 and as vice-chairman from 2006.
Chairman of the Audit Committee of the Institute of
Chartered Accountants of Scotland from 2005 to 2008.
President of the Institute of Chartered Accountants of
Scotland 2013/14.
Non-executive director and chairman of
the audit committee of BP plc
Member of the Financial Reporting Review
Panel
Group Audit Committee (Chairman)
48
Our Board

Baroness Noakes, DBE (age 65)
Date of appointment: 1 August 2011
Experience: An experienced director on UK listed
company boards with extensive and varied political and
public sector experience. A qualified chartered
accountant, she previously headed KPMGs European
and International Government practices and has been
President of the Institute of Chartered Accountants in
England and Wales. She was appointed to the House of
Lords in 2000 and has served on the Conservative front
bench in various roles including as shadow treasury
minister between 2003 and May 2010. Previously held
non-executive roles on the Court of the Bank of England,
Hanson, ICI, Severn Trent, Carpetright, John Laing and
SThree.
Aileen Taylor (age 42)
Date of appointment: 1 May 2010
(Company Secretary)
Deputy chairman, Ofcom
Board Risk Committee (Chairman)
(Chairman)
She is a fellow of the Chartered Institute of

Bankers in Scotland and a member of the
European Corporate Governance Council.
Experience: A qualified solicitor, joined RBS in 2000.

She was appointed Deputy Group Secretary and Head of
Group Secretariat in 2007, and prior to that held various
legal, secretariat and risk roles including Head of
External Risk, Retail, Head of Regulatory Risk, Retail
Direct and Head of Legal and Compliance at Direct Line
Financial Services.
Executive Committee
The Board is supported by the Executive Committee comprising the executive directors and other senior executives. Details of the composition of the
Executive Committee and biographies of its members can be found at www.rbs.com>about us>corporate governance>ceo and board>executive
committee
49
The Board
The Board has ten directors comprising the Chairman, two executive
directors and seven independent non-executive directors, one of whom is
the Senior Independent Director.
Name
Position
Nationality
Philip Hampton
Ross McEwan
Ewen Stevenson
Chairman
Chief Executive
Sandy Crombie
Alison Davis
Morten Friis
Robert Gillespie
Penny Hughes
Brendan Nelson
Baroness Noakes
Senior Independent Director

Independent non-executive director
British
New Zealand
British/
New Zealand
British
British/USA
Norwegian
British
British
British
British
Biographies for each director and details of which Board committees they
are members of can be found on pages 46 to 49. The Board considers
that the Chairman was independent on appointment and that all nonexecutive directors are independent for the purposes of the Code.
Board Changes
Non-executive directors Tony Di Iorio and Philip Scott stepped down from
the Board on 26 March 2014 and 31 October 2014 respectively. Nathan
Bostock stepped down from the Board on 28 May 2014. RBS has
announced that Philip Hampton will step down from the Board during
2015.
Morten Friis was appointed as a non-executive director on 10 April 2014.
Ewen Stevenson was appointed as an executive director and Chief
Financial Officer on 19 May 2014.
Davies as non-executive director with effect from the end of June 2015
and as Chairman from 1 September 2015.
Roles and responsibilities
The Board
The Board is collectively responsible for the long-term success of RBS
and delivery of sustainable shareholder value. The Boards terms of
reference include key aspects of RBSs affairs reserved for the Boards
decision and are reviewed at least annually. The terms of reference are
available on rbs.com>about us.
Chairman
The role of Chairman is distinct and separate from that of the Chief
Executive and there is a clear division of responsibilities with the
Chairman leading the Board and the Chief Executive managing RBSs
business day to day.
The Chairmans key responsibilities are to:

provide strong and effective leadership to the Board;
ensure the Board is structured effectively and observes the highest

standards of integrity and corporate governance;
manage the business of the Board and set the agenda, style and
tone of Board discussions to promote effective decision-making and
constructive debate;
facilitate the effective contribution and encourage active

engagement by all members of the Board;
in conjunction with the Chief Executive and Chief Governance

Officer and Board Counsel, ensure that members of the Board
receive accurate, timely and clear information, to enable the Board
to lead RBS, take sound decisions and monitor effectively the
performance of executive management;
ensure that the performance of individual directors and of the Board

as a whole and its committees is evaluated regularly; and
ensure RBS maintains effective communication with shareholders

and other stakeholders.
Chief Executive
The Chief Executive has responsibility for all of RBSs business and acts
in accordance with the authority delegated by the Board.
The Chief Executives key responsibilities are to:
exercise executive responsibility for RBSs franchises and functions;
define, drive and deliver the overall strategic direction approved by

the Board;
drive and deliver performance against the RBSs financial plans and
budget acting in accordance with authority delegated by the Board;
consult regularly with the Chairman and Board on matters which

may have a material impact on RBS;
act as a guardian and champion of the culture and values of RBS,

creating an environment where employees are engaged and
committed to good customer outcomes;
lead the senior executive team and ensure there are clear
accountabilities for managing RBSs business and managing risk;
and
in conjunction with the Chairman and Chief Governance Officer and

Board Counsel, ensure the Board receives accurate, timely and
clear information.
50

Sandy Crombie, as Senior Independent Director, acts as a sounding
board for the Chairman and as an intermediary for other directors when
necessary. He is also available to shareholders to discuss any concerns
they may have, as appropriate.
facilitating good information flows between Board members and the

Board and its committees; and
leading on implementation of recommendations from the annual

Board evaluation.
Along with the Chairman and executive directors, the non-executive
directors are responsible for ensuring the Board fulfils its responsibilities
under its terms of reference. The non-executive directors combine broad
business and commercial experience with independent and objective
judgement and they provide independent challenge to the executive
directors and the leadership team. The balance between non-executive
and executive directors enables the Board to provide clear and effective
leadership across RBSs business activities.
Conflicts of interests
The company has procedures in place to ensure that the Boards powers
for authorising actual or potential conflicts of interest are operating
effectively. On appointment, each director is provided with RBSs
guidelines for referring conflicts of interest to the Board. Each director is
required to notify any actual or potential conflicts of interest to the Board
for consideration and to update the Board on an ongoing basis when he
or she becomes aware of any changes.
The standard terms and conditions of appointment of non-executive

directors are available on rbs.com or from RBS Corporate Governance
and Secretariat.
Board Committees
In order to provide effective oversight and leadership, the Board has
established a number of Board committees with particular responsibilities.
Please see the corporate governance structure on page 45 for more
details. The work of the Board committees are also discussed in their
individual reports as follows:
Group Nominations Committee - pages 55 and 56.
Group Audit Committee - pages 57 to 61.
Board Risk Committee - pages 62 to 68.
RCR Board Oversight Committee pages 69 and 70.
Sustainable Banking Committee - pages 71 and 72.
Group Performance and Remuneration Committee - pages 73 to 93.
The terms of reference for each of these committees is available on
rbs.com and copies are also available on request from RBS Corporate
Governance and Secretariat.
Aileen Taylor is the Chief Governance Officer and Board Counsel and is
also the Company Secretary. Reporting directly to both the Chairman and
the Chief Executive, she is responsible for delivering commercial
corporate governance advice and support to the Board. She acts as a
trusted advisor in the effective functioning of the Board, ensuring
appropriate alignment and information flows between the Board and its
committees, including the Executive Committee. As Board Counsel, she
is responsible for the provision of legal advice to the Board. Her
responsibilities include: -
advising on Board skills and composition including induction,

ongoing training and professional development;
executive responsibility for Chairman/non-executive Director search

and appointment process;
leading on all aspects of corporate governance across RBS;
The Board considers each directors notification separately on the facts

and can impose conditions or limitations as part of the authorisation
process. Actual and potential conflicts of interest can be authorised by
the Board in accordance with the companys Articles of Association.
Details of all conflicts of interest are recorded in a register which is
maintained by the Chief Governance Officer and Board Counsel and
reviewed annually by the Board.
Board meetings
In 2014, nine Board meetings were scheduled and individual attendance
by directors at these meetings is shown in the table below. One of the
Board meetings took place overseas during the Boards visit to RBSs US
businesses.
In addition to the nine scheduled meetings, 34 additional meetings of the
Board and committees of the Board were held, including meetings to
consider and approve financial statements. The Chairman and the nonexecutive directors meet at least once per year without executive
directors present.
Attended/
scheduled
Philip Hampton
Ross McEwan
Ewen Stevenson (1)
Sandy Crombie
Alison Davis
Morten Friis (2)
Robert Gillespie
Penny Hughes
Brendan Nelson
Baroness Noakes (3)
9/9
9/9
6/6
9/9
9/9
6/6
9/9
9/9
9/9
8/9
Former directors
Nathan Bostock (4)
Tony Di lorio (5)
Philip Scott (6)
4/4
3/3
6/7
Notes:
(1) Appointed to the Board on 19 May 2014.
(2) Appointed to the Board on 10 April 2014.
(3) Missed one meeting due to family bereavement.
(4) Stepped down from the Board on 28 May 2014.
(5) Stepped down from the Board on 26 March 2014.
(6) Stepped down from the Board 31 October 2014.
51
Principal activities of the Board during 2014

In advance of each Board meeting, the directors are provided with
comprehensive papers. During 2014 there has been an enhanced focus
on implementation of the new organisational design, building of capital
and developing resilient systems. These have been recurring themes
underpinning Board discussions during the year. An overview of the
principal activities of the Board during 2014 is shown below.
Franchise Chief Executives attend each Board meeting to provide an

update on the performance of their businesses. Other relevant senior
executives including the Chief Risk Officer, the Chief Regulatory Affairs
Officer and the Chief Administration Officer attend Board meetings to
present reports to the Board as appropriate. This provides the Board with
an opportunity to engage directly with management on key issues and
supports the Boards succession planning activity.
Each meeting
Chairmans report
Risk report (including updates
Chief Executives report
on conduct matters)
Monthly results
Reports from Committee
Chairmen
Capital, funding & liquidity
Franchise updates
Secretarys report (routine
RCR update
matters for approval/noting)
Transformation programme
1st Quarter
2nd Quarter
Budget
Q1 results
Remuneration proposals
Resolution planning
Annual results and AGM
Board strategy offsite

notice
AGM preparations
Board & Committee
Dividend Access Share

evaluations
Retirement Agreement
Internal Audit evaluation
Citizens IPO
External Auditor evaluation
Stress testing
Dividend Access Share
Internal Capital Adequacy

Retirement agreement
Assessment Process
Board session with Andrew
Scottish independence
Tyrie, Treasury Select
considerations
Committee
RBS contingency funding

plan
Global Restructuring Group

deep dive
Capital plan
considerations
3rd Quarter
4th Quarter
Interim results
Q3 results
High net worth review
ICB update
CIB strategy review

contingency planning
High net worth review

Individual Liquidity Adequacy Succession planning session
Assessment
IT resilience exercise
2014 recovery plan
Ulster Bank strategic review

PRA Board effectiveness
Political risk 2015

review
Technology update
Board session with PRA
Board session with FCA
Board session with UKFI
ICB updates
CIB strategy review
RBS entrepreneurial
programme
Citizens IPO
Board evaluation update
Board effectiveness
Skills and experience on the Board
The Board is structured to ensure that the directors provide RBS with the
appropriate balance of skills, experience and knowledge as well as
independence. Given the nature of the RBSs businesses, experience of
banking and financial services is clearly of benefit, and we have a
number of directors with substantial experience in that area, but the
Board also benefits from directors with experience in other fields.
The table below illustrates the breadth of skills and experience on the
Board.
Retail Banking
Other Financial Services
Markets/Investment Banking
Utilities
Government & Public Sector
Mergers & Acquisitions
Corporate Restructuring
Stakeholder Management
Chief Executive
Finance & Accountancy
Risk
Technology/Digital
Operations
Change Management
Consumer Facing
Board committees also comprise directors with a variety of skills and

experience so that no undue reliance is placed on any individual.
Induction and professional development
Each new director receives a formal induction on joining the Board, which
is co-ordinated by the Chief Governance Officer and Board Counsel. This
includes visits to RBSs major businesses and function and meetings with
directors and senior management. Meetings with the external auditors
and external counsel are also arranged. Each induction programme has a
core element that the director is required to complete with the remainder
of the programme tailored to the new directors specific requirements. An
example of an induction programme for a new non-executive director is
set out below:
Chairman
Chief Executive
Board committee Chairs
Chief Governance Officer and Board
Counsel
Chief Risk Officer
Chief Conduct & Regulatory Affairs Officer
RBS Treasurer
RBS Chief Legal Officer and General
Counsel
External Auditor
External Counsel
Franchise Chief Executives

Business visits (UK and
overseas)
Finance
Risk
Internal Audit
Tax
Human Resources
Investor Relations
Strategy & Corporate
Development
Communications and
Marketing
Institutional Investors
52
The Chief Governance Officer and Board Counsel advises directors of

appropriate external training and professional development opportunities
and internal training is also provided which is relevant to the business of
RBS. Business visits are also arranged as part of the Group Audit
Committee and Board Risk Committee schedule (details of which can be
found on pages 58 and 64) and all non-executive directors are invited to
attend. Directors undertake the training they consider necessary to assist
them in carrying out their duties and responsibilities as directors.
During 2014, the directors received updates on a range of subjects to
enhance their knowledge, including:
ICB/Ring-fencing
The Senior Persons Regime
The revised UK Corporate Governance Code
CRD IV Directorship Limits and Subsidiary Compliance
Shareholder Rights Directive
Banking Standards Review Council
PRA Consultation on proposed changes to the Remuneration Code
EU Market Abuse Regulations and impact on RBS
Listing Rule changes
Department of Business, Innovation and Skills Proposals on
Transparency and Trust
Election and re-election of directors

In accordance with the provisions of the Code, all directors of the
company are required to stand for election or re-election annually by
shareholders at the companys Annual General Meeting and in
accordance with the UK Listing Rules, the election or re-election of
independent directors requires approval by all shareholders and also by
independent shareholders.
Performance evaluation
In accordance with the Code, an external evaluation of the Board takes
place every three years. An internal evaluation takes place in the
intervening years.
The 2012 evaluation was conducted externally by a specialist board
evaluation consultancy. The 2013 evaluation was conducted internally by
the Chief Governance Officer and Board Counsel and a number of
initiatives were implemented aimed at improving the overall performance
and effectiveness of the Board. These included keeping Board and
committee composition under review; ensuring sufficient time on Board
agendas for Board oversight of key strategic areas; a review of risk
reporting and a focus on regular contact with external stakeholders.
These topics have been appropriately addressed and will be kept under
regular review as a matter of good practice.
The Chief Governance Officer and Board Counsel maintains continuing

professional development logs. These are reviewed regularly with
directors to assist in identifying future training and development
opportunities that are specific to the individual directors requirements.
In 2014, the Board and committee evaluation process was conducted

internally by the Chief Governance Officer and Board Counsel. A
comprehensive review of the Boards effectiveness was also carried out
by the Prudential Regulation Authority during 2014.
Information
All directors receive accurate, timely and clear information on all relevant
matters and have access to the advice and services of the Chief
Governance Officer and Board Counsel. In addition, all directors are able,
if necessary, to obtain independent professional advice at the companys
expense.
Performance evaluation process

The Chief Governance Officer and Board Counsel undertook a formal
evaluation by:
preparing surveys that were completed by each director and holding

interviews with each director;
Time commitment
There is an anticipated time commitment in line with the
recommendations of the Walker Review in respect of general Board
duties and additional time as necessary in respect of committee duties.
However, as stated in the Chairmans introductory letter to his Corporate
governance report, the time commitment currently required of our nonexecutive directors is significant. Each director is required to seek the
agreement of the Chairman before accepting additional commitments that
might affect the time the director is able to devote to his or her role as a
non-executive director of RBS. Directors have also been briefed on the
limits on the number of other directorships that they can hold under the
requirements of fourth Capital Requirements Directive (CRD IV). The
Board monitors the other commitments of the Chairman and directors
and is satisfied that they are able to allocate sufficient time to enable
them to discharge their duties and responsibilities effectively.
discussing the outcomes and recommendations with the Chairman;

and
recommending the outcomes and areas for improvement to the

Board.
Amongst the areas reviewed were Board composition, Board meetings

and processes, information quality and flows, external relationships and
priorities for 2015.
53
Outcomes of the 2014 performance evaluation

The 2014 performance evaluation concluded that the Board was strong
and operated effectively and within its terms of reference throughout
2014. Key strengths identified included:
the Board performed strongly during a challenging 2014,

demonstrating alignment with RBS values;
the dynamic between Board members was good and on the whole
members worked well together, creating effective challenge, debate
and oversight; and
Shareholders are given the opportunity to ask questions at the Annual

General Meeting and any General Meetings held or can submit written
questions in advance. The Senior Independent Director and the chairmen
of the Board committees are available to answer questions at the Annual
General Meeting.
Communication with the company's largest institutional shareholders is
undertaken as part of the Investor Relations programme:
the Chief Executive and Chief Financial Officer meet regularly with
UKFI, the organisation set up to manage the Governments
investments in financial institutions, to discuss the strategy and
financial performance of the business. The Chief Executive and
Chief Financial Officer also undertake an extensive annual
programme of meetings with the companys largest institutional
shareholders.
the Chairman independently meets with RBSs largest institutional

shareholders annually to hear their feedback on management,
strategy, business performance and corporate governance.
Additionally, the Chairman, Senior Independent Director and
chairmen of the Board committees met with the governance
representatives of a number of institutional shareholders during the
year.
the Senior Independent Director is available if any shareholder has

concerns that they feel are not being addressed through the normal
channels.
the Chairman of the Group Performance and Remuneration

Committee consults extensively with major shareholders in respect
of the Groups remuneration policy.
the Boards committees operated effectively within their terms of

reference throughout the year providing strong support to the Board.
A summary of the key themes arising from the 2014 performance

evaluation is set out below, together with an overview of the proposed
actions:
Key themes included
Proposed action
Board and Board

committee
composition
Keep Board and Board committee composition

under review during 2015, to ensure balance of
skills, experience, independence, knowledge and
diversity remains appropriate.
Succession planning Ensure that an effective succession planning

process is in place at Board and Executive level.
Board and Committee Ensure that Board and Committee agendas for
agendas
2015 minimise duplication and allow effective
oversight of key areas of strategic focus, sufficient
time for debate and focus on the RBS priorities,
particularly the customer.
Information
Continue to improve and enhance the information

presented to the Board and Committees.
Professional
development
Enhance the professional development

programme provided to Board members.
Individual director and Chairman effectiveness reviews

The Chairman met with each director individually to discuss their own
performance and ongoing professional development and also shared
peer feedback that had been provided as part of the evaluation process.
Separately, the Senior Independent Director sought feedback on the
Chairmans performance and canvassed views on the Chairmans
performance from the non-executive directors collectively. The results of
the Chairmans effectiveness review were then discussed by the
Chairman and the Senior Independent Director.
Relations with investors
The Chairman is responsible for ensuring effective communication with
shareholders. The company communicates with shareholders through the
Annual Report and Accounts and by providing information in advance of
the Annual General Meeting. Individual shareholders can raise matters
relating to their shareholdings and the business of RBS at any time
throughout the year by letter, telephone or email via rbs.com/ir.
In 2014, RBS continued its programme of UK-based events aimed at

individual shareholders. These events provided an opportunity for
shareholders to meet with directors and senior management to learn
more about the business.
Throughout the year, the Chairman, Chief Executive, Chief Financial
Officer and Chairman of the Group Performance and Remuneration
Committee communicate shareholder feedback to the Board. The
directors also receive independent analyst notes and reports reviewing
share price movements and performance against the sector. Detailed
market and shareholder feedback is provided to the Board after major
public announcements such as a results release. The arrangements in
place are to ensure that directors develop an understanding of the views
of major shareholders and that these are considered as part of the annual
Board evaluation.
The Investor Relations programme also includes communications aimed
specifically at its fixed income (debt) investors. The Chief Financial
Officer and/or the RBS Treasurer give regular presentations to fixed
income investors to discuss strategy and financial performance. There is
also a separate section on the RBS website for fixed income investors
which includes information on credit ratings, securitisation programmes
and securities documentation. Further information is available at
rbs.com/ir.
54
Attended/
scheduled
Dear Shareholder,
As Chairman of the Board and Chairman of the Group Nominations
Committee I am pleased to present our report on the committee's activity
during 2014.
Role and responsibilities
The Group Nominations Committee engages with external consultants,
considers potential candidates and recommends appointments of new
directors to the Board. The terms of reference of the Group Nominations
Committee are reviewed annually and approved by the Board and are
available at rbs.com.
Principal activity during 2014
The Committee continues to monitor succession planning on an ongoing
basis taking into account business requirements and industry
developments. In 2014, discussions principally focussed on the Chairman
search and the search for new non-executive directors. The Board held a
separate session on succession planning in September 2014, covering
the Executive Committee and an update on RBSs People Strategy.
Membership and meetings
All non-executive directors are members of the Group Nominations
Committee which is chaired by the Chairman of the Board. The RBS
Chief Executive and the Chief Financial Officer are invited to attend
meetings.
The Group Nominations Committee holds at least two scheduled
meetings per year, and also meets on an ad hoc basis as required. In
2014, there were four scheduled Group Nominations Committee
meetings, which I chaired, and individual attendance by directors at these
meetings is shown in the table below. In addition a number of ad hoc
meetings were held to discuss Chairman succession.
Philip Hampton (Chairman)

Sandy Crombie
Alison Davis
Morten Friis (1)
Robert Gillespie
Penny Hughes
Brendan Nelson
Baroness Noakes
4/4
4/4
4/4
4/4
4/4
4/4
4/4
4/4
Former members
Tony Di lorio (2)
Philip Scott (3)
3/4
Notes:
(1) Appointed to the Committee on 10 April 2014.
(3) Stepped down from the Board on 31 October 2014.
Chairman search
In September 2014, it was announced that I would step down as
Chairman in 2015. The search for my successor commenced
immediately. In line with the Code, I did not chair the Nominations
Committee meetings in relation to these discussions.
Egon Zehnder International (EZ) has been engaged to support the search
process for the new Chairman. EZ does not provide services to any other
part of the RBS. A job specification has been prepared, which includes an
assessment of the time commitment expected. The Committee has held
a number of discussions on potential candidates (internal and external)
and engaged with RBSs key stakeholders to seek their views on
candidates. On 25 February the Board approved the appointment of
Howard Davies as a non-executive director with effect from the end of
June and as Chairman from 1 September 2015.
Consideration of new non-executive directors
EZ has continued to support the search for new non-executive directors
during 2014 following the departure of Art Ryan, Tony Di Iorio and Philip
Scott and to support the future Board succession planning. The search
for potential candidates is continuing.
55
Tenure of non-executive directors

The chart below sets out the tenure of non-executive directors.
The chart below details the gender diversity of the Board.
Female
0-2 years
2-4 years
Male
4+ years
Board and Committee membership

Board and Committee membership was reviewed in 2014 and the
following Committee membership changes were made:
Robert Gillespie was appointed a member of the Board Risk

Committee, Group Performance and Remuneration Committee and
Sustainable Banking Committee with effect from 1 April 2014;
Baroness Noakes was appointed Chairman of the Board Risk

Committee and RCR Board Oversight Committee with effect from 1
April 2014;
Morten Friis was appointed a member of the Board Risk Committee

and Group Audit Committee with effect from 10 April 2014;
Sandy Crombie was appointed Chairman of the Group Performance

and Remuneration Committee with effect from 25 June 2014; and
Penny Hughes was appointed Chairman of the Sustainable Banking

Committee with effect from 25 June 2014.
In accordance with the recommendations contained within Lord Davies

report, the Board operates a boardroom diversity policy and a copy of the
Boards diversity statement is available on rbs.com>about us.
RBS understands the importance of diversity and, with regard to gender
diversity, recognises the importance of women having greater
representation at key decision making points in organisations. The search
for Board candidates will continue to be conducted, and
nominations/appointments made, with due regard to the benefits of
diversity on the Board, however, all appointments to the Board are
ultimately based on merit, measured against objective criteria, and the
skills and experience the individual can bring to the Board.
The balance of skills, experience, independence, knowledge and diversity
on the Board, and how the Board operates together as a unit is reviewed
annually as part of the Board evaluation. Where appropriate, findings
from the evaluation will be considered in the search, nomination and
appointment process. If appropriate, additional targets on diversity will be
developed in due course.
Further details on RBSs approach to diversity can be found on page 98.
Boardroom diversity
The Board remains supportive of Lord Davies recommendations and
currently exceeds the target of 25 per cent female board representation
as set out in Lord Davies report.
Philip Hampton
Chairman of the Group Nominations Committee
25 February 2015
56
Letter from Brendan Nelson,

Chairman of the Group Audit Committee
Dear Shareholder,
There have been a number of changes to the membership of the Audit
Committee during 2014. I would like to begin by welcoming Sandy
Crombie and Morten Friis, who joined the Committee in April 2014. Both
bring a wealth of experience across finance, risk and control matters and
have already made valuable contributions to the work of the Committee.
I would also like to extend my gratitude to Tony Di Iorio and Philip Scott
who stood down as members of the Board and Committee in March and
October 2014, respectively. The Committee also welcomed Ewen
Stevenson to RBS, who succeeded Nathan Bostock as Chief Financial
Officer.
The key priority of the Audit Committee during 2014 has been to monitor
the integrity of RBSs financial statements, focusing in particular on the
quality and transparency of disclosure, and to support the ongoing
strengthening of the internal control environment.
Owing to favourable credit conditions and the delivery of the early cost
saving benefits from RBSs Transformation Programme, RBS
experienced better than anticipated operating performance during the
year. The Audit Committee supported the Board in its decision to release
trading statements ahead of the half year and Q3 reporting periods.
Throughout the reporting period, through discussion and deliberation with
Management, the Committee satisfied itself that the key accounting
decisions, risks and significant management judgements that underlie the
financial statements were appropriate. The Committee reviewed the
conclusions of the External Auditor and, where applicable, other experts
and concluded that disclosures in the financial statements about these
judgements and estimates were transparent and appropriate. A more
detailed account of the most material issues considered by the
Committee is set out in the report below.
The Audit Committee also focused on the effectiveness of internal
controls. In 2014, RBS embarked on its journey of transformation to a
simpler and more efficient organisation. While the Transformation
Programme will ultimately bring long term benefits, the scale of change is
not to be underestimated and the Audit Committee has monitored the
short term impact on RBSs control environment.
The Committee continued to oversee the Markets Control Remediation

Programme (MCRP) during the year. It is anticipated that all aspects of
this programme will have been successfully delivered within 2015.
However, there remains further work to be done within the business to
improve controls and to drive cultural change. A wider programme of
cultural and control remediation across the former Markets division has
commenced in 2015.
An effective three lines of defence model is critical to the success of
cultural change and strengthening internal controls across the
organisation. The model has been developed further during 2014; it is
now more clearly articulated and principles based. However, while the
process of embedding the three lines of defence within the new
organisational construct has begun, more work is required and this needs
to remain a priority for RBS in 2015. In conjunction with the Board Risk
Committee, the Audit Committee will exercise oversight of progress.
One of the most significant pieces of work for the Audit Committee during
2014 was the tender process to select an external auditor from the year
commencing 1 January 2016. Following a competitive tender process,
the Committee recommended to the Board that Ernst & Young LLP (EY)
be appointed. A transition period will commence during 2015 to ensure
EY are familiar with RBSs internal processes. Deloitte will continue as
RBSs external auditor throughout 2015, and I would like to take this
opportunity to formally thank the firm and its partners for its work as
auditor of RBS and its subsidiaries over the last 14 years. While the
tender process and the transitional period inevitably have involved and
will continue to involve considerable work, I firmly believe that the
appointment of EY will ensure that RBS continues to receive the highest
quality advice and external audit services.
EY also carried out an external review of the effectiveness of Internal
Audit. The review compared Internal Audits current audit policies,
procedures and practices to the applicable regulatory and industry
standards. The Committee were pleased to note that notwithstanding the
level of change within the organisation, Internal Audit has made progress
in key areas identified within its strategic plan, including enhancing its
role, people and audit processes. The review also highlighted future
areas of focus for the function, including a continued focus on retention
and recruitment of skilled personnel and identification of opportunities to
increase further the efficiency and effectiveness of audit processes.
Action plans are in place to address all detailed findings and will be
tracked to closure.
The oversight role and specific business of the Committee in these and
other related areas are explained in more detail in the Committees full
report.
As Chairman of the Audit Committee, I reported after each meeting to the
Board on the principal matters discussed to ensure all directors were
informed of the Committees work. 2014 has been another challenging
year for the Committee. However, I believe that the balance of skills and
experience amongst the members has enabled the Committee to strike
the correct balance between independent oversight and challenge and
support to management. I would like to thank my fellow members for their
contribution to the effective Committee performance in 2014.
Brendan Nelson
25 February 2015
57

Meetings and visits
A total of seven scheduled meetings of the Audit Committee were held in
2014, including meetings held immediately before the annual and interim
financial statements and the quarterly interim management statements
were considered by the Board. The Committee also held six ad hoc
meetings. Meetings are attended by relevant executive directors, the
Internal and External Auditors and Finance, Legal and Risk Management
executives. Other executives, subject matter experts and external
advisers are also invited to attend, as required, to present and advise on
reports commissioned by the Committee. At least twice a year the Audit
Committee meets privately with the External Auditors and separately with
Internal Audit management.
During 2014 members of the Group Audit Committee, in conjunction with
members of the Board Risk Committee, took part in an annual
programme of visits to businesses and control functions in order to gain a
closer understanding of the risks and control issues they face. This value
adding programme included visits to Commercial and Private Banking;
Corporate and Institutional Banking; Technology Services; Finance; Risk
Management and Conduct & Regulatory Affairs (twice); Internal Audit
(twice).
Membership of the Group Audit Committee
The Group Audit Committee comprises four independent non-executive
directors. The Chairman and members of the Committee, together with
their attendance at scheduled meetings, are shown below.
Attended/
scheduled
Brendan Nelson (Chairman)

Sandy Crombie (1)
Morten Friis (2)
Baroness Noakes
7/7
4/4
4/4
7/7
Former members
Tony Di Iorio (3)
Philip Scott (4)
3/3
5/6
Notes:
(1) Became a member of the Committee on 1 April 2014.
(2) Became a member of the Committee on 10 April 2014.
Brendan Nelson, Morten Friis and Baroness Noakes are also members of
the Board Risk Committee. Philip Scott was also a member of the Board
Risk Committee until he stood down from the Board. Sandy Crombie is
Chairman of the Group Performance and Remuneration Committee. This
common membership helps facilitate effective governance across all
finance and risk issues; ensures that compensation decisions reflect
relevant finance and risk considerations; and that agendas are aligned
and overlap of responsibilities is avoided where possible.
The Board is satisfied that all Audit Committee members have recent and
relevant financial experience and that each member of the Group Audit
Committee is independent as defined in the SEC rules under the US
Securities Exchange Act of 1934 (the Exchange Act) and related
guidance. The Board has further determined that Brendan Nelson,
Committee Chairman, and Baroness Noakes are both financial experts
for the purposes of compliance with the Exchange Act Rules and the
requirements of the New York Stock Exchange. Philip Scott was also
deemed to be a financial expert for the same purposes, throughout his
tenure as a Committee member. Full biographical details of the
Committee members are set out on pages 46 to 49.
An evaluation of the Group Audit Committees operation was conducted
internally in 2014. Overall the review concluded that the Audit Committee
continued to operate effectively. The Committee has considered and
discussed the outcomes of the evaluation and is satisfied with the way in
which they have been conducted, the conclusions and the
recommendations to be taken forward. The evaluation praised the wellrun manner of the Committee and the positive dynamic between
members. The allocation of business to the Committee was considered to
be appropriate, although it was acknowledged it was a heavy agenda.
Recommendations for improvements focused on quality and volume of
papers provided to the Committee. This will be addressed via a bankwide programme to refresh the paper format and guidelines for
submission to senior Committees and Boards.
The outcomes of the evaluation have been reported to the Board and the
Committee will track progress during 2015.
In addition, the PRA undertook a review of the effectiveness of the Board
and its senior committees throughout 2014, including the Group Audit
Committee. The outcomes of this evaluation will be reported to the Board
in due course and recommendations will be progressed as appropriate.
The role and responsibilities of the Group Audit Committee
The Group Audit Committees primary responsibilities are set out in its
terms of reference which are reviewed annually by the Committee and
approved by the Board. These terms of reference are available on the
RBS website www.rbs.com.
Allocation of Group Audit Committee agenda time
The members of the Audit Committee are selected with a view to the
expertise and experience of the Committee as a whole and with proper
regard for the key issues and challenges facing RBS.
58
Financial reporting and policy

The Audit Committee focused on a number of salient judgements and
reporting issues in the preparation of the 2014 accounts. In particular, the
Committee considered:
The evidence (including in relation to RBSs capital, liquidity and

funding position) to support the directors going concern conclusion.
Further information is set out on page 99;
The adequacy of loan impairment provisions, focusing particularly

on the judgements and methodology applied to provisions in RCR,
given the exit strategy for the business and sensitivity to market
conditions. The Committee was satisfied that the overall loan
impairment provisions and underlying assumptions and
methodologies were reasonable and applied consistently;
Valuation methodologies and assumptions for financial instruments

carried at fair value including RBSs credit market exposures and
own liabilities assessed at fair value;
The appropriateness of the carrying value of goodwill and other

intangible assets. Particular consideration was given to the
classification of Citizens Financial Group (CFG) in light of the Initial
Public Offering (IPO) and planned disposal. Following discussion it
was agreed that CFG should be re-classified as a disposal group
and as a discontinued operation;
The judgements that had been made by management in assessing

the recoverability of deferred tax assets, bearing in mind RBSs
simplification agenda and the potential impact of ICB and ringfencing;
Valuation of the Groups main defined benefit pension scheme. The

Committee considered the assumptions that had been set in valuing
the fund and the sensitivities of those assumptions.
The methodology and assumptions underlying the level of provision

held and/or the appropriateness of required disclosure in relation to:
redress, specifically in relation to Payment Protection Insurance

and Interest Rate Hedging Products;
ongoing regulatory and litigation actions: including foreign

exchange trading; retail mortgage backed securities litigation in
the US; and UK shareholder actions.
Following review, the Committee was satisfied that overall the level
of provision held is appropriate and that disclosure is balanced and
transparent;
the assessment by management of the adequacy and effectiveness

of internal controls over financial reporting which had identified
deficiencies in the banks privileged user access controls within
Technology Services. The Committee monitored remediation
progress and received regular reports on actions undertaken by the
business to address the weaknesses. The Committee has received
assurances that the majority of significant items have been closed
and that the issue did not lead to the identification of any errors in
the financial statements;
the quality and transparency of disclosures contained within the

external financial statements.
As part of its overall assessment of the Annual Report and Accounts, the
Committee assisted the Board in determining that the Annual Report and
Accounts taken as a whole was fair, balanced and understandable,
providing the information necessary for shareholders to assess the
companys performance, business model and strategy. A comprehensive
review process supports both the Audit Committee and ultimately the
Board in reaching their conclusion:
The production of the Annual Report and Accounts is co-ordinated

centrally by the Financial Controller with guidance on requirements
being provided to individual contributors;
The Annual Report and Accounts is reviewed by the Executive

Disclosure Committee prior to consideration by the Audit
Committee; and
A management certification process requires members of the

Executive Committee and other senior executives to provide
confirmation following their review of the Annual Report and
Accounts that they consider them to be fair, balanced and
understandable.
This process is also undertaken in respect of the half year and quarterly
results announcements. In addition, the External Auditor considers the
Boards statement as part of its audit requirements.
Systems of internal control
Remediation of known control issues has remained a focus of the
Committee during 2014. As noted in the letter from the Committee
Chairman, on behalf of the Board the Committee has continued to
oversee the Control Remediation Programmes within the Markets
division (MCRP) and has challenged management on the prioritisation of
issues, delivery of remediation, quality assurance and contingency plans.
The Committee received reports from Risk Management and Internal
Audit and commissioned independent assurance that: the remediation
programmes were progressing in accordance with plan; issues were
being remediated to industry standard; and internal reporting accurately
reflected progress. It is anticipated that MCRP will conclude, with
delivery of all necessary actions completed, during the first part of 2015.
Notwithstanding the progress achieved in MCRP, the Committee
remained concerned about the lack of improvement to the Markets
control environment rating, regarding regulatory concerns around the
lack of cultural shift and in light of the foreign exchange trading issues.
The Committee invited management to report on improvements to the
business and to provide assurances that the business was addressing
the risks in an appropriate and sound manner. A larger project will begin
in 2015 which will encompass specific remediation issues and wider
cultural change. This will be closely monitored by the Board Risk
Committee and Group Audit Committee in 2015.
59
Key to the success of the remediation programme will be an effective

three lines of defence model. In conjunction with the Board Risk
Committee, this has been a primary area of focus for the Audit
Committee during 2014. The Committee supported managements
proposals to transition the policy to be more principles-based. The
governance of the model has been simplified and streamlined. However,
further work is required to ensure the revised model is fully embedded
and operating effectively in practice. As such, the Committee has
requested a clear articulation of end-state and a plan to reach that goal
which will be closely monitored during 2015. In addition, the Committee
has agreed that each business will report on progress at Committee visits
in 2015.
Regular updates on RBSs credit quality assurance testing were received
by the Committee. These reports highlighted certain weaknesses within
the wealth credit business and the Committee requested that
management report on action being taken to address these issues.
Root causes of the weaknesses have been identified and remediation
programmes have been established to address the underlying issues.
The Committee will review closely plans and progress during 2015.
Bi-annual reports were also noted in relation to RBS notifiable event
process and alerts on each major event are received by the Chairman of
the Committee and the Chairman of the Board Risk Committee.
The Finance and Risk System Transformation (FiRST) was kept under
the review of the Committee in 2014. A strategic review of the
programmes aims, progress and deliverables was undertaken by
management in light of the new RBS model. A proposal was presented to
the Committee under which the programme scope will now be more
streamlined with a narrower set of priorities, which should enable
delivery. External independent assurances on the suitability of the
revised plan were provided. Progress will be monitored closely by the
Committee in 2015.
During 2014 the Committee has received reports on the ongoing work of
the Sensitive Investigations Unit. It was also updated on the
whistleblowing arrangements RBS has in place for employees to raise
concerns and received reports on incidents reported and investigated.
This is an important tool for employees to raise issues and to identify
improper behaviours. The Committee considered the enhancements
made to the process during the year and also discussed the output of an
Internal Audit review.
In line with the Committees terms of reference, consideration was given
to managements processes for identifying and responding to the risk of
fraud.
As discussed in the report of the Board Risk Committee (set out on page
62 to 68), the effectiveness of the Divisional Risk and Audit Committees
was considered in 2013. In response to management feedback,
consideration was given to alternative mechanisms that could more
effectively provide a line of sight into business risk and audit issues. A
revised construct of standardised Business Risk Committees, chaired by
business Chief Executives, was created and implemented in 2014, with
responsibility for the consideration of all risk issues. These Committees
also consider finance and audit issues on a quarterly basis and provide
reports to the Board Risk Committee and Audit Committee. A review of
effectiveness of the Committees will be undertaken in 2015.
The Committee has considered RBSs compliance with the requirements
of the Sarbanes-Oxley Act of 2002, and is satisfied in this respect.
Internal audit
The Committee received regular reports and opinions from Internal Audit
throughout 2014. The audit universe was refreshed during the year to
remain aligned with the evolving shape of the bank as the Transformation
Programme progressed. This will continue in 2015. Audit officers are
working closely with the businesses to ensure the work undertaken is
appropriate in both the short and longer term.
The Committee received regular updates on the progress of
implementation of Internal Audits strategic plan. It also considered and
approved Internal Audits annual plan for 2014 and monitored progress
against it during the year. Consideration was also given to resourcing
levels and the impact of the Transformation Programme and other
changes taking place across RBS. During two visits to Internal Audit in
2014, the Committee reviewed external co-sourcing arrangements and
recruitment strategies aimed at ensuring any capability gaps were
appropriately addressed. Significant progress has been made and the
benefits are being observed across the function. Overall the Committee
is satisfied that the function is appropriately resourced.
The reporting arrangements for the Chief Audit Executive have remained
unchanged in 2014: the role continues to report to the Chairman of the
Audit Committee, with a secondary reporting line to the Chief Executive
for administrative purposes. The Chief Audit Executive exercises his right
of attendance at Executive Committee meetings, and Internal Audit
officers regularly attend relevant business-level meetings as appropriate.
The annual review of the effectiveness of Internal Audit was undertaken
externally in 2014. Following a competitive tender process, EY was
appointed to perform this. Their report concluded that Internal Audit had
operated effectively during the year. Certain recommendations were
made to enhance particular practices within the function. These will be
implemented during 2015, with progress tracked by the Committee.
60
Oversight of the Banks relationship with its regulators

As set out in the terms of reference, the Committee has a responsibility
to monitor the relationship with the Financial Conduct Authority (FCA)
and the Prudential Regulation Authority (PRA) and other relevant
regulatory bodies.
Regular reports were received by the Committee on the status of ongoing
regulatory investigations. Any significant developments in the relationship
with the regulators were noted by the Committee. The Committee
members met, individually and together with other Board members, with
the PRA and the FCA during the year as part of their regular interaction
with the regulator.
The Committee also tracked progress in relation to mandatory and
remedial projects and challenged the management of individual business
areas and functions on the ability to meet regulatory expectations,
responsibilities and the level of resource required to do so.
External audit
During 2014, the External Auditor provided the Group Audit Committee
with reports summarising its main observations and conclusions arising
from the year end audit, half year review and work in connection with the
first and third quarter financial results and any recommendations for
enhancements to RBSs reporting and controls. The External Auditor also
presented for approval to the Committee its audit plan and audit fee
proposal and engagement letter, as well as confirmation of its
independence and a comprehensive report of all non-audit fees.
The Audit Committee undertakes an annual evaluation to assess the
independence and objectivity of the External Auditor and the
effectiveness of the audit process, taking into consideration relevant
professional and regulatory requirements. The evaluation sought the
views of Committee members and attendees and other key members of
management. In assessing the effectiveness of the External Auditor, the
Audit Committee had regard to the experience of the audit engagement
team; the scope of the audit work planned and executed; standards of
communication and reporting; quality of insights on the internal control
environment; and independence.
The Audit Committee is responsible for making recommendations to the
Board in relation to the appointment, re-appointment and removal of the
External Auditors. In order to make a recommendation to the Board, the
Audit Committee considers and discusses the performance of the
External Auditor, taking account of the outcomes of the annual evaluation
carried out. The Board submits the Audit Committee's recommendations
to shareholders for their approval at the Annual General Meeting.
The Audit Committee approves the terms of engagement of the External
Auditor and also fixes their remuneration as authorised by shareholders
at the Annual General Meeting.
A competitive tender was undertaken in 2014 to select an auditor for the

audit of RBS and its subsidiaries in 2016 (and future periods). Following
this, and due consideration by the Audit Committee and the Board, EY
was chosen. A transition period will take place in 2015, during which EY
will reach a point of independence from RBS and will begin to shadow
the audit process to ensure it is well informed to commence as the
External Auditor in 2016.
Audit and non-audit services
The Audit Committee has adopted a policy on the engagement of the
External Auditor to supply audit and non-audit services, which takes into
account relevant legislation regarding the provision of such services by
an external audit firm. The Committee reviews the policy annually and
prospectively approves the provision of audit services and certain nonaudit services by the External Auditor.
For all other permitted non-audit services, Group Audit Committee
approval must be sought in advance, on a case-by-case basis. A
competitive tender process is required for all proposed non-audit services
engagements where the fees are expected to exceed 100,000.
Engagements below 100,000 may be approved by the Chairman of the
Group Audit Committee; as an additional governance control all
engagements have to be approved by the Financial Controller and
Supply Chain Services. Where the engagement is tax related, approval
must also be obtained from the Director of RBS Tax. Ad hoc approvals of
non-audit services are ratified by the Group Audit Committee each
quarter. During 2014, the External Auditor was approved to undertake
certain significant engagements which are explained more fully below:
Assurance testing in relation to RBSs 2013 Sustainability Report.

The External Auditor was selected given its significant experience in
specialist sustainability reporting. An improved fee was also
negotiated.
Provision of a compliance report required to comply with an
amendment by the SEC to certain broker-dealer annual reporting
requirements. Standard industry practice is for the External Auditor
to be appointed to perform this work.
Provision of advice and assistance to RBS Capital Resolution in
formulating deleveraging strategies and transaction preparation.
Data gathering, due diligence and information assessment was also
undertaken. Following a review of all advisors in this area, Deloitte
was selected in recognition of the teams position as one of the
leaders in the European loan portfolio sale market, particularly in the
relevant geographies.
Further details of the non-audit services that are prohibited and permitted
under the policy can be found on the website www.rbs.com. Information
on fees paid in respect of audit and non-audit services carried out by the
External Auditor can be found in Note 5 to the consolidated accounts on
page 372.
Brendan Nelson
25 February 2015
61
Letter from Baroness Noakes,

Chairman of the Board Risk Committee
Dear Shareholder,
This is my first letter to you as Chairman of the Board Risk Committee,
having succeeded Philip Scott on 1 April 2014. I have been a member of
the Committee since 1 March 2012. On behalf of the Committee, I would
like to thank Philip for his leadership as Chairman over the previous four
years. I would also like to thank Sandy Crombie and Tony Di Iorio for
their work as members of the Committee: both stood down at the end of
March. In April we welcomed three new members to the Committee:
Morten Friis, Robert Gillespie and Penny Hughes who have already
made significant contributions.
The purpose of this report is to describe how the Committee discharged
its responsibilities during 2014 and to provide details of the material and
significant issues which it considered and debated during the course of
the year. It should provide a sense of the breadth of the Committees
work, which included focus on conduct risk, credit risk, market risk,
operational risk, people risk, regulatory risk and reputational risk. As a
reflection of the increased demands on the Committee, the number of
scheduled meetings during 2014 was increased from seven to nine. This
will be maintained in 2015.
The backdrop throughout 2014 for RBS has been one of significant
change. In February, the bank announced its new strategy to be a
smaller, simpler UK focused bank. It mobilised a transformation
programme with the objective of implementing the future bank-wide
operating model and required process and technology changes. The
Board Risk Committee assumed responsibility for monitoring execution
risk. It received regular reports on progress, including independent
opinions from Risk Management, Internal Audit and HR. Monitoring the
risks associated with the transformation programme will continue
throughout 2015 and beyond.
The objective underpinning RBSs revised strategy is gaining customers
trust and putting customers needs at its core. Unfortunately, in 2014 RBS
continued to deal with certain significant conduct issues that have
hindered the speed of RBSs recovery and damaged its reputation. Of
particular concern were the issues associated with manipulation of
foreign exchange markets. The Committee oversaw the internal and
regulatory investigations which ultimately led to the imposition of a
substantial fine in November 2014, by the FCA and US Commodity
Futures Trading Commission (CFTC).
The outcome was a stark reminder of the importance of culture and

integrity in banking. On behalf of the Board, the Committee monitored the
resulting disciplinary and accountability processes and made
recommendations to the Group Performance and Remuneration
Committee on action to be taken. The Committee will continue to oversee
interactions on this matter with RBSs other regulators in 2015. Details of
other conduct and litigation matters under review of the Committee are
set out in the Committee report.
It is always disappointing to have to consider behaviour which falls below
expected standards. While the Committee plays a key role in ensuring
appropriate action is taken when things go wrong, it is important to instil
values that will eliminate this conduct at the outset. Driving a strong and
healthy risk culture is fundamental to this. During 2014, RBS has
commenced a programme of work to benchmark its risk culture both
against peers and heightened regulatory expectations. The Committee
has supported this programme wholeheartedly and will review a plan in
early 2015 which will articulate how the bank can define and embed a
stronger risk culture and evidence that this is effective.
Equally important is ensuring that the accountabilities of our staff are
clear and transparent. In conjunction with the Group Audit Committee, the
members have reviewed progress in embedding the three lines of
defence model across RBS. While progress has been made to develop
definition and design principles, significant work is still required to
articulate and embed the operating model within businesses. This will be
a priority in 2015.
RBS was fined in November 2014 for failing to put in place resilient IT
systems. During the year, the Board Risk Committee has continued to
oversee the remediation activity following the IT incident, which occurred
in 2012. It has also considered accountability. Independent assurance
has been provided by PwC that the work undertaken by the business has
been appropriate and addresses the key areas requiring remediation.
However, more remains to be done and the Committee will continue to
ensure in 2015 that changes are sustained and risks are appropriately
identified and escalated.
The Committee has dedicated considerable effort in 2014 to reviewing
external and internal stress testing exercises. The Committee reviewed
and recommended to the Board the submissions to the European
Banking Authority (EBA) and the Bank of England (BoE) and approved
the reverse stress test trigger framework. Unfortunately, in November
2014 an error was identified in the calculation of the modelled Common
Equity Tier 1 (CET1) ratio in the EBA stress test results which led to
RBSs published CET1 stress test ratios being overstated. Independent
assurance was sought and the error was corrected. The Committee will
continue to closely monitor the actions being taken to avoid a repeat of
this error until it is clear that we can deliver against our own and
regulatory expectations for stress testing.
62
Other material areas of Committee focus during the year have included:
consideration of the risk appetite framework of RBS to ensure it

remains fit for purpose in light of internal restructuring, market
positioning and regulatory changes;
planned improvements to the Operational Risk Management

Framework;
the capital and liquidity position of RBS and related regulatory

submissions;
improvements to risk reporting; and
assessment of the risk performance of both businesses and

individuals and consideration of the accountability and behaviour of
individuals in relation to specific matters.
Key Priorities for 2015

The report demonstrates the substantial efforts being taken to reduce the
level of risk at RBS, under the oversight of the Committee. However, it is
important to note that risk reduction remains a work in progress.
Management is continually striving to enhance the safety and soundness
of the bank, and will continue to pursue actions to bring RBS within risk
appetite. The Board Risk Committee will monitor progress closely and
will oversee the quality and quantity of available resources to ensure they
are sufficient to achieve real improvement. Other priorities will include risk
culture, risk appetite, operational risk management, cyber risk and
information security; and the execution risks associated with strategic
initiatives.
2014 was another challenging year for the Board Risk Committee and I
would like to extend my thanks to my fellow members and to RBSs
senior leadership team for the additional time they have dedicated to the
business of the Committee.
More detailed information on each of these areas is set out in the Board
Risk Committee report that follows.
Baroness Noakes
25 February 2015
63
Meetings and visits

The Board Risk Committee held nine scheduled meetings and four ad
hoc meetings in 2014. The ad hoc meetings were required to consider:
the Clifford Chance report into the allegations set out in the Tomlinson
Report; the EBA stress test results; risk performance of businesses and
individuals; and accountability matters relating to the manipulation of the
foreign exchange market.
In addition to the members, Board Risk Committee meetings are also
attended by relevant executive directors, including representatives from
Risk Management, Conduct and Regulatory Affairs (C&RA), Finance and
Internal Audit. External advice is also sought by the Board Risk
Committee, where appropriate. A standing invite has been issued to the
lead partner of the External Auditor to attend all meetings from January
2015 onwards.
During 2014, in conjunction with members of the Group Audit Committee,
members of the Board Risk Committee took part in an annual programme
of visits to businesses and control functions in order to gain a deeper
understanding of the risks and issues they face. This value adding
programme included visits to Commercial and Private Banking; Corporate
and Institutional Banking; Technology Services; and Finance. In addition,
the Committee made two visits to Risk and C&RA; and Internal Audit. In
addition, an in-depth session on risk reporting was undertaken by the
Committee in 2014.
Baroness Noakes, Morten Friis and Brendan Nelson are also members of
the Group Audit Committee. Philip Scott was a member of the Group
Audit Committee until he stood down from the Group Board on 31
October 2014. Robert Gillespie is also a member of the Group
Performance and Remuneration Committee and the Sustainable Banking
Committee, and Penny Hughes chairs the Sustainable Banking
Committee. This common membership across Committees ensures
effective governance across all risk, finance, reputational and
remuneration issues and that agendas are aligned and overlap of
responsibilities is avoided where possible.
Role of the Board Risk Committee
The Board Risk Committees primary responsibilities are set out in its
terms of reference which are reviewed annually by the Committee and
approved by the Board. These are available on the banks website:
www.rbs.com.
Allocation of Board Risk Committee agenda time
Membership
The Board Risk Committee comprises at least three independent nonexecutive directors. The Chairman and members of the Committee,
together with their attendance at scheduled meetings, are shown below.
Attended/
scheduled
Baroness Noakes (Chairman)

Morten Friis (2)
Robert Gillespie (3)
Penny Hughes (3)
Brendan Nelson
(1)
Former members
Sandy Crombie (4)
Tony Di Iorio (5)
Philip Scott (6)
Notes:
(1) Became Chairman of the Committee with effect from 1 April 2014.
(2) Became a member of the Committee with effect from 10 April 2014.
(3) Became a member of the Committee with effect from 1 April 2014.
(4) Stepped down from the Committee on 31 March 2014.
9/9
6/6
5/6
6/6
9/9
3/3
3/3
8/8
Performance Evaluation
The annual review of the effectiveness of the Board and its senior
Committees, including the Board Risk Committee, was conducted
internally in 2014. The Committee has considered and discussed the
outcomes of this evaluation and accepts the findings. Overall the review
concluded that the Board Risk Committee continued to operate
effectively. The composition of the Committee was considered to be wellbalanced, with the skills and perspectives required to respond to the
challenges faced. The quality of debate at Committee meetings was also
noted to be of a high standard. Some areas where further enhancements
to Committee performance could be made were identified, these
included: the development of a specific technical training programme to
complement the members knowledge; review of the thresholds for
reporting and escalation of issues to ensure Committee focuses on the
key issues; and continued improvements to reporting to the Committee
so that there are more focussed and higher quality papers which clearly
articulate the key issues for debate.
The outcomes of the evaluation have been reported to the Board. The
conclusions and the recommendations to help improve the Committees
effectiveness will be taken forward and progress will be tracked during
2015.
64
Risk strategy and policy
Risk profile
In February 2014, RBS announced its refreshed strategic direction to

become a smaller UK centric bank with a focus on placing customers at
the fore. A transformation programme was established to implement the
required changes, with both short term and longer term objectives.
During 2014, the Board Risk Committee, on behalf of the Board,
dedicated significant time to regularly reviewing the execution risks and
issues arising from the implementation of such fundamental change
across the organisation. The Committee has received regular progress
updates from the project team. Risk Management has been fully
involved in the transformation programme and has provided an
independent opinion to the Committee at each meeting on the risks in
the programme. In addition, the Committee receives independent
opinions from HR and Internal Audit. On a rolling basis, the Committee
has held focus sessions on the key workstreams under the programme
which are aligned to the priority areas of Reshaping the Bank, Cost,
Customer, Control & IT execution. In 2014, the Committee received
reports on the customer workstream, the control transformation
programme and technology. The Committee also commissioned a
detailed review of the people risks facing the organisation. Detailed
2015-17 plans were presented to the Board in December 2014 and the
Committee will continue to rigorously monitor the risks and issues arising
as plans progress.
Reporting
A key priority for the Committee in 2014 was the need to improve and
streamline the quality of risk reporting. Following a focus session on Risk
Reporting, good progress has been made in this respect and a revised
format risk report, including a top risks section, was launched in
October. Risk reporting is now more strategic and forward looking and
current and future risk positions are reported relative to risk appetite and
limits.
The Committee also considered the risks in specific strategic objectives

of the bank, in particular it:
reviewed the progress on the strategic initiative to dispose of the

Williams & Glyn business. It considered the technical complexities
inherent in the programme; risks associated with the disposal;
regulatory requirements; scope; viability; and threats to delivery.
Risk is engaged in the programme and has provided the Committee
with opinion on key risks and execution. The Committee will
continue to oversee delivery throughout 2015, being particularly
mindful of the challenging timescales;
considered the potential impacts on RBSs mortgage book in the

event of a sharp fall in property prices in the short to medium term,
should concerns over rising London house prices crystallise;
received regular reports on the threats to RBS and its customers

businesses posed by economic or political events across a number
of countries including Thailand, Russia and Ukraine; and
reviewed the RBS Resolution Plan and recommended it to the

Board for approval prior to submission to the PRA.
The Committee considered operation of RBSs Policy Framework and

considered managements plans to improve the accessibility, clarity and
ease of implementation of RBSs policies.
Throughout 2014 the Committee received reports on key risk issues and
risk metrics at each meeting and the Chief Risk Officer provided a verbal
update on the key risks to RBS. The Chief Conduct and Regulatory
Affairs Officer also provided a verbal update on current matters pertinent
to the Committee at each meeting. This has been a useful means of
ensuring the Committee receives the latest information on current and
emerging risk and conduct matters. Reports are made to the Committee
at each meeting on the most recent discussions at the Executive Risk
Forum the management-level risk committee which reports to the
Board Risk Committee.
Conduct and Remediation
The Committee carefully considered various conduct issues and
remediation programmes in 2014. A primary concern was the
investigation of misconduct within the foreign exchange trading
business. The Committee received regular reports as the investigation
evolved and was kept abreast of interactions with regulators. In
November 2014, RBS reached a settlement with the FCA and the US
Commodity Futures Trading Commission (CFTC) in relation to failings in
the foreign exchange business. RBS fully cooperated with the regulatory
investigations and accepted the findings. The Committee has exercised
close oversight of the internal investigation into the conduct of current
and former employees who had involvement in the foreign exchange
area. RBS has announced action taken to date and will provide a further
update when the accountability review is complete, which is expected to
be in the first quarter. RBS remains in discussion with other
governmental and regulatory authorities on these issues, including the
US Department of Justice, and the Committee will continue to give this
appropriate focus in 2015.
The allegations of misconduct within RBSs Restructuring business,
which were set out in the Tomlinson Report, were also given detailed
consideration at the Committee. In response to the report, RBS
commissioned Clifford Chance to undertake an independent review into
the most serious allegations. The Committee played a key role in
monitoring developments and overseeing the publication of the report, in
April 2014. It welcomed the finding that there was no evidence of the
serious and damaging allegation that RBS had set out to deliberately
defraud its business customers. The Committee will continue to monitor
the separate, external investigation into Restructuring, which was
commissioned by the FCA under section 166 of the Financial Services
and Markets Act. The results of this are anticipated during the first part of
2015, and will be reviewed in detail by the Committee.
65
Following the IT incident in June 2012, a significant amount of work has

been undertaken to strengthen the resilience of RBSs technology
systems and this continued to be an area of focus for the Committee in
2014. It received quarterly reports on the work being undertaken to
enhance resilience and to address the findings of the section 166
regulatory review. Reports have included independent assurance from
PwC that the work undertaken by the business has been appropriate,
sustainable and addresses the key areas requiring remediation. In order
to further inform the Committees considerations around technology
resilience a deep dive session was held for all Board members in May
2014. As well as considering the immediate concerns around improving
resilience, this session also offered an opportunity to review longer term
priorities for the function. The Committee is satisfied with the progress of
the IT resilience remediation programme and it is anticipated that the
work will be complete in early 2015. At this point the Committee will
determine appropriate methods of future oversight of the risks
associated with IT resilience.
A key part of ensuring the correct behaviours are instilled across RBS is
articulating and embedding an appropriate risk culture within RBS that is
set and cascaded from the top. This needs to be clearly aligned to the
RBSs existing culture programme. The Risk and Conduct & Regulatory
Affairs functions have started the process of researching and developing
an appropriate risk culture programme for RBS, and have kept the
Committee appraised of progress. Lessons have been gained from
liaison with peers and benchmarking. The Committee will review
managements plan to embed risk culture across RBS and the proposed
measures to assess and validate its effectiveness during 2015. This
topic is of keen regulatory interest will remain a priority for the
Committee in 2015 and beyond.
In 2014, the Committee also received reports on other conduct and
regulatory issues, including:
quarterly updates from the oversight committee established to

monitor the status of current open investigations in the former
Markets Division. This work has been complemented by that of the
Markets Controls Remediation Programme (MCRP) which has
been monitored by the Group Audit Committee. In 2015, MCRP will
be succeeded by the Markets Standards Programme. The Markets
Standards Programme will be similar in scale to MCRP, with a
greater focus on conduct and culture in addition to controls. It will
incorporate remediation of the foreign exchange trading issues;
RBSs progress in improving its end to end customer complaints
management process, in particular its strategic aims to reduce
complaint volumes and to resolve issues at the first point of contact
or within forty eight hours of receipt. The Committee will receive
further updates on progress next year;
reports on Anti-Money Laundering remediation at each of its
meetings in the first half of 2014, ahead of the regulatory attestation
in June 2014. Reporting has now returned to exception based
reporting pending further regulatory review;
initial reports on trade and transaction reporting compliance and

collateral management issues within the Corporate and Institutional
Banking business. The Committee will receive more detailed
reports on required action and remediation in early 2015;
the status of key litigation cases, in particular the US residential

mortgage-backed securities litigation claims; and
the remediation of known regulatory issues in the RBS Americas

region.
Capital Management
The Committee reviewed the capital and liquidity position of the bank
regularly. It reviewed and recommended that the Board approve the
Individual Liquidity Adequacy Assessment (ILAA) and the Internal
Capital Adequacy Assessment Process (ICAAP). An assurance opinion
was provided by Internal Audit on the adequacy of the processes
supporting the preparation of the submissions.
In response to increased regulatory expectations, the Committee has
dedicated considerable effort in 2014 to the oversight of stress testing. It
has been actively engaged in discussions on underlying assumptions
and scenario selection for the European Banking Authority and Bank of
England UK Variant stress-test exercises and recommended the stress
test results submissions to the Board. The Committee reviewed the
output of stress testing exercises and has been involved in consideration
of their announcement to the market. The Committee also made
appropriate recommendations to the Board on reverse stress testing
thresholds.
Focus on stress testing and reliance upon the outputs is set to increase
in 2015 and beyond. It is therefore essential that the business is
resourced to meet expectations and that individuals possess the correct
skills and are supported by the correct processes and tools. The
Committee will carefully review stress testing capability enhancement
plans to ensure that these are fit for purpose and meet regulatory
expectations for 2015.
Market, Credit and Operational Risk
The Committee conducted its regular review of the market risks
managed by RBS. The appetite for market risk and related limits were
also reviewed in the context of the reduction in the size of the Corporate
and Institutional Banking business, in line with the banks strategy. The
Committee reviewed key market risk issues and hot topics including
remediation and compliance with CRD IV requirements. Plans to
enhance the management of exposures across Credit and Market Risk
were considered.
A detailed overview of the Credit Risk portfolio was also provided to the
Committee, including a report on activities to address current and
emerging risks, and an update on the credit risk appetite frameworks.
Steps taken to de-risk certain portfolios, including commercial real
estate, and to improve overall asset quality were considered.
66
Working closely with the Group Audit Committee, the Committee

reviewed the updated three lines of defence design principles (across
front line management, risk and internal audit). In the second half of
2014, implementation has been focussed on publication and
dissemination of the principles, and application in both organisational
structures and individual role profiles. During 2015, the focus will be on
driving these principles deeper into the organisation, supported by the
planned activity on risk culture outlined above. Effective operation of the
three lines of defence model is critical to the success of the banks
transformation and the Committee will carefully consider plans in early
next year and monitor delivery against agreed objectives.
An effective first line of defence with a clear understanding and
ownership, is fundamental to the success of the Operational Risk
Management Framework (ORMF). The way in which RBS currently
manages Operational Risk is inconsistent across the bank and a
programme of work has been established to address identified
weaknesses in capabilities. During 2014, RBS Risk has defined an
enterprise wide approach to risk management covering all risk
disciplines and has aligned its end state vision of what a good ORMF
should look like to this approach. The Board Risk Committee has
received reports on progress and will consider detailed plans in the first
quarter of 2015.
Thereafter, the Committee will monitor progress as the programme is
delivered over the following two years.
The Committee also received reports on:
RBSs long dated derivatives business and noted the risk and
control framework (including limits and collateral requirements)
which supported it;
the New Product Risk Assessment process including

enhancements made to the end to end product life cycle;
the status of RBSs compliance with the Single European Payments

Area (SEPA) Directive;
regular reports on improvements in information security, corporate

security, records management and cyber risk;
enhancements to data quality across the organisation. The opinion

of Internal Audit was considered in this respect also. Further status
updates will be provided during 2015.
In December 2014, the Committee supervised the responses provided

by RBS to the PRA and FCA as part of their Dear Chairman II Exercise
on IT resilience. In particular, it reviewed the detailed responses to the
FCA questionnaires, and for the more technical PRA questionnaires, the
Committee reviewed the processes used to prepare the responses. In
each case the Committee received assurance reports from Risk and
from Internal Audit and on this basis recommended to the Board that it
approve the submissions to the regulators.
The Committee received bi-annual reports on cyber threats and

responses, covering the threat landscape together with key issues and
progress on the banks improvements plans in this area. The bank is rebaselining its appetite and approach to cyber risk and is moving to a
model of strong detection and response in addition to mitigation. The
banking sector will continue to be a prime target for attackers and the
Committee will keep cyber risk under close review during 2015.
The Committee reviewed RBSs 2014 Annual Risk and Control Report
and was satisfied that RBS had operated its risk management
framework in accordance with the requirements of the UK Corporate
Governance Code.
Risk appetite, framework and limits
The Board Risk Committee reviewed the risk appetite framework of RBS
during 2014, particularly in light of internal restructuring, market
positioning and changes to regulations. This included a review of capital
adequacy, earnings volatility and stakeholder confidence. This review is
being finalised and a formal risk appetite which reflects the new
organisational structure will be approved in the first quarter of 2015.
This review will also focus on how the detailed risk appetite processes
within the individual businesses fit within the enterprise wide appetite set
by the Board.
Risk and C&RA operating model
During the course of two separate visits, the Board Risk Committee
reviewed the Risk Management and C&RA operating model to ensure
that both functions had the appropriate structures and resources in place
to deliver their strategic plans. The bench-strength of the functions was
reviewed and consideration was given to succession planning, resource
and budget.
The Committee considered in detail the impact of RBSs transformation
programme on the holistic risk management operating model. This
included: resourcing levels and quality; changes to risk managements
technology support infrastructure; the impact on RBSs overall control
environment; and alignment with other major change and investment
programmes.
Last year, the Committee reviewed the operation of the Divisional Risk
and Audit Committees. In response to management feedback,
consideration was given to alternative mechanisms that could more
effectively provide a line of sight into business risk and audit issues. In
early 2014, the Committee agreed that standardised Business Risk
Committees, chaired by business Chief Executives, should be
responsible for the consideration of all risk issues and escalation to the
business ExCo and ERF. These Committees also consider finance and
audit issues on a quarterly basis and provide reports to the Board Risk
Committee and Group Audit Committee. While the Committees are in
their infancy, it is anticipated that these changes will improve the risk
governance at a business level and facilitate the escalation of issues as
appropriate. A review of effectiveness will be undertaken in 2015.
67
Risk architecture
Accountability and Remuneration
The Board Risk Committee considered model risk management across

the organisation and this will remain a key area of focus of the
Committee into 2015 and beyond.
The Board Risk Committee recognises clear link between conduct,

culture and performance management. As part of its work the Committee
has continued to work closely with the Group Performance and
Remuneration Committee to consider the risk aspects of Executive
Committee members objectives, performance and remuneration
arrangements. The committee makes recommendations as appropriate
to the Group Performance and Remuneration Committee.
The Committee reviewed the preparations underway to ensure

compliance with the new Basel Principles on Effective Risk Data
Aggregation and Reporting, which were due to come into effect from
January 2016. Detailed plans will be reviewed and the Committee will
receive reports on delivery through 2015.
The Committee also considered the risk performance of businesses in

light of known risk and control issues and under advice from Risk, C&RA
and internal audit functions. It has also reviewed specific accountability
cases and made recommendations regarding appropriate adjustments to
performance related reward to the Group Performance and
Remuneration Committee. The Group Performance and Remuneration
Committees report on pages 73 to 93 includes more detail on how risk is
taken into account in remuneration decisions.
Baroness Noakes
25 February 2015
68
Letter from Baroness Noakes,

Chairman of the RCR Board Oversight Committee
Membership and meetings

The Chairman of the Committee is the Chairman of the Board Risk
Committee. The Senior Independent Director, the Chairman of RBS and
the Chairman of the Group Audit Committee are members. Attendance at
meetings is shown below.
Attended/
scheduled
Dear Shareholder,
The RBS Capital Resolution Board Oversight Committee was established
following the creation of RBS Capital Resolution (RCR) on 1 January
2014.
RCR was established to separate and wind down RBSs high capital
intensive assets. Targets were set to remove 55-75% of these
assets from the balance sheet by the end of 2015 and 85% by the end of
2016.
Key principles are:
removing risk from the balance sheet in an efficient, expedient and
economic manner;
reducing the volatile outcomes in stressed environments; and
accelerating the release of capital through management and exit of

the portfolio.
Baroness Noakes (Chairman) (1)

Sandy Crombie
Philip Hampton
Brendan Nelson
3/3
3/4
4/4
3/4
Former member
Philip Scott (2)
1/1
Notes:
(1) Baroness Noakes took over from Philip Scott as Chairman of the Committee on 1 April 2014.
The Committee held four scheduled meetings and two ad hoc meetings in 2014. Meetings
are attended by relevant executives, and representatives from the risk, finance and human
resources functions.
(2) Stepped down from the Committee on 1 April 2014.
Principal activities during 2014

As a newly established Board Committee, the focus at the first meeting
was reviewing the Committees terms of reference and schedule of
business for the year. The Committee also reviewed the governance
structure and delegated authorities for RCR. The format of reporting on
progress against the primary objective and asset management principles,
and the pro-forma for financial reporting were also considered.
At each scheduled meeting during the remainder of the year, the
Committee has considered financial performance and delivery against
targets and asset management principles, and received updates on
emerging issues and material transactions. The outlook in relation to
capital release and the residual asset pool is also reviewed.
Given the importance of delivery of the RCR objectives for RBS's future
plans, the Committees role is an important one. I was appointed
Chairman of the Committee on 1 April 2014 and am pleased to present
the report on the Committees activity during 2014.
Risk reporting developed and evolved through the year and the
Committee now receives information on a quarterly basis on operational,
conduct and people risk.
The role and responsibilities of the RCR Board Oversight Committee

The Committees responsibilities are set out in its terms of reference
which are reviewed annually by the Committee and approved by the
Board. These are available on rbs.com.
The Committee recognised that the objective of accelerating disposal of

assets carried additional customer and conduct risks. It paid particular
attention to the leadership and culture within RCR and reviewed the RCR
framework and operating principles to satisfy itself that management
were managing these risks appropriately.
The Committees role is to:
oversee the actions of RCRs management, including

implementation of RCRs strategy;
review and report to the Board on RCRs progress against and

compliance with the primary objective (to eliminate the banks
exposure to RCR assets) and the asset management principles
(criteria for taking decisions on the reduction of capital and assets);
agree in consultation with the Group Performance and

Remuneration Committee specific incentives for RCR management,
aligned to the objectives of RCR;
consider financial disclosures in respect of RCR; and
report to the Board on the Committees activities and recommend

changes to RCR strategy.
The Committee also reviewed and considered certain remuneration

matters for RCR and, in conjunction with the Group Performance and
Remuneration Committee, has approved RCR remuneration principles,
and RCR related annual objectives for the CEO of Capital Resolution
Group.
Committee meetings are attended by senior RCR managers and also
representatives from the control functions, in particular from the risk
function.
As explained on page 154, RCR now expects substantially to complete
its work by the end of 2015. The Committee will continue to oversee the
activities of RCR throughout this period.
69
An internal review of the effectiveness of the Board and senior
committees was conducted during 2014. The Committee has considered
and discussed the report on the outcomes of the evaluation and is
satisfied with the way in which the evaluation has been conducted.
Overall, the review concluded that the Committee operated effectively

and exercised appropriate oversight and challenge of management.
Baroness Noakes,
Chairman of the RCR Board Oversight Committee
25 February 2015
70
Letter from Penny Hughes

Chairman of the Sustainable Banking Committee
Oversight of the development of Environmental, Social and Ethical

(ESE) policies designed to ensure responsible and sustainable
management of risks in sensitive and controversial lending sectors.
ESE polices have now been developed for Defence, Forestry,
Fisheries & Agribusiness, Mining & Metals, Oil & Gas, Gambling,
Power Generation and Animal Testing. As a result of these policy
decisions, the Committee has played an instrumental role in not
providing finance to a number of controversial areas of industry.
Oversight of progress on people issues including safety and health,

wellbeing, diversity and inclusion and employee engagement.
Considering sustainability positioning on environmental targets,

climate change, human rights and sustainable energy opportunities.
Transparent reporting through the annual Sustainability Review

which describes our performance and approach to making RBS a
more sustainable business, one which will support the long-term
future of the economy and society.
Dear Shareholder,
RBS has a clear ambition to be number one for customer service, trust
and advocacy in each of our chosen business areas by 2020. Delivery
of this ambition depends in large part on our ability to demonstrate
beyond question that we are a responsible company doing business in a
sustainable way.
Our strategy is clear our success as a company is dependent on the
success and fortune of our customers and the communities we live and
work in. When they succeed, so do we.
We know that RBS exists in a sector that faces huge challenges and
needs to change, and were committed to play a leadership role. Im
encouraged that weve changed our business practices this year on a
range of issues to make banking fairer for our customers and our
communities.
Inside the bank we are on a long journey to create a culture that stands
apart from the misconduct of the past. We have strong, clear values that
guide our decision making, but these are yet to be truly ingrained in our
approach to running the bank.
The Sustainable Banking Committee is primarily concerned with
overseeing how well management is running the bank sustainably for its
stakeholders and dealing with matters of reputation and trust, including
cultural change. In fulfilling this responsibility, we try to consider the long
term interests of all stakeholder groups which include customers,
employees, shareholders, government, regulators, society and advocacy
groups.
Although we still have a long way to go, some good progress was made
in 2014 and the key areas of work during the year included:
Oversight of the values and conduct work intended to address

behavioural and cultural issues.
Assessing performance on delivery of customer commitments on

trust, advocacy and service including simple, transparent and fair
banking.
Ongoing commitment to stakeholder engagement through face to

face sessions with advocacy groups on key issues of concern (more
details on the next page).
Oversight of progress on sustainability activities across RBS

including serving society, serving customers and supporting
communities.
Also during 2014, the opportunity was taken to refocus the strategic
direction of the Committee to ensure greater alignment with the customer
ambition of the bank. Our work will concentrate on three core themes:
Bank-wide Reputation and Trust, Serving Customers and
Sustainability/Emerging issues. More detail on these themes is provided
on pages 38 to 41. Previously known as the Group Sustainability
Committee, we felt the new name of Sustainable Banking Committee
better reflected our purpose and underlined the importance of sustainable
banking being a core part of our strategy.
Although there is still much to be done to rebuild trust, it is pleasing that
the efforts to build a responsible and sustainable business are being
recognised through independent and external measures. These include
having recently been ranked as the top scoring UK company in
Transparency Internationals latest report on transparency in corporate
reporting. We have also successfully retained our place in the Dow Jones
World Sustainability Index and scored well in the Carbon Disclosure
Project disclosure results which assess management of climate risks and
opportunities. RBS has also been reselected for inclusion in the
FTSE4Good index which measures the performance of companies
against globally recognised responsibility criteria. Turning to people
commitments, progress on diversity and inclusion has also been
recognised with various gender, race and equality awards. More
information on these and our sustainability performance and external
commitments can be found on pages 38 to 41.
With an increasing focus on ethics and sustainability, the priority of the
Committee will be to assess and encourage the work of the executive
team in building a bank that puts customers interests first and embeds
sustainable banking into everything that we do. I took over as Chairman
of the Committee after the 2014 AGM having served as a member since
2013. My thanks go to the Committee members and attendees for their
support and, in particular my predecessor Sandy Crombie for his
commitment in steering the work of the Committee. There are significant
challenges ahead, but I am confident that we will continue to build on the
work that has already been done to embed sustainability into the strategic
priorities of RBS.
Penny Hughes
Chairman of the Sustainable Banking Committee
25 February 2015
71

Meetings
The Sustainable Banking Committee held six scheduled Committee
meetings in 2014 in addition to six stakeholder engagements sessions.
Both were attended by senior representatives from the customer-facing
divisions as well as Human Resources, Sustainability, Risk, Conduct and
Regulatory Affairs, Communications and Marketing, Strategy and
Corporate Services. The Chairman of the Board regularly attends the
meetings as well as internal and external specialists who are invited to
join for specific items.
Stakeholder engagement sessions
In addition to ongoing engagement which takes place across our
business each day, the Sustainable Banking Committee runs a proactive
engagement programme to which we invite external stakeholders to meet
with, and challenge, the most senior decision makers in RBS. These
discussions help shape future policies, influence strategic priorities and
inform decision making across RBS and will continue to play a key role.
To date we have met with over 40 different groups of NGOs, civil society
groups, government bodies, consumer groups and investors in this way.
In particular, in 2014 we held six such stakeholder engagement sessions
covering the following topics:
Fair Banking with particular emphasis on how well RBS serves low
income customers
Privacy and the need to balance security against the employee right
to privacy
Climate Change including the latest science on the predicted
physical and humanitarian impacts
Supporting Enterprise and in particular how well RBS supports
international trade
Sustainability priorities of the investment community
Employee Engagement with focus on people strategy, employee
sentiment and balanced leadership
In addition, the programme of UK-based events aimed at individual

shareholders continued in 2014 and provided an opportunity for
shareholders to meet directors and senior management to learn more
about the business.
Membership
The Sustainable Banking Committee comprises three independent nonexecutive directors. During the year, new member Robert Gillespie joined
existing member Alison Davis, and Penny Hughes took over from Sandy
Crombie as Chairman after the AGM. The Chairman and members of the
Committee, together with their attendance at meetings, are shown below.
Attended/
scheduled
Penny Hughes (Chairman) (1)

Alison Davis
5/6
6/6
5/5
Former member
Sandy Crombie (3)
3/3
Notes:
(1) Appointed Chairman of the Committee on 25 June 2014.
(2) Appointed to the Committee with effect from 1 April 2014.
(3) Stepped down from the Committee on 25 June 2014.
An internal review of the effectiveness of the Sustainable Banking
Committee took place in 2014 and overall the review concluded that the
Committee continued to operate effectively. In particular, the stakeholder
engagement sessions were regarded as a valuable opportunity to learn
how well RBS is aligned to external sustainability priorities and these will
continue in 2015. Another key focus will be to embed the changes made
in 2014 to the strategic direction of the Committee.
Role and responsibilities of the Sustainable Banking Committee
The Sustainable Banking Committee is responsible for overseeing and
challenging how management is addressing sustainable banking and
reputation issues, considering the long term interests of all stakeholder
groups.
Authority is delegated to the Sustainable Banking Committee by the
Board and the Committee reports and makes recommendations to the
Board as required. The terms of reference of the Committee are available
on the RBS website rbs.com and these are reviewed annually and
approved by the Board. A report on the activities of the Committee in
fulfilling its responsibilities is provided to the Board following each
meeting. The principal responsibilities of the Committee are shown
below grouped under its three core themes of work: Bank-wide
Reputation and Trust; Serving Customers; and Sustainability/Emerging
Issues.
Bank-wide Reputation and Trust led by the Chief Executive
Oversight of:
Management of reputation and delivery of commitments on trust,
advocacy and customer service
Reputational challenges relating to people agenda including
embedding of values and cultural change activity
Development of brand strategy in line with, RBSs purpose, vision
and values
Sustainable growth of business and measures taken to support
economic development and how banks can better serve society
Community programmes and employee engagement in charitable
partnerships
Serving Customers led by business leaders
Provide challenge on how well RBS is integrating sustainable
banking into its business strategy and what is being done to foster a
sustainable business for customers
Receive reports on key reputational risks relating to customer
priorities and performance against customer commitments
Consider product sustainability, transparency and fairness
Receive reports on how RBS is supporting SMEs and oversee the
approach to responsible lending and financial inclusion
Sustainability/Emerging Issues led by the Chief Sustainability
Officer
Oversight of Environmental, Social and Ethical risk policies
Engage with key internal and external stakeholder groups on
emerging sustainability issues
Approve the annual Sustainability Report and receive the external
auditors assurance report
Oversee priorities, targets and reputational challenges on key
emerging sustainable banking issues and consider best practice
benchmarking
72
Directors Remuneration Report
Annual Statement from Sandy Crombie

Chairman of the Group Performance and Remuneration Committee
Dear Shareholder,
I became Chairman of the Group Performance and Remuneration
Committee with effect from the 2014 AGM having served as a member
since 2009. I would like to thank my predecessor, Penny Hughes, for her
leadership of the Committee over the past four years.
The Committee must balance the views of our stakeholders with our duty
to reward our people fairly, and our responsibility to ensure that we are
running a commercial business with the best available talent. We will do
our utmost to make balanced decisions and to explain our approach to
our many stakeholders.
I believe we are making genuine progress. RBS has been at the leading
edge of reform in bringing down how much we pay and changing the
structure of how pay is delivered. Over the last five years bonus pools
have fallen by around two thirds across RBS and by nearly 90% within
the investment bank. Last year we introduced a simplified pay structure
for our executive directors with annual bonuses being discontinued. This
means that their variable pay will be delivered entirely in long-term
incentive awards, aligning executive directors pay more than ever to
shareholder value over the long term.
Our current Directors Remuneration Policy was approved at the 2014
AGM with over 99% of shareholders voting in favour. No changes are
being made to the policy at this time. This letter and the accompanying
report aim to demonstrate the context in which decisions have been
made, the decisions reached for the 2014 performance year and how the
Committee intends to approach the year ahead.
Context for our decisions
Last year we set out a new strategy that stated our ambition to become
the best bank in the UK for customer service, trust and advocacy by
2020. A remuneration policy that supports our business strategy is an
essential part of rebuilding a successful and trusted RBS. We made good
progress in 2014. Total pay costs and pay per employee have been
reduced, while we have been establishing a platform to deliver good
customer outcomes and sustainable returns to shareholders. There is a
clear need for management to keep the franchise intact while moving the
business towards a more normal and stable position. The Committees
decisions aim to support this process.
One of the main changes during 2014 is that RBS is now operating in a
framework that limits variable pay to no more than the level of fixed pay.
This change is in line with the views of our majority shareholder, UK
Financial Investments (UKFI). Often referred to as the bonus cap, this
limit applies to all employees who are considered to be Material Risk
Takers (MRTs) under regulatory requirements, a population that has
increased significantly in line with enhanced criteria from the European
Banking Authority (EBA). For the majority of these employees, no
changes have been required to their remuneration arrangements.
Role-based allowances have been introduced as an additional element of
fixed pay for some MRTs in line with market practice. Allowances for
members of the Executive Committee are delivered entirely in shares and
are subject to a retention period. Increases in fixed pay have been
balanced by longer vesting periods for long term incentives and an
overall reduction in the maximum compensation available.
In accordance with Prudential Regulation Authority (PRA) requirements,
we have updated our clawback policy. Any variable pay awarded to
MRTs from 1 January 2015 will be subject to clawback for seven years
from the date of award. Clawback is the recovery of awards that have
vested and been paid to employees. Malus allows the Committee to
reduce awards (if appropriate to zero) prior to payment taking place. RBS
has operated malus for a number of years. The new clawback
requirements, together with malus, provide greater scope for the
Committee to recover remuneration where new information indicates we
should change the pay decisions made in previous years and it is no
longer appropriate to make payments at the level originally awarded.
Malus has been applied as part of our accountability review process in
light of the fines imposed on RBS by regulators relating to misconduct in
foreign exchange trading (FX) and the IT incident that occurred in 2012.
The Committee fully appreciates the impact such events have on
shareholders and customers. It is only right that this should be reflected
in remuneration outcomes for those whose conduct fell short of our
standards.
In addition to direct action against specific employees under the
accountability review process, significant deductions to bonus pools have
been made for material conduct events. This includes deductions for
LIBOR, the IT incident and for the FX events. The Committee believes
this process strikes an appropriate balance with a significant adjustment
being made to bonus pools as a targeted measure to change behaviour,
while not disproportionately penalising employees who are not
responsible for these events.
It has taken much longer than anyone anticipated to turn the corner on
past problems, practices and related fines but a significant amount of
remedial action has already been undertaken. A clear message has been
sent to employees that there is no place for any misconduct at RBS and
wrongdoers will be dealt with. There is a determination to develop and
maintain a culture that reflects our commitment to the customer and
ethical market practices.
73
Performance considerations for 2014

2014 has been a year of achievement against a difficult agenda. We are
delivering on our plan to make RBS a smaller, safer bank. Citizens
Financial Group, Inc. (CFG) was successfully launched on the New York
stock exchange in the biggest bank flotation in US history. Once the
remaining stake in the CFG business is sold this will further strengthen
our capital position. RBS Capital Resolution (RCR) has managed to
accelerate the planned removal of assets from our balance sheet
contributing c. 110 basis points to the improvement in the CET1 ratio.
Our financial results show that, underneath the conduct issues, litigation
and restructuring charges, there are strong customer franchises that are
geared towards delivering sustainable returns for investors. The signs of
improvement are there in customer feedback, our capital strength and
reduced costs. All of these factors have been considered by the
Committee in seeking to make objective decisions. Some key messages
for 2014 are as follows:
Operating profit is up significantly to 3.5 billion from a 7.5 billion

loss in 2013
Attributable loss to ordinary and B shareholders of 3.5 billion which
includes the loss provision of 4 billion associated with the decision
to divest CFG
Cost reduction of 1.1 billion, excluding the effect of currency
movements, which has exceeded the target
Staff compensation has reduced year on year at both the total and
per employee levels
CET1 ratio has improved over the year from 8.6% to 11.2%
RCR run off - assets have been reduced by 14 billion and RWA
equivalents have reduced by 38 billion
RBS Total Shareholder Return (TSR) performance in 2014 has been
ahead of other UK banks and the FTSE100 index
In 2014, we have seen some positive Net Promoter Score
movements in some of our franchises and there are early signs that
customer trust in RBS is stabilising and starting to improve
Pay decisions for our wider workforce

The pressures on people working at RBS are considerable. We need to
recognise good results by those employees who serve our customers
well and deliver excellent individual performance. Having engaged
employees and improving RBS as a place to work is critical if we are to
achieve our long-term ambitions.
The Committee has an important role in helping to create a compelling
employee proposition. During 2014, RBS became a fully accredited
Living Wage employer. RBS has been an accredited Living Wage
employer in London since 2010 and we are pleased to be extending that
commitment to our operations and suppliers in the rest of the UK. Some
other key decisions are set out below:
The average annual salary increase amongst our core population of

employees in 2015 will be 2%, up from 2014, whereas it will be less
than 1% across the most senior RBS employees.
The bonus pool has fallen from a total of 576 million last year (536
million excluding CFG) to 421 million excluding CFG in 2014, a
reduction of 21% excluding CFG or a 27% overall reduction. Over
90% of this pool will be directed to those below the most senior RBS
employees. The Corporate & Institutional Banking (CIB) bonus pool
is 53% lower than 2013.
The bonus pool represents 6% of operating profit (excluding CFG

and before variable compensation expense, conduct, litigation and
restructuring charges and other one-off items).
Where employees do receive a bonus, the average amounts remain

relatively modest with 51% of employees receiving 2,000 or less
and a further 22% receiving less than 5,000.
Bonus awards above 2,000 are subject to deferral requirements

and the Committee approved a 2014 deferral structure for higher
earners and MRTs that exceeds current regulatory requirements.
These decisions aim to strike a difficult balance where pay is restrained in

a market context but remains at sufficient levels to reward those
employees who are building the future franchise. The intention is to
demonstrate that good performance and a continuous focus on the right
behaviours will be rewarded, while reflecting the impact on all
stakeholders of conduct events in the reduction of specific bonus pools.
Pay decisions for executive directors
No changes to remuneration policy.
Salary, pension and benefit funding unchanged in 2015.
Performance measures for long-term incentive awards to be granted

in 2015 follow the criteria that applied to awards made in 2014 but
incorporating Trust in the Customers & People measure.
Reflecting a desire from shareholders for longer timescales, the

overall vesting period for future long-term incentive awards has been
extended from three to five years.
Considerations for the year ahead

The report sets out how pay arrangements will be implemented in the
year ahead including the performance targets that will apply to the longterm incentive awards granted in 2015. An overview of our remuneration
policy below Board level can be found in the Other Remuneration
Disclosures section that follows this report.
The regulatory environment continues to evolve. Further guidance is
expected during 2015 from the EBA on the use of allowances as well as
the outcome of the PRAs consultation on extending deferral periods. The
Committee also intends to undertake a review of the broader aspects of
employee remuneration at RBS during the course of the year.
I would like to conclude by thanking my fellow Committee members and
those who support the Committee for their guidance and commitment
over the year. I have no doubt we will be responding in 2015 to further
developments in remuneration principles and practices. Shareholders
continue to have a vital role in developing responsible pay practices and I
look forward to working closely with all our stakeholders in the year
ahead.
Sandy Crombie
25 February 2015
74
Executive director outcomes for 2014 and implementation in 2015
Linking remuneration to the business strategy
Remuneration in 2014 (000s)

Salary
Benefits (2)
Pension allowance
Fixed share allowance
Bonus
Long-term Incentive Plan vesting (3)
Other award (4)
Total
Ross McEwan
Ewen Stevenson (1)
1,000
143
350
358
1,851
497
16
174
497
1,911
3,095
Notes:
(1) Joined on 19 May 2014.
(2) Amount for Ross McEwan includes standard benefit funding and relocation benefits.
(3) Amount relates to a share award made to replace awards forfeited on leaving
Commonwealth Bank of Australia, which was granted subject to RBS performance
conditions.
(4) Amount relates to a share award made to replace awards forfeited on leaving Credit Suisse.
Implementation of policy for 2015

Details of remuneration arrangements for 2015 are set out in the
implementation of policy section on page 82.
Variable pay will consist of a long-term incentive award (LTI) with

performance conditions that are designed to be stretching and
support delivery of the business strategy.
LTI performance conditions will be assessed over three years with

any vesting taking place in equal tranches in years four and five.
Malus and clawback provisions will apply for an overall period of

seven years from the date of grant.
Full details of the LTI performance conditions are set out on page 83.
75
Directors Remuneration Policy

The full Directors Remuneration Policy, as approved by shareholders at the AGM on 25 June 2014, is available at rbs.tm/complianceandrem and no
changes are proposed that would require shareholder approval. An extract of the policy with certain updates to ensure it is relevant for the current year
is set out below for ease of reference. In the event of any conflict, the approved policy on rbs.com takes precedence over the information set out in this
section.
Fixed pay elements for executive directors (EDs)
Fixed pay elements are intended to provide a level of competitive remuneration for performing the role with less reliance on variable pay in order to
discourage excessive risk-taking and with partial delivery in shares to align with long-term shareholder value.
Element of pay
Base salary
Fixed share
allowance
Benefits
Purpose and link

to strategy
To aid recruitment and
retention of high performing
individuals whilst paying no
more than is necessary. To
provide a competitive level of
fixed cash remuneration,
reflecting the skills and
experience required, and to
discourage excessive risktaking.
To provide fixed pay that
reflects the skills and
experience required for the
role. This will be delivered in
shares which must be
retained for the long term.
Operation
Paid monthly and reviewed annually.
Any future salary increases will

be considered against peer
companies and will not normally
be greater than the average
Further details on remuneration
salary increase for RBS
arrangements for the year ahead are set employees over the period of
out in the annual report on
the policy.
remuneration.
A fixed allowance, paid entirely in
shares. Individuals will receive shares
that vest immediately subject to any
deductions required for tax purposes
and a retention period will apply. Shares
will be released from the retention
period in equal tranches over a five year
period. The fixed share allowance will
broadly be paid in arrears, currently in
two instalments per year. For 2015, the
instalments will be paid in August and
December.(1)
To provide a range of flexible A set level of funding is provided and

and market competitive
EDs can select from a range of benefits
benefits to further aid
including:
recruitment and retention of Company car
key individuals.
Private medical insurance
Life assurance
Ill health income protection
To encourage planning for

retirement and long-term
savings.
Performance metrics
and period
n/a
The rates for 2015 are as follows:

Chief Executive - 1,000,000
Chief Financial Officer - 800,000
Also entitled to use of a car and driver

on company business and standard
benefits such as holiday and sick pay.
Pension
Maximum potential value

Determined annually.
An award of shares with an

annual value of up to 100% of
salary at the time of award.
n/a
The fixed share allowance is

not pensionable.
Set level of funding for benefits n/a

(currently 26,250) which is
subject to review.
Further benefits such as
relocation allowances and other
benefits (e.g. tax advice,
housing and flight allowances
and payment of legal fees) may
be offered in line with market
practice.
Further benefits including allowances

when relocating from overseas may be
provided to secure the most suitable
candidate for the role.
The value of benefits paid will

be disclosed each year in the
annual report on remuneration.
Provision of a monthly cash pension

allowance based on a percentage of
salary. Opportunity to participate in a
defined contribution pension scheme.
Pension allowance of 35% of

salary.
n/a
Note:
(1) The company believes that delivery in shares is the most appropriate construct for a fixed allowance to executive directors, qualifying as fixed remuneration for the requirements imposed under CRD
IV. If regulatory requirements emerge that prohibit allowances being delivered in shares, or deem that such allowances will not qualify as fixed remuneration, then the company reserves the right to
provide the value of the allowance in cash instead in order to comply with the requirements.
76
Variable pay
Variable pay is intended to incentivise superior long-term performance and promote the success of RBS, with rewards aligned with shareholders and
adjusted for risk, based on the achievement of stretching performance measures.
Element of pay
Variable pay
award
(long-term
incentive)
Purpose and link to

strategy
To support a culture
where good performance
against a full range of
measures will be
rewarded. To incentivise
the delivery of stretching
targets in line with the
Strategic Plan. The
selection of performance
metrics will be closely
aligned with Key
Performance Indicators.
Operation
Performance metrics and period
Any variable pay award made will

be delivered in the form of a longterm incentive, paid in shares (or in
other instruments if required by
regulators) and subject to a
combination of time and
performance-based vesting
requirements.
The maximum level of award

is subject to any limit on the
ratio of variable to fixed pay
as required by regulators.
This currently limits variable
pay to the level of fixed pay
(i.e. base salary, fixed share
allowance, benefits and
pension). A higher ratio, up to
200% of fixed pay, is possible
with shareholder approval.
RBS is not seeking any such
approval at the 2015 AGM.
Any award made will be subject to

performance conditions measured
over a minimum three year period.
A minimum three year performance

period will apply. The award will
have an overall five year vest
period, vesting in equal tranches in
Performance is assessed years four and five.
against a range of
financial and nonAs a minimum, shares will be
financial measures to
subject to retention periods as
encourage superior long- required under the PRA and
term value creation for
Financial Conduct Authority (FCA)
shareholders.
Remuneration Code.
Delivery in shares with
the ability to apply malus
adjustments and
clawback further
supports longer-term
alignment with
shareholders.
Provisions for malus adjustment of

unvested awards and clawback of
vested awards.
For these purposes awards

will be valued in line with the
EBA rules, including any
available discount for longterm deferral.
In addition to the regulatory
ratio which currently limits
variable pay to the level of
fixed pay, awards for
executive directors are
subject to a maximum of
300% of base salary (1).
The long-term incentive award will

be delivered under the RBS 2014
Employee Share Plan, as approved
by shareholders at the 2014 AGM. The vesting level of the
award could vary between
0% and 100% dependent on
the achievement of
performance conditions.
Between 20% - 25% will vest
at threshold for each
performance measure.
Typical measures may fall under

the following categories (weighted
25% each):
Economic Profit
Relative TSR
Safe and Secure Bank
Customers and People
An underpin gives the Committee
discretion to reduce vesting
amounts in light of underlying
financial results, or conduct and
risk management effectiveness.
These or similar measures and
weightings will be applied to reflect
the strategy going forward.
Details of the performance
measures for awards to be granted
in 2015 are set out as part of the
implementation of remuneration
policy on page 83.
Note:
(1) Adjustments will be made to award levels where necessary to ensure that executive directors remain within the variable to fixed limit.
Other pay elements
Element of pay
Shareholding
requirements
Purpose and link to

strategy
To ensure EDs build and
continue to hold a significant
shareholding to align
interests with shareholders.
Operation
A period of five years is allowed in which to build
up shareholdings to meet the required levels.
Any unvested share awards are excluded in the
calculation.

Chief Executive
250% of salary.
Chief Financial Officer 125% of salary.
Performance
metrics and
period
n/a
Requirements may be
reviewed and increased in
future.
77
Notes to policy table

The Committee sets stretching performance targets taking into
account the companys business strategy, financial forecasts and
wider non-financial metrics. The performance conditions for variable
pay awards made to EDs have been chosen to promote the building
of a safer, stronger and more sustainable business. The Committee
agrees the performance conditions each year after consultation with
major shareholders.
The Committee recognises the importance of alignment with

shareholders through the use of shareholding requirements, a longer
vesting period for long-term incentive awards and retention periods
post vesting. Upon leaving, any outstanding share awards held by
good leavers will vest, normally on the original vesting dates, and
shares from the fixed share allowance will continue to be released
over the applicable five year retention period in order to ensure
former EDs maintain an appropriate interest in RBS shares.
Remuneration for EDs broadly follows the policy for all employees but
with a significant element delivered in shares and an appropriate
proportion delivered through variable performance-related pay. This
is to ensure that total remuneration to EDs is more aligned with the
long-term interests of shareholders and dependent on specific
performance measures being met.
Malus and Clawback
An accountability review process is operated that allows the Committee
to respond in instances where new information would change the variable
pay decisions made in previous years and/or the decisions to be made in
the current year. As a result, malus can be applied to reduce (if
appropriate to zero) the amount of any variable pay awards prior to
payment taking place. Clawback provisions can also be applied to require
repayment of any amounts already paid. Malus and clawback can be
applied to current and former employees.
RBS has applied malus provisions to variable pay awards since 2009 and
added clawback provisions to awards made in 2014 for a period of six
months from the date of any vesting. Any variable pay awards granted to
EDs and other MRTs after 1 January 2015 will be subject to clawback
provisions for a period of seven years from the date of grant, in line with
new requirements under the PRA/FCA Remuneration Code.
There are a number of trigger events under which malus and clawback
will be considered including:
the individual participating in or being responsible for conduct which

results in significant losses for RBS;
the individual failing to meet appropriate standards of fitness and

propriety;
reasonable evidence of an individuals misbehaviour or material

error; and
RBS or the individuals relevant business unit suffering a material

failure of risk management.
Consideration of employment conditions elsewhere in the company

The Committee retains oversight of remuneration policy for all employees
to ensure there is a fair and consistent approach throughout the
organisation. The broader policy uses deferral, malus and clawback to
promote effective risk management and alignment with shareholders.
Further details of our remuneration policy for all employees are set out on
page 91.
Any salary increases for EDs will not normally be greater than the
average increase for RBS employees. While employees are not directly
consulted on setting directors remuneration, consultation on
remuneration generally takes place with our social partners, including
representatives from UNITE. In November 2014, RBS became a fully
accredited Living Wage employer. RBS has been an accredited Living
Wage employer in London since 2010 and this commitment has been
extended to our operations and suppliers in the rest of the UK.
An annual employee opinion survey takes place which includes a number
of questions on pay and culture. This includes questions on how pay is
determined and evaluated, including the need to consider both what and
how outcomes have been achieved, and whether employees believe
they are paid fairly for the work they do.
Around 30,000 of our employees are shareholders through our incentive
and all-employee share plans and have the ability to express their views
through voting on the Directors Remuneration Report.
Discretion
The Committee has certain discretions that allow it, in appropriate
circumstances, to vary the remuneration provided to EDs and other
employees. For example, under the rules of the RBS 2014 Employee
Share Plan, the Committee can: determine that awards should vest even
where this treatment would not apply as standard under the rules; decide
to vest earlier than the normal vesting date; and vary the pro-rating for
time elapsed that would normally apply. Such discretions would only be
used in exceptional circumstances to ensure a fair outcome for the
relevant individual and for shareholders, taking into account the
circumstances of departure, the performance of the individual and the
need to ensure an orderly transition.
Further discretions include the ability to: treat awards in a range of ways
in the event of a change of control; change measures, targets, and adjust
awards if major events occur (for example transaction and capital
raisings); and make administrative changes to the plan rules.
In addition, the Committee retains discretion to apply malus and clawback
to awards and also to adjust the vesting outcome in relation to certain
long-term incentive awards through the application of an underpin.
Further details can be found on page 92.
78
Remuneration policy for the Chairman and non-executive directors

Element of pay
Fees
Purpose and link to strategy

To provide a competitive level of fixed
remuneration that reflects the skills,
experience and time commitment
required for the role.
Operation
Fees are paid monthly.
The level of remuneration

reflects their responsibility and
time commitment and the level
No variable pay is provided so that the of fees paid to directors of
Chairman and non-executive directors comparable major UK
can maintain appropriate
companies.
independence, focus on long-term
decision making and constructively
The Chairman and nonchallenge performance of the
executive directors do not
executive directors.
participate in any incentive or
performance plan. Fees are
reviewed regularly.

The rates for the year ahead are
set out in the annual report on
remuneration on page 82.
Performance metrics
and period
n/a
Any future increases to fees will be

considered against directors at
comparable companies and will not
normally be greater than the
average inflation rate over the
period under review, taking into
account that any change in
responsibilities, role or time
commitment may merit a larger
increase.
Additional fees may be paid for
new Board Committees provided
these are not greater than fees
payable for the existing Board
Committees as detailed in the
annual report on remuneration.
Benefits
Any benefits offered would be in line

with market practice.
Reimbursement of reasonable
out-of-pocket expenses incurred
in performance of duties. The
Chairman also receives private
medical cover in line with the
scheme rules.
The value of the private medical

n/a
cover provided to the Chairman will
be in line with market rates and
disclosed in the annual report on
remuneration.
Recruitment remuneration policy

The approach to recruitment of directors is to consider both internal
and external candidates and to pay no more than is required to
attract the most suitable candidate for the role.
Recruitment of Ewen Stevenson during 2014

Ewen Stevenson was appointed to the Board as Chief Financial Officer
on 19 May 2014. His annual remuneration arrangements on
appointment were as follows:
The policy on the recruitment of new directors aims to structure pay

in line with the framework and quantum applicable to current
directors, taking into account that some variation may be necessary
to secure the preferred candidate.
Salary
Pension allowance
Benefit funding
Total fixed remuneration
Consideration will be given to the skills and experience held by the

individual being recruited as well as the incumbents position.
No sign-on awards or payments will be offered over and above the

normal buy-out policy to replace awards forfeited or payments
foregone. The Committee will seek to minimise buy-outs wherever
possible and will seek to ensure they are no more generous than,
and on substantially similar terms to, the original awards or
payments they are replacing.
The maximum level of variable pay which may be granted to new
executive directors is the same as that applicable to existing
executive directors, excluding any buy-out arrangements. The
Chairman and non-executive directors do not receive variable pay.
800,000
800,000
280,000
26,250
1,906,250
Maximum variable pay (long-term incentive award) is calculated in line

with the ratio limiting variable to fixed remuneration, including the EBA
discount for long-term deferral, with the first award due to be made in
March 2015. Further details are set out in the implementation of policy
section on page 82.
An award over 584,506 shares was made on Ewens appointment to
replace awards he forfeited on leaving Credit Suisse. The award is
eligible to vest between March 2015 and March 2017 on terms that are
no more generous than the terms of the awards they have replaced.
79
Service contracts and policy on payments for loss of office directors

Provision
Policy
Details
Payments for loss Payment in lieu of
If either party wishes to terminate an executive directors service contract they are required to give 12
of office
notice only
months notice to the other party.
The service contracts do not contain any pre-determined provisions for compensation on termination.
The service contracts give RBS the discretion to make a payment in lieu of notice, which is based on
salary only (with no payment in respect of any other benefits, pension or fixed share allowances) and is
released in monthly instalments. During the period when instalments are being paid, the executive
director must take all reasonable steps to find alternative work and any remaining instalments will be
reduced as appropriate to offset income from any such work.
Treatment of
annual and longterm incentives on
termination
Treatment in line with

the relevant plan rules
as approved by
shareholders
Existing annual incentive awards under the Deferral Plan will not normally lapse on termination, unless
termination is for Cause (as defined in the rules of the Deferral Plan). The awards will normally continue
to vest on the original vesting dates, subject to provisions regarding malus, clawback, competitive activity
and detrimental activity as appropriate.
Existing long-term incentive awards normally lapse on leaving unless the termination is for one of a
limited number of specified good leaver reasons or the Committee exercises its discretion to prevent
lapsing. The Committee may exercise this discretion where it believes this is an appropriate outcome in
light of the contribution of the participant and shareholders interests. Where awards do not lapse on
termination, any vesting will normally take place on the original vesting dates subject to the performance
conditions being met and pro-rating to reflect the proportion of the period that has elapsed at the date of
termination. Malus and clawback provisions may also apply in accordance with policy.
Fixed share
allowances
Other provisions
Other payments
Provisions for nonexecutive directors

(NEDs) and the
Chairman
Treatment in line with

the plan rules as
approved by
shareholders
Standard contractual
terms in line with
market practice
Discretionary
Any shares already received under fixed share allowances will not be forfeited on termination but must
continue to be held for the original retention periods. The fixed share allowance will continue to accrue for
the period up to cessation of employment.
Contracts include standard clauses covering remuneration arrangements and discretionary incentive
plans (as set out in the main policy table above), reimbursement of reasonable out-of-pocket expenses
incurred in performance of duties, redundancy terms and sickness absence, the performance review
process, the disciplinary procedure and terms for dismissal in the event of personal underperformance or
breaches of RBS policies.
The Committee retains the discretion to make payments (including but not limited to professional and
outplacement fees) to mitigate against legal claims, subject to any payments being made pursuant to a
settlement or release agreement.
NEDs do not have service contracts or notice periods although they have letters of engagement reflecting
their responsibilities and time commitments. No compensation would be paid to any NED in the event of
termination of appointment.
Arrangements for the Chairman
Philip Hampton is entitled to receive a cash payment in lieu of notice of 12 months fees in the event that
his appointment is terminated as a result of the majority shareholder seeking to effect the termination of
his appointment, or if RBS terminates his appointment without good reason, or if his re-election is not
approved by shareholders at a General Meeting resulting in the termination of his appointment.
In accordance with the provisions of the UK Corporate Governance Code, all directors of the company stand for election or re-election annually by
shareholders at the companys Annual General Meetings. Neither of the current executive directors hold a non-executive director role at another
company.
80
Annual report on remuneration

Total remuneration paid to directors for 2014
The sections audited by the company's auditors, Deloitte LLP, are as indicated.
Total remuneration for executive directors (audited)
Current directors
Ross McEwan (1)
2014
000s
Salary
Benefits (4)
Pension
Annual bonus
Long-term Incentive Plan (LTIP) (5)
Other awards (6)
Total remuneration
1,000
143
350
358
1,851
Ewen Stevenson (2)

2014
000s
2013
000s
250
40
88
378
497
497
16
174
1,911
3,095
2013
000s
Former director
Nathan Bostock (3)
2014
000s
313
11
109
433
2013
000s
191
7
67
265
Notes:
(1) Ross McEwans remuneration for 2013 reflected his service from appointment to the Board on 1 October to 31 December 2013.
(2) Ewen Stevenson was appointed to the Board on 19 May 2014 and the table reflects his remuneration for the period since appointment.
(3) Nathan Bostock joined the Board on 1 October 2013 and stepped down from the Board on 28 May 2014. See page 84 for details of termination arrangements.
(4) Benefits figure includes standard benefit funding of 26,250 per annum with the remainder being relocation expenses provided to Ross McEwan.
(5) The value for Ross McEwan relates to an award made on appointment to his previous role as CEO UK Retail to replace awards forfeited on leaving Commonwealth Bank of Australia. This element of
the award was subject to RBS performance conditions which ended on 31 December 2014 and have been assessed as set out below.
(6) The amount shown for Ewen Stevenson relates to an award made on appointment to replace the value of awards forfeited on leaving Credit Suisse. The award was delivered entirely in shares and
subject to deferral, on terms that are no more generous than the terms of the awards replaced.
LTIP vesting amount included in the total remuneration table above (audited)
Ross McEwan was granted an award on joining RBS in 2012 to replace part of the awards forfeited on leaving Commonwealth Bank of Australia. This
element was subject to RBS performance conditions over a three year period. Given his change in role over the period, this has resulted in a weighting
of 50% being based on the performance of the Retail franchise and 50% based on RBS-wide measures. As the award does not vest until August 2015,
an indicative share price has been used to estimate the vesting value.
Number of shares under
award
Vesting outcome for RBS

measures (1)
Vesting outcome for

Retail measures (2)
Final vesting outcome

(weighted 50:50)
Number of shares to vest in

August 2015
Average share price

October December 2014
Value for total remuneration

table above
130,841
61.5%
84.2%
72.85%
95,318
3.76
358,396
Notes:
(1)
This element follows the performance conditions applicable to the overall RBS-wide measures for the 2012 LTIP awards and the assessment is detailed on page 85.
(2)
The performance measures applicable for UK Retail were based on: Financial targets (weighted 50%) covering risk weighted assets, nominal assets, loan:deposit ratio, notional return on equity,
operating profit, cost:income ratio; Customer measures (weighted 10%); People measures (weighted 10%); and Risk measures (weighted 30%). All financial targets were deemed to have been met
in full with the customer, people and risk measures ranked as partially met. The Committee also considered recommendations from the Board Risk Committee in determining the final outcome.
Share plan interests awarded under the LTIP during 2014 (audited)
Grant date
Ross McEwan (1)
Face value of
award (000)
Number of shares
awarded
7 March 2014
3,000
915,193
Ewen Stevenson (2) 19 May 2014
1,911
584,506
% that would vest at threshold and

maximum
Performance
requirements
Vesting between 0% - 100%

with 20% vesting at threshold
for the TSR measure and 25%
vesting at threshold for the
Economic Profit measure.
Conditional share awards subject to stretching

performance conditions covering Economic Profit,
Relative Total Shareholder Return, Safe & Secure
Bank and Customers & People. Performance
measured over a three year period. See page 85 for
further details.
Award made on appointment to replace the value of awards forfeited on leaving Credit
Suisse. The shares are deferred over a similar time period as the awards replaced and
subject to employment, malus and clawback provisions. No threshold vesting applies.
Notes:
(1) The number of shares awarded is based on a multiple of salary and an award price of 3.278 calculated based on the average share price over five business days prior to the grant date.
(2) The number of shares is based on the value of awards replaced and an award price of 3.270 calculated based on the average share price over five business days prior to the grant date.
81
Chairman and non-executive directors remuneration for 2014 (audited)

Remuneration of non-executive directors, excluding the Chairman, was reviewed in 2014. In light of the increased activity of the Nominations
Committee, and after consideration of comparable fees paid to directors of other major UK banks, it was agreed that fees for membership of the
Nominations Committee should be increased from 5,500 to 10,000 per annum with effect from 1 April 2014. An additional Board Committee was also
established to oversee RBS Capital Resolution and the implementation of its strategy. The fees paid during 2014 are set out below.
Board and
Committee fees
000s
Benefits and
other fees
000s
2014
Total
000s
2013
Total
000s
Philip Hampton (1)

Sandy Crombie
Alison Davis
Morten Friis (2)
Penny Hughes
Brendan Nelson
Baroness Noakes
750
213
141
112
149
178
183
186
35
751
213
141
112
184
178
183
186
751
186
132
7
154
164
136
Former non-executive directors

Tony Di Iorio (4)
Philip Scott (5)
34
125
11
45
125
136
164
Notes
(1) Philip Hampton is entitled to private medical cover and the value is shown in the benefits column.
(2) Morten Friis was appointed to the Board with effect from 10 April 2014.
(3) Robert Gillespie is the RBS nominated director of Citizens Financial Group, Inc. (CFG) and is entitled to fees for the period from 1 August 2014 to 31 December 2014. As part of the compensation
plan for directors agreed on the IPO of the business in September 2014, Mr Gillespie is also entitled to restricted stock units in CFG which will vest on the date of the CFG AGM in 2015. The value of
the fees and restricted stock is shown in the Benefits and other fees column, converted using an average exchange rate during 2014 of $1.647:1.
(4) Tony Di lorio became a non-executive director of CFG on 15 January 2014 and the value of fees received for the period to 26 March 2014, the date he retired from the RBS Board, is shown in the
Benefits and other fees column, converted using an average exchange rate during 2014 of $1.647:1.
(5) Philip Scott stepped down from the Board on 31 October 2014.
Implementation of remuneration policy in 2015

The information below sets out how RBS intends to implement the policy in 2015. No changes have been made to the underlying policy.
Executive directors
Chief Executive
Salary
Benefits
Pension
35% of salary
Fixed Share Allowance

100% of salary (1)
Long-term incentive award (LTI)

calculated in line with regulatory cap (2)
1,000,000
800,000
26,250 (3)
26,250
350,000
280,000
1,000,000
800,000
1,559,810
2,160,000
Notes:
(1) Fixed Share Allowance will be payable broadly in arrears and the shares will be released in equal tranches over a five year period.
(2) The LTI that can be awarded in 2015 is limited to the level of fixed remuneration, on an annualised basis where appropriate. The value at grant incorporates the discount factor for long-term deferral
calculated in line with European Banking Authority rules and results in a maximum LTI value of approximately 113% of fixed remuneration.
(3) Also receives relocation benefits which include housing and flight allowances, the value of which is disclosed each year in the total remuneration table.
Chairman and non-executive directors fees

Chairman
Non-executive Director Group Board
Senior Independent Director (SID)
Membership of: Group Audit Committee (GAC), Board Risk Committee (BRC),
Group Performance and Remuneration Committee (RemCo) and Sustainable Banking Committee (SBC)
Additional fee for Chairman of the GAC, BRC, RemCo or SBC
Membership of the RCR Board Oversight Committee (RCR BOC)
Additional fee for Chairman of the RCR BOC
Membership of Group Nominations Committee (NomsCo)
750,000
72,500
30,000
30,000
30,000
15,000
15,000
10,000
Morten Friis is the RBS Board nominated member of the Steering Group to oversee compliance remediation activities in respect of RBSs US businesses for which he receives fees of 15,000 per annum.
Board Committee membership as at 31 December 2014

Sandy Crombie
Alison Davis
Morten Friis
SID
RemCo
GAC
RemCo Chairman
SBC
BRC
GAC
NomsCo
NomsCo
RCR BOC
NomsCo
Robert Gillespie
BRC
RemCo
SBC
NomsCo
Penny Hughes
SBC Chairman
BRC
NomsCo
Brendan Nelson
GAC Chairman
BRC
RCR BOC
NomsCo
Baroness Noakes
BRC Chairman
RCR BOC Chairman
GAC
NomsCo
82
LTI awards to be granted to executive directors in 2015

Performance criteria
The performance measures are designed to be stretching and to support
delivery of the business strategy. The measures are discussed each year
with major shareholders. A three year performance period will apply
which will end, in normal circumstances, on 31 December 2017. Subject
to the achievement of the performance conditions, shares will then vest in
equal tranches in years four and five.
In line with previous practice, awards granted to executive directors in
March 2015 will be subject to four equally weighted performance
categories. For Ewen Stevensons award, each performance category
can vest up to 100% of base salary, subject to the maximum award under
the approved policy. Ross McEwans award will be structured in a similar
manner but at a lower level in line with the regulatory cap limiting the
amount of variable remuneration. Details of the performance measures
and the Committees rationale for selecting them are set out below.
Safe & Secure Bank (25%)

Reason: The Safe & Secure Bank measures have a particular focus on
risk reduction and the building of a safer, sustainable franchise.
Measure: The key measures in this category are the achievement of predetermined Common Equity Tier 1 (CET1) and Cost:income (C:I) ratios.
Customers & People (25%)
Reason: These measures reward management for building a customerfocussed franchise with strength in terms of reputation and the
engagement of employees. In February 2014, RBS committed to
targeting both trust and advocacy which is reflected in this category.
Measure: Net Promoter Scores (NPS) and Net Trust Scores (NTS) will
be used, measured against a defined peer group. Employee engagement
will be measured against the Global Financial Services (GFS) norm.
Performance target and weightings
Economic profit (25%)

Reason: Economic Profit, being a risk-adjusted financial measure, is
consistent with the PRA/FCA Remuneration Code and also provides a
balance between measuring growth and the cost of capital employed in
delivering that growth.
Measure: Economic Profit is defined as Operating Profit after Tax and
preference share charges less Tangible Net Asset Value multiplied by the
Cost of Equity. The measure will be based on the go-forward business.
Weighting
Performance target
Vesting range
25%
The economic profit target will be consistent

with the achievement of RBSs strategic long
term return on equity target of 12%+.
25 - 100%
Details of the actual targets, and performance against these, will be

disclosed retrospectively once the awards vest.
Relative Total Shareholder Return (25%)
Reason: Relative TSR provides a direct connection between executive
directors awards and relative returns delivered to shareholders.
Measure: The measure compares performance against a group of
comparator banks. The group and respective weightings were changed in
2014 to be more in line with the new strategy and the same comparator
group will apply to awards made in 2015.
Relative TSR Comparator Group
Weighting
1
2
3
4
5 to 13
Barclays
Lloyds Banking Group
HSBC
Standard Chartered
BBVA, BNP Paribas, Credit Agricole, Credit Suisse
Group, Deutsche Bank, Santander, Societe Generale,
UBS, Unicredito
200%
100%

Weighting
Performance target
Vesting range
25%
TSR between median and upper quartile
20 - 100%
50%
Category
Safe &
Secure
Bank
Metrics
CET1 ratio
(12.5%)
C:I ratio
(12.5%)
Advocacy
(6.25%)
Customers
Trust
& People
(6.25%)
Engagement
(12.5%)
Performance target
target consistent with the achievement of

RBSs target to operate at 13% for the period
of international network restructuring
target consistent with the achievement of
RBSs strategic long term C:I target of <50%
NPS gap to #1 of 6.0
(1)
NTS: NatWest 55, RBS 42

Employee Engagement Index within 2% of
GFS norm
Note:
(1) The NPS metric adopted is a bank-wide measure of the gap to #1 bank, which RBS plans to
close to zero by 2020. It is calculated using the gap to #1 leading competitor in each
customer segment, weighted by the revenue contribution of each segment.
The overall vesting under the above categories will be qualified by the
Committees discretion taking into account changes in circumstances
over the performance period, the margin by which individual targets have
been missed or exceeded, and any other relevant factors. Details of
performance against targets will be disclosed once the awards vest.
Risk underpin and clawback
The Committee will also review financial and operational performance
against the business strategy and the risk environment prior to agreeing
vesting of awards. In assessing this, the Committee will be advised
independently by the BRC. If the Committee considers that the vesting
outcome calibrated in line with the performance conditions outlined above
does not reflect underlying financial results or if the Committee is not
satisfied that conduct and risk management during the performance
period has been effective, then the terms of the awards allow for an
underpin to be used to reduce vesting or lapse the award.
All awards are subject to malus provisions which allow for awards to be
reduced, if appropriate to zero, prior to vesting. In addition, awards
granted in 2015 will be subject to clawback provisions for a period of
seven years from the grant date, in line with the requirements of the
PRA/FCA Remuneration Code. Any awards that vest will be subject to a
minimum six month retention period.
83
Payments for loss of office (audited)

Nathan Bostock ceased to be Group Finance Director on 19 May 2014 and stepped down from the Board on 28 May 2014. He continued to receive
payment of salary, pension and benefit funding until his employment ended on 18 August 2014 (a total of 234,952 for the period from 28 May to 18
August 2014). No payment was made for loss of office and all outstanding share awards were lapsed. There have been no payments made to departing
non-executive directors for loss of office.
Payments to past directors (audited)

Stephen Hester and Bruce Van Saun received shares on 7 March 2014 following the assessment of performance conditions for the LTIP award granted
in 2011. The award for Stephen Hester was reduced to reflect time served during the period. The underlying award structure consisted of four
performance categories each of which could give rise to shares worth 100% of salary at grant but with the overall maximum capped at 375% of salary.
The performance assessment is set out below. The current executive directors did not participate in this award.
Executive directors LTIP awards granted in 2011 final assessment of performance outcome (audited)
Performance Measure
Weighting
Threshold
performance
Vesting at
threshold
Performance for maximum vesting
Vesting at
maximum
Economic Profit
25%
Meet minimum
economic profit
targets
25%
Performance ahead of the

Strategic Plan
100%
Relative TSR
25%
TSR at median
20%
TSR at upper quartile
100%
Balance Sheet & Risk
25%
25%
25%
Objectives met or exceeded

in all material respects
100%
Strategic Scorecard
Half objectives
met
25%
100%
Actual performance
Vesting % of
maximum
The minimum target

was not met
0%
TSR was below

median
9/10 targets met or
exceeded (1)
0%
100%
targets not met (2)
0%
25%
Overall vesting outcome
Notes:
(1) Targets relating to non-core assets, cumulative non-core loss, Core Tier 1 capital, wholesale funding, liquidity, leverage ratio, loan to deposit ratio, risk appetite and funded assets were met or
exceeded. While the credit rating condition was not met, given the over-achievement on other measures, the Committee determined that the Balance Sheet & Risk element should vest in full.
(2) The cost:income ratio target was not achieved within the Strategic Scorecard and taking into account the extent of the shortfall, the Committee determined that this element should not vest.
Value of payments on vesting (audited)

Number of shares and value per category
Stephen Hester
Performance category
% vesting
Economic Profit
0%
Relative TSR
0%
100%
Strategic Scorecard
0%
Overall shares vesting (1)
25%
Check within maximum shares available to vest
Bruce Van Saun
Maximum shares (2)
Vested shares
Value (3)
Maximum shares (2)
Vested shares
Value (3)
257,912
257,912
257,912
257,912
257,912
257,912
955,228
858,847
858,847
170,677
170,677
170,677
170,677
170,677
170,677
632,136
568,354
568,354
Notes:
(1) The Committee also considered recommendations from the Board Risk Committee in determining the outcome above.
(2) The maximum number of shares is calculated in line with the underlying award structure where each of the four performance categories could give rise to shares worth 100% of salary at grant but
with the overall maximum capped at 375% of salary.
(3) Based on share price of 3.33 on date of vesting.
Total Pension Entitlements Bruce Van Saun (audited)

Bruce Van Saun's Unfunded Unapproved Retirement Benefit Scheme operates as a cash balance plan. The rate of return on the accrued fund is
determined annually to reflect a long-term low risk investment return on an unsecured basis. For 2014 this rate was 4%. His accrued entitlement at the
year end is shown below. There is no provision for any additional benefit on early retirement.
Balance at 1 January 2014
Aggregate contributions that would have been made if funded
Investment return
Total value of fund at 31 December 2014
2014
000s
2013
000s
1,030
41
1,071
682
306
42
1,030
84
Performance conditions for LTIP awards granted in 2012, 2013 and 2014
Awards are due to vest in 2015 to 2017. An assessment of performance of each relevant element is provided by the control functions and PwC
assesses relative TSR performance. The Committee determines overall vesting based on these assessments including consideration of the drivers of
performance and the context against which it was delivered. Each of the four performance categories could give rise to shares worth 100% of salary at
grant, but with the overall maximum capped at 300% of salary. The assessment is analytical and if any discretion is used in the final assessment, it will
be explained.
2012 LTIP final assessment of RBS-wide performance measures (audited)
Performance Measure
Weighting
Threshold
performance
Vesting at
threshold
Performance for maximum vesting
Vesting at
maximum
Actual Performance
Vesting % of
maximum
Economic Profit
25%
(3.5 billion)
25%
1 billion
100%
(1.8 billion)
53%
Relative TSR
25%
TSR at median
20%
TSR at upper quartile
100%
65th percentile ranking
68%
25%
100%
8/8 targets met (1)
100%
Strategic Scorecard
25%
100%
4/7 targets met (2)
25%
Half objectives
met
25%
25%
Objectives met or exceeded

in all material respects
61.5%
Overall vesting outcome (3)
Notes:
(1) Targets relating to non-core assets (<=40 billion), cumulative non-core loss (<=6.8 billion), Core Tier 1 capital (>10%), leverage ratio (<18x), wholesale funding (<10%), liquidity reserves (>1.5x
short-term wholesale funding), loan to deposit ratio (<=100%) and earnings volatility (<100%) were uniformly met or exceeded resulting in 100% vesting for this element of the award.
(2) Targets relating to customer franchise, cost:income ratio, lending targets, sustainability performance, employee engagement, leadership index and succession. The cost:income ratio and employee
engagement index were both behind target and overall it was determined that half of the Strategic Scorecard measures had been met satisfactorily resulting in a 25% vesting outcome.
(3) The Committee also considered recommendations from the Board Risk Committee in determining the outcome above.
2013 and 2014 LTIP current assessment

The table below shows performance assessment in respect of the 2013 and 2014 LTIP awards which are due to vest in March 2016 and March 2017
respectively. The table below represents an early indication of potential vesting outcomes only based on the position at 31 December 2014.
Performance measure
Weighting
Vesting
Threshold: 25% vesting for meeting minimum

economic profit targets
Economic Profit
25%
Maximum: 100% vesting for performance
ahead of the Strategic Plan.
Threshold: 20% vesting if TSR is at median of
the comparator group.
Relative TSR
25%

(for 2013 award)
Safe & Secure Bank
(for 2014 award)
25%
Strategic Scorecard
(for 2013 award)
25%
Customers & People
(for 2014 award)
Maximum: 100% vesting if TSR is at upper

quartile of the comparator group. Pro-rata
vesting in between.
For 2013, vesting will be qualified by
Committee discretion. Indicative vesting levels
are:
Over half of objectives not met: 0%;

Half of objectives met: 25%;
Two-thirds of objectives met: 62.5%; and
Objectives met or exceeded in all material
respects: 100%.
For 2014 awards, target ranges have been set

for each measure and vesting will be qualified
by Committee discretion taking into account the
margin by which targets have been missed or
exceeded.
2013 Current Assessment
2014 Current Assessment
Performance consistent with

some level of vesting based
on current assessment.
A strong start has been made

in 2014. The Committee notes
that strategic decisions have
been taken in 2014 and will
monitor the impact of these in
the remaining performance
period.
Latest assessment shows

percentile ranking of 53.7%
which would result in 32%
vesting for this element.
Latest assessment shows

percentile ranking of 100%
which would result in 100%
vesting for this element.
All measures currently

expected to be on track or
ahead of targets by end of
2015.
A strong start has been made

in 2014. The Committee notes
that strategic decisions have
been taken in 2014 and will
monitor the impact of these in
the remaining performance
period.
The cost:income ratio target

remains challenging and is
unlikely to be met.
Engagement Index is behind
target. Customer and
leadership metrics would
result in some level of vesting
on current assessment.
Engagement Index currently

behind target. Improvement in
Net Promoter Score over 2014
would lead to some level of
vesting if continued.
85
Directors interests in shares and shareholding requirements (audited)

The target shareholding level is 250% of salary for the Chief Executive and 125% of salary for the Chief Financial Officer, in each case excluding any
unvested share awards in the calculation. A period of five years is allowed in which to build up shareholdings to meet the required levels. Shareholding
requirements will be considered when relevant individuals request permission to sell shares, recognising the timeframe allowed to achieve the target
level. The Committee receives annual updates on progress towards meeting these requirements.
As at 31 December 2014 (or date of cessation if earlier)
Value (1)
% of shareholding
requirement met
Unvested LTIP awards
()
Shares beneficially owned
Ross McEwan
Ewen Stevenson
Nathan Bostock (2)
Philip Hampton
Sandy Crombie
Alison Davis
Morten Friis (3)
Robert Gillespie
Penny Hughes
Brendan Nelson
Baroness Noakes
Tony Di Iorio (4)
Philip Scott (5)
754,987
70,978
375,969
27,630
20,000
20,000
20,000
25,000
562
12,001
21,000
30,000
50,000
2,974,649
279,653
1,289,574
119%
28%
135%
1,742,186
584,506
Unvested Deferral Plan

awards
37,596
Notes:
(1) Value is based on the share price on 31 December 2014, which was 3.94; for Nathan Bostock the value is based on the share price of 3.43 on 28 May 2014, the date he stepped down from the
Board. During the year ended 31 December 2014, the share price ranged from 2.96 to 4.04.
(2) Stepped down from the Board on 28 May 2014.
(3) Interest is 10,000 American Depository Receipts representing 20,000 ordinary shares.
(4) Interest is 15,000 American Depository Receipts representing 30,000 ordinary shares. Stepped down from the Board on 26 March 2014.
No other director had an interest in the company's ordinary shares during the year or held a non-beneficial interest in the shares of the company at 31
December 2014, at 1 January 2014 or date of appointment if later. The interests shown above include connected persons of the directors. As at 25
February 2015, there were no changes to the directors' interests in shares shown in the table above.
Members of the Executive Committee are also subject to shareholding requirements with a target shareholding level of 125% of salary. In line with the
requirements of the PRA/FCA Remuneration Code and the RBS Staff Dealing Rules, employees must not engage in any personal hedging strategies to
lessen the impact of a reduction in value of unvested share awards, for example if the RBS share price goes down.
Directors interests under the Groups share plans (audited)
Long-Term Incentive Plan (LTIP) awards
Awards held at
1 January 2014 (or date of
appointment if later)
Ross McEwan
Ewen Stevenson (2)
562,929
696,152
Awards
granted
in 2014
(1)
1,259,081
584,506
915,193
915,193
Award
price
Awards
vested
in 2014
Market price
on vesting
2.14
3.09
3.28
432,088
3.40
Value on
vesting
Awards held at
31 December 2014
1,469,099
432,088
3.27
130,841
696,152
915,193
1,742,186
584,506
End of period for

qualifying conditions
to be fulfilled
07.08.15
08.03.16
07.03.17
09.03.15 07.03.17
Deferred awards
Awards held at
1 January 2014
Ross McEwan
56,395
Awards
granted
in 2014
Award
price
Awards
vested
in 2014
Market price
on vesting
3.09
18,799
3.33
Value on
Vesting
Awards held at
31 December 2014
62,601
37,596
End of period for

qualifying conditions
to be fulfilled
08.03.15 08.03.16
Notes:
(1) Relates to an award made to Ross McEwan on joining RBS as CEO UK Retail in September 2012 to replace awards forfeited on leaving Commonwealth Bank of Australia.
(2) Ewen Stevenson was appointed to the Board on 19 May 2014. Award granted on appointment to replace awards forfeited on leaving Credit Suisse.
Nathan Bostock stepped down from the Board on 28 May 2014. Outstanding share awards under the LTIP (2,151,234 shares), Deferred awards
(289,536 shares), the Executive Share Option Plan (option over 207,467 shares at 4.62) and the Medium-term Performance Plan (117,809 scheme
interests) all lapsed as a result of his departure.
86
Total Shareholder Return (TSR) performance

The graph below shows the performance of RBS over the past six years in terms of TSR compared with that of the companies comprising the FTSE 100
Index. This index has been selected because it represents a cross-section of leading UK companies. The TSR for FTSE UK banks for the same period
has been added for comparison. The TSR for the company and the indices have been rebased to 100 at 1 January 2009. Source: Datastream
200
180
160
140
120
RBS
100
FTSE 100
80
FTSE UK Banks
60
40
20
0
2008 YE
2009 YE
2010 YE
2011 YE
2012 YE
2013 YE
2014 YE
Historical Chief Executive pay over same period

2009
2010
2011
2012
2013 (1)
2014
1,647
3,687
1,646
1,646
Annual bonus against maximum opportunity
0%
85%
0%
0%
1,235 (SH)
378 (RM)
0%
1,851
n/a
LTIP vesting rates against maximum opportunity (2)
0%
0%
0%
0%
0%
72.85%
Total remuneration (000s)
Note:
(1) 2013 remuneration includes Stephen Hester (SH) as CEO for the period to 30 September and Ross McEwan (RM) for the period from 1 October to 31 December 2013.
(2) The LTIP vesting for Ross McEwan relates to an award made on appointment to his previous role as CEO UK Retail to replace awards forfeited on leaving Commonwealth Bank of Australia.
Change in Chief Executive pay compared to employees

The table below shows the percentage change in remuneration for the Chief Executive between 2014 and 2013 compared with the percentage change
in the average remuneration of RBS employees based in the UK. In each case, remuneration is based on salary, benefits and annual bonus.
Chief Executive (1)
UK employees (2)
Salary
2014 to 2013 change
Benefits
2014 to 2013 change
Annual Bonus
2014 to 2013 change
0%
3%
0%
3%
n/a
(4%)
Notes:
(1) Executive directors are not eligible for an annual bonus. Standard benefit funding for executive directors remained unchanged between 2013 and 2014. The benefits for the Chief Executive excludes
the relocation expenses provided to Ross McEwan as part of his recruitment as CEO UK Retail in 2012. The value of relocation benefits is disclosed each year in the total remuneration table.
(2) Data represents full year salary costs of the UK based employee population, which covers the majority of RBS employees and is considered to be the most representative comparator group.
Relative importance of spend on pay

The table below shows a comparison of remuneration expenditure against other disbursements.
Remuneration paid to all employees (2)
Distributions to holders of ordinary shares
Distributions to holders of preference shares (3)
Taxation and other charges recognised in the income statement:
- Social security and other payments
- Bank levy
- Corporation tax
Other payments made by RBS
- Irrecoverable VAT and other indirect taxes incurred by RBS (4)
2014 (1)
m
2013 (1)
m
change
5,225
699
5,554
398
(6%)
76%
379
250
1,909
422
200
186
(10%)
25%
1,723m
665
703
(5%)
Notes:
(1) Numbers exclude discontinued operations, principally CFG.
(2) Remuneration paid to all employees represents total staff expenses per Note 3 to the Financial Statements, exclusive of social security and other staff costs.
(3) Includes initial payment relating to the initial dividend on the Dividend Access Share in 2014.
(4) Input VAT and other indirect taxes not recoverable by RBS due to it being partially exempt.
The items above have been included as they reflect the key stakeholders for RBS and the major categories of disbursements made by RBS to its key
stakeholders, including its ordinary and preference shareholders and Governments in RBSs operational territories. The amounts included above have
been calculated in accordance with applicable accounting standards and reflect the amounts included in RBSs Income statement.
87
Consideration of matters relating to directors remuneration

Membership of the Group Performance and Remuneration
Committee
All members of the Committee are independent non-executive directors.
The Committee held nine scheduled meetings in 2014 and a further
seven ad hoc meetings.
Attended/
scheduled
Penny Hughes (1)

Sandy Crombie (2)
Alison Davis
5/5
9/9
9/9
6/6
Notes:
(1) Chair until 25 June 2014
(2) Chairman from 25 June 2014
(3) Robert Gillespie was appointed to the Committee on 1 April 2014.
Second quarter
Executive Committee members 2014 objectives.
Proposals for specific areas including CIB and RCR.

Compensation funding model including 2014 risk adjustment process.
Response to FCA letter in relation to Malus Performance Adjustment.
Group Sales and Service Incentives Committee 2013 annual
incentive report and FCA Incentives Thematic Review Report.
Third quarter
Review of the implementation of the remuneration policy.
Executive Committee members and attendees half year performance

reviews and objectives update.
Organisation design and executive grading framework update.

The role and responsibilities of the Committee
The Committee is responsible for approving the remuneration policy for
all employees and overseeing its implementation. It reviews performance
and makes recommendations to the Board in respect of the remuneration
arrangements of the executive directors. The Committee is also
responsible for approving remuneration arrangements for members and
formal attendees of the Executive Committee and employees with total
annual compensation which exceeds 1 million. It is also responsible for
setting the remuneration framework and principles for MRTs falling within
the scope of the PRA/FCA Remuneration Code. A definition of
employees deemed to be MRTs along with details of how risk is taken
into account in the remuneration process is provided on pages 91 and 92.
External environment including PRA consultation on further changes

to the Remuneration Code.
The Committee undertook a Masterclass in July 2014 where indepth consideration was given to pay construct and people
proposition; the role & scope of the Committee; and stakeholder
engagement.
Fourth quarter
2014 preliminary pay elements including bonus pool, deferral, LTIP
and clawback policy.
Remuneration Policy Statement for the PRA.

In mitigating potential conflicts of interest, directors are not involved in
decisions regarding their own remuneration and remuneration advisers
are appointed by the Committee rather than management. The terms of
reference of the Committee are available on www.rbs.com and these are
reviewed at least annually and approved by the Board.
Update on external environment and regulatory developments.

RCR remuneration proposals.
Consideration of governance issues including delegated authorities
and the Accountability Review framework.
Summary of the principal activity of the Committee during 2014

The Committee considered issues under the accountability review
process at every meeting and CRD IV implementation at the majority of
meetings. Consideration was also given to various remuneration issues
for CFG in the run up to its IPO. Set out below is a summary of other key
activities considered by the Committee.
First quarter
2013 performance reviews and remuneration arrangements for
members of the Executive Committee, Code Staff and high earners.
Approval of variable pay pools and Directors Remuneration Report.

Outcomes of the annual performance evaluation of the Committee.
Assessment of the performance to date of unvested LTIP awards and
performance targets for 2014 awards.
Appointment and departure terms for various senior positions.
Performance evaluation process

A thorough internal review of the effectiveness of the Committee was
conducted during 2014 involving questionnaires and follow-up interviews.
The Committee considered the outcomes of the evaluation and is
satisfied with the way in which the evaluation has been conducted.
The review concluded that the Committee continued to operate effectively
and the Masterclass was viewed as a positive development in building
the future agenda. Themes emerging from the evaluation included using
the time of the Committee more effectively and the need to focus on
higher level strategic performance and remuneration priorities. The
importance of concise papers highlighting key issues was also raised and
a roll out of board paper training is already underway in Q1 2015 to
address some of these concerns. Other priorities that were identified for
2015 included: alignment of remuneration strategy to the business
strategy; creating a compelling employee proposition; and considering
performance trajectory and the pay construct for the future business.
Presentation from Compliance and Risk on business and strategic

priorities and people plans.
88
Advisers to the Group Performance and Remuneration Committee

The Committee reviews its selection of advisers annually.
PricewaterhouseCoopers LLP (PwC) were appointed as the Committees
remuneration advisers on 14 September 2010 following a review of
potential advisers, and their appointment was reconfirmed by the
Committee in July 2014 after an annual review of the quality of the advice
received and fees charged. PwC are signatories to the voluntary code of
conduct in relation to remuneration consulting in the UK.
PwC also provide professional services in the ordinary course of
business including assurance, advisory, tax and legal advice to RBS
subsidiaries. The Chairman of the Committee is notified of other
remuneration work that is being undertaken by PwC. In addition, there
are processes in place to ensure the advice received by the Committee is
independent of any support provided to management. As well as
receiving advice from PwC in 2014, the Committee took account at
meetings of the views of the Chairman, Chief Executive, Chief Financial
Officer, Chief HR Officer, the Director, Organisation & Performance, the
Chief Governance Officer and Board Counsel, the Chief Risk Officer and
the Chief Conduct and Regulatory Affairs Officer. The fees paid to PwC
for advising the Committee in relation to directors remuneration are
charged on a time/cost basis and in 2014 amounted to 137,749
excluding VAT (2013 - 190,465).
Statement of Shareholding Voting
The table below sets out the voting by shareholders on the resolutions to
approve the Directors Remuneration Policy and the 2013 Remuneration
Report at the AGM held in June 2014.
1. Directors Remuneration Policy
For
Against
Total votes cast
Withheld
20,893,215,888
(99.66%)
70,382,756
(0.34%)
20,963,598,644
170,307,216
2. Annual Report on Remuneration for 2013

For
Against
Total votes cast
Withheld
21,034,273,904
(99.81%)
40,636,912
(0.19%)
21,074,910,816
58,993,972
Shareholders views and their impact on remuneration policy

An extensive consultation is undertaken every year with major
shareholders including UKFI and other stakeholders on our remuneration
approach. The consultation process, led by the Chairman of the
Committee, typically involves inviting our largest shareholders to attend
either one-to-one meetings or roundtable sessions with relevant
shareholder bodies. The process takes place in sufficient time for
shareholder views to be considered prior to the Committee making any
final decisions on remuneration and variable pay awards.
In late 2014 and early 2015, meetings took place with a number of
institutional shareholders and shareholder bodies representing a
substantial portion of the non-UKFI shareholding. The topics discussed
during the latest consultation included strategic direction and financial
performance, determination of pay outcomes for the 2014 performance
year, and developments that may impact pay arrangements going
forward.
Shareholders asked a number of questions including how conduct issues
and the FX fines would be reflected in the bonus pool. The evolving
regulatory environment and EBA guidance on role-based allowances
were also discussed. Some shareholders were interested to know
whether operating within the 1:1 ratio of variable to fixed remuneration
was causing any particular concerns for RBS. The potential impact on
recruitment and the importance of employee engagement were also
discussed. Another theme was explaining progress on performance
measures and it was noted that additional detail on LTIP performance
targets would be helpful.
The Chairman of the Committee responded to the questions by
explaining how adjustments for risk and conduct events were
incorporated into the bonus pool and also confirmed that operating within
the 1:1 cap had proved to be manageable to date. Overall, recruitment
into specialist roles had not been as difficult as had been anticipated
although certain hotspots remained. The future pay construct was also
discussed and the Chairman acknowledged the need for a fair sharing
ratio between rewards to employees and returns to shareholders over the
long-term.
The reaction to the consultation process was positive and allowed the
Committee to gain valuable insight into areas that shareholders were
likely to support and those areas of concern. Shareholders continue to
play a vital role in developing remuneration practices that support the
long-term interests of the business and the Committee is grateful and
greatly encouraged by their involvement in the process.
Shareholder dilution
During the ten year period to 31 December 2014, awards made that
could require new issue shares under the company's share plans
represented 4.7% of the company's issued ordinary share capital
(including the B share capital), leaving an available dilution headroom of
5.3%. The company meets its employee share plan obligations through a
combination of new issue shares and market purchase shares.
Sandy Crombie
25 February 2015
89
Other Remuneration Disclosures
Remuneration of eight highest paid senior executives below Board (1)

(000s)
Fixed pay (cash)
Annual bonus
Long term incentive awards (vested value)
Total remuneration (2)
Executive 1
Executive 2
Executive 3
Executive 4
Executive 5
Executive 6
Executive 7
Executive 8
800
800
449
2,049
594
600
211
1,405
550
550
193
1,293
600
600
1,200
575
600
1,175
492
500
144
1,136
536
288
196
1,020
575
300
875
Notes:
(1) Remuneration earned in 2014 at RBS for eight members of the Executive Committee. Reported remuneration was lower in 2013 due to:
i) pro-rated earnings and no long term incentive award vesting for new hires; and
ii) split year earnings of newly promoted Executive Committee members.
(2) Disclosure includes prior year long term incentive awards which vested during 2014. The amounts shown reflect the value of vested awards using the share price on the day the awards vested.
90
Our remuneration policy for all employees

The remuneration policy supports the business strategy and is designed to promote the long-term success of RBS. It aims to reward employees for
delivering good performance against targets provided this is achieved in a manner consistent with our values and within acceptable risk parameters.
The remuneration policy applies the same principles to all employees including Material Risk Takers (MRTs) subject to the PRA/FCA Remuneration
Code (1). The current key elements underpinning the remuneration policy are set out below.
Element of pay
Base salary
Objective
To aid recruitment and retention of
high performing individuals whilst
paying no more than is necessary. To
provide a competitive level of fixed
cash remuneration, reflecting the skills
and experience required, and to
discourage excessive risk taking.
Operation
Base salaries are reviewed annually and should reflect the talents, skills and
competencies that the individual brings to the business.
Role-based
allowance
To provide fixed pay that reflects the

skills and experience required for the
role.
Allowances are provided to certain employees in key roles in line with market practice,
structured to qualify as fixed remuneration for regulatory requirements. They are
delivered in cash and/or shares depending on the level of the allowance and the
seniority of the recipient. Shares are subject to an appropriate retention period, not less
than six months.
Benefits
To provide a range of flexible and
(including pension) market competitive benefits. To
encourage planning for retirement and
long-term savings.
In most jurisdictions, employee benefits or a cash equivalent are provided from a flexible
benefits account.
Annual bonus
The annual bonus pool is based on a balanced scorecard of measures including

customer, financial, risk and people measures. Allocation from the pool depends on
performance of the franchise or function and the individual. Individual performance
assessment is supported by a structured performance management framework.
To support a culture where employees

recognise the importance of serving
customers well and are rewarded for
superior performance.
Guaranteed awards are only used in very limited circumstances in accordance with the
PRA/FCA Remuneration Code. Immediate cash awards are limited to a maximum of
2,000. Under the deferral arrangements a significant proportion of annual bonus
awards for our more senior employees are deferred over a three year period. Deferred
awards are subject to malus and clawback provisions. For MRTs, a minimum of 50% of
any annual bonus is delivered in RBS shares and subject to a minimum six month
retention period post vesting.
In certain circumstances, formulaic short-term incentive arrangements are used to align
the objectives of employees with the strategy of the relevant area in which they work.
Long-term
incentive awards
Other share plans
To support a culture where good

performance against a full range of
measures will be rewarded. To
encourage the creation of value over
the long term and to align further the
rewards of the participants with the
returns to shareholders.
RBS provides certain employees in senior roles with long-term incentive awards.
Awards are structured as performance-vesting shares. Performance is typically
measured over a three year period.
To offer employees in certain

jurisdictions the opportunity to acquire
RBS shares.
Employees in certain countries are eligible to contribute to share plans which are not
subject to performance conditions.
The amount of the award that vests may vary between 0-100% depending on the
performance achieved. Awards are subject to malus and clawback provisions and a
minimum six month retention period applies to MRTs post vesting.
Note:
(1) The EBA has issued criteria for identifying MRT roles i.e. staff whose professional activities have a material influence over RBSs performance or risk profile. The criteria for identifying MRTs are both
Qualitative (based on the nature of the role) and Quantitative (i.e. those who exceed the stipulated total remuneration threshold based on the previous years total remuneration).
The Qualitative criteria can be summarised as: staff within the management body; senior management; other staff with key functional or managerial responsibilities; and staff, individually or as part of
a Committee, with authority to approve new business products or to commit to credit risk exposures and market risk transactions above certain levels.
The Quantitative Remuneration criteria are: individuals earning 500,000 or more in the previous year; or individuals in the top 0.3% of earners in the previous year; or individuals who earned more
than the lowest paid identified staff per the Qualitative criteria, subject to specific exceptions in the criteria.
In accordance with the PRA/FCA Remuneration Code and the RBS Staff Dealing Rules, the conditions attaching to discretionary share-based awards
prohibit the use of any personal hedging strategies to lessen the impact of a reduction in value of such awards.
91
How risk is reflected in our remuneration process

The RBS remuneration policy explicitly aligns remuneration with effective
risk management. Focus on risk is achieved through clear risk input into
objectives, performance reviews, the determination of variable pools and
incentive plan design as well as the application of malus and clawback.
The Committee is supported in this by the Board Risk Committee (BRC)
and the RBS risk management function.
A robust process is used to assess risk performance. A range of
measures are considered, specifically the overall Risk Profile, Credit,
Regulatory Risk & Conduct Risk, Operational Risk, Enterprise Risk and
Market Risk. The steps we take to ensure appropriate and thorough risk
adjustment are also fully disclosed and discussed with the PRA and the
FCA.
Decisions must take into account not only any financial losses, but
also behavioural issues and reputational or internal costs.
Collective responsibility may be considered where a committee or

group of employees are deemed to have not appropriately
discharged their duties.
Malus provisions apply to any unvested variable pay awards and

can be applied to reduce awards (if appropriate to zero) regardless
of whether or not disciplinary action has been undertaken.
In addition to malus provisions that RBS has operated for a number

of years, any variable pay awarded from 1 January 2014 was
subject to clawback and this policy was updated for MRTs from 1
January 2015 to extend clawback to seven years from the date of
grant. Clawback allows for the recovery of awards that have vested
and our policy is in line with the requirement under the PRA/FCA
Remuneration Code.
Variable pay pool determination

For the 2014 performance year, RBS has adopted a multi-step process
which is a control function led assessment to determine performance and
therefore the appropriate bonus pool by franchise and function.
The process considers a balanced scorecard of performance
assessments at the level of each franchise or support function. The
assessments are made across financial, customer and people measures.
Risk and conduct assessments at the same franchise or functional level
are then conducted to ensure that performance that is achieved without
appropriate risk and conduct controls or culture is not inappropriately
rewarded.
BRC will then review any material risk and conduct events and if
appropriate an underpin may be applied to the individual business and
function bonus pools and where appropriate to the overall RBS bonus
pool. BRC may recommend reduction of a bonus pool if it considers that
risk and conduct performance is unacceptable or that the impact of poor
risk management has yet to be fully reflected in the respective inputs.
Following further review against overall performance and conduct, the
Chief Executive will make a final recommendation to the Committee
informed by all the previous steps in the process and his strategic view of
the business. The Committee will then make an independent decision on
the final bonus pool taking all of these earlier steps into account.
Accountability review process and malus/clawback

Our Accountability Review process is an important tool in how we
manage remuneration and manage adjustments to remuneration. A
summary of the accountability review process is as follows:
Exists to enable RBS to respond in instances where current and/or

new information would change variable pay decisions made in
previous years and/or the decisions to be made in the current year.
The process for review assessments (which consider material risk

management, control and general policy breach failures,
accountability for those events and appropriate action against
individuals) is operated across RBS.
How have we applied this in practice?

The Accountability Review process is fully embedded and is operated
throughout the year. There are certain trigger events under which malus
and clawback will be considered including:
the individual participating in or being responsible for conduct which

results in significant losses for RBS;
the individual failing to meet appropriate standards of fitness and

propriety;
reasonable evidence of an individuals misbehaviour or material

error; and
RBS or the individuals relevant business unit suffering a material

failure of risk management.
During 2014 a number of issues and events were considered under the
Accountability Review framework. The outcomes covered a range of
actions including: forfeiture of unvested awards through malus, reduction
of current year variable pay awards; dismissal with forfeiture of unvested
awards; and suspension of awards pending further investigation.
Remuneration Code
As part of the annual remuneration governance process we provide
details of our approach to pay and how we comply with the Remuneration
Code to the PRA and FCA. As in previous years we have received the
required regulatory confirmation in order to conclude our year end
remuneration process.
92
Remuneration of MRTs
The quantitative disclosures below are made in accordance with Article
450 of the EU Capital Requirements Regulation in relation to employees
who have been identified as MRTs. During the year, there were 904
employees identified as MRTs excluding CFG (954 employees including
CFG). The tables below show remuneration details for the population
excluding CFG.
1. Aggregate remuneration expenditure
Aggregate remuneration expenditure in respect of 2014 performance was
as follows:
CIB
m
Rest of RBS
m
202.2
239.9
Fixed remuneration for 2014

Consisted of salaries, allowances, pensions and benefits.
Others
m
15.6
279.8
Total remuneration by band for all

employees earning >1 million
Variable remuneration for 2014 performance

Consisted of deferred awards payable over a three year period. Cash
awards were limited to a maximum of 2,000 per employee.
Form of remuneration
Variable remuneration (cash)
Deferred remuneration (bonds)
Deferred remuneration (shares)
Senior
management
m
Others
m
1.4
14.2
99.2
Long-term incentives awarded for 2014 performance

Long-term incentive awards vest subject to the extent to which
performance conditions are met and can result in zero payment.
Senior management
m
Others
m
14.4
17.5
1.0m
1.5m
2.0m
2.5m
3.0m
3.5m
4.0m
4.5m
5.0m
6.0m
7.0m
Total
In accordance with Article 94(1)(g) of the fourth Capital Requirements

Directive, the variable component of total remuneration for MRTs at RBS
shall not exceed 100% of the fixed component. Based on the information
disclosed above, the average ratio between fixed and variable
remuneration for 2014 is approximately 1:0.5.
3. Outstanding deferred remuneration through 2014
The table below includes deferred remuneration awarded or paid out in
2014 in respect of prior performance years. Deferred remuneration
reduced during the year relates to long-term incentives lapsed when
performance conditions are not met, long-term incentives and deferred
awards forfeited on leaving and malus of prior year deferred awards and
long-term incentives.
Category of deferred remuneration
Unvested from prior year
Awarded during the financial year
Paid out
Reduced from prior years
Unvested at year end
Notes on the presentation of remuneration

In the relevant tables above, assumptions have been made for the
notional value of LTIP (verified by external advisors) and forfeitures
through resignation for deferred awards. In addition, the share price
relevant to the date of the event or valuation point has been used.
All staff total remuneration
The average salary for all employees is 35,000.
15,500 employees earn between 50,000 and 100,000.
6,700 employees earn between 100,000 and 250,000.
1,200 employees earn total remuneration over 250,000.
2. Amounts and form of fixed and variable remuneration
Senior management
m
4. Sign-on and severance payments

A sign-on award for guaranteed variable remuneration of 190,000 is
included in the tables above. This relates to a commitment on
recruitment made in respect of one new employee. No severance
payments were made outside of contractual payments related to
termination of employment such as pay in lieu of notice and benefits.
Senior
management
m
Others
m
34.5
16.2
8.7
11.3
32.3
357.3
242.4
189.6
48.1
366.2
- 1.5m
- 2.0m
- 2.5m
- 3.0m
- 3.5m
- 4.0m
- 4.5m
- 5.0m
- 6.0m
- 7.0m
- 8.0m
Number of
employees
2014
Number of
employees
2013
59
29
8
5
3
0
1
2
3
0
0
88
22
6
4
3
1
2
2
2
0
1
110
131
Notes:
(1) Total remuneration in the table above includes fixed pay, pension and benefit funding and
variable pay (including actual value of LTIP vesting in 2014) after the application of clawback.
(2) Executive directors and 16 employees of CFG are not included in the table.
(3) An illustration of a comparable population from 2013 is shown for ease of reference. The
table is based on an exchange rate where applicable of 1.241 to 1
Employees that earned total remuneration of over 1 million in 2014

represent just 0.1% of our employees. This number reduces to 98
employees if we exclude pension and benefit funding. These employees
include those who manage major businesses and functions with
responsibility for significant assets, earnings or areas of strategic activity
and can be grouped as follows:
The CEOs responsible for each area and their direct reports.
Employees managing large businesses within a franchise.
Income generators responsible for high levels of income including
those involved in managing trading activity and supporting clients
with more complex financial transactions, including financial
restructuring.
Those responsible for managing our balance sheet and liquidity and
funding positions across the business.
Employees managing the successful disposal of assets in RCR and
reducing RBSs capital requirements.
93
Compliance report
Statement of compliance
RBS is committed to high standards of corporate governance, business integrity and professionalism in all its activities.
Throughout the year ended 31 December 2014, RBS has complied with all of the provisions of the UK Corporate Governance Code issued by the
Financial Reporting Council dated September 2012 (the Code) except in relation to provision (D.2.2) that the Group Performance and
Remuneration Committee should have delegated responsibility for setting remuneration for the Chairman and executive directors. RBS considers
that this is a matter which should rightly be reserved for the Board and this is an approach RBS has adopted for a number of years. Remuneration
for the executive directors is first considered by the Group Performance and Remuneration Committee which then makes recommendations to the
Board for consideration. This approach allows all non-executive directors, and not just those who are members of the Group Performance and
Remuneration Committee, to participate in decisions on the executive directors and the Chairmans remuneration and also allows the executive
directors to input to the decision on the Chairmans remuneration. The Board believes this approach is very much in line with the spirit of the Code
and no director is involved in decisions regarding his or her own remuneration. We do not anticipate any changes to our approach on this aspect of
the Code. Information on how RBS has applied the main principles of the Code can be found in the Corporate governance report on pages 42 to 93.
A copy of the Code can be found at www.frc.org.uk
RBS has also implemented the recommendations arising from the Walker Review and complied in all material respects with the Financial Reporting
Council Guidance on Audit Committees issued in September 2012.
Under the US Sarbanes-Oxley Act of 2002, specific standards of corporate governance and business and financial disclosures and controls apply to
companies with securities registered in the US. RBS complies with all applicable sections of the US Sarbanes-Oxley Act of 2002, subject to a
number of exceptions available to foreign private issuers.
Internal control
The Board is responsible for the system of internal control that is designed to facilitate effective and efficient operations and to ensure the quality of
internal and external reporting and compliance with applicable laws and regulations. In devising internal controls, RBS has regard to the nature and
extent of the risk, the likelihood of it crystallising and the cost of controls.
A system of internal control is designed to manage, but not eliminate, the risk of failure to achieve business objectives and can only provide
reasonable, and not absolute, assurance against the risk of material misstatement, fraud or losses.
The Board has established a process for the identification, evaluation and management of the significant risks faced by RBS, which operated
throughout the year ended 31 December 2014 and to 25 February 2015, the date the directors approved the Report and Accounts. This is
confirmed by a semi-annual Control Environment Certification process which requires senior members of the executive and management to assess
the adequacy and effectiveness of their internal control framework and certify that their business or function is compliant with the requirements of
Sarbanes-Oxley Section 404 and the UK Corporate Governance Code Section C2. The policies that govern these processes, and reports on
internal controls arising from them, are regularly reviewed by the Board and meet the requirements of the document entitled Guidance on Risk
Management, Internal Control and Related Financial and Business Reporting issued by the Financial Reporting Council in September 2014.
Enhancements have been made to the Risk Management framework throughout 2014 and further improvements will be made in 2015.
The effectiveness of RBSs internal controls framework is reviewed regularly by the Board, the Group Audit Committee and the Board Risk
Committee. Internal Audit provides independent assurance to the Board and executive management on the quality and effectiveness of
governance, risk management and internal controls to monitor, manage and mitigate risks in achieving RBSs objectives. Executive management
committees or boards of directors in each of the RBS businesses also receive regular reports on significant risks facing their business and how they
are being controlled. In addition, the Board receives monthly risk management reports. Details of the approach to risk management are given in the
Capital and risk management section. The Group Audit Committee has received confirmation that management has taken, or is taking, the
necessary action to remedy any material failings or weaknesses identified through the operation of RBSs framework of controls.
RBSs independent auditors present to the Group Audit Committee reports that include details of any significant internal control matters which they
have identified. The system of internal controls of the authorised institutions and other regulated entities in RBS is also subject to regulatory
oversight in the UK and overseas. Additional details of regulatory oversight are given in the Supervision section on page 470.
94
Compliance report
Internal control over financial reporting

RBS is required to comply with Section 404 of the US Sarbanes-Oxley Act of 2002 and assess the effectiveness of internal control over financial
reporting as of 31 December 2014.
RBS has assessed the effectiveness of its internal control over financial reporting as of 31 December 2014 based on the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission in the 2013 publication of Internal Control - Integrated Framework'.
Based on its assessment, management has concluded that, as of 31 December 2014, RBSs internal control over financial reporting is effective.
RBSs auditors have audited the effectiveness of RBSs internal control over financial reporting and have given an unqualified opinion.
Management's report on the RBSs internal control over financial reporting will be filed with the Securities and Exchange Commission as part of the
2014 Annual Report on Form 20-F.
Disclosure controls and procedures
As required by US regulations, management (including the Chief Executive and Chief Financial Officer) have conducted an evaluation of the
effectiveness and design of RBSs disclosure controls and procedures (as defined in the Exchange Act rules) as at 31 December 2014. Based on
this evaluation, management (including the Chief Executive and Chief Financial Officer) concluded that RBSs disclosure controls and procedures
were effective as of the end of the period covered by this annual report.
Changes in internal control
There was no change in RBSs internal control over financial reporting that occurred during the period covered by this report that has materially
affected, or is reasonably likely to materially affect, RBSs internal control over financial reporting.
The New York Stock Exchange
As a foreign issuer with American Depository Shares representing ordinary shares, preference shares and debt securities listed on the New York
Stock Exchange (the NYSE), RBS is not required to comply with all of the NYSE standards applicable to US domestic companies (the NYSE
Standards) provided that it follows home country practice in lieu of the NYSE Standards and discloses any significant ways in which its corporate
governance practices differ from the NYSE Standards. RBS is also required to provide an Annual Written Affirmation to the NYSE of its
compliance with the applicable NYSE Standards.
As a foreign private issuer, the company must, however, comply fully with the provisions of the NYSE Standards that relate to the composition,
responsibilities and operation of audit committees. These provisions incorporate the relevant rules concerning audit committees of the Exchange
Act. The Group Audit Committee complies with the provisions of the NYSE Standards that relate to the composition, responsibilities and operation
of audit committees. In May 2014, the company submitted its required annual written affirmation to the NYSE confirming its full compliance with
those and other applicable provisions. More detailed information about the Group Audit Committee and its work during 2014 is set out in the Group
Audit Committee report on pages 57 to 61.
RBS has reviewed its corporate governance arrangements and is satisfied that these are consistent with the NYSE Standards, subject to the
following departures: (i) the Chairman of the Board is also the Chairman of the Group Nominations Committee, which is permitted under the Code
(since the Chairman was considered independent on appointment) (ii) although the members of the Group Performance and Remuneration
Committee are deemed independent in compliance with the provisions of the Code, the Board has not assessed the independence of the members
of the Group Performance and Remuneration Committee and of its compensation committee advisers in accordance with the independence tests
prescribed by the NYSE Standards (iii) the NYSE Standards require that the compensation committee must have direct responsibility to review and
approve the Chief Executives remuneration. As stated at the start of this Compliance report, in the case of RBS, the Board, rather than the Group
Performance and Remuneration Committee, reserves the authority to make the final determination of the remuneration of the Chief Executive.
RBSs Group Audit, Board Risk, Sustainable Banking and Group Nominations Committees are otherwise composed solely of non-executive
directors deemed by the Board to be independent.
This Compliance report forms part of the Corporate governance report and the Report of the directors.
95
The directors present their report together with the audited accounts for
the year ended 31 December 2014.
Group structure
The company is a holding company owning the entire issued ordinary
share capital of The Royal Bank of Scotland plc, the principal direct
operating subsidiary undertaking of the company. RBS comprises the
company and all its subsidiary and associates, including the Royal Bank
and NatWest. Details of the principal subsidiary undertakings of the
company are shown in Note 8 on page 456.
Following placing and open offers in December 2008 and in April 2009,
HM Treasury (HMT) owned approximately 70.3% of the enlarged ordinary
share capital of the company. In December 2009, the company issued a
further 25.5 billion of new capital to HMT. This new capital took the form
of B shares, which do not generally carry voting rights at general
meetings of ordinary shareholders but are convertible into ordinary
shares and qualify as Core Tier 1 capital. Following the issuance of the B
shares, HMTs holding of ordinary shares of the company remained at
70.3%, although its economic interest rose to 84.4%.
At 31 December 2014, HMTs holding in the companys ordinary shares
was 62.3% and its economic interest was 79.1%.
Strategic review
On 27 February 2014, RBS announced a refreshed strategic direction
with the ambition of building a bank which earns its customers trust by
serving them better than any other bank.
RBS is now structured to deliver this ambition by organising itself around
the needs of its customers, so as to combine customer groups with
similar needs into franchises able to deliver co-ordinated services.
The reorganised bank will be a UK-focused retail and corporate bank with
an international footprint to drive its corporate business. The previously
reported operating divisions are now realigned into three franchises:
Personal & Business Banking (PBB), comprising two reportable

segments, UK Personal & Business Banking, including Williams &
Glyn, (UK PBB) and Ulster Bank.
Commercial & Private Banking (CPB), comprising two reportable

segments, Commercial Banking and Private Banking.
Corporate & Institutional Banking (CIB).
In addition to the segments noted above, RBS will continue to manage

and report Citizens Financial Group (CFG) and RBS Capital Resolution
(RCR) separately until disposal or wind-down.
RCR became fully operational on 1 January 2014 with a pool of c.29
billion of assets with particularly high long-term capital intensity, credit
risk and/or potentially volatile outcomes in stressed environments. RCR
brings these assets under common management and increases focus on
managing these assets down so as to release capital.
On 31 October 2014 RBS confirmed it will retain Ulster Bank following
completion of the strategic review. Ulster Bank remains a core part of
RBS, offering a good strategic fit with RBSs focused retail and
commercial banking strategy.
Results and dividends
The loss attributable to the ordinary and B shareholders of the company
for the year ended 31 December 2014 amounted to 3,470 million
compared with a loss of 8,995 million for the year ended 31 December
2013, as set out in the consolidated income statement on page 342.
The company did not pay a dividend on ordinary shares in 2013 or 2014.
RBS has now resumed payments on all discretionary non-equity capital
instruments following the end of the European Commission ban in 2012
for RBS and 2013 for RBS N.V. Future coupons and dividends on hybrid
capital instruments will only be paid subject to, and in accordance with,
the terms of the relevant instruments.
In the context of prior macro-prudential policy discussions, the Board
decided to partially neutralise any impact on Core Tier 1 capital of coupon
and dividend payments in respect of 2014 Group hybrid capital
instruments through equity issuances of c.300 million. Consequently,
approximately 300 million was raised during 2014 through the issue of
new ordinary shares.
For 2015, the Board has decided to continue partially neutralising the
Core Tier 1 impact of Group hybrid capital instruments. It is expected that
300 million of new equity will be issued during the course of 2015 to
achieve this aim.
The Dividend Access Share (DAS) retirement agreement was approved
at the General Meeting of shareholders held on 25 June 2014. The first
dividend payment on the DAS of 320 million was made in the third
quarter of 2014. The balance of 1.18 billion is to be paid by 31
December 2015, if the balance is not paid by this point then interest
begins to accrue on the balance outstanding at 5% per annum until 1
January 2021 and 10% thereafter.
96
Business review
Activities
RBS is engaged principally in providing a wide range of banking and
other financial services. Further details of the organisational structure and
business overview of RBS, including the products and services provided
by each of its segments and the competitive markets in which they
operate, are contained in the Business review on pages 105 to 107.
Details of the strategy for delivering the companys objectives can be
found in the Strategic report.
Risk factors
RBSs future performance and results could be materially different from
expected results depending on the outcome of certain potential risks and
uncertainties. Certain risk factors RBS faces are summarised in the
Business review on page 108 to 110. Fuller details of these and other risk
factors are set out on page 474 to 492.
The reported results of RBS are also sensitive to the accounting policies,
assumptions and estimates that underlie the preparation of its financial
statements. Details of RBSs critical accounting policies and key sources
of accounting judgments are included in Accounting policies on pages
357 to 359.
RBSs approach to risk management, including its financial risk
management objectives and policies and information on RBSs exposure
to price, credit, liquidity and cash flow risk, is discussed in the Business
review: Capital and risk management.
Financial performance
A review of RBS's performance during the year ended 31 December
2014, including details of each segment, and RBS's financial position as
at that date is contained in the Business review on pages 111 to 162.
RBS Holdings N.V. (formerly ABN AMRO Holding N.V.)
In 2007, RFS Holdings B.V., which was jointly owned by RBS, the Dutch
State (successor to Fortis) and Santander (together, the Consortium
Members) completed the acquisition of ABN AMRO Holding N.V.
On 1 April 2010, the businesses acquired by the Dutch State were
transferred to ABN AMRO Group N.V., itself owned by the Dutch State. In
connection with the transfer ABN AMRO Holding N.V. was renamed RBS
Holdings N.V. and its banking subsidiary was renamed The Royal Bank
of Scotland N.V. (RBS N.V.).
In October 2011, RBS completed the transfer of a substantial part of the
UK activities of RBS N.V. to the Royal Bank. Substantially all of the
Netherlands and EMEA businesses were transferred to the Royal Bank in
September 2012. Russia, Korea and the North American businesses
were transferred to the Royal Bank in 2013. During 2014, the Thailand
business was transferred to the Royal Bank. Certain assets of RBS N.V.
continue to be shared by the Consortium Members.
Business divestments
To comply with the European Commission State Aid requirements RBS
agreed a series of restructuring measures. These include the divestment
of Direct Line Insurance Group plc (completed in 2014) the sale of
80.01% of RBSs Global Merchant Services business (completed in
2010) and the sale of substantially all of the RBS Sempra Commodities
joint venture business (largely completed in 2010), as well as the
divestment of the RBS branch-based business in England and Wales and
the NatWest branches in Scotland, along with the direct SME customers
across the UK (UK branch-based businesses).
In October 2012, Santander UK plc withdrew from its agreed purchase of
the UK branch-based businesses. In September 2013, RBS reached an
agreement with an investor consortium led by Corsair Capital and
Centerbridge Partners for an investment in these businesses ahead of a
stock market flotation. This includes 308 RBS branches in England and
Wales. The new bank will be called Williams & Glyn, the brand RBS used
for its branches in England and Wales before 1985. It is intended that
Williams & Glyn will be launched by the end of 2016.
During 2014, RBS completed the disposal of its shareholding in Direct
Line Insurance Group (DLG). This followed earlier disposals of 34.7% of
DLG shares in 2012 and 36.8% of DLG shares in 2013.
In September 2014, RBS completed a partial IPO of Citizens Financial
Group (CFG) resulting in 28.75% of CFGs shares being floated. Full
disposal of CFG is expected by the end of 2016.
Employees
As at 31 December 2014, RBS employed 108,700 people (full-time
equivalent basis, including temporary workers) throughout the world.
Details of related costs are included in Note 3 on the consolidated
accounts.
Leadership
Developing great leaders with the capability to deliver our ambition to be
number one for customer service, trust and advocacy is a key priority,
aligned to our People and Leadership Standards. In 2014 we rolled out
Team Effectiveness sessions for new executive teams to help them role
model our values and lead the transition to a new RBS.
Employee engagement
For RBS, building an engaged, healthy and inclusive workforce is crucial.
Every year since 1999, through the Our View survey, people in all our
businesses have shared their thoughts about what its like to work at
RBS. The survey enables our people leaders to monitor levels of
engagement and work with their teams to make improvements to the
working environment. It also provides a mechanism for RBS to track
employee perception of our culture and the progress were making.
97
Living our values

The ways that we recruit, promote, reward, and manage our people are
all aligned to our values, and this coherent approach is making a
difference within the organisation with more people (year on year)
believing our values are making a difference to the way we work.
How we behave forms the character of our company and dictates how
others see us. RBSs code of conduct, Our Code, reflects our values and
applies to everyone who works here. It is supported by the YES Check: a
simple decision-making framework to help our people translate Our Code
into their day-to-day roles. The YES check has been designed to meet
the Financial Conduct Authoritys standard of conduct and is underpinned
by ethical principles.
Our Code lets everyone know what to expect of each other, what to do
when unsure of a decision, and where to go for advice when needed. Its
available at rbs.com>about us>our values, or without charge, upon
request, by contacting Corporate Governance and Secretariat at the
telephone number listed on page 516.
Customer performance
Our approach to performance management allows us to provide clarity
for our people about how their individual contribution links to our
ambition, reward the behaviour that supports our values, and hold
individuals to account for behaviour and performance that does not. In
2014 we completed alignment of our approach to performance
management across RBS, so that in 2015 there is consistent bank-wide
use of our balanced scorecard, People standards, Leadership standards,
and online system.
Simple Organisation
RBS is making steady progress towards building a smaller, simpler
organisation. In 2014, we defined clear principles and practices around
how the organisation would work, and new role accountabilities for the
top 150 roles across the RBS, as part of redesigning our operating
model.
Weve moved from seven divisions to three customer franchises,
redesigning our supporting functions and services to remove duplication
and unnecessary management layers. In addition to supporting our
strategic direction, this work has strengthened accountabilities across
RBS, with robust governance in place to ensure future organisation
designs are in line with these principles, positioning us to respond to
ongoing regulatory requirements.
Employee consultation
RBS recognises employee representatives such as trade unions and
work councils in a number of businesses and countries. Our European
Employee Council provides an opportunity for elected representatives
and management to discuss developments in RBSs European
operations. Discussions have continued to take place with employee
representatives where appropriate on the progress of our strategic plans.
Employee learning and development
RBS maintains a strong commitment to providing all our people with the
opportunity to grow through learning and development, which in turn
helps to achieve business objectives and drive excellent customer
service.
Supporting the professionalisation of our front line staff, all of our

customer-facing employees are aware of the professional standards
expected of them, and as at the end of 2014, 86% have completed
related professional development programmes, giving colleagues the
skills they need to do their job and serve customers well. Building the
capability of our people is also crucial to ensure effective compliance
behaviour. RBS has mandatory training modules for all employees to
improve their understanding of the processes and controls required to
properly manage key risks.
Diversity and inclusion
RBSs ambition is to be number one for customer service, trust and
advocacy in every one of our chosen business areas by 2020, supported
by a people commitment to make RBS a great place to work. Valuing
difference is therefore essential for our customers and colleagues. Our
inclusion policy standard applies to all our people globally; and our
strategy for diversity and inclusion sits with the Board and Executive
Committee.
Our approach during 2014/15 focuses on building inclusion into all stages
of the employee lifecycle. In 2014 we started rolling out bank-wide
unconscious bias learning for all employees, which will continue across
2015. Weve introduced a gender target to increase the number of
women in senior roles across RBS. And we continue to support our
employee-led networks, with membership across RBS at over 15,000
people.
This year RBS has been recognised for its work on Equality, Diversity
and Inclusion by retaining our Platinum ranking from Opportunity Now
(gender) for the second year; increasing our ranking from Silver to Gold
for Race for Opportunity (race); retaining a position in the Times Top 50
Employers for Women for the eighth consecutive year; and improving
upon our ranking in the Stonewall Workplace Equality Index (LGBT).
Wellbeing
Ensuring and supporting the wellbeing of our people is an important
responsibility for RBS. A wide range of health benefits and services is in
place to help them maintain good physical and psychological health, and
support them if they do become unwell, including Lifematters, RBSs
Employee Assistance Programme. We continue to enhance and promote
these services, targeting those issues that we know affect our peoples
ability to bring the best of themselves to work. In 2014, Lifematters Online
activity improved significantly through promotion via road shows,
wellbeing fairs, and internal communications; and the popularity of the
Lifematters App, which was launched in late 2013, continued to grow. In
2014 RBS also signed up to Time to Change: the UKs biggest
programme to challenge mental health stigma.
Sustainability
Sustainability at RBS means building our business around long term
thinking and support for our customers and the communities in which
they live. Our core responsibility is to obey the law and to ensure that our
business is built on safe and secure financial foundations, and we have
worked hard in the years since the financial crisis to achieve this position.
This underpins everything that RBS does and enables people to run their
daily lives and businesses. Our position as a provider of credit supports
economic growth and brings wider benefits to society.
98
But our ambition is to go further, to shape the world around us in a

positive way. We recognise that we still have a long way to go achieve
this position across our business. Sustainability is therefore not just about
the many responsibilities and obligations that RBS has, but about taking
leadership on a broad range of issues that are important to our
stakeholders.
reputation issues, considering the long term interests of all stakeholder
groups.
For more information on our approach and progress read the RBS
Sustainability Report, available on rbs.com/sustainable.
Greenhouse gas emissions
Disclosures relating to greenhouse gas emissions are included in the
Strategic report on page 39.
Going concern
RBSs business activities and financial position, the factors likely to affect
its future development and performance and its objectives and policies in
managing the financial risks to which it is exposed and its capital are
discussed in the Business review. The risk factors which could materially
affect RBSs future results are set out on page 474 to 492. RBSs
regulatory capital resources and significant developments in 2014 and
anticipated future developments are detailed on pages 195 to 215. The
liquidity and funding section on pages 216 to 230 describes RBSs
funding and liquidity profile, including changes in key metrics, the build up
of liquidity reserves and the outlook for 2015.
Having reviewed RBSs forecasts, projections and other relevant
evidence, the directors have a reasonable expectation that RBS and the
company will continue in operational existence for the foreseeable future.
Accordingly, the financial statements of RBS and of the company have
been prepared on a going concern basis.
BBA disclosure code
RBSs 2014 financial statements have been prepared in compliance with
the principles set out in the Code for Financial Reporting Disclosure
published by the British Bankers' Association in 2010.The Code sets out
five disclosure principles together with supporting guidance. The
principles are that RBS and other major UK banks will provide high
quality, meaningful and decision-useful disclosures; review and enhance
their financial instrument disclosures for key areas of interest to market
participants; assess the applicability and relevance of good practice
recommendations to their disclosures acknowledging the importance of
such guidance; seek to enhance the comparability of financial statement
disclosures across the UK banking sector; and clearly differentiate in their
annual reports between information that is audited and information that is
unaudited.
The company is committed to high standards of corporate governance.
Details are given in the Corporate governance report on pages 42 to 93.
The Corporate governance report and compliance report (pages 94 and
95) form part of this Report of the directors.
Share capital
Details of the ordinary and preference share capital at 31 December 2014
and movements during the year are shown in Note 26 on the
consolidated accounts.
During 2014, the company allotted and issued a total of 89 million new
ordinary shares of 1 each for the purposes of ensuring 2014 coupon
payments on discretionary hybrid capital securities were partly
neutralised from a Core Tier 1 capital perspective. The shares were
allotted to UBS AG at the subscription prices and determined by
reference to the average market prices during the sale periods set out
below.
Number of Subscription
shares sold price
Sale period
Gross proceeds
Share price
on allotment
32.8m
305.329p 27/2/2014 - 2/5/2014
100 million
331.7p
15.5m
328.910p 2/5/2014 3/7/2014
51 million
332.8p
23.9m
355.890p 1/8/2014- 30/9/2014
85 million
368.2p
16.8m
381.398p 31/10/2014-25/11/2014 64 million
387.1p
In addition, the company issued 74 million ordinary shares of 1 each in

connection with employee share schemes.
Where not provided elsewhere in the Report of the directors, the following
additional information is required to be disclosed by Part 6 of Schedule 7
to the Large and Medium-sized Companies and Groups (Accounts and
Reports) Regulations 2008.
The rights and obligations attached to the companys ordinary shares and
preference shares are set out in the companys Articles of Association,
copies of which can be obtained from Companies House in the UK or can
be found at rbs.com>about us.
On a show of hands at a general meeting of the company every holder of
ordinary shares and cumulative preference shares present in person or
by proxy and entitled to vote shall have one vote. On a poll, every holder
of ordinary shares or cumulative preference shares present in person or
by proxy and entitled to vote shall have four votes for every share held.
The notices of Annual General Meetings and General Meetings specify
the deadlines for exercising voting rights and appointing a proxy or
proxies to vote in relation to resolutions to be passed at the meeting.
The cumulative preference shares represent less than 0.014% of the total
voting rights of the company, the remainder being represented by the
ordinary shares.
There are no restrictions on the transfer of ordinary shares in the
company other than certain restrictions which may from time to time be
imposed by laws and regulations (for example, insider trading laws).
Pursuant to the Listing Rules of the FCA, certain employees of the
company require the approval of the company to deal in the companys
shares.
99
The rules governing the powers of directors, including in relation to

issuing or buying back shares and their appointment are set out in the
companys Articles of Association. It will be proposed at the 2015 Annual
General Meeting that the directors be granted authorities to allot shares
under the Companies Act 2006. The companys Articles of Association
may only be amended by a special resolution at a general meeting of
shareholders.
A number of the companys share plans include restrictions on transfers
of shares while shares are subject to the plans or the terms under which
the shares were awarded.
Directors
The names and brief biographical details of the current directors are
shown on pages 46 to 49.
Sandy Crombie, Alison Davis, Robert Gillespie, Philip Hampton, Penny
Hughes, Ross McEwan, Brendan Nelson and Baroness Noakes all
served throughout the year and to the date of signing of the financial
statements.
Tony di lorio stepped down from the Board on 26 March 2014.
Nathan Bostock stepped down from the Board on 28 May 2014.
The rights and obligations of holders of non-cumulative preference

shares are set out in Note 26 on the consolidated accounts.
Except in relation to the Dividend Access Share, the company is not
aware of any agreements between shareholders that may result in
restrictions on the transfer of securities and/or voting rights. There are no
persons holding securities carrying special rights with regard to control of
the company.
Under the rules of certain employee share plans, eligible employees are
entitled to acquire shares in the company, and shares are held in trust for
participants by The Royal Bank and Ulster Bank Dublin Trust Company
as Trustees. Voting rights are exercised by the Trustees on receipt of
participants instructions. If a participant does not submit an instruction to
the Trustee no vote is registered.
The Royal Bank of Scotland plc 1992 Employee Share Trust, The Royal
Bank of Scotland Group plc 2001 Employee Share Trust and The Royal
Bank of Scotland Group plc 2007 US Employee Share Trust hold shares
on behalf of RBSs employee share plans. The voting rights are
exercisable by the Trustees, however, in accordance with investor
protection guidelines, the Trustees abstain from voting. The Trustees
would take independent advice before accepting any offer in respect of
their shareholdings for the company in a takeover bid situation.
Awards granted under the companys employee share plans may be met
through a combination of newly issued shares and shares acquired in the
market by the companys employee benefit trusts.
A change of control of the company following a takeover bid may cause a
number of agreements to which the company is party to take effect, alter
or terminate. All of the companys employee share plans contain
provisions relating to a change of control. Outstanding awards and
options may vest and become exercisable on change of control, subject
where appropriate to the satisfaction of any performance conditions at
that time and pro-rating of awards. In the context of the company as a
whole, these agreements are not considered to be significant.
Phillip Scott stepped down from the Board on 31 October 2014.

Morten Friis was appointed to the Board on 10 April 2014.
Ewen Stevenson was appointed to the Board on 19 May 2014.
Davies as a non-executive director with effect from the end of June and
as Chairman from 1 September 2015.
All directors of the company are required to stand for election or reelection annually by shareholders at the Annual General Meeting and, in
accordance with the UK Listing Rules, the election or re-election of
independent directors requires approval by all shareholders and also by
independent shareholders.
Directors interests
The interests of the directors in the shares of the company at 31
December 2014 are shown on page 86. None of the directors held an
interest in the loan capital of the company or in the shares or loan capital
of any of the subsidiary undertakings of the company, during the period
from 1 January 2014 to 25 February 2015.
Directors indemnities
In terms of section 236 of the Companies Act 2006 (the Companies
Act), Qualifying Third Party Indemnity Provisions have been issued by
the company to its directors, members of the RBS Executive Committee,
PRA/FCA Approved Persons and certain directors and/or officers of RBS
subsidiaries.
In terms of section 236 of the Companies Act, Qualifying Pension
Scheme Indemnity Provisions have been issued to all trustees of RBS
pension schemes.
Post balance sheet events
There have been no significant events between the year end and the
date of approval of these accounts which would require a change to or
disclosure in the accounts.
Controlling shareholder
In accordance with the UK Listing Rules, the company has entered into
an agreement with HM Treasury (the Controlling Shareholder) which is
intended to ensure that the Controlling Shareholder complies with the
independence provisions set out in the UK Listing Rules. The company
has complied with the independence provisions in the relationship
agreement and as far as the company is aware the independence and
procurement provisions in the relationship agreement have been
complied with in the period by the controlling shareholder.
100
Shareholdings
The table below shows shareholders that have notified RBS that they
hold more than 3% of the total voting rights of the company at 31
December 2014.
Solicitor For The Affairs of Her
Majestys Treasury as Nominee
for Her Majestys Treasury
Ordinary shares
B shares (non-voting)
Number of shares % of share class

(millions)
held
3,964
51,000
62.3
100
% of total
voting rights
held
62.3
-
As at 25 February 2015, there were no changes to the shareholdings

shown in the table above.
Listing Rule 9.8.4
In accordance with the UK Financial Conduct Authoritys Listing Rules the
information to be included in the Annual Report and Accounts under LR
9.8.4, is set out in this Directors report with the exception of details of
contracts of significance under LR 9.8.4. (10) and (11) given in Additional
Information on pages 471 to 473.
Political donations
At the Annual General Meeting in 2014, shareholders gave authority
under Part 14 of the Companies Act, for a period of one year, for the
company (and its subsidiaries) to make political donations and incur
political expenditure up to a maximum aggregate sum of 100,000. This
authorisation was taken as a precaution only, as the company has a
longstanding policy of not making political donations or incurring political
expenditure within the ordinary meaning of those words. During 2014,
RBS made no political donations, nor incurred any political expenditure in
the UK or EU and it is not proposed that RBSs longstanding policy of not
making contributions to any political party be changed. Shareholders will
be asked to renew this authorisation at the Annual General Meeting in
2015.
Directors disclosure to auditors

Each of the directors at the date of approval of this report confirms that:
(a) so far as the director is aware, there is no relevant audit information of
which the companys auditors are unaware; and
(b) the director has taken all the steps that he/she ought to have taken as
a director to make himself/herself aware of any relevant audit information
and to establish that the companys auditors are aware of that
information.
This confirmation is given and should be interpreted in accordance with
the provisions of section 418 of the Companies Act.
Auditors
The auditors, Deloitte LLP, have indicated their willingness to continue in
office. A resolution to re-appoint Deloitte LLP as the companys auditors
will be proposed at the forthcoming Annual General Meeting.
As discussed in more detail in the Group Audit Committee report,
following a tender process, EY will be appointed as the companys
auditors for the financial year ending 31 December 2016, replacing
Deloitte.
By order of the Board
Aileen Taylor
Company Secretary
25 February 2015
The Royal Bank of Scotland Group plc
is registered in Scotland No. SC45551
101
This statement should be read in conjunction with the responsibilities of the auditor set out in their report on pages 336 to 341.
The directors are responsible for the preparation of the Annual Report and Accounts. The directors are required by Article 4 of the IAS Regulation
(European Commission Regulation No 1606/2002) to prepare Group accounts, and as permitted by the Companies Act 2006 have elected to prepare
company accounts, for each financial year in accordance with International Financial Reporting Standards as adopted by the European Union. They are
responsible for preparing accounts that present fairly the financial position, financial performance and cash flows of the Group and the company. In
preparing those accounts, the directors are required to:
select suitable accounting policies and then apply them consistently;
make judgements and estimates that are reasonable and prudent; and
state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the accounts.
The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the
Group and to enable them to ensure that the Annual Report and Accounts complies with the Companies Act 2006. They are also responsible for
safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors confirm that to the best of their knowledge:
the financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and
the Strategic Report and Directors report (incorporating the Business review) include a fair review of the development and performance of the
business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the
principal risks and uncertainties that they face.
In addition, the directors are of the opinion that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the companys performance, business model and strategy.
By order of the Board
Philip Hampton
Chairman
Ross McEwan
Chief Executive
Ewen Stevenson
Executive directors
Ross McEwan
Ewen Stevenson
Sandy Crombie
Alison Davis
Morten Friis
Robert Gillespie
Penny Hughes
Brendan Nelson
Baroness Noakes
25 February 2015
Board of directors
Chairman
Philip Hampton
102
Business review
104
105
107
108
111
112
113
116
126
158
161
162
163
166
168
Presentation of information
Description of business
Competition
Risk factors
Key financials
Summary consolidated income statement
Results summary
Analysis of results
Segment performance
Consolidated balance sheet
Cash flow
Capital resources
Reconciliations of non-statutory to statutory income statements
Analysis of balance sheet pre and post disposal groups
103
In the Report and Accounts, and unless specified otherwise, the term
company or RBSG means The Royal Bank of Scotland Group plc,
RBS, RBS Group or the Group means the company and its
subsidiaries, the Royal Bank or RBS plc means The Royal Bank of
Scotland plc and NatWest means National Westminster Bank Plc.
The company publishes its financial statements in pounds sterling ( or
sterling). The abbreviations m and bn represent millions and
thousands of millions of pounds sterling, respectively, and references to
pence represent pence in the United Kingdom (UK). Reference to
dollars or $ are to United States of America (US) dollars. The
abbreviations $m and $bn represent millions and thousands of millions
of dollars, respectively, and references to cents represent cents in the
US. The abbreviation represents the euro, the European single
currency, and the abbreviations m and bn represent millions and
thousands of millions of euros, respectively.
The geographic analysis in the Business Review, including the average
balance sheet and interest rates, changes in net interest income and
average interest rates, yields, spreads and margins in this report have
generally been compiled on the basis of location of office - UK and
overseas unless indicated otherwise. UK in this context includes
transactions conducted through the offices in the UK which service
international banking transactions.
The results, assets and liabilities of individual business units are
classified as trading or non-trading based on their predominant activity.
Although this method may result in some non-trading activity being
classified as trading, and vice versa, any resulting misclassification is not
expected to be material.
International Financial Reporting Standards
As required by the Companies Act 2006 and Article 4 of the European
Union IAS Regulation, the consolidated financial statements of RBS are
prepared in accordance with International Financial Reporting Standards
issued by the International Accounting Standards Board (IASB) and
interpretations issued by the IFRS Interpretations Committee of the IASB
as adopted by the European Union (together IFRS). They also comply
with IFRS as issued by the IASB.
Revised organisational structure
During 2014, RBS announced a new organisational structure based on
three franchises:
Personal & Business Banking, comprising two reportable segments,

UK Personal & Business Banking, including Williams & Glyn, and
Ulster Bank.
Commercial & Private Banking, comprising two reportable

segments, Commercial Banking and Private Banking.
Corporate & Institutional Banking, a single reportable segment.
In addition, RBS will continue to manage and report Citizens Financial

Group and RBS Capital Resolution (RCR) separately until disposal or
wind-down. No business lines were moved to RCR so comparative data
has not been restated. Non-Core was dissolved on 31 December 2013.
Non-statutory results
The financial information on a non-statutory basis, prepared using RBS
accounting policies, shows the underlying performance of RBS which
excludes certain reconciling items. Information is provided in this form to
give a better understanding of the results of RBS operations.
A number of previously reported reconciling items (Payment Protection
Insurance costs, Interest Rate Hedging Products redress and related
costs, regulatory and legal actions, restructuring costs, amortisation of
purchased intangible assets, write down of other intangible assets and
bank levy) have now been allocated to the reportable segments.
Consistent with the manner in which RBS is managed, operating profit on
a non-statutory basis excludes:
Own credit adjustments;

Gain on redemption of own debt;
Write down of goodwill;
Asset Protection Scheme;
Strategic disposals; and
RFS Holdings minority interest (RFS MI)
and includes the results of Citizens that are included in discontinued

In addition, during 2014 RBS also made changes to the method of
allocating costs relating to Services and Functions, the basis of allocation
of RBS Treasury costs and the calculation of segment return on equity.
For further information on these changes, see page 126.
Comparatives have been restated accordingly for the changes outlined
above.
Statutory results
The statutory results include the reconciling items in the appropriate
captions in the income statement.
Reconciliations between the non-statutory and statutory results are
detailed on pages 163 to 165.
Discontinued operations
RBS disposed of 29.5% of its interest in Citizens in 2014. In accordance
with IFRS 5 Non-current Assets Held for Sale and Discontinued
Operations, Citizens has been recognised as a discontinued operation
with consequent changes to the presentation of comparative financial
information. The assets and liabilities relating to Citizens are included in
disposal groups at 31 December 2014.
Glossary
A glossary of terms is provided on pages 505 to 511.
104
Business review
Introduction
The Royal Bank of Scotland Group plc is the holding company of a large
banking and financial services group. Headquartered in Edinburgh, RBS
operates in the United Kingdom, the United States and internationally
through its principal subsidiaries, the Royal Bank and NatWest. Both the
Royal Bank and NatWest are major UK clearing banks. In the United
States, RBS's subsidiary Citizens Financial Group Inc. is a large
commercial banking organisation. Globally, RBS has a diversified
customer base and provides a wide range of products and services to
personal, commercial and large corporate and institutional customers.
Following the placing and open offers in December 2008 and in April
2009, HM Treasury owned approximately 70.3% of the enlarged ordinary
share capital of the company. In December 2009, the company issued a
further 25.5 billion of new capital to HM Treasury. This new capital took
the form of B shares, which do not generally carry voting rights at general
meetings of ordinary shareholders but are convertible into ordinary
shares and qualify as Core Tier 1 capital. Following the issuance of the B
shares, HM Treasury's holding of ordinary shares of the company
remained at 70.3% although its economic interest rose to 84.4%.
At 31 December 2014, HM Treasurys holding in the companys ordinary
shares was 62.3% and its economic interest was 79.1%.
RBS had total assets of 1,051 billion and owners' equity of 57 billion at
31 December 2014. The risk asset ratios at 31 December 2014 were a
Total capital ratio of 13.7%, a Common Equity Tier 1 capital ratio of
11.2% and a Tier 1 capital ratio of 11.2%.
Organisational structure
On 27 February 2014, RBS announced a refreshed strategic direction
with the ambition of building a bank which earns its customers trust by
serving them better than any other bank.
RBS is now structured to deliver this ambition by organising itself around
the needs of its customers, so as to combine customer groups with
similar needs into franchises able to deliver co-ordinated services.
The reorganised bank will be a UK-focused retail and corporate bank with
an international footprint to drive its corporate business. The previously
reported operating divisions are now realigned into three franchises:
Personal & Business Banking (PBB) comprises two reportable segments,
UK Personal & Business Banking, including Williams & Glyn, (UK PBB)
and Ulster Bank:
UK Personal & Business Banking (UK PBB) offers a comprehensive

range of banking products and related financial services to the
personal and small business market. It serves customers through a
number of channels including: the Royal Bank and NatWest network
of branches and ATMs in the UK, telephony, online and mobile. UK
PBB is committed to serving customers well, making banking easier
and convenient whilst ensuring that we do business in an open,
honest and sustainable manner.
Ulster Bank is a leading retail and commercial bank in Northern

Ireland and the Republic of Ireland. It provides a comprehensive
range of financial services through both its Retail Banking division,
which provides loan and deposit products through a network of
branches and direct channels, and its Corporate Banking division,
which provides services to businesses and corporate customers.
Commercial & Private Banking (CPB) comprises two reportable

segments, Commercial Banking and Private Banking:
Commercial Banking is a leading provider of banking, finance and

risk management services to the commercial, mid-corporate and
corporate sector in the UK. It offers a full range of banking products
and related financial services through a nationwide network of
relationship managers, telephone and internet channels. The
product range includes invoice finance through the RBSIF brand and
asset finance through the Lombard brand.
Private Banking provides banking and wealth management services

in the UK through Coutts & Co and Adam & Company, offshore
through RBS International and Isle of Man Bank and internationally
through Coutts & Co Ltd.
Corporate & Institutional Banking (CIB) serves our corporate and

institutional clients primarily in the UK and Western Europe, as well as
those US and Asian multinationals with substantial trade and investment
links in the region, with debt financing, risk management and trade
services, focusing on core product capabilities that are of most relevance
to our clients. CIB is a single reportable segment.
In addition to the segments noted above, RBS will continue to manage
and report Citizens Financial Group (CFG) and RBS Capital Resolution
(RCR) separately until disposal or wind-down.
Citizens Financial Group (CFG) provides financial services primarily
through the Citizens and Charter One brands. CFG is engaged in retail
and corporate banking activities through its branch network in 11 states in
the United States and through non-branch offices in other states. RBS
disposed of 29.5% of its interest in CFG in 2014 and it is intended that
RBS will complete the disposal of CFG by 2016. CFG has been
reclassified as a discontinued operation, it continues to be presented as
reportable segment.
RBS Capital Resolution (RCR) became fully operational on 1 January
2014 with a pool of c.29 billion of assets with particularly high long-term
capital intensity, credit risk and/or potentially volatile outcomes in
stressed environments. RCR brings assets under common management
and increases focus on managing these assets so as to release capital.
Services supports the customer-facing businesses and provides
operational technology, customer support in telephony, account
management, lending and money transmission, global purchasing,
property and other services. Services drives efficiencies and supports
income growth across multiple brands and channels by using a single,
scalable platform and common processes wherever possible. It also
leverages RBSs purchasing power and is the centre of excellence for
managing large-scale and complex change. For reporting purposes,
Services costs are allocated to the operating segments above. It is not
deemed a reportable segment.
105
Business review
Description of business continued

Central Functions comprises corporate functions, such as treasury,
finance, risk management, compliance, legal, communications and
human resources. Central functions manages RBS capital resources and
RBS-wide regulatory projects and provides services to the reportable
segments.
To comply with the European Commission State Aid requirements RBS
agreed a series of restructuring measures. These included the sale of
80.01% of RBS Global Merchant Services business (completed in 2010)
and the sale of substantially all of the RBS Sempra Commodities joint
venture business (largely completed in 2010), as well as the divestment
of Direct Line Insurance Group plc (completed in 2014, following earlier
disposals of 34.7% of DLG shares in 2012 and 36.8% of DLG shares in
2013).
In October 2012, Santander UK plc withdrew from its agreed purchase of

the UK branch-based businesses. In September 2013, RBS reached an
agreement with an investor consortium led by Corsair Capital and
Centerbridge Partners for an investment in these businesses ahead of a
stock market flotation. This includes 308 RBS branches in England and
Wales along with the related direct SME customers across the UK (UK
branch-based businesses).The new bank will be called Williams & Glyn,
the brand RBS used for its branches in England and Wales before 1985.
It is intended that Williams & Glyn will be launched by the end of 2016.
In September 2014, RBS completed an initial public offering of 28.75% of
CFG common stock and currently has an interest of 70.5%. It is intended
that RBS will cede control of CFG by the end of 2015, with full disposal
completed by the end of 2016.
106
Business review
Competition
In the personal and small business banking business, the bank competes
with a range of providers including UK banks and building societies,
major retailers and life assurance companies, as well as the UK
subsidiaries of major international banks. In the mortgage market, the
bank competes with UK banks, building societies and specialist lenders.
Increasingly, the ambitions of non-traditional players in the UK market are
gaining credibility, with new entrants active and seeking to build their
platforms either through organic growth or in some cases by acquiring
businesses made available through restructuring of incumbents. Entrants
with new business models such as peer-to-peer lending platforms, while
currently small, have shown rapid growth and are emerging as significant
competitors. Such competitors often target specific elements of the value
chain or customer segments. RBS distributes life assurance products to
banking customers in competition with independent advisors and life
assurance companies.
In Ireland, Ulster Bank competes in retail and commercial banking with
the major Irish banks and building societies, and with other UK and
international banks and building societies active in the market.
In the UK credit card market large retailers and specialist card issuers are
active in addition to the UK banks. In addition to physical distribution
channels, providers compete through direct marketing activity and digital
channels.
Key competitive factors in this market segment include cost
management, growing digital sales focus, branch network re-shaping,
and product simplification. Cost management remains a key focus in the
market, as banks seek to simplify their organisational and IT architectures
while at the same time investing to ensure that they can meet customers
evolving channel preferences. Customers have increasingly focused on
the use of internet and mobile as sales and service channels for certain
types of products. Therefore, competitive position and performance in the
sector increasingly depends on the possession of user-friendly, diverse
and efficient online solutions. Although conveniently located branches are
still important, RBS faces competitive pressure to adjust its branch
formats to meet changing customer expectations and to manage its
branch footprint as over-the-counter transaction volumes decline. In
terms of product offering, the industry trend is to limit the number of
products and present the product structure and costs in a clear and
transparent manner.

Competition for corporate and institutional customers in the UK is from
UK banks, from specialised global and regional investment banks and
from large foreign universal banks that offer combined investment and
commercial banking capabilities as well as from new entrants and nonbank challengers. In asset finance and invoice finance, the bank
competes with banks and specialist finance providers, both captive and
non-captive. In the small business banking market, the bank competes
with other UK banks, specialist finance providers and building societies.
In all of these areas, entrants with new technology-based business model
are also showing rapid growth. In Private Banking, The Royal Bank of
Scotland International competes with other UK and international banks to
offer offshore banking services as well as domestic banking services in
the Channel Islands, Gibraltar and the Isle of Man. Coutts and Adam &
Company compete as private banks with UK clearing and private banks,
asset managers and with international private banks. Competition in
wealth management remains strong as banks maintain their focus on
competing for affluent and high net worth customers.
In UK, European, Asian and the US corporate and institutional banking
markets the bank competes with the large domestic banks active in these
markets, the major international banks and a number of investment
banks. Future competition in these markets, especially in Asia and the
US, will be impacted by the implementation of the refined CIB strategy.
With continued pressure on margins and fees, market participants stay
focused on optimising core businesses, principally through reallocation of
resources to areas generating economic returns where client
opportunities are greater. In some cases this means closing part of
overseas operations and focusing on home countries, while in others,
notably among Japanese banks, competitors are searching for growth
opportunities beyond home markets.
Citizens Financial Group (CFG)
In the United States, following a successful initial public offering, RBS
retains a controlling interest in CFG. CFG competes in the New England,
Mid-Atlantic and Mid-West retail and mid-corporate banking markets with
local and regional banks and other financial institutions. CFGs mortgage
lending, auto lending, student lending and commercial banking
businesses operate in select additional markets. CFG Commercial
Banking offers its corporate, not-for-profit and institutional clients a broad
range of wholesale banking products and services including treasury
services, specialty finance, foreign exchange, capital markets and debt
syndication.
107
Business review
Risk factors
Set out below is a summary of certain risks which could adversely affect
the Group; it should be read in conjunction with the Capital and risk
management section of the Business review (pages 168 to 334). This
summary should not be regarded as a complete and comprehensive
statement of all potential risks and uncertainties. A fuller description of
these and other risk factors is included on pages 474 to 492.
The Group is implementing a large number of existing and new

programmes and initiatives intended to improve the Groups capital
position, meet legal and regulatory requirements and result in the
Group becoming a safer and more competitive, customer focused
and profitable bank. These initiatives include, among other things,
the execution of the Groups strategic plan announced in 2013 and
2014 and which includes the implementation of its new divisional
and functional structure (the 2013/2014 Strategic Plan) as well as
a major investment programme to upgrade and rationalise the
Groups information technology (IT) and operational infrastructure
(the IT and Operational Investment Plan), further initiatives
designed to reduce the size of the Groups balance sheet and derisk its business, in particular through the divestments of the Groups
interest in Williams & Glyn, its remaining stake in Citizens Financial
Group, Inc. (CFG) and the higher risk and capital intensive assets
in RCR as well as a significant restructuring of the Groups
Corporate and Institutional Banking (CIB) division and of the
Groups business as a result of the implementation of the regulatory
ring-fencing of retail banking operations (the ring-fence). Together,
these initiatives are referred to as the Transformation Plan and
present significant risks for the Group, including the following:
The Transformation Plan, and in particular the restructuring of

the Groups CIB business and the divestment of certain of the
Groups portfolios and businesses, including its remaining stake
in CFG, are designed to allow the Group to achieve its capital
targets. There is no assurance that the Group will be able to
successfully implement these initiatives on which its capital plan
depends or that it will achieve its goals within the time frames
contemplated.
The implementation of the ring-fence will likely result in

considerable operational and legal difficulties as it will require
significant restructuring of the Group and its businesses with the
possible transfer of a large number of customers between new
or existing legal entities. This implementation exercise will be
complex, costly, will result in significant changes for the Groups
customers and there is no certainty that the Group will be able to
implement the ring-fence successfully or in time to meet the
regulatory deadline of 2019.
The changes to the Group resulting from the implementation of

the Transformation Plan will result in major changes to the
Groups corporate structure, the delivery of its business activities
in the UK and other jurisdictions as well as the Groups business
model. Although the goals of the Transformation Plan are for the
Group to emerge as a less complex and safer bank, there can
be no assurance that the final results will be successful and that
the Group will be a viable, competitive, customer focused and
profitable bank at the end of this long period of restructuring.
The level of structural change required to implement the Groups

Transformation Plan is likely to be disruptive and increase
operational and people risks for the Group. In addition, the
Group will incur significant costs in implementing the
Transformation Plan and its revenues may also be impacted by
lower levels of customer retention and revenue generation
following the restructuring of its business and activities. Further,
the competitive landscape in which the Group operates is
constantly evolving and recent regulatory and legal changes,
including ring-fencing, are likely to result in new market
participants. These changes, combined with the changes to the
Groups structure and business as a result of the implementation
of the Transformation Plan, may result in increased competitive
pressures on the Group.
Substantial investments are being made in the Groups IT and

operational structure through targeted investment and
rationalisation programmes as part of the IT and Operational
Investment Plan. Any failure by the Group to realise the benefits
of this IT and Operational Investment Plan, whether on time or
at all, could have a material adverse effect on the Groups
business and its ability to retain or grow its customer business
and remain competitive.
The Groups ability to implement its Transformation Plan and its

future success depends on its ability to attract and retain qualified
personnel. The Group could fail to attract or retain senior
management, which may include members of the Group Board, or
other key employees. The Groups changing strategy has led to the
departure of many talented staff. Implementation of the Groups
Transformation Plan, and in particular of the ring-fence and
restructuring of the Groups CIB business, as well as increased legal
and regulatory supervision, including the implementation of the new
responsibility regime introduced under the Financial Services
(Banking Reform) Act 2013 in the UK, (the Banking Reform Act
2013) including the new Senior Persons Regime, may further
hinder the Groups ability to attract or retain senior management and
other skilled personnel. Following the implementation of CRD IV and
the Governments views on variable compensation, there is now a
restriction on the Groups ability to pay individual bonuses greater
than fixed remuneration, which may put the Group at a competitive
disadvantage. An inability to attract and retain qualified personnel
could have an adverse impact on the implementation of the Groups
strategy and regulatory commitments.
The Group has been, and continues to be, subject to litigation and
regulatory and governmental investigations that may impact its
business, reputation, results of operations and financial condition.
Although the Group settled a number of legal proceedings and
regulatory investigations during 2014, the Group is expected to
continue to have material exposure to litigation and regulatory
proceedings in the medium term. The Group also expects greater
regulatory and governmental scrutiny for the foreseeable future
particularly as it relates to compliance with historical, existing and
new laws and regulations.
108
Business review
Ahead of the upcoming election in May 2015 in the UK, there is

uncertainty around how the policies of the newly elected government
may impact the Group, including a possible referendum on the UKs
membership of the EU. The implementation of these policies,
including the outcome of the EU referendum, could significantly
impact the environment in which the Group operates and the fiscal,
monetary, legal and regulatory requirements to which it is subject.
Operational and reputational risks are inherent in the Groups

businesses, but are heightened as a result of the implementation of
the Transformation Plan. Employee misconduct may also result in
regulatory sanctions and serious reputational or financial harm to the
Group.
Despite the improved outlook for the global and UK economy over
the near to medium-term, actual or perceived difficult global
economic conditions, potential volatility in the UK housing market as
well as increased competition, particularly in the UK, may create
challenging economic and market conditions and a difficult operating
environment for the Groups businesses, as it continues to refocus
its operations on the UK. These factors, together with continuing
uncertainty relating to the recovery of the eurozone economy and
volatile financial markets, in part due to the monetary and fiscal
policies and measures carried out by central banks, have adversely
affected and may continue to adversely affect the Groups
businesses, earnings, financial condition and prospects.
The Groups business performance, financial condition and capital

and liquidity ratios could be adversely affected if its capital is not
managed effectively or as a result of increasingly stringent
regulatory requirements relating to capital adequacy, including those
arising out of the implementation of Basel III or future proposals and
the uncertainty arising from the consistent implementation of such
rules in the various jurisdictions in which the Group operates.
Maintaining adequate capital resources and meeting the requisite
capital adequacy requirements may prove increasingly difficult and
costly and will depend on the Groups continued access to funding
sources, including following the implementation of the ring-fence, as
well as the effective management of its balance sheet and capital
resources.
The Groups ability to meet its obligations including its funding
commitments depends on the Groups ability to access sources of
liquidity and funding. The inability to access liquidity and funding due
to market conditions or otherwise or to do so at a reasonable cost,
could adversely affect the Groups financial condition and results of
operations. Furthermore, the Groups borrowing costs and its access
to the debt capital markets and other sources of liquidity depend
significantly on its and, to a lesser extent the UK Governments
credit ratings.
The Group is subject to substantial regulation and oversight and

although it is difficult to predict with certainty the effect that the
recent regulatory changes, developments and heightened levels of
public and regulatory scrutiny will have on the Group, the enactment
of legislation and regulations in the UK, the EU and the US has
resulted in increased capital, funding and liquidity requirements,
changes in the competitive landscape, changes in other regulatory
requirements and increased operating costs and has impacted, and
will continue to impact, products offerings and business models as
well as the risks that the Group may be unable to comply with such
requirements in the manner or within the timeframes required. A
number of reviews and investigations are currently ongoing in the
UK and other jurisdictions in which the Group operates which may
result in further legislative changes.
The Group or any of its UK bank subsidiaries may face the risk of
full nationalisation or other resolution procedures, including
recapitalisation of the Group or any of its UK bank subsidiaries,
through the exercise of the bail-in tool which was introduced in the
UK by the Banking Reform Act 2013 and implemented in line with
the provisions of the Bank Recovery and Resolution Directive. In the
event of the failure of the Group, various actions could be taken by
or on behalf of the UK Government, including actions in relation to
any securities issued, new or existing contractual arrangements and
transfers of part or all of the Groups businesses.
The Group is highly dependent on its IT systems, which are

currently subject to a significant investment and rationalisation
programme. The Group has been and expects to continue to be
subject to cyber-attacks which expose the Group to loss of customer
data or other sensitive information and which, combined with other
failures of the Groups information technology systems, may hinder
its ability to service its customers which could result in long-term
damage to the Groups reputation, businesses and brands.
As a result of the UK Governments majority shareholding in the

Group it is able to exercise a significant degree of influence over the
Group including on dividend policy, the election of directors or
appointment of senior management, remuneration policy and/or
limiting the Groups operations. The offer or sale by the UK
Government of all or a portion of its shareholding in the Company
could affect the market price of the equity shares and other
securities and acquisitions of ordinary shares by the UK
Government (including through conversions of other securities or
further purchases of shares) may result in the delisting of the
Company from the Official List.
109
Business review
Risk factors continued

The Group is required to make planned contributions to its pension
schemes and to compensation schemes in respect of certain
financial institutions (such as the UK Financial Services
Compensation Scheme). Pension contributions may be increased to
meet pension deficits or to address additional funding requirements,
including those which may arise in connection with the restructuring
of the Groups pension plan as a result of the implementation of the
ring-fence. The Group may also be required to make further
contributions under resolution financing arrangements applicable to
banks and investment firms. Additional or increased contributions
may have an adverse impact on the Groups results of operations,
cash flow and financial condition.
The deterioration of the prevailing economic and market conditions

and the actual or perceived failure or worsening credit of the Groups
counterparties or borrowers and depressed asset valuations
resulting from poor market conditions, have adversely affected the
Group and could continue to adversely affect the Group if, due to a
deterioration in economic and financial market conditions or
continuing weak economic growth, it were to recognise or realise
further write-downs or impairment charges. Changes in interest
rates, foreign exchange rates, oil and other commodity prices also
impact the value of the Groups investment and trading portfolios
and may have a material adverse effect on the Groups financial
performance and business operations.
The value of certain financial instruments recorded at fair value is

determined using financial models incorporating assumptions,
judgements and estimates that may change over time or may
ultimately not turn out to be accurate. The Groups valuation, capital
and stress test models and the parameters and assumptions on
which they are based rely on market data inputs and need to be
constantly updated to ensure their accuracy. Failure of these models
to accurately reflect changes in the environment in which the Group
operates or the failure to properly input any such changes could
have an adverse impact on the modeled results.
Developments in regulatory or tax legislation could have an effect on

how the Group conducts its business and on its results of operations
and financial condition, and the recoverability of certain deferred tax
assets recognised by the Group is subject to uncertainty.
110
Business review
Key financials
for the year ended 31 December

Total income (1)
Profit/(loss) before impairment losses (2)
Impairment releases/(losses)
Operating profit/(loss) before tax
Loss attributable to ordinary and B shareholders
Cost:income ratio (3)
Adjusted cost:income ratio (4)
Basic earnings/(loss) per ordinary and equivalent B share from
continuing operations (pence)
Adjusted earnings/(loss) per ordinary and equivalent B share from
continuing operations (pence) (5)
At 31 December
Funded balance sheet (6)
Total assets
Loans and advances to customers
Deposits (7)
Owners' equity
Risk asset ratios - Common Equity Tier 1/Core Tier 1 (8)
- Tier 1
- Total
2014
m
Non-statutory
2013
m
2012
m
2014
m
Statutory
2013
m
2012
m
18,197
2,348
1,155
2,643
(3,470)
87%
68%
19,442
932
(8,432)
(8,849)
(8,995)
95%
72%
22,085
4,166
(5,279)
(6,052)
(6,055)
81%
65%
15,150
1,291
1,352
2,643
(3,470)
91%
n/a
16,737
(729)
(8,120)
(8,849)
(8,995)
104%
n/a
14,715
(1,042)
(5,010)
(6,052)
(6,055)
107%
n/a
0.5p
(85.0p)
(58.9p)
0.5p
(85.0p)
(58.9p)
0.8p
(77.7p)
(30.2p)
n/a
n/a
n/a
2014
m
2013
m
2012
m
697,173
1,050,763
378,238
452,304
57,246
11.2%
11.2%
13.7%
739,839
1,027,878
440,722
534,859
58,742
10.9%
13.1%
16.5%
870,392
1,312,295
500,135
622,684
68,678
10.3%
12.4%
14.5%
Notes:
(1) Total income on a non-statutory basis excludes own credit adjustments, gain on redemption of own debt, Asset Protection Scheme, strategic disposals and RFS MI.
(2) Profit/(loss) on a non-statutory basis excludes own credit adjustments, gain on redemption of own debt, write down of goodwill, Asset Protection Scheme, strategic disposals and RFS MI.
(3) Cost:income ratio on a non-statutory basis represents operating expenses including litigation and conduct costs and integration and restructuring costs and excluding write down of goodwill and RFS
MI, expressed as a percentage of total income as defined in (1) above. On a statutory basis, cost:income ratio represents operating expenses expressed as a percentage of total income.
(4) Adjusted cost:income ratio on a non-statutory basis represents operating expenses excluding litigation and conduct costs and integration and restructuring costs, write down of goodwill and RFS MI,
expressed as a percentage of total income as defined in (1) above.
(5) Adjusted earnings/(loss) per ordinary and equivalent B share is based on earnings from continuing operations adjusted for own credit adjustments, gain on redemption of own debt, write down of
goodwill, Asset Protection Scheme and strategic disposals. Adjusted earnings per ordinary and equivalent B share excludes the participation rights of the dividend access share.
(6) Funded balance sheet represents total assets less derivatives.
(7) Comprises deposits by banks and customer accounts.
(8) Common Equity Tier 1 ratio with effect from 1 January 2014.
(9) The results of Citizens on a non-statutory basis are included in the appropriate captions and are included in discontinued operations in the statutory results.
111
Business review
Summary consolidated income statement for the year ended 31 December 2014
In the non-statutory income statement set out below, own credit adjustments, gain on redemption of own debt, write down of goodwill, Asset Protection
Scheme, strategic disposals and RFS Holdings minority interest are shown separately. In the statutory consolidated income statement on page 342,
these items are included in the appropriate captions. On a non-statutory basis the results of Citizens are included in the appropriate captions and are
included in discontinued operations in the statutory results.
Net interest income

Fees and commissions receivable
Fees and commissions payable
Other non-interest income
Non-interest income
Total income
Staff and non-staff expenses
Integration and restructuring costs
Litigation and conduct costs
Operating expenses
Profit/(loss) before impairment losses
Operating profit/(loss) (1)
Own credit adjustments
Gain on redemption of own debt
Write down of goodwill
Asset Protection Scheme
Strategic disposals
Citizens discontinued operations
RFS Holdings minority interest
Tax charge
Profit/(loss) from continuing operations
(Loss)/profit from discontinued operations, net of tax
- Citizens (2)
- Other
Loss for the year
Non-controlling interests
Other owners dividends
Dividend Access Share dividend
2014
m
Non-statutory
2013
m
2012
m
2014
m
Statutory
2013
m
2012
m
11,274
5,148
(900)
2,675
6,923
18,197
(12,398)
(1,257)
(2,194)
(15,849)
2,348
1,155
3,503
(146)
20
(130)
191
(771)
(24)
2,643
(1,909)
734
10,992
5,460
(942)
3,932
8,450
19,442
(14,010)
(656)
(3,844)
(18,510)
932
(8,432)
(7,500)
(120)
175
(1,059)
161
(606)
100
(8,849)
(186)
(9,035)
11,417
5,709
(833)
5,792
10,668
22,085
(14,313)
(1,415)
(2,191)
(17,919)
4,166
(5,279)
(1,113)
(4,649)
454
(18)
(44)
113
(775)
(20)
(6,052)
(156)
(6,208)
9,258
4,414
(875)
2,353
5,892
15,150
(13,859)
(13,859)
1,291
1,352
2,643
2,643
(1,909)
734
9,017
4,678
(923)
3,965
7,720
16,737
(17,466)
(17,466)
(729)
(8,120)
(8,849)
(8,849)
(186)
(9,035)
9,356
4,898
(818)
1,279
5,359
14,715
(15,757)
(15,757)
(1,042)
(5,010)
(6,052)
(6,052)
(156)
(6,208)
(3,486)
41
(3,445)
(2,711)
(60)
(379)
(320)
(3,470)
410
148
558
(8,477)
(120)
(398)
(8,995)
490
(172)
318
(5,890)
136
(301)
(6,055)
(3,486)
41
(3,445)
(2,711)
(60)
(379)
(320)
(3,470)
410
148
558
(8,477)
(120)
(398)
(8,995)
490
(172)
318
(5,890)
136
(301)
(6,055)
Notes:
(1) On a statutory basis, operating profit/(loss) excludes the results of Citizens.
(2) Included within Citizens discontinued operations are the results of the reportable operating segment Citizens Financial Group (CFG), the loss provision for CFG on transfer to disposal groups, certain
Citizens related activities in Central items and related one-off and other items.
Basic earnings/(loss) per ordinary and equivalent B share from

continuing operations
Strategic disposals
Adjusted earnings/(loss) per ordinary and equivalent B share from
continuing operations
2014
m
2013
m
2012
m
0.5p
1.1p
(0.2p)
1.1p
(1.7p)
(85.0p)
1.0p
(1.7p)
9.4p
(1.4p)
(58.9p)
32.5p
(3.2p)
0.1p
0.3p
(1.0p)
0.8p
(77.7p)
(30.2p)
112
Business review
Results summary
2014 compared with 2013
Operating profit
On a non-statutory basis, operating profit excluding own credit
adjustments, gain on redemption of own debt, write down of goodwill,
strategic disposals and RFS MI and including the results of Citizens,
which is classified as a discontinued operation improved to 3,503 million
for 2014, compared with an operating loss of 7,500 million in 2013,
benefiting from improved operating results in core businesses together
with significant impairment releases in Ulster Bank and RCR.
On a statutory basis, operating profit was 2,643 million compared with a
loss of 8,849 million in 2013. This included a reduction of 929 million in
goodwill write down. The loss from discontinued operations of 3,445
million reflected a 3,994 million fair value adjustment in relation to the
reclassification of CFG to disposal groups.
Total income
On a non-statutory basis, total income was 18,197 million, down 6%
from 2013, with improvements in net interest income in PBB and CPB
offset by lower income from trading activities in CIB, in line with its
smaller balance sheet and reduced risk profile.
On a statutory basis, total income was 15,150 million, down 9% from
2013, including the impact of lower gains from the redemption of own
debt of 20 million in 2014 compared with 175 million in 2013.
Net interest income
On a non-statutory basis, net interest income increased by 3% to 11,274
million with improvements in deposit margins in PBB and CPB supported
by a larger balance sheet in CFG through purchased portfolios, increased
investments and organic growth.
On a statutory basis, net interest income increased by 3% to 9,258
million which excluded the impact of CFG.
On a non-statutory basis, net interest margin was 2.23% (statutory basis
2.13%), up from 2.01% (statutory basis - 1.88%) in 2013, with improved
liability margins partially offset by pressure on mortgage and corporate
lending margins and by the continuing shift in mix towards lower margin
secured lending.
Non-interest income
On a non-statutory basis, non-interest income declined by 1,527 million,
or 18%, to 6,923 million, principally reflecting a 46% reduction in income
from trading activities in line with CIBs smaller balance sheet and
reduced risk profile and lower gains on the disposal of available-for-sale
securities in RBS Treasury which were down 575 million to 149 million
for 2014
Net fees and commission on both a non-statutory and statutory basis fell
by 6% principally reflecting declines in CIB and Commercial Banking.
On a statutory basis, non-interest income declined by 1,828 million or
24% to 5,892 million including lower gains from the redemption of own
debt of 20 million compared with 175 million in 2013.
Operating expenses
On a non-statutory basis, operating expenses decreased by 2,661
million or 14% to 15,849 million. Operating expenses excluding
restructuring costs of 1,257 million and litigation and conduct costs of
2,194 million declined by 1,612 million, or 12%, to 12,398 million,
mainly reflecting cost savings of 1.1 billion.
Litigation and conducts costs totalled 2,194 million compared with
3,844 million in 2013. This included additional provisions for PPI redress
(650 million) in PBB, provisions relating to investigations into the foreign
exchange market (720 million) in CIB, Interest Rate Hedging Product
redress (185 million), the fine relating to the 2012 IT incident (59
million) booked in Centre and other costs (580 million) including
provisions relating to packaged accounts and investment products.
Restructuring costs increased by 601 million to 1,257 million, including
378 million in relation to Williams & Glyn and a 247 million write-off of
intangible assets.
On a statutory basis, operating expenses decreased by 3,607 million or
21% to 13,859 million, including write down of goodwill of 130 million in
2014 compared with 1,059 million in 2013.
Impairment losses
On a non-statutory basis, net impairment releases were 1,155 million
compared with a net impairment charge of 8,432 million in 2013, which
included 4,490 million provisions related to the creation of RCR.
Releases were recorded principally in RCR (1,306 million) and in Ulster
Bank (365 million), which benefited from favourable economic and
market conditions supported by rising Irish property values and proactive
debt management. Excluding these releases, the underlying charge was
lower at just over 500 million.
On a statutory basis, net impairment releases of 1,352 million were
recorded in 2014 compared with a net impairment charge of 8,120
million and excluded the impact of Citizens.
On a non-statutory basis, loan impairment releases represented 0.3%
(statutory basis - 0.4%) of gross loans and advances to customers
(excluding repos) compared with loan impairment charges of 2.0%
(statutory basis - 2.0%) in 2013.
On a non-statutory basis, risk elements in lending represented 6.8%
(statutory basis - 7.6%) of loans and advances to customers excluding
reverse repos, compared with 9.4% (statutory basis - 9.5%) the previous
year. Provision coverage remained stable at 65% (statutory basis - 64%).
Non-operating items
Non-operating items shown separately on a non-statutory basis included
a charge of 146 million (2013 - 120 million) for own credit adjustments.
Liability management exercises undertaken during 2014 resulted in a net
gain of 20 million (2013 - 175 million).
113
Business review
Results summary continued

Tax
The tax charge of 1,909 million included a net write-off of deferred tax
assets of 1.5 billion relating to the UK (850 million) and the US (775
million), reflecting the impact of scaling back the CIB operations, partially
offset by write-backs relating to Ulster Bank.
Earnings per share
Basic earnings per ordinary and equivalent B share from continuing
operations was 0.5p per share compared with a loss of 85.0p per share in
2013. Adjusted earnings per ordinary and equivalent B share from
continuing operations was 0.8p per share compared with a loss of 77.7p
per share in 2013.
Operating loss
On a non-statutory basis, operating loss excluding own credit
adjustments, gain on redemption of own debt, write down of goodwill,
strategic disposals RFS MI and in 2012 the Asset Protection Scheme,
and including the results of Citizens was 7,500 million compared with
1,113 million in 2012. The decline in performance primarily related to
increased impairment losses resulting from the establishment of RCR,
elevated conduct and litigation costs and lower income in CIB.
On a statutory basis, operating loss for the year was 8,849 million
compared with 6,052 million in 2012. This reflected 4,529 million lower
own credit adjustment partially offset by a 1,041 million higher write-off
of goodwill.
Total income
On a non-statutory basis, total income decreased by 12% to 19,442
million principally driven by lower income in CIB reflecting the smaller
balance sheet, reduced risk levels and the uncertain market environment.
On a statutory basis, total income increased by 14% to 16,737 million in
2013 primarily reflecting a lower accounting charge for own credit of 120
million in 2013 compared with 4,649 million in 2012.
Net interest income
On a non-statutory basis, net interest income decreased by 4% to
10,992 million largely reflecting lower interest-earning asset balances
partially offset by re-pricing initiatives.
On a statutory basis, net interest income decreased by 4% to 9,017
million and excluded the impact of Citizens.
On a non-statutory basis, net interest margin improved by 9 basis points
to 2.01% and on a statutory basis by 10 basis points to 1.88% This was
driven by moves to reprice deposits in a number of segments, partially
offset by a roll-off in higher yielding securities.
Non-interest income
On a non-statutory basis, non-interest income decreased by 21% to
8,450 million in 2013 principally driven by lower income from trading
activities in CIB as the segment managed down the scale of the balance
sheet and reduced risk. This was partially offset by a 506 million
improvement in Non-Core trading losses. Operating lease and rental
income fell by 392 million, largely reflecting the disposal of RBS Aviation
Capital in 2012.
On a statutory basis, non-interest income increased 44% to 7,720

million from 5,359 million in 2012. This included a loss on own credit
adjustments of 120 million (2012 - 4,649 million), net gain on
redemption of own debt of 175 million (2012 - 454 million) and
movements in the fair value of the Asset Protection Scheme resulting in a
44 million charge in 2012.
Operating expenses
On a non-statutory basis, operating expenses increased by 591 million,
or 3% to 18,510 million operating expenses excluding conduct and
litigation costs and integration and restructuring costs decreased 2% to
14,010 million. This was primarily due to staff costs down 7% as
headcount fell by 4% to 114,900, principally in UK PBB, Ulster Bank, CIB
and Non-Core driven by exiting staff and lower central support
requirements on run-down partially offset by the write-down of other
intangible assets, including software, of 344 million related to CIB.
Litigation and conduct costs of 3,844 million (2012 - 2,191 million),
reflected a charge for PPI of 900 million in 2013, a charge of 550
million for redress in relation to certain interest-rate hedging products sold
to small and medium-sized businesses classified as retail clients under
FSA rules and charges relating to regulatory and legal actions of 2,394
million, these charges primarily relate to various claims and conduct
related matters affecting RBS companies, primarily those related to
mortgage-backed securities and securities related litigation.
Integration and restructuring costs were 656 million compared with
1,415 million in 2012 with most of the costs relating to the Retail
transformation, a reduction in the size of the CIB segment and
programme costs for the EC mandated disposal of certain UK branchbased businesses.
On a statutory basis, operating expenses increased 11% to 17,466
million from 15,757 million in 2012, including write down of goodwill of
1,059 million (2012 - 18 million).
Impairment losses
On a non-statutory basis, impairment losses increased by 60% to 8,432
million from 5,279 million in 2012 primarily due to increased charges
resulting from the establishment of RCR. Excluding the impact of RCR
(4,490 million), impairment losses fell by 25% to 3,942 million with
significant improvements in Non-Core, UK PBB and Ulster Bank partially
offset by increases in CFG and CIB.
On a statutory basis, net impairment losses were 8,120 million
compared to 5,010 million.
On a non-statutory and statutory basis, loan impairments represented
2.0% of gross loans and advances to customers excluding reverse repos
compared with 1.2% (statutory basis 1.1%) in 2012.
On a non-statutory basis, risk elements in lending at 31 December 2013
represented 9.4% (statutory basis 9.5%) of loans and advances
excluding reverse repos, compared with 9.1% (statutory basis 9.1%) a
year earlier. On a non-statutory and statutory basis, provision coverage
was 64% compared with 52% at 31 December 2012.
114
Business review
Non-operating items
Non-operating items shown separately on a non-statutory basis included
a 120 million accounting charge in relation to own credit adjustments
versus 4,649 million in 2012 reflecting the continuing, albeit modest,
strengthening of RBSs credit profile
The Asset Protection Scheme, which the RBS exited from in 2012, was
accounted for as a credit derivative and movements in the fair value of
the contract included in income from trading activities. The APS fair value
charge was 44 million in 2012.
The gain on strategic disposals of 161 million primarily relates to the
disposal of RBS remaining interest in WorldPay. In 2012 the gain of 113
million primarily related to the disposal of RBS Aviation Capital.
Write down of goodwill was 1,059 million compared with 18 million in

2012 in relation to a write-off in CIB.
Tax
The tax charge was 186 million in 2013 compared with 156 million in
2012. The tax charge for the year reflects losses in low tax regimes
(principally Ireland), losses in overseas subsidiaries for which a deferred
tax asset has not been recognised (principally Ireland), a reduction in the
carrying value of the deferred tax asset in respect of UK losses and the
effect of the reduction of 3% in the rate of UK corporation tax enacted in
July 2013.
Loss per share
Basic loss per ordinary and equivalent B share from continuing
operations was 85.0p per share compared with 58.9p per share in 2012.
Adjusted loss per ordinary and equivalent B share from continuing
operations was 77.7p per share compared with 30.2p per share in 2012.
115
Business review
Analysis of results
Net interest income
Interest receivable (1,2,4,5)

Interest payable (1,2,3,5)
Net interest income
Yields, spreads and margins of the banking business
Gross yield on interest-earning assets of the banking business (6)
Cost of interest-bearing liabilities of the banking business
Interest spread of the banking business (7)
Benefit from interest-free funds
Net interest margin of the banking business (8)
Gross yield (6)
- Group
- UK
- Overseas
Interest spread (7)
- Group
- UK
- Overseas
Net interest margin (8)
- Group
- UK
- Overseas
The Royal Bank of Scotland plc base rate (average)
London inter-bank three month offered rates (average)
- Sterling
- Eurodollar
- Euro
2014
m
Non-statutory
2013
m
2012
m
2014
m
Statutory
2013
m
2012
m
15,294
(4,067)
11,227
16,706
(5,800)
10,906
18,538
(7,127)
11,411
13,090
(3,879)
9,211
14,454
(5,523)
8,931
16,091
(6,741)
9,350
3.04
(1.13)
1.91
0.32
2.23
3.07
(1.38)
1.69
0.32
2.01
3.12
(1.49)
1.63
0.29
1.92
3.03
(1.24)
1.79
0.34
2.13
3.04
(1.47)
1.57
0.31
1.88
3.07
(1.57)
1.50
0.28
1.78
3.04
3.57
2.15
3.07
3.53
2.32
3.12
3.48
2.56
3.03
3.57
1.56
3.04
3.53
1.84
3.07
3.48
2.15
1.91
2.35
1.31
1.69
2.01
1.30
1.63
1.83
1.41
1.79
2.35
0.19
1.57
2.01
0.57
1.50
1.83
0.84
2.23
2.52
1.75
2.01
2.17
1.74
1.92
1.98
1.82
2.13
2.52
1.08
1.88
2.17
1.16
1.78
1.98
1.34
0.50
0.50
0.50
0.50
0.50
0.50
0.54
0.23
0.21
0.52
0.24
0.27
0.82
0.43
0.53
0.54
0.23
0.21
0.52
0.24
0.27
0.82
0.43
0.53
Notes:
(1) Interest receivable has been increased by 11 million (2013 - 4 million; 2012 - 8 million) and interest payable has been increased by 58 million (2013 - 83 million; 2012 - 152 million) to record
interest on financial assets and liabilities designated as at fair value through profit or loss. Related interest-earning assets and interest-bearing liabilities have also been adjusted.
(2) Interest receivable has been decreased by nil (2013 - 38 million; 2012 - nil) and interest payable has been decreased by nil (2013 - 31 million; 2012 - 138 million) in respect of non-recurring
adjustments.
(3) Interest payable has been decreased by 3 million (2013 - 11 million; 2012 - 15 million) to exclude RFS Holdings minority interest.
(4) Interest receivable includes 794 million (2013 - 798 million; 2012 - 565 million) in respect of loan fees forming part of the effective interest rate of loans and receivables.
(5) Interest receivable has been increased by 2,204 million (2013 - 2,252 million; 2012 - 2,447 million) and interest payable has been increased by 191 million (2013 - 288 million; 2012 - 401
million) to include the discontinued operations of Citizens. Related interest-earning assets and interest-bearing liabilities have also been adjusted.
(6) Gross yield is the interest earned on average interest-earning assets of the banking book.
(7) Interest spread is the difference between the gross yield and the interest rate paid on average interest-bearing liabilities of the banking business.
(8) Net interest margin is net interest income of the banking business as a percentage of average interest-earning assets of the banking business.
(9) The analysis into UK and overseas has been compiled on the basis of location of office.
(10) Interest receivable and interest payable on trading assets and liabilities are included in income from trading activities.
(11) Interest income includes amounts (unwind of discount) recognised on impaired loans and receivables. The average balances of such loans are included in average loans and advances to banks and
loans and advances to customers.
116
Business review
Average balance sheet and related interest

Non-statutory 2014
Average
balance
Interest
m
m
Assets
Loans and advances to banks
Debt securities
Interest-earning assets
Total interest-earning assets
- UK
- Overseas
- UK
- Overseas
- UK
- Overseas
- UK
- Overseas
- banking business (1,2,4,5)
- trading business (10)
Non-interest-earning assets
Total assets
Percentage of assets applicable to overseas operations
Liabilities
Deposits by banks
- UK
- Overseas
Customer accounts: demand deposits - UK
- Overseas
Customer accounts: savings deposits
- UK
- Overseas
Customer accounts: other time deposits - UK
- Overseas
Debt securities in issue
- UK
- Overseas
Subordinated liabilities
- UK
- Overseas
Internal funding of trading business
- UK
- Overseas
Interest-bearing liabilities
- UK
- Overseas
Total interest-bearing liabilities
Non-interest-bearing liabilities:
Demand deposits
- UK
- Overseas
Other liabilities
Owners' equity
Total liabilities and owners' equity
Percentage of liabilities applicable to overseas operations
34,592
34,779
252,695
126,727
28,639
25,398
315,926
186,904
502,830
216
154
10,792
3,396
267
469
11,275
4,019
15,294
Rate
%
0.62
0.44
4.27
2.68
0.93
1.85
3.57
2.15
3.04
Non-statutory 2013
Average
balance
Interest
m
m
42,466
32,240
256,728
143,128
38,391
30,928
337,585
206,296
543,881
166,643
669,473
371,881
1,041,354
216,211
760,092
467,274
1,227,366
27.4%
33.0%
5,860
10,730
118,628
32,169
85,649
25,344
18,866
17,405
38,801
2,857
19,144
4,515
(15,426)
(4,635)
271,522
88,385
359,907
49
92
470
136
710
68
278
217
1,042
27
685
202
89
2
3,323
744
4,067
0.84
0.86
0.40
0.42
0.83
0.27
1.47
1.25
2.69
0.95
3.58
4.47
(0.58)
(0.04)
1.22
0.84
1.13
7,997
15,477
123,707
35,733
93,245
28,864
31,714
22,806
50,684
5,239
17,775
6,413
(24,041)
4,477
301,081
119,009
420,090
177,156
537,063
223,264
643,354
58,060
26,815
357,841
61,575
1,041,354
55,303
21,304
438,856
68,549
1,227,366
29.6%
28.7%
Rate
%
261
169
11,022
4,065
628
561
11,911
4,795
16,706
0.61
0.52
4.29
2.84
1.64
1.81
3.53
2.32
3.07
144
251
501
169
1,266
101
433
361
1,244
145
650
206
348
(19)
4,586
1,214
5,800
1.80
1.62
0.40
0.47
1.36
0.35
1.37
1.58
2.45
2.77
3.66
3.21
(1.45)
(0.42)
1.52
1.02
1.38
For the notes to this table refer to page 116.
117
Business review
Average balance sheet and related interest continued

Non-statutory 2012
Average
balance
Interest
m
m
Assets
Debt securities
- UK
- Overseas
- UK
- Overseas
- UK
- Overseas
- UK
- Overseas
Total assets
Liabilities
Deposits by banks
- UK
- Overseas
- Overseas
- UK
- Overseas
- Overseas
- UK
- Overseas
- UK
- Overseas
- UK
- Overseas
- UK
- Overseas
- banking business (1,3,5)
Demand deposits
- UK
- Overseas
Other liabilities
Owners' equity
33,656
40,342
277,646
151,740
50,457
40,221
361,759
232,303
594,062
Rate
m
248
245
11,326
4,862
1,023
834
12,597
5,941
18,538
0.74
0.61
4.08
3.20
2.03
2.07
3.48
2.56
3.12
196
384
643
210
1,479
133
522
509
1,831
342
490
189
264
(65)
5,425
1,702
7,127
1.07
1.91
0.53
0.60
1.74
0.49
1.31
1.95
2.64
1.52
3.06
3.21
(1.25)
(0.54)
1.65
1.15
1.49
240,131
834,193
596,179
1,430,372
37.8%
18,276
20,129
121,541
35,087
84,972
26,989
39,813
26,038
69,272
22,469
16,026
5,891
(21,140)
11,992
328,760
148,595
477,355
248,647
726,002
46,420
27,900
556,242
73,808
1,430,372
33.9%
118
Business review
Statutory 2014
Average
balance
m
Assets
Debt securities
- UK
- Overseas
- UK
- Overseas
- UK
- Overseas
- UK
- Overseas
- banking business (1,2,4)
Total assets
Liabilities
Deposits by banks
- UK
- Overseas
- Overseas
- UK
- Overseas
- Overseas
- UK
- Overseas
- UK
- Overseas
- UK
- Overseas
- UK
- Overseas
- banking business (1,2)
Demand deposits
- UK
- Overseas
Other liabilities
Owners' equity
34,592
33,383
252,695
72,034
28,639
11,165
315,926
116,582
432,508
Interest
m
216
151
10,792
1,555
267
109
11,275
1,815
13,090
Statutory 2013
Rate
%
0.62
0.45
4.27
2.16
0.93
0.98
3.57
1.56
3.03
Average
balance
m
42,466
30,716
256,728
87,846
38,391
19,379
337,585
137,941
475,526
166,643
599,151
442,203
1,041,354
216,211
691,737
535,629
1,227,366
27.4%
33.0%
5,860
4,327
118,628
21,622
85,649
1,595
18,866
11,155
38,801
2,156
19,144
4,302
(15,426)
(4,635)
271,522
40,522
312,044
49
26
470
128
710
21
278
162
1,042
25
685
192
89
2
3,323
556
3,879
0.84
0.60
0.40
0.59
0.83
1.32
1.47
1.45
2.69
1.16
3.58
4.46
(0.58)
(0.04)
1.22
1.37
1.24
7,997
14,629
123,707
26,228
93,245
2,131
31,714
14,907
50,684
5,002
17,775
6,190
(24,041)
4,477
301,081
73,564
374,645
177,156
489,200
223,264
597,909
58,060
11,153
421,366
61,575
1,041,354
55,303
5,052
500,553
68,549
1,227,366
29.6%
28.7%
Interest
m
Rate
%
261
172
11,022
2,105
628
266
11,911
2,543
14,454
0.61
0.56
4.29
2.40
1.64
1.37
3.53
1.84
3.04
144
133
501
163
1,266
33
433
286
1,244
144
650
197
348
(19)
4,586
937
5,523
1.80
0.91
0.40
0.62
1.36
1.55
1.37
1.92
2.45
2.88
3.66
3.18
(1.45)
(0.42)
1.52
1.27
1.47
119
Business review
Average balance sheet and related interest continued

Statutory 2012
Average
balance
m
Assets
Debt securities
- UK
- Overseas
- UK
- Overseas
- UK
- Overseas
- UK
- Overseas
Total assets
Liabilities
Deposits by banks
- UK
- Overseas
- Overseas
- UK
- Overseas
- Overseas
- UK
- Overseas
- UK
- Overseas
- UK
- Overseas
- UK
- Overseas
- banking business (1,2)
Demand deposits
- UK
- Overseas
Other liabilities
Owners' equity
33,656
39,307
277,646
96,051
50,457
26,976
361,759
162,334
524,093
Interest
m
Rate
%
248
248
11,326
2,794
1,023
452
12,597
3,494
16,091
0.74
0.63
4.08
2.91
2.03
1.68
3.48
2.15
3.07
196
217
643
185
1,479
44
522
412
1,831
342
490
181
264
(65)
5,425
1,316
6,741
1.07
1.31
0.53
0.73
1.74
2.14
1.31
2.60
2.64
1.52
3.06
3.14
(1.25)
(0.54)
1.65
1.31
1.57
240,131
764,224
666,148
1,430,372
37.8%
18,276
16,582
121,541
25,467
84,972
2,058
39,813
15,864
69,272
22,436
16,026
5,759
(21,140)
11,992
328,760
100,158
428,918
248,647
677,565
46,420
12,619
619,960
73,808
1,430,372
33.9%
120
Business review
Analysis of change in net interest income - volume and rate analysis

Volume and rate variances have been calculated based on movements in average balances over the period and changes in interest rates on average
interest-earning assets and average interest-bearing liabilities. Changes due to a combination of volume and rate are allocated pro rata to volume and
rate movements.
2014 over 2013 - non-statutory
Increase/(decrease) due to changes in:
Average
Average
Net
volume
rate
change
m
m
m
UK
Overseas
UK
Overseas
Debt securities
UK
Overseas
Total interest receivable of the banking business
UK
Overseas
Deposits by banks
UK
Overseas
Customer accounts: demand deposits
UK
Overseas
UK
Overseas
Customer accounts: other time deposits
UK
Overseas
UK
Overseas
UK
Overseas
UK
Overseas
Total interest payable of the banking business
UK
Overseas
Movement in net interest income
UK
Overseas
2014 over 2013 - statutory

Average
Average
Net
volume
rate
change
m
m
m
(49)
12
4
(27)
(45)
(15)
(49)
14
4
(35)
(45)
(21)
(177)
(448)
(53)
(221)
(230)
(669)
(177)
(354)
(53)
(196)
(230)
(550)
(133)
(104)
(228)
12
(361)
(92)
(133)
(94)
(228)
(63)
(361)
(157)
(359)
(540)
(899)
(277)
(236)
(513)
(636)
(776)
(1,412)
(359)
(434)
(793)
(277)
(294)
(571)
(636)
(728)
(1,364)
32
63
63
96
95
159
32
72
63
35
95
107
31
16
17
31
33
31
27
31
35
96
11
460
22
556
33
96
8
460
4
556
12
185
77
(30)
67
155
144
185
63
(30)
61
155
124
314
48
(112)
70
202
118
314
58
(112)
61
202
119
(49)
71
14
(67)
(35)
4
(49)
70
14
(65)
(35)
5
97
(15)
162
(6)
259
(21)
97
(15)
162
(6)
259
(21)
706
271
977
557
199
756
1,263
470
1,733
706
283
989
557
98
655
1,263
381
1,644
347
(269)
78
280
(37)
243
627
(306)
321
347
(151)
196
280
(196)
84
627
(347)
280
121
Business review
Analysis of change in net interest income - volume and rate analysis continued
2013 over 2012 - non-statutory
Average
Average
Net
volume
rate
change
m
m
m
UK
Overseas
UK
Overseas
Debt securities
UK
Overseas
Total interest receivable of the banking business
UK
Overseas
Deposits by banks
UK
Overseas
UK
Overseas
UK
Overseas
UK
Overseas
UK
Overseas
UK
Overseas
UK
Overseas
Total interest payable of the banking business
UK
Overseas
Movement in net interest income
UK
Overseas
2013 over 2012 - statutory

Average
Average
Net
volume
rate
change
m
m
m
60
(44)
(47)
(32)
13
(76)
60
(50)
(47)
(26)
13
(76)
(873)
(267)
569
(530)
(304)
(797)
(873)
(226)
569
(463)
(304)
(689)
(219)
(177)
(176)
(96)
(395)
(273)
(219)
(112)
(176)
(74)
(395)
(186)
(1,032)
(488)
(1,520)
346
(658)
(312)
(686)
(1,146)
(1,832)
(1,032)
(388)
(1,420)
346
(563)
(217)
(686)
(951)
(1,637)
144
80
(92)
53
52
133
144
23
(92)
61
52
84
(12)
(4)
154
45
142
41
(12)
(6)
154
28
142
22
(133)
(9)
346
41
213
32
(133)
(2)
346
13
213
11
112
59
(23)
89
89
148
112
24
(23)
102
89
126
463
366
124
(169)
587
197
463
376
124
(178)
587
198
(57)
(17)
(103)
(160)
(17)
(57)
(14)
(103)
(2)
(160)
(16)
(39)
(34)
(45)
(12)
(84)
(46)
(39)
(34)
(45)
(12)
(84)
(46)
478
441
919
361
47
408
839
488
1,327
478
367
845
361
12
373
839
379
1,218
(554)
(47)
(601)
707
(611)
96
153
(658)
(505)
(554)
(21)
(575)
707
(551)
156
153
(572)
(419)
122
Business review
Non-interest income

Income from trading activities
Other operating income
Total non-interest income
2014
m
Non-statutory (1)
2013
m
2012
m
2014
m
Statutory
2013
m
2012
m
5,148
(900)
1,422
1,253
6,923
5,460
(942)
2,651
1,281
8,450
5,709
(833)
3,533
2,259
10,668
4,414
(875)
1,285
20
1,048
5,892
4,678
(923)
2,571
175
1,219
7,720
4,898
(818)
1,459
454
(634)
5,359
Note:
(1) Non-statutory basis excludes movements in own credit adjustments, gain on redemption of own debt, Asset Protection Scheme, strategic disposals and RFS MI and includes Citizens which is
classified as a discontinued operation on a statutory basis.

Net fees and commissions on both a statutory basis and a non-statutory
basis fell by 6% principally reflecting declines in CIB and Commercial
Banking.

On a non-statutory basis, net fees and commissions fell by 7% principally
reflecting declines in CIB, Non-Core, UK PBB and Commercial Banking.
On a statutory basis, net fees and commissions fell by 8%.
On a non-statutory basis, income from trading activities decreased by

1,229 million, or 46%, to 1,422 million, in line with CIBs smaller
balance sheet and reduced risk profile and reflecting lower gains on the
disposal of available-for-sale securities in RBS Treasury, down 575
million to 149 million for 2014.
On a statutory basis, income from trading activities declined by 1,286
million, or 50%, and included higher charges in relation to own credit
adjustments of 40 million (2013 - 35 million gain).
On a non-statutory basis, income from trading activities decreased by

882 million, or 25%, to 2,651 million as increases in Non-Core were
partially offset by a reduction in CIB, where income from trading activities
declined by 969 million as the segment managed down the scale of the
balance sheet and reduced risk.
On a statutory basis, income from trading activities increased by 1,112
million to 2,571 million principally due the lower charge in relation to own
credit adjustment.
On a non-statutory basis, other operating income remained broadly flat.

On a statutory basis, the decrease in other operating income reflected
lower charges in relation to own credit adjustments of 106 million
(2013 - 155 million) and a loss from RFS MI of 18 million (2013 - gain
of 111 million).
On a non-statutory basis, other operating income decreased 978 million

to 1,281 million primarily reflecting losses on disposal and value
adjustments in Non-Core. In addition, the disposal of RBS Aviation
Capital in June 2012 resulted in a 392 million reduction in operating
lease income.
On a statutory basis, the increase in other operating income
predominantly reflected the lower accounting charges for own credit
adjustments as RBSs credit profile strengthened.
123
Business review
Operating expenses
Staff expenses
Premises and equipment
Other administrative expenses
Restructuring costs
Administrative expenses
Depreciation and amortisation
Write down of other intangible assets
Operating expenses
Staff costs as a percentage of total income
2014
m
Non-statutory (1)
2013
m
2012
m
2014
m
Statutory
2013
m
2012
m
6,406
2,094
2,635
1,257
2,194
14,586
1,107
156
15,849
6,882
2,233
3,147
656
3,844
16,762
1,404
344
18,510
7,377
2,096
3,074
1,415
2,191
16,153
1,660
106
17,919
5,757
2,081
4,568
12,406
930
130
393
13,859
6,086
2,038
6,692
14,816
1,247
1,059
344
17,466
7,150
1,951
4,929
14,030
1,603
18
106
15,757
35%
35%
33%
38%
36%
49%
Note:
(1) Non-statutory basis excludes write down of goodwill and RFS MI and includes Citizens which is classified as a discontinued operation on a statutory basis.

On a non-statutory basis, operating expenses decreased by 2,661
million, or 14%, to 15,849 million. Operating expenses excluding
restructuring costs of 1,257 million (2013 - 656 million) and litigation
and conduct costs of 2,194 million (2013 - 3,844 million) declined by
1,612 million, or 12%, to 12,398 million.

On a non-statutory basis operating expenses increased by 591 million,
or 3%, to 18,510 million, primarily due to increased litigation and
conduct costs of 3,844 million (2012 - 2,191 million), partly offset by
lower staff numbers principally in UK PBB, Ulster Bank, CIB and NonCore and reduced central support requirements on run-down.
On a non-statutory basis, staff expenses declined by 7% (statutory basis

- 5%) and by 1% on a per capita basis against average full time
employees. Average full time employees, rounded to the nearest
hundred, for continuing operations was 95,600 (2013 - 102,000).
On a non-statutory basis, staff expenses were down 7% at 6,882 million

as staff numbers (FTEs) fell by 4% to 118,400, principally in Ulster Bank,
UK PBB, CIB and Non-Core.
Restructuring costs increased by 601 million to 1,257 million, including

378 million in relation to Williams & Glyn and a 247 million write-off of
intangible assets.
Litigation and conducts costs totalled 2,194 million compared with
3,844 million in 2013. This included additional provisions for Payment
Protection Insurance redress (650 million) in PBB, potential costs
following investigations into the foreign exchange market (720 million) in
CIB, Interest Rate Hedging Product redress (185 million) in Commercial
Banking and CIB, the IT incident fine (59 million) booked in Centre and
other costs (580 million) primarily relating to packaged accounts and
investment products.
On a statutory basis, operating expenses decreased by 3,607 million or
21% to 13,859 million, including a write down of goodwill of 130 million
in 2014 compared with 1,059 million in 2013.
Integration and restructuring costs of 656 million were down 54%

(2012 - 1,415 million).
Litigation and conduct costs totalled 3,844 million, compared with
2,191 million in 2012. This included charges of 2,394 million of
regulatory and litigation provisions recorded during the year, primarily
relating to mortgage-backed and other securities in the US, a charge for
PPI of 900 million and charges of 550 million for redress in relation to
certain interest-rate hedging products sold to small and medium sized
businesses classified as retail clients under FSA rules.
On a statutory basis, operating expenses increased by 1,709 million, or
11%, including the write down of goodwill and other intangible assets of
1,403 million (2012 - 124 million) which included 1,059 million
relating to CIB following an impairment review.
124
Business review
Impairment losses
2014
m
Non-statutory (1)
2013
m
2012
m
2014
m
Statutory
2013
m
2012
m
New impairment (releases)/losses

Less: recoveries of amounts previously written-off
(Release)/charge to income statement
(950)
(205)
(1,155)
8,688
(256)
8,432
5,620
(341)
5,279
(1,147)
(205)
(1,352)
8,246
(126)
8,120
5,203
(193)
5,010
Comprising:
Loan impairment (releases)/losses
Securities
(1,170)
15
(1,155)
8,412
20
8,432
5,315
(36)
5,279
(1,364)
12
(1,352)
8,105
15
8,120
5,054
(44)
5,010
Note:
(1) Non-statutory basis includes Citizens which is classified as a discontinued operation on a statutory basis.

On a non-statutory basis, net loan impairment releases were 1,170
million compared with a net impairment charge of 8,412 million in 2013
which included 4,490 million provisions related to the creation of RCR.
Releases were recorded principally in RCR (1,306 million), which
benefited from favourable economic and market conditions, and in Ulster
Bank (365 million) supported by rising Irish property values and
proactive debt management. Excluding these releases, the underlying
charge was low at just over 500 million, primarily in UK PBB (268
million) and Citizens (194 million).
Loan impairment provision coverage of REIL remained stable at 64% and
the provision now stands at 18.0 billion, a 7.2 billion reduction in the
year. Provision coverage of gross loans is 4.4% compared with 6.0% at
the end of 2013.
On a statutory basis, net impairment releases of 1,352 million were
recorded in 2014 compared with a net impairment charge of 8,120
million in 2013.

On a non-statutory basis, loan impairment losses rose by 58% to 8,412
million reflecting the increased provisions recognised in connection with
the creation of RCR. Adjusting for this, impairment losses fell by 1,393
million (26%) to 3,922 million, driven by significant improvements in
Non-Core, UK PBB and Ulster Bank, partially offset by increases in CFG
and CIB.
Additional loan impairments arising from the RCR accelerated asset
recovery strategy totalled 4,490 million, of which 3,118 million related
to Non-Core, 892 million to Ulster Bank, 123 million to Commercial
Banking and 355 million to CIB.
Excluding the impact of the creation of RCR, Ulster Bank excluding NonCore loan impairments fell by 482 million (35%) to 882 million, mainly
as a result of continued improvement in retail mortgage debt-flow and in
recovery trends. UK PBB loan impairments fell by 243 million (33%),
primarily from lower default levels.
Excluding the impact of the creation of RCR, Non-Core loan impairments
fell by 792 million to 1,528 million, reflecting the continued reduction in
the overall portfolio.
On a statutory basis, net impairment losses were 8,120 million
compared to 5,010 million and include 4,490 million provisions related
to the creation of RCR.
Tax
Tax charge
UK corporation tax rate
The tax charge for the year ended 31 December 2014 reflects a reduction
in the carrying value of the deferred tax asset in respect of UK tax losses
(850 million) and US temporary differences (775 million) reflecting the
impact of the decision to restructure CIB, partially offset by an increase in
the carrying value of the deferred tax asset in respect of Irish tax losses,
the benefit of previously unrecognised Irish tax losses being offset
against profits arising in Ireland during the year and the impact of certain
conduct charges that do not qualify for tax relief.
2014
m
2013
m
2012
m
(1,909)
(186)
(156)
21.5%
23.25%
24.5%

The tax charge in the year ended 31 December 2013 reflects losses in
low tax regimes (principally Ireland), losses in overseas subsidiaries for
which a deferred tax asset has not been recognised (principally Ireland),
a reduction in the carrying value of the deferred tax asset in respect of
UK losses and the effect of the reduction of 3% in the rate of UK
corporation tax enacted in July 2013.
125
Business review
Segment performance
Reporting changes
In order to present a more complete picture of funding, operational and
business costs of the franchises and operating segments and to improve
the transparency of the operating performance of the segments, the
following reporting changes have been implemented:
Allocation of costs
As part of its internal reorganisation, RBS has centralised all services and
functions. The costs relating to Services and Functions previously
reported as direct expenses in the divisions are now reallocated to
businesses using appropriate drivers and reported as indirect expenses
in the segmental income statements.

purchased intangible assets, write-down of other intangibles and bank
levy) have now been allocated to the reportable segments. Only the
following will now be reported as reconciling items:
Treasury allocations
The basis of allocation of RBS Treasury costs has been amended to align
the recovery of funding and hedging costs across RBS and for the
transfer of certain assets and their associated costs out of RBS Treasury.

RFS Holdings minority interest (RFS MI).
Segmental return on equity

For the purposes of computing segmental return on equity, notional
equity is calculated as a percentage of the monthly average of segmental
RWAs. Previously, notional equity was allocated at 10% of RWAs after
capital deductions (RWAe). This has been revised to 12% of RWAs
across all businesses.
Comparatives have been restated accordingly.
2014
m
2013
m
2012
m
UK Personal & Business Banking

Ulster Bank
1,450
606
2,056
819
(1,609)
(790)
671
(1,133)
(462)
Commercial Banking
Private Banking
1,290
150
1,440
530
(61)
469
748
141
889

Central items
RCR
Non-Core
Operating profit/(loss) - non-statutory basis
Strategic disposals
(892)
(850)
761
988
n/a
3,503
(146)
20
(130)
191
(771)
(24)
2,643
(2,882)
647
605
n/a
(5,549)
(7,500)
(120)
175
(1,059)
161
(606)
100
(8,849)
(247)
845
760
n/a
(2,898)
(1,113)
(4,649)
454
(18)
(44)
113
(775)
(20)
(6,052)
Operating profit/(loss) by segment
Operating profit/(loss) on a non-statutory basis includes the results of Citizens which are included in discontinued operations in the statutory results.
126
Business review
Impairment losses/(releases) by segment

Ulster Bank
Commercial Banking
Private Banking
Central items
RCR
Non-Core
RBS impairment (releases)/losses
2014
m
2013
m
2012
m
268
(365)
(97)
501
1,774
2,275
741
1,364
2,105
76
(4)
72
652
29
681
545
46
591
(9)
(12)
197
(1,306)
n/a
(1,155)
680
64
156
n/a
4,576
8,432
229
40
91
n/a
2,223
5,279
Net interest margin by segment

Ulster Bank
2014
%
2013
%
2012
%
3.68
2.27
3.42
3.56
1.88
3.21
3.57
1.84
3.20
Commercial Banking
Private Banking
2.74
3.71
2.93
2.64
3.47
2.81
2.66
3.50
2.83

0.99
2.88
0.80
2.91
0.78
2.98
RBS net interest margin
2.23
2.01
1.92
Risk-weighted assets by segment

UK Personal & Business banking
Ulster Bank
2014
bn
2013
bn
2012
bn
42.8
23.8
66.6
51.2
30.7
81.9
53.4
36.1
89.5
Commercial Banking
Private Banking
64.0
11.5
75.5
65.8
12.0
77.8
67.6
12.3
79.9
107.1
16.3
68.4
22.0
n/a
355.9
120.4
20.1
56.1
n/a
29.2
385.5
157.8
15.5
56.5
n/a
60.4
459.6

Other
RCR
Non-Core
RBS risk-weighted assets
127
Business review
Segment performance continued

Employee numbers at 31 December
(full time equivalents rounded to the nearest hundred)
Ulster Bank
Commercial Banking
Private Banking
Centre
RCR
Non-Core
Services
Integration and restructuring
RBS employee numbers
2014
2013
2012
24,800
4,400
29,200
26,600
4,700
31,300
28,300
4,500
32,800
6,200
3,400
9,600
7,300
3,500
10,800
6,900
3,600
10,500
3,700
10,600
17,400
700
n/a
71,200
37,400
100
108,700
4,600
11,600
18,800
n/a
1,300
78,400
40,000
200
118,600
5,300
11,800
18,900
n/a
2,900
82,200
40,300
500
123,000
128
Business review

2014
m
2013
m
2012
m
5,319
1,426
122
1,548
6,867
5,109
1,450
113
1,563
6,672
5,167
1,494
54
1,548
6,715
(1,139)
(454)
(2,292)
(1,167)
(587)
(2,217)
(1,212)
(333)
(2,128)
(2)
(122)
(899)
(4,908)
1,959
97
2,056
(145)
(121)
(950)
(5,187)
1,485
(2,275)
(790)
(167)
(114)
(1,118)
(5,072)
1,643
(2,105)
(462)
(3,885)
(3,971)
(3,673)
Operating profit - adjusted (1)
3,079
426
937
Performance ratios
Return on equity (2)
Return on equity - adjusted (1,2)
Net interest margin
Cost:income ratio
17.5%
26.2%
3.42%
71%
57%
(5.7%)
3.1%
3.21%
78%
60%
(3.1%)
6.3%
3.20%
76%
55%
Capital and balance sheet

Loans and advances to customers (gross)
Loan impairment provisions
bn
bn
bn
154.5
(5.3)
149.2
159.2
(8.4)
150.8
161.8
(7.3)
154.5
Funded assets
Total assets
Risk elements in lending
Provision coverage (3)
161.8
161.9
8.6
62%
160.2
160.4
13.2
63%
163.6
163.7
13.3
56%
Customer deposits
Assets under management (excluding deposits)
Loan:deposit ratio (excluding repos)
Total risk-weighted assets (4)
169.3
4.9
88%
66.6
166.6
5.8
91%
81.9
157.1
6.0
98%
89.5
Income statement
Net interest income
Net fees and commissions
Non-interest income
Total income
Direct expenses
- staff costs
- other costs
Indirect expenses
Restructuring costs
- direct
- indirect
Operating expenses
Profit before impairment releases/(losses)
Operating profit
Operating expenses - adjusted (1)
Notes:
(1) Excluding restructuring costs and litigation and conduct costs.
(2) Return on equity is based on operating profit after tax divided by average notional equity (based on 12% of the monthly average of segmental RWAs); RWAs in 2012 and 2013 are on a Basel 2.5
basis.
(3) Provision coverage represents loan impairment provisions as a percentage of risk elements in lending.
(4) RWAs in 2013 and 2012 are on a Basel 2.5 basis. RWAs on the end-point CRR basis as at 1 January 2014 were 77.9 billion.
Key points
Personal & Business Banking (PBB) comprises the former UK Retail and business banking elements of former UK Corporate (UK Personal & Business
Banking - UK PBB) and Ulster Bank reportable segments. PBB supports individuals in managing their personal and business banking, with a full range
of financial services and advice. Through the RBS, NatWest, and Ulster Bank brands, PBB serves over 18 million personal and business customers in
the UK and Ireland. Customers can choose how they manage their finances through access to branches, online banking, fixed and mobile technology
and one of the largest ATM networks in the UK and Ireland.
129
Business review

2014
m
2013
m
2012
m
4,683
1,287
67
1,354
6,037
4,490
1,309
14
1,323
5,813
4,532
1,349
3
1,352
5,884
(892)
(380)
(2,027)
(928)
(524)
(1,954)
(998)
(284)
(1,861)
(10)
(92)
(918)
(4,319)
1,718
(268)
1,450
(118)
(109)
(860)
(4,493)
1,320
(501)
819
(140)
(104)
(1,085)
(4,472)
1,412
(741)
671
(3,299)
(3,406)
(3,143)
2,470
1,906
2,000
Analysis of income by product

Personal advances
Personal deposits
Mortgages
Cards
Business Banking
Other
Total income
920
706
2,600
730
1,021
60
6,037
923
468
2,605
838
973
6
5,813
916
662
2,367
864
1,075
5,884
161
(26)
53
80
268
179
31
177
114
501
307
92
212
130
741
2.2%
0.4%
1.6%
0.2%
2.2%
1.2%
2.0%
0.4%
3.4%
0.1%
1.4%
2.3%
0.6%
19.4%
33.1%
3.68%
72%
55%
9.8%
22.8%
3.56%
77%
59%
7.4%
22.0%
3.57%
76%
53%
Income statement
Net interest income
Non-interest income
Total income
Direct expenses
- staff costs
- other costs
Indirect expenses
Restructuring costs
- direct
- indirect
Operating expenses
Profit before impairment losses
Impairment losses
Operating profit
Analysis of impairments by sector

Personal advances
Mortgages
Business Banking
Cards
Total impairment losses (2)
Loan impairment charge as a % of gross customer loans and advances
(excluding reverse repurchase agreements) by sector
Personal advances
Mortgages
Business Banking
Cards
Total
Performance ratios
Net interest margin
Cost:income ratio
Notes:
(2) Includes 2 million in 2013 pertaining to the creation of RCR and related strategy.
(3) Return on equity is based on operating profit after tax divided by average notional equity (based on 12% of the monthly average of segmental RWAs); RWAs in 2013 and 2012 are on a Basel 2.5
basis.
(4) From Q1 2015 business segment return on equity will be calculated based on operating profit after tax adjusted for preference share dividends divided by average notional equity (based on 13% of
the monthly average RWAes). At 31 December 2014 the RWAes on this basis were 46.6 billion and the return on equity 16%.
130
Business review

- personal advances
- mortgages
- business
- cards
Total loans and advance to customers (gross)
2014
bn
2013
bn
2012
bn
7.4
103.2
14.3
4.9
129.8
(2.6)
127.2
8.1
99.3
14.6
5.8
127.8
(3.0)
124.8
8.9
99.1
15.6
5.6
129.2
(3.4)
125.8
Funded assets
Total assets
134.3
134.3
3.8
69%
132.2
132.2
4.7
63%
133.0
133.0
5.8
60%
Customer deposits
- personal current accounts
- personal savings
- business/commercial
Total customer deposits
35.9
81.0
31.8
148.7
32.5
82.3
30.1
144.9
29.0
78.6
27.4
135.0
Assets under management (excluding deposits)

4.9
86%
5.8
86%
6.0
93%
Risk-weighted assets (2)

- credit risk (non-counterparty)
- operational risk
33.4
9.4
41.4
9.8
43.2
10.2
Total risk-weighted assets
42.8
51.2
53.4
Notes:
Key points
The strategic goal of UK PBB is to become the number one personal and
business bank for customer service, trust and advocacy in the UK.
Throughout 2014, the business has made steady progress in making
banking fairer and simpler for its customers through a number of fair
banking initiatives and technology investments. Progress made in 2014
by UK PBB included:
Helping customers with their needs:

As the UKs biggest lender for SMEs, UK PBB continued to offer
support to small business customers. Following storms and floods in
February 2014, the business introduced a 250 million interest free
loan fund for small business to help them get themselves back on
their feet. An additional 1 billion Small Business Fund was
launched to support small businesses with fee free, fixed rate loans.
The business committed to responsible and fair lending by removing

0% teaser deals from its offering and introducing the new Clear Rate
and cash-back credit cards in 2014.
Business banking arrangement fees and surprise overdraft fees

have been replaced with fixed rates on new business loans and text
alerts when customers are overdrawn to keep them on track.
Service charges have been reviewed and made simpler and fairer
for customers. The business re-introduced access to the LINK ATM
network for all basic account customers, reduced its daily overdraft
fees for all customers, placed a 60 day cap on overdraft charges
and improved credit card late fee terms.
UK PBB has been able to help more customers in 2014. With

additional mortgage advisors recruited (up 18% from 630 to 744),
gross mortgage lending increased by 37% year on year. The
businesss commitment to helping its customers get on and move up
the property ladder has been a success and it has now helped
almost 15,000 customers buy their first or next home with the
government-backed Help to Buy schemes since their launch in May
2013.
There are now more ways to bank with UK PBB than ever. With
services being extended to the Post Office network, customers now
have over 13,000 branches and post offices across the UK where
they can carry out their every day banking.
Simpler and fairer products supported by the launch of the GoodbyeHello campaign:
131
Business review
UK Personal & Business Banking continued
RBS became the first of the main high street banks to ensure all of
its savers get the same or better deals as new customers. Those
deals are available regardless of how customers choose to bank
(e.g. branch, telephony or digital). With just five personal savings
products now on sale the range is the simplest on the high street
both for customers and for front line staff. Teaser savings rates have
been removed and the business is committed to helping customers
save for the long term rather than luring them in for the short term.
Investments in Technology
UK PBB continued with its commitment to invest in technology to
make things better for the customer. As its award winning mobile
banking application celebrated 5 years, the business received
another gold award for the Pay your Contacts service, which was
named Best new service of the year in July at the Best in Biz
International awards. UK PBB now has over 6.9 million online and
mobile banking users, with the mobile app being used more than 23
million times every week.
Further improvements have been made to the mobile banking

application and personal customers are now able to use the new
industry-wide Pay-m application that allows customers to receive
payments from customers of other participating banks just by
providing their mobile number. Customers will no longer have to
divulge their sort code and account number to receive payment.
Pay-m has already enrolled over 1.8 million customers in the service
since its launch at the end of April 2014. WiFi in branches has also
been a great success with customers already using the free service
over 1 million times since it started in May.

UK PBB recorded an operating profit of 1,450 million, up 631 million,
while adjusted operating profit totalled 2,470 million compared with
1,906 million in the prior year. This reflected higher income, up 4% to
6,037 million and lower adjusted expenses, down 3% to 3,299 million,
together with substantially lower impairments, down 233 million to 268
million.
Net interest income increased by 193 million or 4% with strong
improvements in deposit margins and volume growth. This was partly
offset by lower asset margins linked to the continued change in the mix of
the loan book towards secured lending and lower mortgage margins.
Non-interest income increased by 31 million or 2%, largely reflecting the
transfer of the commercial cards business to UK PBB from CPB in
August 2014.
Operating expenses decreased by 174 million or 4%, reflecting lower
restructuring and litigation and conduct costs. Excluding these items,
expenses declined by 107 million or 3% supported by a 7% reduction in
headcount and lower Financial Services Compensation Scheme (FSCS)
accruals. Litigation and conduct costs included additional provisions for
Payment Protection Insurance redress (650 million) and other conduct
provisions in respect of legacy investment products and packaged
account sales.
The net impairment charge was down by 47% to 268 million driven by a
further decrease in new default charges together with releases of
provisions and recoveries on previously written off debt.
Mortgage balances increased by 3.9 billion or 4%, to 103.2 billion
driven by strong performance as advisor capacity increased. Gross new
mortgage business increased by 37% to 19.7 billion, representing a
market share of 10% with our stock share of 8% continuing to grow.
RWAs to decline of 16% to 42.8 billion with improved credit quality and
lower unsecured balances.
Operating profit increased by 22% to 819 million driven by a 32%
decline in impairment losses. Net interest income was broadly stable,
though investment advice income was adversely impacted following
changes introduced by the Retail Distribution Review (RDR). Within UK
PBB, costs increased primarily because of a higher FSCS levy and other
regulatory charges totalling 118 million in the year, conduct-related
provisions of 63 million and additional technology investment of 45
million.
Mortgage balance growth in UK PBB was affected in H1 2013 by
mortgage advisor training; however, balances recovered during H2 2013
assisted by early adoption of the second phase of the UK Governments
Help To Buy scheme. Gross mortgage lending increased to 8.9 billion in
H2 2013. Customer deposits increased by 7%, above the UK market
average of 4% due to strong growth in current accounts (12%), personal
instant access savings accounts (5%) and business banking deposits
(10%).
Net interest income and margin were both broadly flat.
Mortgage new business margins reduced in line with market

conditions, overall book margins improved.
Deposit margins declined reflecting the impact of continued

lower rates on current account hedges. Savings margins,
however, have increased over 2013 with improved market
pricing.
Non-interest income fell by 2% to 1,323 million due to a change in the

fee charging structure in business banking and subdued personal advice
income post RDR.
Direct costs increased by 13% due primarily to higher FSCS levy and
other regulatory charges. This was partly offset by lower staff costs due
to a reduction in headcount of 2,000 in UK PBB. Indirect costs increased
by 4%, largely due to investment in technology.
Impairments declined by 32% to 501 million due to lower customer
defaults across all product areas reflecting continued improvement in
asset quality.
Risk-weighted assets declined by 4% to 51.2 billion largely reflecting
balance reductions across the unsecured portfolios and quality
improvements.
132
Business review
Ulster Bank
2014
m
2013
m
2012
m
636
139
55
194
830
619
141
99
240
859
635
145
51
196
831
(247)
(74)
(265)
(239)
(63)
(263)
(214)
(49)
(267)
8
(30)
19
(589)
241
365
606
(27)
(12)
(90)
(694)
165
(1,774)
(1,609)
(27)
(10)
(33)
(600)
231
(1,364)
(1,133)
(586)
(565)
(530)
Operating profit/(loss) - adjusted (1)
609
(1,480)
(1,063)
Analysis of income by business

Corporate
Retail
Other
Total income
268
401
161
830
315
408
136
859
360
360
111
831
(172)
235
646
(16)
(11)
(186)
20
(365)
593
153
771
22
1,774
221
55
389
53
1,364
(1.0%)
1.2%
3.4%
(1.6%)
(3.7%)
(3.8%)
2.0%
(1.5%)
17.4%
21.9%
10.9%
1.8%
5.6%
6.1%
7.9%
5.0%
4.1%
4.2%
16.1%
16.2%
2.27%
71%
71%
(33.2%)
(30.6%)
1.88%
81%
66%
(22.1%)
(20.7%)
1.84%
72%
64%
Income statement
Net interest income
Non-interest income
Total income
Direct expenses
- staff costs
- other costs
Indirect expenses
Restructuring costs
- direct
- indirect
Operating expenses
Profit before impairment releases/(losses)
Operating profit/(loss)

Mortgages
Commercial real estate
- investment
- development
Other corporate
Other lending
Total impairment (releases)/losses
Loan impairment (release)/charge as a % of gross customer loans and advances
(excluding reverse repurchase agreements) by sector
Mortgages
- investment
- development
Other corporate
Other lending
Total
Performance ratios
Net interest margin
Cost:income ratio
Notes:
(3) Return on equity is based on operating profit after tax divided by average notional equity (based on 12% of the monthly average of segmental RWAs; RWAs in 2013 and 2012 are on a Basel 2.5
basis).
the monthly average RWAes). At 31 December 2014 the RWAes on this basis were 22.3 billion and the return on equity 17.2%.
133
Business review
Ulster Bank continued

Mortgages
- investment
- development
Other corporate
Other lending
Total loans and advances to customers (gross)
- mortgages
- commercial real estate
- investment
- development
- other corporate
- other lending
Total loan impairment provisions
Net loans and advances to customers (1)
Funded assets
Total assets
- mortgages
- investment
- development
- other corporate
- other lending
Total risk elements in lending
Customer deposits
Risk-weighted assets (3,4)
- credit risk
- non-counterparty
- counterparty
- market risk
- operational risk
Spot exchange rate - /
2014
bn
2013
bn
2012
bn
17.5
19.0
19.2
1.0
0.3
4.9
1.0
24.7
3.4
0.7
7.1
1.2
31.4
3.6
0.7
7.8
1.3
32.6
(1.4)
(1.7)
(1.5)
(0.2)
(0.2)
(0.8)
(0.1)
(2.7)
22.0
(1.2)
(0.3)
(2.0)
(0.2)
(5.4)
26.0
(0.6)
(0.2)
(1.4)
(0.2)
(3.9)
28.7
27.5
27.6
28.0
28.2
30.6
30.7
3.4
3.2
3.1
0.3
0.2
0.8
0.1
4.8
57%
2.3
0.5
2.3
0.2
8.5
64%
1.6
0.4
2.2
0.2
7.5
52%
20.6
107%
21.7
120%
22.1
130%
22.2
0.1
1.5
23.8
28.2
0.3
0.5
1.7
30.7
33.6
0.6
0.2
1.7
36.1
1.285
1.201
1.227
Notes:
(1) 31 December 2014 includes 11.4 billion in relation to legacy tracker mortgages.
(4) 31 December 2014 includes 10.7 billion in relation to legacy tracker mortgages.
Key points
Following completion of a strategic review, Ulster Bank was confirmed as
a core part of RBS reflecting its fit with RBSs retail and commercial
strategy; 2014 saw a return to profitability with significant progress made
addressing legacy issues and the strengthening of its core business for
the future.
The transfer of 4.4 billion of gross assets to RCR on 1 January 2014
and subsequent deleveraging has enabled Ulster Bank to focus on the
development of its core business. This has had a material impact on the
comparison of 2014 financial performance with 2013.
Ulster Bank recorded an operating profit of 606 million in 2014, the first
annual profit since 2008. This represented a major turnaround from 2013
largely due to impairment releases supported by enhanced collections
performance and an improvement in key macroeconomic indicators. Net
interest margin also improved and operating expenses were reduced.
134
Business review
Considerable progress was made to improve Ulster Banks service

offering and to enhance the customer experience. The bank continued to
re-shape its distribution network during 2014 while online and mobile
banking services were further developed to support the upward trend in
digital transactions, which now represent 57% of total transaction
volumes. The banks Web Chat initiative, launched in 2012, is now
handling over 15,000 customer enquiries each month. Ulster Bank in
Northern Ireland recently launched its Bank on Wheels service and
extended its partnership with the Post Office which provides customers
with 484 new points of presence.
There has been a significant increase in new lending activity during 2014
following the launch of the Big Yes mortgage and Ahead for Business'
campaigns. New mortgage lending increased by over 40% in 2014 while
over 1 billion of new lending was made available to business customers,
despite a challenging business environment.
The investment made to support customers in financial difficulty has
resulted in a sustained reduction since Q1 2013 in the number of
mortgage customers in arrears of 90 days or more and an increase in the
number of business customers returning to mainstream management.
Ulster Bank recorded an operating profit of 606 million in 2014
compared with a loss of 1,609 million in 2013. The turnaround was
driven by 365 million net impairment releases compared with
impairment losses of 1,774 million in 2013. Adjusted operating profit
was 609 million compared with a loss of 1,480 million.
Profit before impairment losses was 241 million, 76 million higher than
in 2013.
Total income decreased by 29 million to 830 million largely as a result
of the non-recurrence of significant hedging gains on the mortgage
portfolio in 2013. Net interest income increased by 17 million to 636
million, primarily driven by a significant reduction in the cost of deposits
and a benefit from the recognition of income on certain previously nonperforming assets, partly offset by the adverse impact on the tracker
mortgage book of lower European Central Bank refinancing interest
rates. Net interest margin increased 39 basis points to 2.27%.
The continued focus on costs resulted in a reduction in staff numbers and
the banks property footprint. Litigation and conduct costs decreased by
109 million reflecting the outcome of reviews relating to provisions on
PPI and Interest Rate Hedging Products. These benefits were partly
offset by higher regulatory charges and levies including a new bank levy
introduced in the Republic of Ireland, of 15 million, and the impact of a
realignment of costs following the creation of RCR, 44 million.
The transfer of assets to RCR coupled with improved credit quality across
key portfolios resulted in a 44% reduction in risk elements in lending.
Provision coverage reduced from 64% to 57% during 2014 reflecting the
further de-risking of the balance sheet coupled with the impact of an
increase in asset values. RWAs decreased by 22% reflecting an
improvement in credit metrics and a reduced loan book.
The loan:deposit ratio decreased from 120% to 107% during 2014 mainly
due to a 15% reduction in net loan balances to 22 billion reflecting the
transfer of assets to RCR and continued customer deleveraging partly
offset by growth in new lending. Customer deposits declined by 5%
largely driven by exchange rate movements.
Excluding the impact of the creation of RCR, operating result improved by
435 million or 38% primarily due to a higher income and lower
impairment losses on the mortgage portfolio.
Total income increased by 28 million or 3% to 859 million primarily
reflecting hedging gains on the mortgage portfolio. Net interest margin for
2013 increased by 4 basis points to 1.88% although net interest income
was 16 million lower at 619 million, largely driven by lower interest
earning assets and a higher cost of funding.
Total expenses increased by 94 million or 16% to 694 million driven by
the costs of mandatory change programmes such as the Single Euro
Payment Area, 18 million, an investment of 10 million in programmes
to support customers in financial difficulty and an accelerated
depreciation charge of 12 million. Litigation and conduct costs were
57m higher in 2013 due to increased provisions made for legacy issues
including PPI and interest rate hedging product redress and
administration.
Impairment losses, excluding the impact of RCR, were lower by 482
million or 35%. This was predominantly due to a sharp reduction in losses
on the mortgage portfolio which reduced by 411 million or 64% due to a
decline in arrears levels driven by an improved collections performance
and the development of programmes to assist customers in financial
difficulty, coupled with stabilising residential property prices.
The loan:deposit ratio reduced from 130% to 120% during 2013 reflecting
continued customer deleveraging and low levels of demand for new
lending. Retail and SME deposit balances increased by 2% during 2013,
offset by a reduction in wholesale customer balances, resulting in a 2%
decline in total deposit balances.
Risk-weighted assets decreased by 15% reflecting a smaller performing
loan book and stabilising credit metrics.
135
Business review

2014
2013
2,732
1,220
340
1,560
4,292
2,620
1,299
315
1,614
4,234
2,645
1,347
454
1,801
4,446
(825)
(321)
(1,321)
(830)
(353)
(1,366)
(852)
(371)
(1,255)
(48)
(63)
(202)
(2,780)
1,512
(72)
1,440
(36)
(46)
(453)
(3,084)
1,150
(681)
469
(83)
(55)
(350)
(2,966)
1,480
(591)
889
(2,467)
(2,549)
(2,478)
1,753
1,004
1,377
Performance ratios
Net interest margin
Cost:income ratio
11.9%
14.4%
2.93%
65%
57%
3.7%
7.9%
2.81%
73%
60%
7.4%
11.5%
2.83%
67%
56%
2014
2013
2012
Income statement
Net interest income
Non-interest income
Total income
Direct expenses
- staff costs
- other costs
Indirect expenses
Restructuring costs
- direct
- indirect
Operating expenses
Impairment losses
Operating profit
2012

bn
bn
bn
102.7
(1.1)
101.6
101.8
(1.6)
100.2
102.3
(1.7)
100.6
Funded assets
Total assets
Assets under management (Private Banking)
109.8
109.9
28.3
2.7
38%
108.9
108.9
29.7
4.6
38%
109.7
109.8
28.9
4.2
39%
Customer deposits (excluding repos)

122.9
83%
75.5
127.9
78%
77.8
130.9
77%
79.9
Notes:
basis).
Key points
Commercial & Private Banking comprises parts of the former UK
Corporate, Wealth and International Banking divisions. It is committed to
supporting the banks ambition to be the number one bank for customer
service, trust and advocacy in its chosen markets by 2020. Commercial
Bankings customers range from UK businesses with an annual turnover
of 2 million up to large UK corporations, including real estate and
institutional customers.
Aligning the Private Banking business with Commercial Banking will

enable the bank to better serve and connect those who own and run
businesses. With a set of strong brands including RBS, NatWest,
Lombard, Coutts and Adam & Company, the Commercial & Private
Banking business provides its customers with dedicated relationship
management and access to sophisticated products and services
including lending, speciality finance, transaction banking, risk
management and wealth management.
136
Business review
Commercial Banking
Income statement
Net interest income
Non-interest income
Total income
Direct expenses
- staff costs
- other costs
Indirect expenses
Restructuring costs
- direct
- indirect
Operating expenses
Impairment losses
Operating profit
2014
2013
2012
m
2,041
885
284
1,169
3,210
1,962
944
251
1,195
3,157
1,969
981
370
1,351
3,320
(508)
(249)
(882)
(513)
(269)
(891)
(533)
(261)
(780)
(40)
(53)
(112)
(1,844)
1,366
(76)
1,290
(18)
(37)
(247)
(1,975)
1,182
(652)
530
(71)
(39)
(343)
(2,027)
1,293
(545)
748
(1,639)
(1,673)
(1,574)
1,495
832
1,201

Commercial lending
Deposits
Asset and invoice finance
Other
Total income
1,830
353
740
287
3,210
1,911
208
671
367
3,157
1,934
350
686
350
3,320

Private sector education, health, social work, recreational and community services
Banks & financial institutions
Wholesale and retail trade repairs
Hotels and restaurants
Manufacturing
Construction
Other
(2)
11
(8)
20
7
10
9
29
76
431
31
125
10
9
28
1
(2)
19
652
317
41
33
12
57
45
8
14
18
545
Loan impairment charge as a % of gross customer loans and advances by sector

Private sector education, health, social work, recreational and community services
Banks & financial institutions
Wholesale and retail trade repairs
Manufacturing
Construction
Other
Total
0.1%
(0.1%)
0.3%
0.2%
0.3%
0.5%
0.1%
0.1%
2.1%
0.3%
1.6%
0.1%
0.2%
0.8%
(0.1%)
0.1%
0.8%
1.4%
0.4%
0.4%
0.2%
1.0%
1.0%
0.2%
0.6%
0.1%
0.6%
Notes:
137
Business review
Commercial Banking continued

Performance ratios
Net interest margin
Cost:income ratio
2014
2013
2012
12.6%
14.6%
2.74%
57%
51%
4.9%
7.7%
2.64%
63%
53%
7.5%
12.1%
2.66%
61%
47%

- asset and invoice finance
- private sector education, health, social work, recreational and community services
- banks & financial institutions
- wholesale and retail trade repairs
- hotels and restaurants
- manufacturing
- construction
- other
Net loans and advances to customers (3)
bn
bn
bn
18.3
14.2
6.9
7.0
6.0
3.4
3.7
1.9
24.7
86.1
(1.0)
85.1
20.2
11.7
7.9
6.9
5.8
3.6
3.7
2.1
23.1
85.0
(1.5)
83.5
23.1
11.2
7.7
6.3
6.0
4.4
4.0
2.5
20.0
85.2
(1.6)
83.6
Funded assets
Total assets
89.4
89.4
2.5
38%
87.9
87.9
4.3
38%
88.3
88.3
4.0
39%
Customer deposits
86.8
98%
90.7
92%
92.0
91%

- credit risk (non-counterparty)
- operational risk
57.6
6.4
64.0
59.7
6.1
65.8
61.5
6.1
67.6
Notes:
basis).
(3) December 2014 includes 15 billion third party assets and 12 billion risk-weighted asset equivalents in relation to the run-down legacy book.
138
Business review
Key points
Commercial Banking implemented a simplified and delayered
management structure in 2014. With over 120 products removed from
sale and over 400 process improvements implemented, the segment is
becoming easier to do business with.
Tangible progress is being made via a bank-wide strategic lending
programme which will transform the end-to-end customer lending
experience, ensuring faster decisions and a smoother application
process. Over the year there has been an improvement in the Net
Promoter Score and rating of overall service quality across the business,
together with a continuing fall in complaints.
Commercial Banking continues to back UK businesses and communities,
with over 8,400 Statement of Appetite letters issued in 2014 at a total
value of 4.7 billion. As part of our plan to support entrepreneurs across
the UK, the first of eight accelerator hubs opened in February 2015,
offering free space, support and advice to high growth business owners.
A series of customer campaigns were launched, proactively engaging
customers on their international and asset finance needs.
Significant progress has been made to drive connectivity across the
bank, with a focus on providing employees with the skills and tools they
need to serve customers better. This has included investment in
professional qualifications as well as the development of a suite of
banking tools to be rolled out in 2015. The alignment of Commercial &
Private Banking continues to yield benefits, with a pilot resulting in over
140 referrals between the businesses.
Commercial Banking recorded an operating profit of 1,290 million
compared with 530 million in the prior year. This was driven by lower net
impairment losses, down 576 million, lower operating expenses, down
131 million and higher income, up 53 million. Adjusted operating profit
increased by 663 million to 1,495 million.
Net interest income increased by 79 million or 4%, largely reflecting repricing activity on deposits partly offset by the impact of reduced asset
margins, a result of the net transfer in of lower margin legacy loans (after
the cessation of Non-Core).
Non-interest income was down 26 million or 2% as lower Corporate &
Institutional Banking revenue share income, restructuring fees and the
transfer out of commercial cards income to UK Personal & Business
Banking in August 2014 were only partially offset by higher fair value
gains and operating lease income, along with lower close out costs of
interest rate products associated with impaired loans.
Operating expenses were down 131 million or 7%, as a result of lower
litigation and conduct costs, primarily relating to interest rate swap
redress, and lower underlying direct costs reflecting the continued focus
on cost saving. These reductions were partially offset by higher
restructuring costs, as the business aligns itself to better support
customers, and growth in operating lease depreciation. Operating
expenses excluding restructuring costs and litigation and conduct costs
declined by 34 million.
Net impairment losses declined 576 million to 76 million, as 2013

included the impact of the creation of RCR. Excluding the RCR charges,
underlying impairments declined by 453 million with fewer individual
cases across the portfolio, reduced collectively assessed provisions and
higher latent provision releases, reflecting improved credit conditions.
The loan:deposit ratio increased to 98%, from reduced deposits, down
4%, reflecting the rebalancing of the banks liquidity position, and a 2%
increase in net loans and advances, as reductions in the commercial real
estate and restructuring portfolio were offset by growth across other
businesses.
RWAs were 1.8 billion lower at 64.0 billion, primarily reflecting net
transfers to RCR, effective 1 January 2014, and improving credit quality
on the back of UK economic recovery, offset by loan growth.
Operating profit decreased by 218 million to 530 million (a return on
equity of 4.9%), driven by lower income, higher impairments and indirect
costs partly offset by lower restructuring, litigation and conduct costs.
Net interest income was in line with 2012 as increased income from repricing initiatives and higher average lending volumes offset the impact of
the lower rate environment on deposit returns and the non-repeat of 2012
deferred income recognition revisions (28 million).
Non-interest income decreased by 12% primarily from lower CIB revenue
share income, a decline in operating lease income (offset by an
associated reduction of operating lease depreciation in expenses), lower
lending fees and higher costs arising from closing out interest rate
hedging products associated with impaired loans.
Total expenses declined by 3% or 52 million, driven by lower
restructuring, litigation and conduct costs partially offset by higher indirect
expenses. Direct costs were down 12 million from reduced staff costs, a
decline in operating lease depreciation and lower CIB revenue share
related costs.
Impairments increased by 107 million primarily relating to higher
commercial real estate impairment losses. Full year impairments include
the additional impact of increased impairments losses related to the
creation of RCR (123 million) in Q4 2013.
The loan:deposit ratio increased by 100 basis points primarily from lower
deposit volumes following re-pricing initiatives in line with the wider bank
funding strategy.
Risk-weighted assets decreased by 3% as net movements into default
more than offset increases resulting from the implementation of risk
model changes.
139
Business review
Private Banking
2014
m
2013
m
2012
m
691
335
56
391
1,082
658
355
64
419
1,077
676
366
84
450
1,126
(317)
(72)
(439)
(317)
(84)
(475)
(319)
(110)
(475)
(8)
(10)
(90)
(936)
146
4
150
(18)
(9)
(206)
(1,109)
(32)
(29)
(61)
(12)
(16)
(7)
(939)
187
(46)
141
(828)
(876)
(904)
258
172
176
230
(257)
267
(357)
(20)
(27)
(110)

Investments
Banking
Total income
176
906
1,082
198
879
1,077
214
912
1,126
Performance ratios
Net interest margin
Cost:income ratio
7.8%
13.4%
3.71%
87%
77%
(3.1%)
8.7%
3.47%
103%
81%
7.1%
8.8%
3.50%
83%
80%
Income statement
Net interest income
Non-interest income
Total income
Direct expenses
- staff costs
- other costs
Indirect expenses
Restructuring costs
- direct
- indirect
Operating expenses
Operating profit/(loss)
Of which: international private banking activities (2)
Total income
Operating expenses
Impairment losses
Operating loss
Notes:
(2) Private banking and wealth management activities outside of the British Isles, broadly indicative of the businesses being exited.
basis).
140
Business review

- personal
- mortgages
- other
2014
bn
2013
bn
2012
bn
5.4
8.9
2.3
16.6
(0.1)
16.5
5.5
8.7
2.6
16.8
(0.1)
16.7
5.5
8.8
2.8
17.1
(0.1)
17.0
Funded assets
Total assets
Assets under management
20.4
20.5
28.3
0.2
34%
21.0
21.2
29.7
0.3
43%
21.4
21.5
28.9
0.2
44%
Customer deposits
36.1
46%
37.2
45%
38.9
44%

- credit risk
- non-counterparty
- counterparty
- market risk
- operational risk
9.5
0.1
1.9
11.5
10.0
0.1
1.9
12.0
10.3
0.1
1.9
12.3
Of which: international private banking activities (3)

Assets under management
3.0
14.5
7.3
2.2
3.1
15.6
8.0
2.5
Notes:
(2) RWAs in 2013 and 2012 are on a Basel 2.5 basis. RWAs on the end-point CRR basis at 1 January 2014 were 12.0 billion.
(3) Private banking and wealth management activities outside of the British Isles, broadly indicative of the businesses being exited.
Key points
During 2014, Private Banking has continued to provide excellent service
to clients against the background of a major business review and
significant organisational change.
Following the announcement of RBSs new strategy in February 2014,
Private Banking set out a new vision and strategic direction in August.
Coutts and Adam & Company will focus on growing the UK based high
net worth client franchise. All private banking and wealth management
activities where the primary relationship management is conducted
outside the British Isles will be exited to align better with RBSs stated UK
focus.
The ambition of the business is to be the leading UK based private bank
and wealth manager for wealthy individuals seeking exceptional private
banking and wealth management. Private Banking has gathered
significant momentum behind its ambition, supported by a straightforward
plan centred around five key priorities: an improved banking proposition;
a refocused advice and wealth management model; an enhanced
proposition for international clients managed from the UK; an integrated
client approach across RBS; and increased client engagement.
Since September, good progress has been made towards the sale of the
business outside the British Isles. A primary focus of the transaction is to
execute the deal with minimal disruption for clients and staff.
Private Banking has made tangible steps towards working more closely
with Commercial Banking, which includes an energetic approach to client
cross referrals as well as functional synergies.
The business has progressed well against key priorities in 2014.
Improvements are evidenced by several industry awards including: Best
private bank in the UK (PWM/The Banker) and Most innovative digital
offering (Private Banker International). Coutts continues to be recognised
as a leader in philanthropy, with its $1 million donors report receiving
significant media coverage, and its expertise as an adviser for family
businesses and entrepreneurs remains a strong point of differentiation.
141
Business review
Private Banking continued

Private Banking recorded an operating profit of 150 million compared
with a loss of 61 million in the prior year. This was driven by reduced
operating expenses, down 173 million, net impairment releases of 4
million compared with a net 29 million loss in 2013, and higher income,
up 5 million. Adjusted operating profit increased by 86 million to 258
million.
Net interest income increased by 33 million or 5% as improved deposit
margin reflected the full year impact of the 2013 deposit re-pricing
initiative.
Non-interest income was down 28 million or 7%, with lower transactional
and investment activity due to subdued market volatility across the
international business.
Operating expenses declined by 173 million or 16% primarily driven by
lower restructuring and litigation and conduct costs. Adjusted operating
expenses declined by 48 million or 5% to 828 million, reflecting lower
technology costs and one-off benefits from the exit of a number of
London properties.
Net impairment releases of 4 million, compared with a net impairment
loss of 29 million in the prior year reflected the non-repeat of a single
20 million provision, coupled with improved economic conditions and
higher UK property prices.
Client deposits decreased by 1.1 billion or 3% reflecting the rebalancing
of the banks liquidity position.

There was an operating loss of 61 million in 2013 compared with an
operating profit of 141 million in 2012, principally driven by an increase
in litigation and conduct costs, with lower income offsetting lower direct
costs and lower impairments.
Total income declined by 4% to 1,077 million, with a full year reduction
in net interest income reflecting the lower spread earned on deposits as a
result of the lower interest rate environment.
Non-interest income fell by 7% to 419 million due to the non-repeat of
the disposal of the Latin American, Caribbean and African businesses for
a profit of 15 million in the first half of 2012 together with a decline in fee
income in the International business.
Total expenses increased by 170 million driven by litigation and conduct
costs increase of 199 million, partly offset by lower direct costs as a
result of reduced headcount, continued discretionary cost management
and the non-recurrence of two regulatory fines totalling 26 million
incurred during 2012. This was partially offset by a one-off UK tax treaty
charge in the International business.
Impairments were 17 million lower at 29 million, largely reflecting a
small number of specific impairments.
Client assets and liabilities managed by the division declined by 2%, with
a 1.7 billion reduction in deposits following re-pricing initiatives in the UK
in line with the wider bank funding strategy. Assets under management
increased by 3% due to positive market movements. Lending was 2%
lower, reflecting increased levels of repayments in the UK.
Assets under management decreased by 1.4 billion or 5% to 28.3

billion, driven by low margin custody outflows.
142
Business review

2014
m
2013
m
2012
m
817
972
2,023
137
3,132
3,949
684
1,109
3,074
141
4,324
5,008
816
1,310
4,043
242
5,595
6,411
(729)
(400)
(2,432)
(979)
(688)
(2,900)
(1,358)
(520)
(2,846)
(93)
(202)
(994)
(4,850)
(901)
9
(892)
(76)
(126)
(2,441)
(7,210)
(2,202)
(680)
(2,882)
(411)
(571)
(723)
(6,429)
(18)
(229)
(247)
(3,561)
(4,567)
(4,724)
397
(239)
1,458
Analysis of income by product

Rates
Currencies
Credit
Global Transaction Services
Portfolio
Total (excluding revenue share and run-off businesses)
Inter-segment revenue share
Run-off businesses
Total income
975
754
1,088
818
653
4,288
(236)
(103)
3,949
1,075
903
1,639
881
623
5,121
(261)
148
5,008
1,843
706
2,067
1,021
724
6,361
(322)
372
6,411
Performance ratios
Net interest margin
Cost:income ratio
(4.2%)
1.9%
0.99%
123%
90%
(12.9%)
(1.1%)
0.80%
144%
91%
(1.0%)
5.7%
0.78%
100%
74%
Income statement
Net interest income from banking activities
Non-interest income
Total income
Direct expenses
- staff costs
- other costs
Indirect expenses
Restructuring costs
- direct
- indirect
Operating expenses
Loss before impairment releases/(losses)
Operating loss
Operating profit/(loss) - adjusted (1)
Notes:
(2) Return on equity is based on operating profit after tax divided by average notional equity (based on 12% of the monthly average of the RWAs; RWAs in 2013 and 2012 are on a Basel 2.5 basis).
the monthly average RWAes). At 31 December 2014 the RWAes on this basis were 108.9 billion and the return on equity (4.8%).
143
Business review
Corporate & Institutional Banking continued
2014
2013
bn
bn
bn
73.0
(0.2)
72.8
16.9
61.6
57.0
23.2
9.6
69.1
(0.9)
68.2
20.5
76.2
72.1
20.6
11.0
80.2
(0.6)
79.6
21.4
103.8
95.0
30.6
15.3
Funded assets
Total assets
241.1
577.2
105%
268.6
551.2
59%
345.7
775.5
68%

Bank deposits (excluding repos)
Repos
59.4
33.3
61.1
14.1
122%
64.8
30.2
74.8
21.5
105%
80.2
51.0
120.4
32.6
99%

- credit risk
- non-counterparty
- counterparty
- market risk
- operational risk
51.3
25.1
18.9
11.8
107.1
61.8
17.5
26.4
14.7
120.4
65.1
34.7
36.9
21.1
157.8

Loans and advances to customers (gross, excluding reverse repos)
Total loans and advances to customers (excluding reverse repos)
Net loans and advances to banks (excluding reverse repos) (1)
Reverse repos
Securities
Cash and eligible bills
Other
2012
Notes:
(1) Excludes disposal groups.
Key points
Corporate & Institutional Banking (CIB) focused on its strengths in core
product areas during 2014, reducing the scale of the business and
simplifying the operating model. This allowed CIB to better serve
customers while deploying fewer resources. The commitment to
customers was demonstrated by the award of The Bankers Most
Innovative Bank in Risk Management in Q3 2014 and by winning IFR
magazines Sterling Bond House of the year award in Q4 2014. The drive
to concentrate on core products is evidenced by the 27% fall in RWAs
(compared with 1 January 2014 on a CRR basis) and the 22% year on
year fall in adjusted expenses (excluding litigation and conduct costs and
restructuring costs).
CIB recorded an operating loss of 892 million compared with a loss of
2,882 million in 2013. This included litigation and conduct costs of 994
million compared with 2,441 million a year before. The adjusted
operating result improved from a loss of 239 million in 2013 to a profit of
397 million in 2014. This movement was primarily driven by substantial
reductions in expenses, partially offset by lower income. Net impairment
releases totalled 9 million compared with a net impairment charge of
680 million in 2013.
Total income declined by 21%, reflecting reduced deployment of

resources and difficult trading conditions, characterised by subdued
levels of client activity and limited market volatility:
Rates suffered from a weak trading performance in Q4 2014. This,

combined with subdued client flow and balance sheet de-risking,
reduced income.
Currencies income declined in a highly competitive market as both

market volatility and client activity remained subdued for much of the
year. Some volatility returned in Q4 2014, boosting income in the
Options business in particular.
Credit reduced RWAs by 61% in 2014, including the wind-down of

Credit Trading and the US asset- backed products (ABP) business.
This impacted income, as did the year on year weakening in
corporate investment grade debt capital market issuance in EMEA.
Income from Global Transaction Services dipped by 7%, primarily as

a result of the disposal of the Global Travel Money Service business
in Q4 2013. The underlying business was stable.
Run-off and recovery businesses incurred a loss of 103 million.
144
Business review
Operating expenses fell by 2,360 million driven primarily by lower

litigation and conduct costs. Adjusted expenses decreased by 1,006
million, or 22%, reflecting the continued focus on cost savings across
both business and support areas.
Net impairment releases totalled 9 million compared with a net
impairment charge of 680 million in 2013, reflecting a reduction in latent
loss provisions and a low level of new impairments. This contrasted with
2013 which included substantial impairments related to the establishment
of RCR.
Funded assets fell by 10% reflecting the focus on core product areas
including the wind-down of Credit Trading and the US ABP businesses
RWAs were managed down by 40.0 billion from 147.1 billion on 1
January 2014 to 107.1 billion on 31 December 2014. The 27% reduction
was driven by a sustained programme of risk and business reductions,
notably in Credit due to the wind-down of the US asset-backed products
business (down 15 billion over the same period to 4 billion).
Operating loss increased by 2,635 million, driven by litigation and
conduct costs of 2,441 million (2012 - 723 million). Income fell by 22%,
reflecting the strategic reduction in trading products and challenging
market conditions. De-risking resulted in a 24% reduction in risk-weighted
assets.
Rates actively repositioned the business during 2013, lowering the
balance sheet and reducing risk. This, combined with a weak trading
performance in H1 2013, resulted in subdued returns.
Currencies income increased as the franchise remained resilient and FX

Options benefited from opportunities in volatile FX and emerging
markets.
Credit income reduced, reflecting the de-risking of Flow Credit Trading
and lower income from Asset Backed Products which was affected by
investor concerns regarding tapering of the Federal Reserves
programme of quantitative easing and a reduction in the balance sheet
and risk resources deployed by the business.
Global Transaction Services income was 14% lower driven by Cash
Management, principally reflecting a decline in three-month LIBOR rates.
The reduction in Portfolio income of 14% reflected a smaller balance
sheet.
Excluding restructuring and litigation and conduct costs of 2,643 million
(2012 - 1,705 million) costs decreased by 157 million, or 3%, primarily
reflecting a reduction in headcount and tightly controlled discretionary
expenses. This was partially offset by a higher level of legal costs,
primarily related to legacy issues in the US asset backed products
business.
The increase in impairments mainly related to the creation of RCR (355
million) in addition to a number of single name provisions.
Reducing risk and refocusing the trading business on core fixed income
and currencies products drove the substantial reduction in both balance
sheet and risk capital. Funded assets were 77.1 billion lower than
December 2012 and risk weighted assets at 120.4 billion were down
37.4 billion.
145
Business review
Central items
Central items not allocated
2014
m
2013
m
2012
m
(850)
647
845
Funding and operating costs have been allocated to operating segments based on direct service usage, the requirement for market funding and other
appropriate drivers where services span more than one segment.
Residual unallocated items relate to volatile corporate items that do not naturally reside within a segment.

Central items not allocated represented a charge of 850 million
compared with a credit of 647 million in 2013. The change includes
lower gains on the disposal of available-for-sale securities in Treasury,
which were down 575 million to 149 million in 2014, along with a 309
million higher restructuring charge relating to the Williams & Glyn
franchise. In addition 2014 includes a charge of 247 million write-down
of previously capitalised software development expenditure and 134
million lower income from investments in associates. In addition,
unallocated Treasury funding costs, including volatile items under IFRS,
were 437 million in the year versus 282 million in 2013.

Central items not allocated, represented a credit of 647 million in 2013
compared with 845 million in 2012, a reduction of 198 million.
This has been principally driven by higher unallocated Treasury and
funding costs, including volatile items under IFRS and lower gains on
Treasury available-for-sale securities, down 156 million from 880
million in 2012 to 724 million in 2013.
Central items included a property-related impairment of 65 million which
was offset by the non-repeat of 175 million costs incurred in 2012 in
relation to the technology incident along with income recognised in
relation to RBSs share of profit from its stake in Saudi Hollandi.
146
Business review

Income statement
Net interest income
Non-interest income
Total income
Direct expenses
- staff costs
- other costs
- litigation settlement
Indirect expenses
Restructuring costs
Operating expenses
Impairment losses
Operating profit
2014
US$m
2013
US$m
2012
US$m
2014
m
2013
m
2012
m
3,317
1,168
589
1,757
5,074
2,960
1,190
489
1,679
4,639
3,071
1,253
584
1,837
4,908
2,013
709
359
1,068
3,081
1,892
761
312
1,073
2,965
1,938
791
368
1,159
3,097
(1,697)
(1,631)
(169)
(3,497)
1,577
(324)
1,253
(1,707)
(1,544)
(173)
(24)
(3,448)
1,191
(244)
947
(1,644)
(1,630)
(138)
(148)
2
(3,558)
1,350
(145)
1,205
(1,030)
(990)
(103)
(2,123)
958
(197)
761
(1,091)
(986)
(111)
(16)
(2,204)
761
(156)
605
(1,037)
(1,027)
(88)
(95)
1
(2,246)
851
(91)
760
(3,328)
(3,424)
(3,422)
(2,020)
(2,188)
(2,159)
1,422
971
1,341
864
621
847
1.647
1.565
1.585
Average exchange rate - US$/
Performance ratios
Net interest margin
Cost:income ratio
Loan impairment charge as % of gross customer loans and
advances
2014
2013
2012
2014
2013
2012
6.6%
7.5%
2.88%
69%
66%
5.7%
5.8%
2.91%
74%
74%
7.1%
7.5%
2.98%
72%
71%
6.6%
7.5%
2.88%
69%
66%
5.7%
5.8%
2.91%
74%
74%
7.1%
7.5%
2.98%
72%
71%
0.3%
0.3%
0.2%
0.3%
0.3%
0.2%
Notes:
(1) Excluding restructuring costs and litigation settlement.
(2) Return on equity is based on operating profit after tax divided by average notional equity (based on 12% of the monthly average of RWAs); RWAs in 2013 and 2012 are on a Basel 2.5 basis.
147
Business review
Citizens Financial Group continued

- residential mortgages
- home equity
- SBO home equity
- corporate and commercial
- other consumer
Funded assets
Total assets
Investment securities
- retail
- commercial
Total risk elements in lending
Bank deposits (excluding repos)
- credit risk
- non-counterparty
- counterparty
- operational risk
Spot exchange rate - US$/
US$bn
US$bn
US$bn
bn
bn
bn
12.1
18.8
1.8
43.6
17.6
93.9
(0.8)
93.1
9.6
20.1
39.8
14.1
83.6
(0.4)
83.2
9.4
21.5
38.5
13.5
82.9
(0.5)
82.4
7.7
12.0
1.2
27.9
11.3
60.1
(0.5)
59.6
5.8
12.1
24.1
8.6
50.6
(0.3)
50.3
5.8
13.3
23.8
8.4
51.3
(0.3)
51.0
132.0
132.6
24.7
117.9
118.6
21.3
116.7
117.8
19.5
84.5
84.9
15.8
71.3
71.7
12.9
72.2
72.9
12.0
1.8
0.3
2.1
40%
1.5
0.2
1.7
26%
1.3
0.6
1.9
25%
1.2
0.1
1.3
40%
0.9
0.1
1.0
26%
0.8
0.3
1.1
25%
94.6
8.0
98%
91.1
3.3
91%
95.6
2.9
86%
60.6
5.1
98%
55.1
2.0
91%
59.2
1.8
86%
97.4
1.4
8.0
106.8
83.8
0.8
8.2
92.8
82.0
1.4
7.9
91.3
62.4
0.9
5.1
68.4
50.7
0.5
4.9
56.1
50.8
0.8
4.9
56.5
1.562
1.654
1.616
Notes:
(2) RWAs in 2013 and 2012 are on a Basel 2.5 basis. RWAs on the end-point CRR basis as at 1 January were 60.6 billion ($100.2 billion).
Key points
In accordance with a commitment to the EC to sell Citizens by 31
December 2016, RBS disposed of 29.5% of its interest in Citizens
Financial Group, Inc. during the second half of 2014 primarily through an
initial public offering in the USA. In accordance with IFRS 5 Non-current
Assets Held for Sale and Discontinued Operations, Citizens is presented
with effect from 31 December 2014 as a discontinued operation, with
comparatives restated, and as a disposal group.
Although CFG has been reclassified as a discontinued operation it

continues to be a reportable operating segment.
The results for 2014 are not directly comparable to prior periods; prior
year results exclude Non-Core operations and include indirect expenses.
In the context of the planned disposal of Citizens Financial Group,
indirect expenses are no longer allocated to the segment.
148
Business review

Operating profit increased by 156 million ($306 million), or 26%, to 761
million ($1,253 million), reflecting the Q2 2014 gain on the sale of the
Illinois franchise. The former Non-Core portfolio is now included and
indirect expenses are no longer allocated on a prospective basis from 1
January 2014. On a comparable basis, operating profit excluding the
impact of the Illinois sale, 170 million ($283 million) net gain, and
restructuring costs, 103 million ($169 million) (FY 2013 - 16 million
($24 million)), was up 11% driven by an increase in net interest income
and a decrease in impairment losses partially offset by lower non-interest
income.
Net interest income was up 121 million ($357 million), or 6%, to 2,013
million ($3,317 million) driven by a larger investment portfolio, loan
growth including the transfer of assets from Non-Core, the benefit of
interest rate swaps and deposit pricing discipline. This was partially offset
by a reduction in loan spreads, reflecting the impact of the relatively
persistent low-rate environment on loan yields, higher borrowing costs
related to subordinated debt issuances and the impact of lost revenue
from the Illinois franchise sale.
Higher rates led to investment security purchases resulting in average
portfolio growth of 3.3 billion ($5.4 billion) over the year.
Average loans and advances were up 17% driven by the 2.1 billion
($3.4 billion) transfer of assets from Non-Core, commercial loan growth,
auto loan organic growth and purchases of residential mortgages and
auto loans, which were partially offset by a reduction in home equity
loans.
Average customer deposits were up 4%. On a US dollar basis average
customer deposits were down 2% with planned run-off of high priced
deposits.
Loan:deposit ratio improved 700 basis points to 98%.
Excluding the gain on the sale of the Illinois franchise of 170 million
($283 million), non-interest income was down 175 million ($205 million),
or 16%, to 898 million ($1,474 million) reflecting lower securities gains of
70 million ($116 million), lower mortgage banking fees of 32 million
($52 million), as refinancing volumes have slowed, lower deposit fees of
32 million ($52 million) due to a change in the posting order of
transactions and the impact of lost revenue from the Illinois franchise
sale. This was partially offset by underlying strength in commercial
banking fee income. Mortgage origination activity has slowed as market
rates have risen, leading to lower applications combined with lower levels
of gains on sales of mortgages.
Excluding restructuring costs of 103 million ($169 million) (2013 - 16
million ($24 million)), total expenses were down 168 million ($96
million), or 8%, to 2,020 million ($3,328 million) driven by the removal of
indirect costs in 2014 and the impact of the Illinois franchise sale partially
offset by lower mortgage servicing rights impairment release and higher
consumer regulatory compliance costs.
Restructuring costs include costs related to the sale of the Illinois

franchise, separation from RBS, as well as efforts to improve processes
and enhance efficiency.
Impairment losses increased by 41 million ($80 million) to 197 million
($324 million) due to charge-offs related to assets transferred from NonCore.
Operating profit of 605 million ($947 million) was down 155 million
($258 million), or 20%. The operating environment and market conditions
remained challenging, with intense competition for loans. An extended
period of low short-term rates limited net interest margin expansion and
the rise in long-term rates dramatically slowed mortgage refinance
volumes.
Net interest income was down 2% at 1,892 million ($2,960 million) due
to a smaller investment portfolio, consumer loan run-off and the effect of
prevailing economic conditions on asset yields partially offset by the
benefit of interest rate swaps, commercial loan growth and favourable
funding costs.
Average loans and advances were flat, with commercial loan growth of
5% despite competition for lending opportunities offset by run-off of longterm fixed-rate consumer products.
Average customer deposits were flat, with planned run-off of high priced
time deposits and lower wholesale deposits offset by growth achieved in
checking and money market balances. Consumer checking balances
grew by 3% while small business checking balances grew by 7% over the
year.
Excluding the 47 million ($75 million) gross gain on the sale of Visa B
shares in 2012, non-interest income was down 39 million ($83 million),
or 4% at 1,073 million ($1,679 million), reflecting lower mortgage
banking fees as refinancing volumes have slowed, and lower deposit
fees. This was partially offset by higher securities gains and commercial
banking fee income.
Excluding the 88 million ($138 million) litigation settlement in 2012
relating to a class action lawsuit regarding the way overdraft fees were
assessed on customer accounts prior to 2010 and the 8 million ($13
million) litigation reserve associated with the sale of Visa B shares, total
expenses of 2,204 million ($3,448 million) were broadly in line with prior
year. This largely reflects a mortgage servicing rights impairment
recapture driven by the increase in long-term rates offset by the cost of
regulatory compliance and new technology investments and a one-off
21 million ($33 million) pension gain in 2012.
Impairment losses increased by 65 million ($99 million) to 156 million
($244 million) for the year and represented 0.3% of loans and advances
to customers.
149
Business review

RCR is managed and analysed in four asset management groups - Ulster Bank (RCR Ireland), Real Estate Finance, Corporate and Markets. Real
Estate Finance excludes commercial real estate lending in Ulster Bank.
2014
m
Income statement
Net interest expense
Income from trading activities (1)
Other operating income (1)
Non-interest income
Total income
Direct expenses
- staff
- other
Indirect expenses
Restructuring costs
Operating expenses
Loss before impairment losses
Impairment releases (1)
Operating profit
(24)
58
(218)
229
69
45
(167)
(85)
(104)
(7)
(363)
(318)
1,306
988
(356)
995
Total income
Ulster Bank
Real Estate Finance
Corporate
Markets
Total income
Impairment (releases)/losses
Ulster Bank
Real Estate Finance
Corporate
Markets
Total impairment releases
Loan impairment charge as a % of gross customer loans and advances (3)
Ulster Bank
Real Estate Finance
Corporate
Markets
Total
(20)
222
(17)
(140)
45
(1,106)
(183)
(21)
4
(1,306)
(10.1%)
(4.5%)
(0.3%)
(1.7%)
(6.0%)
Notes:
(1) Asset disposals contributed 904 million to RCRs operating profit: impairment provision releases of 874 million; 87 million gain in income from trading activities and 57 million loss in other
operating income.
(2) Excluding restructuring costs.
150
Business review

Loans and advances to customers (gross) (1)
2014
bn
21.9
(10.9)
11.0
Debt securities
Funded assets
Total assets
1.0
14.9
29.0
Risk elements in lending (1)

Risk-weighted assets
- credit risk
- non-counterparty
- counterparty
- market risk
15.4
71%
Gross loans and advances to customers (1)

Ulster Bank
Real Estate Finance
Corporate
Markets
Funded assets - Ulster Bank

Commercial real estate - investment
Commercial real estate - development
Other corporate
Funded assets - Real Estate Finance

UK
Germany
Spain
Other
Funded assets - Corporate

Structured finance
Shipping
Other
Funded assets - Markets

Securitised products
Emerging markets
13.6
4.0
4.4
22.0
11.0
4.1
6.2
0.6
21.9
1.2
0.7
0.7
2.6
2.5
0.4
0.5
0.8
4.2
1.7
1.8
2.3
5.8
1.8
0.5
2.3
Notes:
151
Business review
RBS Capital Resolution continued

Funded assets and RWAe
2014
Ulster Bank
Real Estate Finance
Corporate
Markets
Total RCR
Non-performing (1)
Funded assets
Gross
Net
RWAe
RWA
bn
bn
bn
bn
10.7
3.2
2.2
0.1
16.2
2.2
2.0
1.1
0.1
5.4
3.4
1.0
1.6
0.1
6.1
Capital
deducts
m
Performing (1)
Funded assets
Gross
Net
RWAe
bn
bn
bn
340
98
161
12
611
0.5
2.2
4.7
2.2
9.6
0.4
2.2
4.7
2.2
9.5
0.5
4.8
6.7
9.2
21.2
RWA
bn
1.3
4.7
7.2
8.8
22.0
Capital
deducts
m
(82)
13
(49)
41
(77)
Total
Funded assets
Gross
Net RWAe (2)
bn
bn
bn
11.2
5.4
6.9
2.3
25.8
2.6
4.2
5.8
2.3
14.9
3.9
5.8
8.3
9.3
27.3
Capital
RWA deducts (3)
bn
m
1.3
4.7
7.2
8.8
22.0
258
111
112
53
534
Notes:
(1) Performing assets are those with an internal asset quality band of AQ1-AQ9; and non-performing assets are in AQ10 with a probability of default being 100%.
(2) RWA equivalent (RWAe) is an internal metric that measures the equity capital employed in segments. RWAe converts both performing and non-performing exposures into a consistent capital
measure, being the sum of the regulatory RWAs and the regulatory capital deductions, the latter converted to RWAe by applying a multiplier. RBS applies a CET1 ratio of 10% for RCR; this results in
an end-point CRR RWAe conversion multiplier of 10.
(3) The most significant component of capital deductions relate to expected loss less impairment provisions of 518 million. The negative capital deductions for performing exposures are a result of the
latent loss provisions held in respect of the performing portfolio.
Funded assets
1 January
2014
bn
Ulster Bank
Real Estate Finance
Corporate
Markets
Total
Repayments
bn
Disposals (1)
bn
(0.2)
(2.3)
(2.3)
(1.1)
(5.9)
(2.8)
(2.9)
(1.9)
(1.5)
(9.1)
Repayments
bn
Disposals (1)
bn
Risk
parameters (2)
bn
Impairments
bn
Other (3)
bn
(0.5)
(2.2)
(2.2)
(2.7)
(7.6)
(0.5)
(1.4)
(3.0)
(2.7)
(7.6)
(0.9)
(5.2)
(4.1)
0.2
(10.0)
(0.4)
(0.4)
(0.1)
0.5
0.5
0.9
Repayments
bn
Disposals (1)
bn
Risk
parameters (2)
bn
Impairments
bn
Other (3)
bn
(30)
(396)
(192)
(15)
(633)
(226)
(683)
(113)
(80)
(1,102)
(116)
621
17
(139)
383
81
78
(102)
1
58
(10)
(14)
25
(5)
(4)
Repayment
bn
Disposals (1)
bn
Risk
parameters (2)
bn
Impairments
bn
Other (3)
bn
(0.8)
(6.2)
(4.0)
(2.8)
(13.8)
(2.7)
(8.2)
(4.0)
(3.5)
(18.4)
(2.1)
0.9
(4.0)
(1.1)
(6.3)
0.7
0.7
(1.4)
(0.1)
0.6
0.3
0.8
4.8
9.5
9.8
4.8
28.9
Impairments
bn
1.1
0.1
1.2
Other
bn
(0.3)
(0.2)
0.2
0.1
(0.2)
31 December
2014
bn
2.6
4.2
5.8
2.3
14.9
1 January
2014
bn
Ulster Bank
Real Estate Finance
Corporate
Markets
Total
3.3
13.5
16.4
13.5
46.7
31 December
2014
bn
1.3
4.7
7.2
8.8
22.0
Capital deductions
1 January
2014
bn
Ulster Bank
Real Estate Finance
Corporate
Markets
Total
559
505
477
291
1,832
31 December
2014
bn
258
111
112
53
534
RWA equivalent (4)

1 January
2014
bn
Ulster Bank
Real Estate Finance
Corporate
Markets
Total
8.9
18.6
21.1
16.4
65.0
31 December
2014
bn
3.9
5.8
8.3
9.3
27.3
Notes:
(1) Includes all effects relating to disposals, including associated removal of deductions from regulatory capital.
(2) Principally reflects credit migration and other technical adjustments.
(3) Includes fair value adjustments and foreign exchange movements.
(4) RWA equivalent (RWAe) is an internal metric that measures the equity capital employed in segments. RWAe converts both performing and non-performing exposures into a consistent capital
measure, being the sum of the regulatory RWAs and the regulatory capital deductions, the latter converted to RWAe by applying a multiplier. RBS applies a CET1 ratio of 10% for RCR; this results in
an end-point CRR RWAe conversion multiplier of 10.
152
Business review
Gross loans and advances, REIL and impairments
2014 (1)
By sector
- investment
- development
Asset finance
Other corporate
Gross
loans
bn
REIL
bn
Provisions
bn
REIL as a
% of gross
loans
%
Credit metrics
Provisions
as a %
of REIL
%
Provisions
as a % of
gross loans
%
Impairment
(releases)/
losses (2)
m
Amounts
written-off
m
6.2
6.4
2.3
7.0
21.9
4.9
6.2
0.9
3.4
15.4
2.8
5.3
0.4
2.4
10.9
79
97
39
49
70
57
85
44
71
71
45
83
17
34
50
(553)
(611)
37
(169)
(1,296)
1,911
560
80
1,032
3,583
3.0
5.8
2.2
11.0
2.9
5.8
2.0
10.7
2.0
5.1
1.5
8.6
97
100
91
97
69
88
75
80
67
88
68
78
(450)
(608)
(48)
(1,106)
445
425
256
1,126
Commercial Banking
- investment
- development
Other corporate
Total Commercial Banking
1.2
0.4
1.0
2.6
0.7
0.3
0.5
1.5
0.2
0.1
0.3
0.6
58
75
50
58
29
33
60
40
17
25
30
23
(5)
(11)
(16)
228
104
192
524
CIB
- investment
- development
Asset finance
Other corporate
Total CIB
2.0
0.2
2.3
3.8
8.3
1.3
0.1
0.9
0.9
3.2
0.6
0.1
0.4
0.6
1.7
65
50
39
24
39
46
100
44
67
53
30
50
17
16
20
(98)
8
37
(121)
(174)
1,238
31
80
584
1,933
Total
21.9
15.4
10.9
70
71
50
(1,296)
3,583
Of which
UK
Europe
US
RoW
Customers
Banks
Total
10.0
10.9
0.3
0.7
21.9
0.5
22.4
6.2
8.9
0.1
0.2
15.4
15.4
4.1
6.6
0.2
10.9
10.9
62
82
33
29
70
69
66
74
100
71
71
41
61
29
50
49
(402)
(875)
(19)
(1,296)
(10)
(1,306)
2,266
1,267
26
24
3,583
8
3,591
By donating segment and sector

Ulster Bank
- investment
- development
Other corporate
Total Ulster Bank
Notes:
(2) Impairment (releases)/losses include those relating to AFS securities; sector analyses above include allocation of latent impairment charges.
153
Business review
RBS Capital Resolution continued

RCR funded assets were reduced by 14 billion, or 48%, during 2014,
driven by disposals and repayments.
Operating profit of 988 million reflects impairment provision releases

and higher than anticipated sale prices for assets driven by a combination
of strong execution and favourable market conditions particularly in
Ireland.
The original target was for RCR to reduce funded assets by between
55% to 70% by the end of 2015 and by 85% over three years from 1
January 2014. Based on the strong performance in 2014, RCR is now
expected to reduce funded assets by 85% by the end of 2015, a year
earlier than planned.
The net effect of the 988 million operating profit and RWA equivalent
reduction of 38 billion(1) was CET1 accretion of 4.8 billion.
RWA equivalent decreased by 38 billion, or 58%, during 2014. This

primarily reflects disposals and repayments, supplemented by
methodology changes and lower market risk RWAs.
Funding employed
RCR continues to be funded primarily by RBS Treasury and has no
material third party deposits.
The funding is based on the original target of reducing third party assets
by 85% over three years from the creation of RCR on 1 January 2014.
Note:
(1) Capital equivalent: 3.8 billion at an internal CET1 ratio of 10%.
154
Business review
Non-Core
2013
m
2012
m
(61)
55
(148)
346
105
(654)
142
(334)
(285)
(346)
421
70
(58)
288
(190)
(76)
(126)
(213)
(256)
(246)
(171)
(282)
(16)
(6)
(627)
(973)
(4,576)
(5,549)
(1)
(7)
(963)
(675)
(2,223)
(2,898)
Analysis of (loss)/income by business

Banking & portfolios
International businesses
Markets
Total income
(496)
51
99
(346)
40
250
(2)
288
Loss from trading activities

Monoline exposures
Credit derivative product companies
Asset-backed products (2)
Other credit exotics
Equities
Banking book hedges
Other
Total
(46)
(5)
103
32
2
3
(237)
(148)
(205)
(205)
101
(28)
(2)
(38)
(277)
(654)
Impairment losses
Markets
4,646
1
(71)
4,576
2,346
56
(179)
2,223
Loan impairment charge as a % of gross customer loans and advances

(excluding reverse repurchase agreements) (4)
Total
12.9%
0.5%
12.8%
4.2%
5.1%
4.2%
Income statement
Net interest income
Loss from trading activities
- rental income
- other (1)
Non-interest income
Total income
Direct expenses
- staff costs
- operating lease depreciation
- other costs
Indirect expenses
Restructuring cost
- direct
- indirect
Operating expenses
Loss before impairment losses
Impairment losses
Operating loss
Notes:
(1) Includes losses on disposals of 221 million for 2013 (2012 - 14 million).
(2) Asset-backed products include super asset-backed structures and other asset-backed products.
(3) Includes 3,118 million pertaining to the creation of RCR and related strategy.
155
Business review
Non-Core continued
Performance ratios
Net interest margin
2013
2012
(0.19%)
0.31%

Loans and advances to customers (gross) (1)
bn
bn
35.6
(13.8)
21.8
55.4
(11.2)
44.2
Total third party assets (excluding derivatives)

Total third party assets (including derivatives)
28.0
31.2
57.4
63.4
Risk elements in lending (1)

Customer deposits (excluding repos) (1)
19.0
73%
2.2
21.4
52%
2.7
- credit risk
- non-counterparty
- counterparty
- market risk
- operational risk
21.0
3.7
3.3
1.2
29.2
45.1
11.5
5.4
(1.6)
60.4
35.4
0.2
35.6
54.5
0.9
55.4
26.2
0.7
2.3
29.2
53.3
2.4
4.7
60.4
25.9
0.3
1.8
28.0
51.1
1.2
5.1
57.4
Gross customer loans and advances

Markets
Third party assets (excluding derivatives)
Markets
Notes:
(1) Excludes disposal groups.
156
Business review
2013 was the final reporting period for the Non-Core division.
Approximately 12 billion of assets which were managed by Non-Core
were returned to the relevant originating segments, with the remaining
assets transferring to RCR from 1 January 2014.
Non-Core had successfully achieved and surpassed its five year
Strategic Plan target, reducing third party assets from the opening
258 billion position to end 2013 significantly below the original c.40
billion target at 28 billion. Over the life of Non-Core this represented
an overall reduction of 230 billion, or 89%. This was achieved
through a mixture of disposals, run-off and impairments. By the end of
2013, the Non-Core funded balance sheet was c.4% of the Groups
funded balance sheet compared with 21% when the division was
created. RWAs had reduced from 171 billion to 29 billion, or 83%,
over the life of Non-Core.

Third party assets declined by 29 billion, or 51%, reflecting run-off of
15 billion, disposals of 11 billion and impairments of 5 billion, of
which 3.1 billion is driven by the new RCR strategy to exit these
assets over a shorter timeframe than previous plans.
Risk-weighted assets were 31 billion lower, driven by disposals and
run-off.
Operating loss of 5,549 million was 2,651 million higher than 2012,
principally due to a 2,353 million increase in impairments. This was
predominantly due to 3,118 million of 2013 impairments related to the
creation of RCR, most significantly with 2,299 million in Ulster Bank
and 742 million in International Banking, driven by the new RCR
strategy to exit these assets over a shorter timeframe than previous
plans, which has led to increased impairment losses on the nonperforming assets.
Operating loss before impairment losses was 298 million higher with
a reduction in net interest income of 343 million, 207 million
additional disposal losses and 104 million further fair value
writedowns offset by 506 million lower losses from trading activities.
The reduction in net interest income of 343 million was driven by a
31% fall in interest earning assets driven by run-off and disposals.
Headcount declined by 1,700, or 55% to 1,400 of which 1,000 relates
to operations in India and Romania, reflecting divestment activity and
run-off.
157
Business review
Consolidated balance sheet at 31 December 2014
Assets
Cash and balances at central banks
Net loans and advances to banks
Reverse repurchase agreements and stock borrowing
Debt securities subject to repurchase agreements
Other debt securities
Debt securities
Equity shares
Settlement balances
Derivatives
Intangible assets
Property, plant and equipment
Deferred tax
Prepayments, accrued income and other assets
Assets of disposal groups
Total assets
Liabilities
Bank deposits
Repurchase agreements and stock lending
Deposits by banks
Customers deposits
Customer accounts
Settlement balances
Short positions
Derivatives
Accruals, deferred income and other liabilities
Retirement benefit liabilities
Deferred tax
Liabilities of disposal groups
Total liabilities
Owners equity
Total equity
Total liabilities and equity
2014
m
2013
m
2012
m
74,872
23,027
20,708
43,735
334,251
43,987
378,238
23,048
63,601
86,649
5,635
4,667
353,590
7,781
6,167
1,540
5,878
82,011
1,050,763
82,659
27,555
26,516
54,071
390,825
49,897
440,722
55,554
58,045
113,599
8,811
5,591
288,039
12,368
7,909
3,478
7,614
3,017
1,027,878
79,290
29,168
34,783
63,951
430,088
70,047
500,135
91,173
66,265
157,438
15,232
5,741
441,903
13,545
9,784
3,443
7,820
14,013
1,312,295
35,806
24,859
60,665
354,288
37,351
391,639
50,280
4,503
23,029
349,805
13,346
2,579
500
22,905
71,320
990,571
35,329
28,650
63,979
414,396
56,484
470,880
67,819
5,313
28,022
285,526
16,017
3,210
507
24,012
3,378
968,663
57,073
44,332
101,405
433,239
88,040
521,279
94,592
5,878
27,591
434,333
14,801
3,884
1,141
26,773
10,170
1,241,847
2,946
57,246
60,192
473
58,742
59,215
1,770
68,678
70,448
1,050,763
1,027,878
1,312,295
158
Business review
Commentary on consolidated balance sheet

Total assets of 1,050.8 billion at 31 December 2014 were up 22.9
billion, 2%, compared with 31 December 2013. This was driven by markto-market increases in derivative assets, partly offset by a reduction in
funded assets, primarily in CIB and RCR.
Loans and advances to banks decreased by 10.3 billion, 19%, to 43.7
billion. Excluding reverse repurchase agreements and stock borrowing
(reverse repos), down 5.8 billion, 22%, to 20.7 billion, bank placings
declined 4.5 billion, 16%, to 23.0 billion.
Loans and advances to customers declined 62.5 billion, 14%, to 378.2
billion. Within this, reverse repos were down 5.9 billion, 12%, to 44.0
billion. Customer lending decreased by 56.6 billion, 14%, to 334.2
billion, or 64.3 billion to 351.7 billion before impairments. This reflected
the transfer to disposal groups at 31 December 2014 of 60.1 billion
(equivalent 2013 - 50.6 billion) of customer balances relating to Citizens
together with run-down and disposals in RCR.
Debt securities were down 27.0 billion, 24%, to 86.6 billion, driven
mainly by the transfer of 15.3 billion of Citizens debt securities to assets
of disposal groups and reductions within CIB and Treasury in holdings of
US government securities and financial institution bonds.
Equity shares decreased by 3.2 billion, 36%, to 5.6 billion primarily due
to the ongoing run-down of the CIB equities business.
Movements in the value of derivative assets, up 65.6 billion, 23%, to
353.6 billion, and liabilities, up 64.3 billion, 23% to 349.8 billion,
primarily reflects significant mark-to-market increases on interest rate
contracts driven by significant downward shifts in major yield curves.
Property, plant and equipment decreased by 1.7 billion, 22%, to 6.2
billion driven largely by disposals of investment properties and the
transfer of Citizens to assets of disposal groups.
Intangible assets decreased by 4.6 billion, 37%, to 7.8 billion primarily
as a result of the transfer to disposal groups of 4.5 billion of intangible
assets relating to Citizens.
The increase in assets and liabilities of disposal groups, up 79.0 billion

to 82.0 billion, and 67.9 billion to 71.3 billion respectively, primarily
reflects the transfer to disposal groups of Citizens at 31 December 2014.
This was partly offset by decreases resulting from the disposals of the
interest in associates in Direct Line Group and the Chicago area retail
branches, small business operations and select middle market
relationships in the Chicago area, which formed part of Citizens.
Deposits by banks decreased 3.3 billion, 5%, to 60.7 billion, with
increases in inter-bank deposits, up 0.5 billion, 1%, to 35.8 billion and
decreases in repurchase agreements and stock lending (repos), down
3.8 billion, 13%, to 24.9 billion, as a result of the transfer of 6.8 billion
of Citizens bank deposits to liabilities of disposal groups, partly offset by
higher derivative cash collateral.
Customer accounts decreased 79.2 billion, 17%, to 391.6 billion.
Within this, repos decreased 19.1 billion, 34%, to 37.4 billion.
Excluding repos, customer deposits were down 60.1 billion, 15%, at
354.3 billion, primarily reflecting the transfer to disposal groups of 60.6
billion (equivalent 2013 - 55.1 billion) of customer accounts relating to
Citizens and the reduction of corporate deposits in both Commercial
Banking and CIB.
Debt securities in issue decreased 17.5 billion, 26%, to 50.3 billion due
to the buy-back and maturity of medium term notes in issue given the
lower funding requirements of a reduced balance sheet.
Retirement benefit liabilities decreased by 0.6 billion, 20%, to 2.6 billion
primarily driven by additional employer contributions of 0.7 billion to the
Groups Main scheme as part of the schedule of additional contributions
to eliminate the deficit in the scheme which were agreed following
completion of the triennial valuation of the Main scheme.
Subordinated liabilities decreased by 1.1 billion, 5% to 22.9 billion,
primarily as a result of the net decrease in dated loan capital with
redemptions of 3.5 billion being partially offset by issuances of 2.2
billion and the effects of exchange rate and other movements of 0.2
billion.
Non-controlling interests increased by 2.5 billion to 2.9 billion, due to
the disposal of a 29.5% interest in Citizens during the second half of
2014, primarily through an initial public offering in the USA.
Owners equity decreased by 1.5 billion, 3%, to 57.2 billion, driven by
the 3.5 billion attributable loss for the year. Partially offsetting this
reduction were movements in cash flow hedging reserves, 1.1 billion,
and available-for-sale reserves, 0.6 billion, share issuances of 0.5
billion, and other reserve movements, 0.2 billion.
159
Business review
Commentary on consolidated balance sheet continued

Total assets of 1,027.9 billion at 31 December 2013 were down 284.4
billion, 22%, compared with 31 December 2012. This was driven by the
downsizing of the CIB business, primarily reflected in decreases in loans
to banks and customers, debt securities and derivatives balances, and a
further decrease in loans and advances to banks and customers due to
Non-Core disposals and run off.
Loans and advances to banks decreased by 9.9 billion, 15%, to 54.1
billion. Excluding reverse repurchase agreements and stock borrowing
(reverse repos), down 8.3 billion, 24%, to 26.5 billion, bank placings
declined 1.6 billion, 6%, to 27.6 billion.
Loans and advances to customers declined 59.4 billion, 12%, to 440.7
billion. Within this, reverse repurchase agreements were down 20.1
billion, 29%, to 49.9 billion. Customer lending decreased by 39.3
billion, 9%, to 390.8 billion, or 35.2 billion to 416.0 billion before
impairments. This reflected reductions in Non-Core of 19.9 billion, along
with declines in CIB, 11.1 billion, Ulster Bank, 1.9 billion, UK Personal
& Business Banking, 1.3 billion, Private Banking, 0.3 billion, Citizens
Financial Group, 0.2 billion and Commercial Banking, 0.1 billion, which
included the impact of 0.7 billion of customer loans being transferred to
assets of disposal groups at 31 December 2013, and the effect of
exchange rate and other movements, 0.4 billion.
Debt securities were down 43.8 billion, 28%, to 113.6 billion, driven
mainly by reductions within CIB and RBS Treasury in holdings of UK and
Eurozone government securities and financial institution bonds.
Equity shares decreased by 6.4 billion, 42%, to 8.8 billion due to the
targeted run-down of CIB equities business.
Movements in the value of derivative assets, down 153.9 billion, 35%, to
288.0 billion, and liabilities, down 148.8 billion, 34% to 285.5 billion,
primarily reflects upward shifts in major yield curves which resulted in
significant mark-to-market decreases on interest rate contracts.
Property, plant and equipment decreased by 1.9 billion, 19%, to 7.9
billion driven largely by the disposal of Non-Core assets.
Intangible assets decreased by 1.2 billion, 9%, to 12.4 billion primarily
as a result of the write-down of goodwill relating to the former
International Banking division at 31 December 2013.
Deposits by banks decreased 37.4 billion, 37%, to 64.0 billion, with

decreases in inter-bank deposits, down 21.7 billion, 38%, to 35.3 billion
and repurchase agreements and stock lending (repos), down 15.7
billion, 35%, to 28.7 billion, as a result of lower funding requirements
and reduced derivative cash collateral.
Customer accounts decreased 50.4 billion, 10%, to 470.9 billion.
Within this, repos decreased 31.6 billion, 36%, to 56.5 billion.
Excluding repos, customer deposits were down 18.8 billion, 4%, at
414.4 billion, primarily reflecting decreases in CIB, 15.6 billion, Citizens
Financial Group, 5.9 billion, Private Banking 1.7 billion, Commercial
Banking, 1.0 billion and Ulster Bank, 0.7 billion, which included the
impact of 3.2 billion of customer deposits being transferred to liabilities
of disposal groups at 31 December 2013, and the effect of exchange rate
and other movements of 3.4 billion. These decreases were partially
offset by increases in UK Personal & Business Banking, 9.8 billion.
Debt securities in issue decreased 26.8 billion, 28%, to 67.8 billion due
to lower funding requirements as a result of the reduction in the overall
size of the balance sheet, with most of the reduction in medium term
notes in issue.
Retirement benefit liabilities decreased by 0.7 billion, 17%, to 3.2 billion
with net actuarial gains of 0.5 billion arising from improved asset returns
and higher discount rates partly offset by an increase in the assumed
inflation rate. Additional employer contributions of 0.4 billion to the
Groups Main scheme also reduced retirement benefit liabilities.
Subordinated liabilities decreased by 2.8 billion, 10% to 24.0 billion,
primarily as a result of the net decrease in dated loan capital with
redemptions of 3.4 billion and the effects of exchange and other
movements of 1.2 billion being partially offset by issuances of 1.8
billion.
Non-controlling interests decreased by 1.3 billion, 73%, to 0.5 billion,
predominantly due to the deconsolidation of Direct Line Group following
the further sale of shares and ceding of control in 2013.
Owners equity decreased by 9.9 billion, 14%, to 58.7 billion, driven by
the 9.0 billion attributable loss for the year together with movements in
cash flow hedging reserves, 1.7 billion and foreign exchange reserves,
0.2 billion. Partially offsetting these reductions were share issuances of
0.4 billion, the termination of the contingent capital facility, 0.3 billion,
the recognition of actuarial gains in respect of the Groups defined benefit
pension schemes, net of tax, 0.2 billion and other reserve movements,
0.1 billion.
The decrease in assets and liabilities of disposal groups, down 11.0

billion, 78%, to 3.0 billion, and 6.8 billion, 67%, to 3.4 billion
respectively, primarily reflects the deconsolidation of Direct Line Group
following the further sale of shares and ceding of control in 2013. The
remaining interest, classified as an associate, is included in assets of
disposal groups at 31 December 2013. In addition, disposal groups
include loans and deposits in Illinois branches for sale in Citizens
Financial Group.
160
Business review
Cash flow
Net cash flows from operating activities

Net cash flows from investing activities
Net cash flows from financing activities
Effects of exchange rate changes on cash and cash equivalents
Net decrease in cash and cash equivalents
2014
The major factors contributing to the net cash outflow from operating
activities of 20,387 million were the decrease of 17,948 million in
operating assets and liabilities, loans and advances written-off net of
recoveries of 5,073 million, other provisions utilised of 3,528 million
and the loss before tax of 564 million from continuing and discontinued
operations. These were partially offset by the loss on reclassification to
disposal groups of 3,994 million and other provisions charged net of
releases of 2,711 million.
Net cash inflows from investing activities of 6,609 million related to the
net inflows from sales and maturity of securities of 7,744 million and the
sale of property, plant and equipment of 1,162 million, offset by net
investments in business interests and intangible assets of 1,481 million
and net cash outflows from the purchase of property, plant and
equipment of 816 million.
Net cash outflows from financing activities of 404 million relate primarily
to the repayment of subordinated liabilities of 3,480 million and interest
paid on subordinated liabilities of 854 million partly offset by the issue of
subordinated liabilities of 2,159 million and proceeds of non-controlling
interests issued of 2,147 million.
2013
operating assets and liabilities, the net loss before tax of 8,066 million
from continuing and discontinued operations, loans and advances
written-off net of recoveries of 4,090 million and other provisions utilised
of 2,066 million. These were partially offset by provisions for impairment
losses of 8,432 million and other provisions charged net of releases of
4,422 million.
2014
m
2013
m
2012
m
(20,387)
6,609
(404)
909
(13,273)
(30,631)
21,183
(2,728)
512
(11,664)
(45,113)
27,175
2,017
(3,893)
(19,814)
net inflows from sales of securities of 19,211 million, the sale of
property, plant and equipment of 1,448 million and net divestments of
business interests and intangible assets of 1,150 million offset by net
cash outflows from the purchase of property, plant and equipment of
626 million.
Net cash outflows from financing activities of 2,728 million relate
primarily to the repayment of subordinated liabilities of 3,500 million and
interest paid on subordinated liabilities of 958 million partly offset by the
issue of subordinated liabilities of 1,796 million.
2012
operating assets and liabilities, the net loss before tax of 5,388 million
from continuing and discontinued operations, loans and advances written
off net of recoveries of 3,925 million and other non-cash items of 1,491
million. These were partially offset by the elimination of foreign exchange
differences of 7,140 million, provisions for impairment losses of 5,283
million and depreciation and amortisation of 1,854 million.
net inflows from sales of securities of 26,092 million, the sale of
property, plant and equipment of 2,215 million and divestments in
business interests and intangible assets of 352 million offset by net cash
outflows from the purchase of property, plant and equipment of 1,484
million.
Net cash inflows from financing activities of 2,017 million relate primarily
to the issue of subordinated liabilities of 2,093 million and proceeds of
non-controlling interests issued of 889 million partly offset by interest
paid on subordinated liabilities of 746 million and dividends paid of 301
million.
161
Business review
Capital resources
The following table analyses RBS's regulatory capital resources on a fully consolidated basis at 31 December as monitored by the Prudential Regulation
Authority (PRA) for regulatory purposes.
2014
End-point
CRR basis
m
Capital
Tier 1
Tier 2
Less supervisory deductions
Total regulatory capital
Credit risk
- non-counterparty
- counterparty
Market risk
Operational risk
Asset Protection Scheme relief
Risk asset ratios

Common Equity Tier 1/Core Tier 1 (1)
Tier 1
Total
39,919
8,717
48,636
48,636
bn
264.7
30.4
24.0
36.8
355.9
355.9
%
11.2
11.2
13.7
PRA
transitional basis
m
47,117
13,626
60,743
60,743
bn
264.7
30.4
24.0
36.8
355.9
355.9
%
11.1
13.2
17.1
2013
m
Basel 2.5 basis

2012
m
2011
m
2010
m
50,626
13,305
63,931
(272)
63,659
57,135
12,152
69,287
(2,487)
66,800
56,990
8,546
65,536
(4,828)
60,708
60,124
9,897
70,021
(4,732)
65,289
bn
bn
bn
bn
344.3
61.9
64.0
37.9
508.1
(69.1)
439.0
385.9
68.1
80.0
37.1
571.1
(105.6)
465.5
291.1
22.3
30.3
41.8
385.5
385.5
%
10.9
13.1
16.5
323.2
48.0
42.6
45.8
459.6
459.6
%
10.3
12.4
14.5
10.6
13.0
13.8
10.7
12.9
14.0
Note:
(1) Common Equity Tier 1 ratio with effect from 1 January 2014.
It is RBS's policy to maintain a strong capital base, to expand it as appropriate and to utilise it efficiently throughout its activities to optimise the return to
shareholders while maintaining a prudent relationship between the capital base and the underlying risks of the business. In carrying out this policy, RBS
has regard to the supervisory requirements of the PRA. The PRA uses risk asset ratio (RAR) as a measure of capital adequacy in the UK banking
sector, comparing a bank's capital resources with its risk-weighted assets (the assets and off-balance sheet exposures are 'weighted' to reflect the
inherent credit and other risks); by international agreement, the RAR should be not less than 8% with a Tier 1 component of not less than 4%. At 31
December 2014, RBS's total RAR on an end-point CRR basis was 13.7% (2013 - 16.5% on a Basel 2.5 basis) and the Tier 1 RAR on an end-point CRR
basis was 11.2% (2013 - 13.1% on a Basel 2.5 basis). For further information refer to Capital and risk management: Capital management on pages 195
to 215.
162
Business review
Reconciliations of non-statutory to statutory income statements

Basis of preparation of non-statutory results
The financial information on a non-statutory basis, prepared using RBSs accounting policies, shows the underlying performance of RBS which excludes
certain one-off and other items which are listed on page 104. This information is provided to give a better understanding of the results of RBSs
operations.
Income statement for the year ended 31 December 2014
Net interest income

Non-interest income
Total income
Operating expenses
Impairment releases
Operating profit
Strategic disposals
Operating profit before tax
Tax charge
Profit from continuing operations
- Citizens
- Other
Loss from discontinued operations, net of tax
Loss for the year
Preference share and other dividends
Non-statutory
m
Reallocation
of one-off items
m
CFG (1)
m
Statutory
m
11,274
6,923
18,197
(15,849)
2,348
1,155
3,503
(146)
20
(130)
191
(771)
(24)
2,643
(1,909)
734
(3)
47
44
(133)
(89)
(89)
146
(20)
130
(191)
24
(2,013)
(1,078)
(3,091)
2,123
(968)
197
(771)
771
9,258
5,892
15,150
(13,859)
1,291
1,352
2,643
2,643
(1,909)
734
(3,486)
41
(3,445)
(2,711)
(60)
(699)
(3,470)
(3,486)
41
(3,445)
(2,711)
(60)
(699)
(3,470)
163
Business review
Reconciliations of non-statutory to statutory income statements continued

Net interest income

Non-interest income
Total income
Operating expenses
Impairment losses
Operating loss
Strategic disposals
Operating loss before tax
Tax charge
Loss from continuing operations
Profit from discontinued operations, net of tax
- Citizens
- Other
Loss for the year
Non-statutory
m
Reallocation
of one-off items
m
CFG (1)
m
Statutory
m
10,992
8,450
19,442
(18,510)
932
(8,432)
(7,500)
(120)
175
(1,059)
161
(606)
100
(8,849)
(186)
(9,035)
(11)
326
315
(1,058)
(743)
(743)
120
(175)
1,059
(161)
(100)
(1,964)
(1,056)
(3,020)
2,102
(918)
312
(606)
606
9,017
7,720
16,737
(17,466)
(729)
(8,120)
(8,849)
(8,849)
(186)
(9,035)
410
148
558
(8,477)
(120)
(398)
(8,995)
410
148
558
(8,477)
(120)
(398)
(8,995)
For the notes to this table refer to the following page.
164
Business review
Net interest income

Non-interest income
Total income
Operating expenses
Impairment losses
Operating loss
Strategic disposals
Operating loss before tax
Tax charge
Loss from continuing operations
Profit/(loss) from discontinued operations, net of tax
- Citizens
- Other
Loss for the year
Non-statutory
m
Reallocation
of one-off items
m
CFG (1)
m
Statutory
m
11,417
10,668
22,085
(17,919)
4,166
(5,279)
(1,113)
(4,649)
454
(18)
(44)
113
(775)
(20)
(6,052)
(156)
(6,208)
(15)
(4,129)
(4,144)
(20)
(4,164)
(4,164)
4,649
(454)
18
44
(113)
20
(2,046)
(1,180)
(3,226)
2,182
(1,044)
269
(775)
775
9,356
5,359
14,715
(15,757)
(1,042)
(5,010)
(6,052)
(6,052)
(156)
(6,208)
490
(172)
318
(5,890)
136
(301)
(6,055)
490
(172)
318
(5,890)
136
(301)
(6,055)
Note:
(1) The results of Citizens, which is classified as a discontinued operation.
165
Business review
Analysis of balance sheet pre and post disposal groups

In accordance with IFRS 5, assets and liabilities of disposal groups are presented as a single line on the face of the balance sheet. As allowed by IFRS,
disposal groups are included within risk measures in the Capital and risk management section.
2014
Balance
sheet
m
Assets
Reverse repurchase agreements
and stock borrowing
and stock borrowing
Debt securities
Equity shares
Settlement balances
Derivatives
Intangible assets
Deferred tax
Other financial assets
Prepayments, accrued income and
other assets
Total assets
Liabilities
Bank deposits
Repurchase agreements and stock
lending
Deposits by banks
Customer deposits
Repurchase agreements and stock
lending
Customer accounts
Settlement balances
Short positions
Derivatives
Accruals, deferred income and
other liabilities
Deferred tax
Insurance liabilities
Total liabilities
Disposal
groups (1)
m
2013
Gross of
disposal
groups
m
Balance
sheet
m
2012
Disposal
groups (2)
m
Gross of
disposal
groups
m
Balance
sheet
m
Disposal
groups (3)
m
Gross of
disposal
groups
m
74,872
23,027
622
1,745
75,494
24,772
82,659
27,555
2
22
82,661
27,577
79,290
29,168
18
2,112
79,308
31,280
20,708
43,735
334,251
1,745
60,550
20,708
45,480
394,801
26,516
54,071
390,825
41
63
1,765
26,557
54,134
392,590
34,783
63,951
430,088
2,112
1,863
34,783
66,063
431,951
43,987
378,238
86,649
5,635
4,667
353,590
7,781
6,167
1,540
60,550
15,293
572
402
583
503
43,987
438,788
101,942
6,207
4,667
353,992
8,364
6,670
1,540
49,897
440,722
113,599
8,811
5,591
288,039
12,368
7,909
3,478
1,765
24
1
30
32
1
49,897
442,487
113,623
8,811
5,591
288,040
12,398
7,941
3,479
70,047
500,135
157,438
15,232
5,741
441,903
13,545
9,784
3,443
1,863
7,186
5
15
750
223
924
70,047
501,998
164,624
15,237
5,741
441,918
14,295
10,007
3,443
924
1,741
7,619
(82,011)
1,050,763
7,614
3,017
1,027,878
936
8,550
(2,854)
163
1,027,878
7,820
14,013
1,312,295
5,878
82,011
1,050,763
742
8,562
(13,838)
175
1,312,295
35,806
5,128
40,934
35,329
35,329
57,073
57,074
24,859
60,665
354,288
1,666
6,794
60,583
26,525
67,459
414,871
28,650
63,979
414,396
3,273
28,650
63,979
417,669
44,332
101,405
433,239
1
753
44,332
101,406
433,992
37,351
391,639
50,280
4,503
23,029
349,805
706
61,289
1,625
144
38,057
452,928
51,905
4,503
23,029
349,949
56,484
470,880
67,819
5,313
28,022
285,526
3,273
56,484
474,153
67,819
5,313
28,022
285,527
88,040
521,279
94,592
5,878
27,591
434,333
753
88,040
522,032
94,592
5,878
27,591
434,340
13,346
2,579
500
22,905
71,320
990,571
683
197
362
226
(71,320)
14,029
2,776
862
23,131
990,571
16,017
3,210
507
24,012
3,378
968,663
101
1
(3,376)
16,118
3,211
507
24,012
2
968,663
14,801
3,884
1,141
26,773
10,170
1,241,847
2,679
17,480
3,884
1,141
6,193
6,193
529
27,302
(10,162)
8
1,241,847
166
Business review
2014
2013
2012
Balance
sheet
m
Disposal
groups (1)
m
Gross of
disposal
groups
m
Balance
sheet
m
Disposal
groups (2)
m
Gross of
disposal
groups
m
Balance
sheet
m
Disposal
groups (3)
m
Gross of
disposal
groups
m
Selected financial data

Gross loans and advances to
customers
Customer loan impairment provisions
Net loans and advances to
customers (4)
351,711
(17,460)
61,090
(540)
412,801
(18,000)
415,978
(25,153)
1,774
(9)
417,752
(25,162)
451,224
(21,136)
1,875
(12)
453,099
(21,148)
334,251
60,550
394,801
390,825
1,765
392,590
430,088
1,863
431,951
Gross loans and advances to banks

Bank loan impairment provisions
Net loans and advances to banks (4)
23,067
(40)
23,027
1,745
1,745
24,812
(40)
24,772
27,618
(63)
27,555
22
22
27,640
(63)
27,577
29,282
(114)
29,168
2,112
2,112
31,394
(114)
31,280
(17,500)
(540)
(18,040)
(25,216)
(9)
(25,225)
(21,250)
(12)
(21,262)
26,842
42
26,884
1,335
1,335
28,177
42
28,219
39,322
70
39,392
39,322
70
39,392
40,993
134
41,127
13
13
41,006
134
41,140
1,316
261
1,577
1,541
1,541
3,946
230
4,176
(145)
(137)
(282)
(887)
(887)
(1,832)
(15)
(1,847)
Total loan impairment provisions

Customer REIL
Bank REIL
REIL
Gross unrealised gains on debt
securities
Gross unrealised losses on debt
securities
Notes:
(1) Primarily Citizens.
(2) Primarily investment in associate (Direct Line Group) and Illinois branches of Citizens.
(3) Primarily Direct Line Group.
(4) Excludes reverse repos.
167
Business review Capital and risk management

169
Overview
176
Risk governance
180
Risk appetite and culture
184
Conduct risk
187
Operational risk
191
Regulatory risk
193
Reputational risk
195
Capital management
216
Liquidity and funding risk
231
Credit risk
274
Balance sheet analysis
298
Market risk
323
Country risk
331
Pension Risk
332
Business risk
333
Strategic risk
168
Overview
170
170
171
174
Business model and associated risks
Risk coverage
169
Overview*
Except as otherwise indicated by an asterisk (*), information in the
Capital and risk management section (pages 168 to 334) is within the
scope of the Independent auditors report. Disclosures in this section
include disposal groups in relevant exposures unless otherwise indicated.
Refer to pages 166 and 167 for the Analysis of balance sheet pre and
post-disposal groups.
Business model and associated risks
RBS aims to become a bank that its customers and all other stakeholders
can depend on. It intends to do so by focusing on Personal & Business
Banking (PBB), Commercial & Private Banking (CPB) and Corporate &
Institutional Banking (CIB) customers, in its main market of the UK. By
delivering only services that meet their needs, it aims to achieve an
appropriate return. Accordingly, RBS plans to simplify its services as well
as the processes it uses to deliver them, enabling RBS to provide
customers with better value services. It aims to become the number one
bank in the UK for customer service, trust and advocacy by 2020.
At present RBS serves approximately 24 million customers worldwide.
UK PBB offers individuals and small businesses a variety of traditional
retail banking products, including current and savings accounts,
residential mortgages and credit cards, while CPB provides both
businesses and high-net-worth individuals with loan products and
investment services. Both are focused on the UK. CIB offers wholesale
banking services, including debt financing and fixed income trading, to
corporations and financial institutions across a wide range of countries.
Ulster Bank, part of PBB, offers loan and investment products, as well as
transactional services, to individuals and businesses in Ireland.
The products are delivered through a diverse array of channels, including

extensive branch networks, in-store branches and call centres, in addition
to online and mobile channels.
The main sources of earnings are interest income from lending and fee
income from transactional and other services. Given the low interest rate
environment in both the UK and the US, its net interest margin, that is,
the difference between the interest it earns from lending and the interest
it pays on deposits, has been under pressure. In order to offset this
pressure, work is underway to reduce costs and increase non-interest
income.
RBS is reducing costs through rationalisation, integration and
simplification. For example, PBB is rationalising its service delivery
channels and simplifying the operations that support them. The other
franchises are taking similar steps.
RBS also owns a number of businesses which it is divesting as it seeks
to refocus on its UK customers and reduce its risk profile as well as to
comply with regulatory requirements. It is in the process of selling its
stake in Citizens Financial Group Inc (CFG), a subsidiary offering loan
and investment products, together with transactional services, to
customers in the US. Similarly, it is committed to selling Williams & Glyn,
which provides retail and commercial banking services in the UK, in the
next few years. Other businesses identified for divestment and winddown include the international private banking activities of CPB and RBS
Securities Inc respectively. Finally, RBS continues to reduce the assets
held in RCR (refer to page 150 for further details). These divestment and
rationalisation projects expose it to execution and strategic risk.
Finally, RBS is also exposed to a range of other risks through its
customer businesses including pension, business, regulatory,
reputational and strategic risk. This is set out in the Risk coverage section
and illustrated by the concentration of risk-weighted assets (RWAs) by
segment below.
*unaudited
170
Risk coverage
The main risk types faced by RBS are presented below. For further information, refer to pages 184 to 334.
Risk type
How the risk arises
Conduct and
legal risk
Conduct risk can result in fines and reputational

damage if customers are not treated in line with their
and other stakeholders expectations.
2014 overview
Regulatory risk
Regulatory risk arises from RBSs regulatory,

business or operating environments and from how
RBS responds to them.
The level of regulatory risk remained high as policymakers and regulators

continue to strengthen regulations and supervision in response to the events of
2007 and 2008. RBS will in future focus CIBs business model on its leading
positions in UK rates, debt capital markets and foreign exchange; this will leave
RBS well-placed to implement the ring-fencing requirements, in 2019.
Operational risk
Operational risk may arise from a failure to manage

operations, transactions and assets appropriately. It
may arise from human error, an inability to deliver
change on time or adequately, or the unavailability of
technology services or the loss of customer data.
Fraud and theft are sources of operational risk, as is
the impact of natural and man-made disasters. It may
also arise from a failure to take appropriate measures
to protect assets or take account of changes in law.
RBSs transformation plan is material and complex affecting all business areas
and functions simultaneously and so has the potential to increase operational
risk profile at least in the short term. Significant investments were made to
improve technology resilience for core banking services, operating practices
and risk management across the three lines of defence. In particular,
enhancements were made to cyber security programmes, mitigating a number
of vulnerabilities.
Capital
adequacy risk
Capital adequacy risk arises from inefficient

management of capital resources.
Key milestones achieved in 2014 included the sell down of the first tranche of
CFG; run down of the RCR and CIB assets; and the sell down of the RBS N.V.
AFS portfolio. A 3.1 billion improvement in CET1 capital and a 73 billion
reduction in RWAs resulted in the CET1 ratio improving during the year by 260
basis points from 8.6% to 11.2%. Risk reduction strategies contributed to the
RWA reduction, 40 billion in CIB and 25 billion in RCR. The improvement in
CET1 capital reflected profit of 0.7 billion from continuing operations, 0.6
billion gains on available-for-sale securities, share issuance of 0.5 billion and
lower regulatory deductions primarily relating to deferred tax assets (1.0
billion) and prudential valuation adjustment (0.4 billion).
RBS continued to remediate historical conduct issues, while also restructuring

its customer-facing businesses and support functions around the needs of its
customers. Actions taken by RBS to address underlying control deficiencies
included strengthening significantly the systems and controls governing RBSs
Conduct risk exists across all stages of RBSs
LIBOR submissions, and simplifying RBSs retail product offering and sales
relationships with its customers, from sales through
processes. The conduct risk framework was also further developed, with the
service delivery to post-sales processes. It also exists
embedding of a new Conduct and Regulatory Affairs (C&RA) operating model,
in the activities RBS undertakes to manage its
and the orientation of C&RAs assurance coverage and testing towards
business, from the development of business
customer outcomes.
strategies, through governance and human resource
management. Conduct risk also exists if RBS does
The impact of conduct issues resulted in litigation and conduct costs remaining
not take effective action to prevent fraud, bribery and
high at 2.2 billion in 2014, albeit lower than the 3.8 billion recorded in 2013.
money laundering.
RBSs current Pillar 2A requirement is 3.5% of RWAs at 31 December 2014.

From 1 January 2015, 56% of the total Pillar 2A or 2.0% of RWAs will be met
from CET1 capital.
Based on capital that is required to be held to meet the overall financial
adequacy rule, including holding current estimates of Pillar 2A constant, RBS
estimates that its fully phased CET1 maximum distributable amount (MDA)
requirement would be 10.5% in 2019. Assuming a 13% a steady state CET1
capital ratio is achieved, RBS currently estimates that it would have a 2.5%
headroom to MDA trigger in 2019.
A significant reduction of 142 billion or 13% in the leverage exposure to 940
billion and a year on year increase in Tier 1 capital (100% CET1 currently)
contributed to an 80 basis points improvement in leverage ratio from 3.4% to
4.2%. Full implementation of the 2014 Basel III leverage ratio framework,
particularly on securities financing transactions, also contributed to the
leverage exposure reduction.
*unaudited
171
Overview* continued
Risk type
How the risk arises
Liquidity and
funding risk
Liquidity and funding risk arise through the maturity transformation

role that RBS performs. It is exposed to capital adequacy risk if it
manages its capital resources inefficiently.
Liquidity and funding risk arises from RBSs day-to-day operations.
2014 overview
Liquidity metrics remained strong reflecting balance sheet and
risk reduction as well as growth in UK PBB deposits: the
liquidity coverage ratio improved to 112%; the net stable
funding ratio was 121%; and the liquidity portfolio of 151
billion covered short-term and total wholesale funding of 28
billion and 90 billion by more than five and 1.5 times
respectively. Based on its assessment of the Financial Stability
Boards proposals, RBS may issue 3 - 5 billion per annum of
qualifying debt between 2015 - 2019 to meet future total loss
absorbing capital requirements.
Reputational risk Reputational risk can arise from the conduct of either RBS as a
whole or that of the individuals it employs; from the activities of
customers and the countries in which they operate; from the products
RBS offers and the transactions it supports; and from its operations
and infrastructure.
The most material threat to RBSs reputation continued to

originate from historical and more recent conduct deficiencies.
RBS has been the subject of investigations and review by a
number of regulators, some of which have resulted in fines and
public censure.
Credit risk
RBSs credit risk portfolio continued to improve with an overall

reduction in exposure, an improvement in credit quality and a
material provision release in 2014. These improvements were
driven by supportive economic and market conditions in the UK
and Ireland, better liquidity and increased collateral values, and
also reflected improvements in credit risk measurement.
Balance sheet credit exposure after credit mitigation decreased
by 9% to 353 billion and credit RWAs fell by 62 billion or
17% to 295 billion primarily reflecting risk reduction and RCR
disposal strategy. The wind-down of CIBs US asset-backed
products business contributed to a 13 billion decrease in
asset-backed securities, now at 25 billion, an 86 billion
reduction on the 2008 peak of 111 billion.
The most significant source of credit risk is lending. RBS offers a

number of lending products where it has an obligation to provide
credit facilities to a customer. A further significant source of credit risk
arises from activities in the derivatives and securities financing
transaction markets, which result in counterparty credit risk (the risk
of financial loss arising from the failure of a customer to meet
obligations that vary in value by reference to a market factor). RBS
holds some debt securities generally for liquidity management
purposes, and is exposed to credit risk as a result. It is also exposed
to credit risk from off-balance sheet products such as trade finance
activities and guarantees.
Impairment provisions of 18.0 billion, down 7.2 billion,

covered risk elements in lending of 28.2 billion, down 11.2
billion, by 64%. Commercial real estate lending fell by 9.3
billion to 43.3 billion, of which 13.3 billion was in risk
elements in lending with a provision coverage of 68%.
Favourable market conditions, particularly in Ireland, resulted
in impairment releases of 3.6 billion more than offsetting new
impairment charges of 2.4 billion. This led to a net release of
1.2 billion, of which 1.3 billion was in RCR and 0.4 billion in
Ulster Bank, partly offset by net impairment charges of 0.3
billion in UK PBB and 0.2 billion in CFG.
Market risk
The majority of RBSs traded market risk exposure arises in CIB and
RCR through transactions in financial instruments including debt
securities, loans, deposits and equities, as well as securities
financing and derivatives.
RBSs traded market risk profile decreased significantly, with

market risk limits being reduced across all businesses, in some
instances by 50-60%. Average trading value-at-risk (VaR)
decreased significantly during the year to 27.8 million, 35% of
the 2013 average, reflecting risk reductions in CIB and RCR,
The majority of its non-traded market risk exposure arises from retail as well as the effect of a more comprehensive economic view
and commercial banking activities in all franchises from assets and
of risk from the incorporation of credit and funding valuation
liabilities that are not classified as held for trading.
adjustments in the VaR calculation. Market risk RWAs also
decreased by 6.3 billion to 24.0 billion.
*unaudited
172
Risk type
How the risk arises
2014 overview
Pension risk
RBS is exposed to pension risk through its defined benefit schemes

worldwide and the variations in their value. The five largest schemes
represent around 96% of pension liabilities. The largest is the Royal
Bank of Scotland Group Pension Fund (Main scheme) and this is
the principal source of pension risk.
The triennial actuarial funding valuation of the Main scheme

was agreed in May 2014 and showed an excess in the value of
liabilities over the value of assets of 5.6 billion at 31 March
2013; a ratio of 82%. In 2014, various pension stress-testing
initiatives were undertaken, both on internally defined
scenarios and those to meet integrated Prudential Regulation
Authority and European Banking Authority stress testing
requirements.
Country risk
Country risk arises from possible economic or political events in each RBS maintained a cautious stance as many clients continued
country to which RBS has exposure, and from unfavourable
to reduce debt levels. Total eurozone net balance sheet
conditions affecting daily operations in a country.
exposure decreased by 5 billion or 5% to 97.6 billion. Within
this amount, eurozone periphery exposures decreased by 10
It has the potential to affect all parts of RBSs portfolio across
billion, or 25%, to 31 billion, primarily in Spain, reflecting the
wholesale and retail activities that are directly or indirectly linked to
disposal of legacy liquidity portfolio bonds, and in Ireland and
the country in question.
Italy. Total exposure to Greece was 0.4 billion but only 120
million after the effect of collateral and guarantees. Limits for
The activities of several customer businesses, particularly CIB but
Russia and Ukraine were adjusted, additional credit restrictions
were placed on new business and exposures were reviewed
also Ulster Bank and CFG, expose RBS to country risk.
against international sanctions.
Business risk
Business risk exists at all levels of the organisation and is generated RBS reduced its business risk profile as it curtailed riskier
at the transaction level. It is affected by other risks RBS faces, which activities in CIB, made disposals through RCR, and announced
could contribute to any adverse changes in the banks revenues or
an intensified cost management programme.
costs.
Strategic risk
Strategic risk arises from strategic decisions that fail to reflect the
operating environment, or which do not take adequate account of
execution challenges. These include decisions related to RBS
products and services which have implications for profitability, risk,
the customer base, and for business growth.
In early 2014, RBS announced the results of a strategic review

with a defined plan to shift the business mix towards the UK
and the retail and commercial banking segments, with the aim
of a lower risk profile. The year saw good progress, with results
in general exceeding targets and run-down or sell-off of noncore assets ahead of schedule. Capital ratios increased
considerably, a significant step towards targeted levels of
financial strength which, when attained, will provide RBS with
more strategic options. However, RBS continued to work
through the impact of tougher regulatory regime on banks.
*unaudited
173
Overview* continued
As part of the risk management process, top and emerging risk scenarios
are identified and monitored. These are events that, should they
materialise, would lead to a significant unexpected negative outcome,
thereby causing RBS as a whole, or a particular business, to fail to meet
one or more strategic objectives. In assessing the potential impact of risk
materialisation, both financial and reputational considerations are taken
into account.
Impact on RBS
Achievement of strategic objectives in general, more specifically its ability
to generate income and retain high quality personnel, and its strategy,
structure and attractiveness to investors, may all be affected to varying
degrees in a range of election-related scenarios.
Management is concerned with a range of risk scenarios, but some have

attracted particular attention from senior management during the past
year. These were grouped into three broad categories:
Regulatory and legal risks

(i) Risks to income, costs and business models arising from existing and
future regulatory requirements or decisions
RBS faces potentially sustained increases in regulatory capital needs, but
also risks related to regulatory intervention that affect its business
models. These include: the results of a review of the personal current
account and small business banking markets; Independent Commission
on Banking ring fencing proposals and US Intermediate Holding
Company requirements; and Risk Data Aggregation and Reporting.
Macro-economic risks and other external risks;
Regulatory and legal risks; and
Risks related to operations.
Further information on these and other risks facing RBS is detailed in

Risk factors on page 474.
The top and emerging risks were as follows:
Macro-economic and other external risks
(i) Risks related to the macro-economy
RBS remains vulnerable to changes in the external economic
environment. Among other scenarios, the following could have a material
negative impact: a recession in the UK in any of our other major markets;
a resumption of the eurozone crisis (including a worsening of the situation
in Greece); global deflation; large house price falls in the UK; and major
geopolitical instability.
Impact on RBS
The ability to hit strategic targets could be reduced owing to multiple
effects, including lower-than-expected revenues, increases in
impairments and a material deterioration in key prudential metrics. Exiting
non-strategic businesses or portfolios could be disrupted by market
volatility.
Mitigants
RBS has improved its capital, liquidity and leverage ratios and has
passed regulatory stress tests. A number of higher risk portfolios have
been exited or reduced. Stress testing is used to inform strategic
planning.
(ii) The effect of the run-up to, and the result of, the UK general election
on performance and strategy
Political party statements suggest that the election outcome will affect
matters that are material to RBSs strategy, including banking levy rates,
banking sector competition and remuneration, the approach to sale of the
public stake, and the UKs position in the EU. Of note is the potential for a
referendum on the UKs membership of the EU during the next
parliament, which would increase macro-economic and operational
uncertainty.
Mitigants
RBS actively monitors, and considers responses to, varying UK election
outcomes to ensure that it is well prepared for all eventualities.
Impact on RBS
RBS risks increased capital requirements, reduced income or raised
costs due to business model changes and fines, remediation costs or
legal action if it fails to comply with regulatory requirements. Its reputation
may also suffer.
Mitigants
RBS considers proposed or potential regulatory requirements in strategic
and financial planning rounds and plans accordingly.
(ii) Risks to income, costs and business models arising from existing and
future regulatory requirements specifically related to conduct
RBS continues to manage issues related to its past business conduct.
Remediation costs for some of these could remain high, while the impact
of outcomes of other reviews remains uncertain. Moreover, it faces
ongoing scrutiny of its business conduct, particularly towards retail
customers, and of its ability to embed a strong appreciation of risk and
good conduct across the bank.
Impact on RBS
RBS risks fines, remediation costs, legal action and reputational damage,
but also lower income or higher expenses due to business model
changes.
Mitigants
RBS continues to work to deal with past conduct breaches. Major
programmes are in place to ensure that future conduct meets the
expectations of external stakeholders and to ensure that a strong and
pervasive risk culture is embedded throughout RBS.
*unaudited
174
Risk related to operations

(i) Increased losses arising from a failure to execute successfully major
projects
RBS has a number of transformational, execution and IT development
projects under way, the successful conclusion of which are essential to
meet new regulatory and strategic requirements. These new
requirements affect its organisational structure, its business strategies, its
information technology systems, its operational processes and its product
offerings. Given the number, scale and complexity of these projects,
there is a risk that it will not complete them successfully.
Impact on RBS
Failure to complete these projects successfully would affect RBSs ability
to achieve its strategic objectives. It may also incur regulatory fines, lose
market share and suffer damage to its reputation.
Mitigants
RBS is working to implement change in line with its project plans while
assessing the risks to implementation and taking steps to mitigate those
risks where possible.
(ii) An increase in RBSs obligations to support pension schemes
RBS has established various pension schemes for its employees as a
result of which it has incurred certain obligations as sponsor of these
schemes. If economic growth stagnates and interest rates remain low as
a result, the value of pension scheme assets may not be adequate to
fund the pension schemes liabilities. All of the businesses are exposed to
this risk.
Impact on RBS
RBSs pension schemes combined deficit had risen by 2.1 billion at the
most recent valuation, requiring RBS to set aside additional capital in
support. Additional capital required if the deficit widened further would
depend on the size of the deficit, the efficacy of management actions
undertaken to address it, and the regulatory view of those actions.
RBS increased its cash contributions to the schemes to address the
increased deficit. Similarly, additional contributions required if the deficit
widened further would depend on the size of the deficit. RBS undertakes
a number of stress tests and scenario analyses on its material defined
benefit pension schemes each year as part of its risk measurement
framework.
Mitigants
The trustee is responsible for the investment of the Main schemes
assets, which are held separately from RBSs own assets. To restrict
liability increases, defined benefit pension schemes are closed to new
members and terms for existing members have been altered. Deficitclosing payments are spread over ten years to reduce the strain on
income.
(iii) Impaired performance due to an inability to recruit or retain suitable

staff
RBS is undergoing significant organisational change, the result of a need
to implement new business strategies and respond to a changing
external environment. The pace of change, coupled with the associated
uncertainty may cause experienced staff members to leave and
prospective staff members not to join. Although these risks concern all
customer businesses, they particularly affect CIB and CFG.
Impact on RBS
If it cannot retain or attract the necessary staff members, the RBS may be
unable to implement its business strategies or meet regulatory
requirements on time, or at all. It may also experience control failures. Its
reputation may suffer as a result.
Mitigants
RBS has communicated expected changes in its organisational structure
to members of staff, implementing plans aimed at minimising unexpected
staff losses. It is also working to develop and implement an enhanced
recruitment strategy.
(iv) Increased losses arising from cyber attacks
RBS has experienced cyber attacks, which are increasing in frequency
and severity across the industry. This risk affects all customer
businesses.
Impact on RBS
A successful cyber attack could lead to fraudulent activity or the loss of
customer data. RBS could experience significant losses as a result of the
need to reimburse customers, pay fines or both. Further, a successful
cyber attack could cause significant damage to its reputation.
Mitigants
RBS has participated in an industry-wide cyber attack simulation. It has
also initiated a large-scale programme to improve controls over user
access. It has reviewed its websites and taken steps to rationalise them,
put additional anti-virus protections in place and taken steps to educate
staff on information protection.
(v) Increased losses arising from the failure of information technology
systems
The information technology systems are complex and at risk of
disruption. Recovering from failure can be challenging.
Impact on RBS
A failure of information technology systems could lead to an inability to
process transactions or provide services to its customers. Should a
failure not be rectified promptly, it might lose funding, be subject to fines,
incur remediation costs or face legal action. Its reputation might also
suffer.
Mitigants
A major investment programme has significantly improved the resilience
of the systems and more benefits are expected. It has improved back-up
system sustainability and created a shadow bank able to provide basic
services if needed. It is also improving the documentation of critical
business functions.
*unaudited
175
Risk governance
177
Governance structure
178
Three lines of defence
179
Management structure
176
Risk governance*
Governance structure
RBS is committed to achieving the highest standards of corporate governance in every aspect of its business, including risk management. A key aspect
of the Boards responsibility as the main decision-making body is the setting of risk appetite (refer to page 181 for more information on risk appetite) to
ensure that the levels of risk RBS is willing to accept in the attainment of its strategic business and financial objectives are clearly understood. The
Board delegates authority for risk management to specific committees.
The risk governance structure and the main purposes of each of the committees is illustrated below:
*unaudited
177
Risk governance* continued

Three lines of defence
The three lines of defence model is used industry-wide for the
management of risk. It provides a clear set of principles by which to
implement a cohesive operating model, one that defines accountabilities
and responsibilities for managing risk across the organisation.
First line of defence - Management and supervision
The first line of defence includes customer franchises, Technology and
Operations and support functions such as HR and Communications.
Responsibilities include:
Owning, managing and supervising, within a defined risk appetite,
the risks which exist in the business area.
Ensuring appropriate controls are in place to mitigate risk: balancing

control, cost, customer service and competitive advantage.
Ensuring that the culture of the business supports balanced risk

decisions and compliance with policy, laws and regulations.
Ensuring that the business has effective mechanisms for identifying,

reporting and managing risk and controls.
Second line of defence - Oversight and control

The second line of defence includes RBS Risk Management and Conduct
and Regulatory Affairs.
Owning and developing the risk and control policies, limits and tools
for the business to use to discharge its responsibilities.
Overseeing and challenging the management of risks and controls.
Leading the design, development and communication of the bank's

risk culture and appetite.
Analysing the aggregate risk profile and ensuring that risks are
being managed to the desired level (risk appetite).
Providing expert support and advice to the business on risk

management.
Providing senior executives with relevant management information

and reports and escalating concerns where appropriate.
Undertaking assurance.
Third line of defence - Internal Audit

Providing assurance on the key risks to the organisation by
assessing the entire control framework.
*unaudited
Holding RBS Risk Management accountable for establishing an

appropriate risk management framework.
178
Management structure
RBSs management structure and the main elements of each role are illustrated below.
Notes:
(1) RBS Risk management
The RBS Chief Risk Officer (CRO) leads RBS Risk Management. The CRO reports directly to the Chief Executive and the Board Risk Committee, with a right of access to the Chairman of the Board
Risk Committee.
RBS Risk Management is an independent function, structured by risk discipline to facilitate the effective management of risk.
In 2014, Risk Management, which had previously been spread across the different business segments, re-organised itself into five functional areas: Operational Risk, Support Functions & Divested
Businesses; Credit Risk; Market Risk; Enterprise-Wide Risk Management and Risk Infrastructure. Directors of Risk were also appointed for each of the franchises and for Services. The streamlined
structure consolidates risk information, allowing for more efficient decision-making.
The directors of risk functions are responsible for RBS-wide risk appetite and standards within their respective disciplines and report directly to the CRO.
CROs are in place for certain jurisdictions and legal entities to meet local regulatory and governance requirements. They lead the risk management teams locally in support of functional risk heads
where teams follow a functional operating model. The key CRO roles report directly to the RBS CRO.
Risk committees in the customer businesses oversee risk exposures arising from their business activities and focus on ensuring that they are adequately monitored and controlled.
(2) Conduct and Regulatory Affairs
Conduct & Regulatory Affairs (C&RA) is led by the Chief Conduct & Regulatory Affairs Officer, who reports directly to the Chief Executive. It is responsible for providing oversight of conduct risk and
regulatory risk at RBS, and does so by setting bank-wide policy and standards, providing advice to each customer business, and ensuring that the mitigating controls are suitable. C&RA also
provides leadership of the banks relationships with its regulators.
The functional heads (the directors of Remediation, Compliance Services, RBS Americas, Financial Crime, Regulatory Affairs and Advisory) report directly to the Chief Conduct & Regulatory Affairs
Officer. Each is responsible, where appropriate, for the bank-wide risk appetite and standards of their respective areas:
A Chief Compliance Officer in each franchise, reporting to the Director of C&RA Advisory, provides advisory support to assist businesses in their management of conduct, regulatory affairs and
financial crime.
*unaudited
179
Risk appetite and culture

181
Risk appetite
181
Strategic risk objectives
182
Risk appetite measures
183
Culture, values and remuneration
180
Risk appetite and culture*

Risk appetite
Risk appetite is both a key business tool and an integral part of risk
management. It is aligned with RBSs strategic objectives, aiming to
strike an optimal balance between building a sustainable risk profile and
creating long-term value for customers, investors and wider stakeholders.
The risk appetite framework seeks to ensure that each business can
withstand significant deteriorations in economic and market conditions.
The Board reviews and approves the risk appetite framework and targets
annually, which establishes the level and types of risks RBS is able and
willing to take in order to meet its:
Strategic objectives - The strategic plan is built on the core

foundations of serving customers well, building a sustainable risk
profile and creating long-term value for its shareholders; and
Wider obligations to stakeholders - If RBS is safe and sound and

puts serving customers at the heart of its thinking, it will also perform
well for its owners, employees, regulators and communities.
Risk appetite is cascaded and embedded across RBS. The risk appetite
framework provides each business with a greater understanding of
acceptable risk levels, aligning commercial strategies with the most
effective use of financial resources, such as capital and funding. The risk
appetite framework allows RBS to focus on its key business strengths
and competitive advantages over the long term.
Strategic risk objectives

Risk management plays an integral role in the delivery of strategic goals.
The implementation of a stronger and more effective culture of risk
management and control provides the platform necessary to address
vulnerabilities, rebuild on core strengths and position RBS on a
sustainable and profitable path for future growth.
Financial strength and resilience are at the heart of the strategic plan.
RBS has defined this level of robustness as that which is capable of
achieving and sustaining a standalone credit rating (i.e. without
government support) that is in line with those of its strongest international
peers.
Given this central aim, the Board has set out four key strategic objectives,
aligned with the strategic plan:
Maintain capital adequacy. To ensure there is sufficient capital

resources to meet regulatory requirements and to cover the potential
for unexpected losses in its asset portfolio.
Deliver stable earnings growth. To ensure that strategic growth is

based around a longer-term risk-versus reward consideration, with
significantly lower volatility in underlying profitability than was seen
during the financial crisis.
Ensure stable and efficient access to funding and liquidity. To

ensure that there is sufficient funding to meet its obligations, taking
account of the constraint that some forms of funding may not be
available when they are most needed.
Maintain stakeholder confidence. To ensure that stakeholders have

confidence in RBSs ability to attain its strategic objectives and
establish and maintain an appropriate business culture and
operational controls.
Each objective is essential in its own right, but also mutually supportive of
the others. The strategic risk objectives are the bridge between the RBSwide business strategy and the frameworks, limits and tolerances that are
used to set risk appetite and manage risk in the business franchises on a
day-to-day basis.
*unaudited
181
Risk appetite and culture* continued

Risk appetite measures
Risk appetite starts with the strategic goals and risk philosophy set by the
Board and is cascaded through key targets, limits and risk tolerances that
influence decision making at all levels.
The risk appetite framework is based on four main pillars:
Business and financial targets - RBS has set long-term targets for
capital ratio, leverage ratio, loan:deposit ratio, the return on tangible
equity and cost:income ratio. These are the broad boundaries within
which it operates.
Quantitative risk appetite targets - Risk appetite is also aligned with
potential risk exposures and vulnerabilities under severe but
plausible stress conditions. Quantitative targets, to be met under
stress conditions, are set around the strategic risk objectives for
maintaining capital adequacy, delivering stable earnings growth and
ensuring stable and efficient access to funding and liquidity.
Qualitative risk appetite targets - The fourth strategic risk objective
of maintaining stakeholder confidence covers qualitative aspects
relating to the culture of risk management and controls and meeting
stakeholder expectations. Stakeholders include customers,
employees, investors, societies and communities.
Risk control frameworks and limits - Risk control frameworks set
detailed tolerances and limits for material risk types (e.g. credit risk
and market risk) that are used to manage risk on a day-to-day basis.
These limits support and are required to be consistent with the highlevel risk appetite targets.
The framework is supported by a programme of communication,

engagement and training rolled out across RBS to embed a wide
understanding of the purpose and value of an effective risk appetite.
Risk appetite supports value creation in a safe, sustainable way. It is

embedded within the annual planning and budgeting process. The risk
implications of business strategies are assessed to ensure that those
strategies will not cause RBS to exceed agreed risk appetite. A range of
different but complementary tools has been developed to measure
whether strategic plans are consistent with risk appetite, to test broader
what if questions and to assess the impact of changes in key
assumptions:
Stress testing - assesses how earnings, capital and funding

positions change under an unfavourable, yet plausible, scenario.
Stress scenarios can differ by theme, geographical location or
severity.
Economic capital - provides complementary insights, with a breadth

of understanding of risk profile changes and tail risks across
millions of different modelled scenarios.
Sensitivity analysis - provides ready reckoners around changes in

key variables. It offers a high-level view on questions such as what
if gross domestic product worsened by a further 1%, identifying
certain tipping points where the banks risk profile moves outside
appetite.
Effective processes for reporting the results have also been developed,
presenting the Board and senior management with a more holistic and
dynamic view of key risk exposures.
Risk appetite statements
Risk appetite is set at RBS-wide level then cascaded and embedded
across all business areas. Each franchise is required to develop, own and
manage a risk appetite statement aligned with the banks risk appetite
that:
Covers the limits and tolerances in place for all identified material
risks; and
Enables each business to understand its acceptable levels of risk.
By setting a clear risk appetite and embedding a strong risk culture

throughout its businesses, RBS can identify, measure and control risk
exposures and respond effectively to shocks. Each franchise is
responsible for ensuring its strategic plans are consistent with its
approved risk appetite.
*unaudited
182
Risk control frameworks and limits

Risk control frameworks and their associated limits are an integral part of
the risk appetite framework and a key part of embedding risk appetite
targets in day-to-day risk management decisions. The risk control
frameworks manage risk by expressing a clear tolerance for material risk
types that is aligned to business activities.
The Group Policy Framework directly supports the qualitative aspects of
risk appetite, helping to rebuild and maintain stakeholder confidence in
RBSs risk control and governance. Its integrated approach is designed to
ensure that an appropriate standard of control is set for each of the
material risks it faces, with an effective assurance process put in place to
monitor and report on performance. Risk appetite has its own policy
standard within the Group Policy Framework. This standard sets out clear
roles and responsibilities to set, measure, cascade and report
performance against risk appetite, and provides assurances that
business is being conducted within approved risk limits and tolerances.
Culture, values and remuneration
Objectives for risk culture
The establishment of a strong risk culture is essential to the realisation of
RBSs ambition to build a truly customer-centric bank. A strong risk
culture is a key part of ensuring risk appetite is effectively embedded
across RBS. The link between risk appetite and strategic objectives
encourages people at all levels of the business to think about risk, how
they identify it and how they manage it. It incorporates the quantitative
and qualitative aspects of risk and uses both absolute and relative risk
measures.
Risk culture policies
A core principle behind the development of the risk appetite framework is
that risk appetite contributes to a strong risk management culture, in
which risk is clearly and meaningfully aligned with business behaviours
and outcomes. RBSs values - of serving customers, working together,
doing the right thing and thinking long term - act as a clear starting
point for a strong and effective risk culture. A wide range of
communication and engagement activities (detailed below) has been
undertaken to discuss the meaning of each value with employees and
how they affect and guide day-to-day activities.
The embedding of RBSs values into a strong risk culture is supported by
a revised and more focused Code of Conduct. The Code provides
guidance on expected behaviour and sets out the standards of conduct
that support the values. It explains the effect of decisions that are taken
and describes the principles that must be followed.
These business principles cover conduct-related issues as well as wider

business activities. They focus on desired outcomes, with practical
guidelines to align the values with commercial strategy and actions. The
embedding of business principles facilitates sound decision making and a
clear focus on good customer outcomes in the moments that matter. It is
aligned with the people management and remuneration processes to
support a positive and strong risk culture through appropriate incentive
structures.
A simple decision-making guide (called the YES check) has been
included in the Code of Conduct. It is a simple, intuitive set of five
questions, designed to ensure the values guide day-to-day decisions:
Does what I am doing keep our customers and RBS safe and
secure?
Would customers and colleagues say I am acting with integrity?
Am I happy with how this would be perceived on the outside?
Is what I am doing meeting the standards of conduct required?
In five years time would others see this as a good way to work?
Each question is a prompt to think about the situation and how it fits with
RBSs values. It ensures that employees can think through decisions that
do not have a clear answer, guiding the judgements behind their
decisions and actions.
Training
Across the risk management function, a series of events and activities
have been undertaken to bring alive the banks values and culture for
employees. This is supported by performance management processes
that hold individuals to account for poor behaviour and reward the
behaviour that supports the banks purpose, vision and values.
RBS Risk Management runs a Risk Academy which helps to train staff
and to spread a common risk culture across the bank. Training plans are
aligned with Risk function strategy to ensure staff have the skills and
capabilities to support business and to meet changing regulatory and
policy requirements.
Risk-based key performance indicators
RBS-wide remuneration policy requires remuneration to be aligned with,
and to support, effective risk management. The policy ensures that the
remuneration arrangements for all employees reflect the principles and
standards prescribed by the UK Remuneration Code. For further
information refer to page 91.
*unaudited
183
Conduct risk
185
185
185
185
186
186
186
Definition
Sources of risk
Key developments in 2014
Governance
Controls and assurance
Risk appetite
Risk monitoring and measurement
184
Conduct risk*
Definition
Conduct risk is the risk that the behaviour of RBS and its staff towards
customers, or in the markets in which it operates, leads to unfair or
inappropriate customer outcomes and results in reputational damage,
financial loss or both. The damage or loss may be the result of breaches
of regulatory rules or laws, or of failing to meet customers or regulators
expectations.
Sources of risk
Conduct risk exists across all stages of RBSs relationships with its
customers, from the development of its business strategies, through
governance arrangements, to post-sales processes. Activities through
which conduct risk may arise are diverse and include product design,
marketing and sales, complaint handling, staff training, and handling of
confidential and non-public price sensitive information. Conduct risk also
exists if RBS does not take effective action to prevent fraud, bribery and
money laundering.
The level of conduct risk remained high throughout 2014. As set out in
the Litigation, investigations and reviews section on page 430, RBS and
certain members of it are party to legal proceedings and are subject to
investigation and other regulatory action in the UK, the US and other
jurisdictions.
RBS continued to remediate historical conduct issues, while also
restructuring its customer-facing businesses and support functions
around the needs of its customers. Specific actions taken by RBS to
address underlying control deficiencies included:
Strengthening significantly the systems and controls governing

RBSs LIBOR submissions. An independent and ring-fenced rate
setting team was created, and new preventative and detective
controls were also put in place, including independent monitoring
and statistical checking of submissions. A new rate-setting board
was also created to oversee the submission process.
Simplifying RBSs retail product offering and sales processes;
enhancing training for, and controls in relation to, customer
advisors; and improving management information on product
sales.
Embedding a new Conduct and Regulatory Affairs (C&RA)
operating model and governance structure, by integrating former
divisional and functional resources to drive consistent bank-wide
standards for managing conduct risks more efficiently;
The conduct risk framework was also further developed. Key elements
included:
Orientating C&RAs assurance coverage and testing towards

customer outcomes, and away from controls and policy
compliance;
Establishing a Conduct Advisory function with the expertise and

skills to effectively interrogate and assess business models,
strategy and products; provide oversight, challenge and technical
policy advice; and make selective risk-based interventions;
Transferring accountability for RBS-wide customer remediation to

C&RA, and the establishment of a specialist remediation centre to
deliver fair, consistent and timely customer outcomes;
Developing product risk management tools to improve the

customer outcomes of new products;
Ensuring the focus of RBSs culture is always about delivering

good customer outcomes. Although a long-term project, RBS is
confident that it has already resulted in material changes to the
way business is conducted; and
Strengthening the whistleblowing framework by aligning the policy

with RBS values.
Governance
Effective conduct risk management is a commercial imperative for the
bank: customers, clients and counterparties demand it as a precursor to
building trust. It also reflects the developing regulatory environment in the
UK, as well as the increasing focus of overseas regulators on conduct
risk.
C&RA is responsible for defining appropriate standards of conduct, and
for designing the framework for managing conduct risk, driving
adherence, and overseeing remediation activity. It also provides
appropriate controls, challenge and oversight to ensure good customer
outcomes. In so doing, C&RA acts as a second line of defence control
function.
Key elements of the governance structure are set out below:
The C&RA Executive Committee considers emerging issues

material to the C&RA strategy, and implements Board and
Executive Committee risk management policy decisions; and
The Financial Crime Accountable Executive Committee

(accountable to the Executive Risk Forum) ensures that the
customer businesses and the Services function fulfil strategic
objectives by identifying and managing their financial crime risks
effectively.
*unaudited
185
Conduct risk* continued

Under the RBS Policy Framework, C&RA owns 26 conduct risk policies,
grouped under employee, corporate and market conduct, and; and
conduct towards customers. Each policy is designed to provide both highlevel direction and RBS-wide requirements. The policies and chapters are
designed to ensure RBS meets its regulatory obligations; and to provide
the necessary clarity for staff on their conduct obligations.
Assurance and monitoring activities are essential to help measure the
extent to which RBS manages its delivery of specific customer outcomes.
During 2014, in addition to the provision of risk-based assurance over key
conduct, financial crime, systems and infrastructure topics, the C&RA
assurance function provided RBS-wide assurance in support of Financial
Conduct Authority (FCA) attestations, principally those relating to
complaints and anti-money laundering (AML). Assurance activities are
pre-emptive in highlighting conduct issues and influencing the business to
re-consider the impact of their approach; and are flexible so as to achieve
the right customer outcomes.
Risk assessments are used to identify material conduct risks and key
controls across all business areas. The risk assessment process is
designed to confirm that risks are effectively managed and prioritised and
controls are tested to verify that they operate effectively.
Scenario analysis is used to assess the impacts of extreme but plausible
conduct risks including financial crime. The scenarios assess the
exposures that could significantly affect RBSs financial performance or
reputation and are an important component in the operational risk
framework and capital model.

C&RA works closely with the customer facing businesses to assess
business models, strategy and products and influence better outcomes
for customers.
RBSs senior boards and committees receive updates on conduct risk
exposures and action plans through monthly C&RA initiated reporting.
The reporting has been enhanced to be more focused, forward-looking
and action-oriented.
An annual Money Laundering Reporting Officers Report is submitted to
the Board and the FCA. Covering the operation and effectiveness of the
systems and controls in place to comply with Anti-Money Laundering law
and regulation, it also describes RBSs AML framework. In addition, it
covers the systems and controls in place to prevent the financing of
terrorism and to ensure compliance with sanctions as well as embargoes
and export controls imposed by the UN, governments and other
supranational bodies.
The Group Audit Committee is provided with an annual Whistleblowing
Update Report. It details cases by internal reporting categories based on
the Public Interest Disclosure Act (1998) category, identifies underlying
causal and subject trends, and highlights the outcome of investigations
and actions taken.
C&RA is working with the business franchises to define the data required
to ensure appropriate customer outcomes are delivered and are
compliant with the Basel Committee on Banking Supervision principles
for effective risk data aggregation and risk reporting. RBSs ability to
aggregate, analyse and report conduct risk internally is being enhanced
so it can assess the effectiveness of mitigating actions.
Risk appetite
RBS has articulated a customer-focused vision to be the leading UK bank
for trust, customer service and advocacy by 2020. In line with this, C&RA
has evolved from focusing on policy compliance towards considering the
wider business implications of placing customers at the heart of the
business.
A conduct risk appetite framework is being developed to ensure that
RBSs risk profile is based on its strategic risk objectives, with
quantitative targets supplemented by qualitative criteria focused on
attaining good customer outcomes, upholding market integrity, meeting
stakeholder expectations and promoting a strong risk culture. Work to
refine and embed the risk appetite framework and associated control
processes continues in 2015.
*unaudited
186
Operational risk
188
188
188
188
189
189
189
189
189
189
Definition
Sources of risk
Risk governance
Risk appetite
Risk identification and assessment
Risk mitigation
Risk monitoring
Risk measurement
187
Operational risk*
Definition
Operational risk is the risk of loss resulting from inadequate or failed
internal processes, people and systems, or external events. It arises from
day-to-day operations and is relevant to every aspect of the business.
Operational risks may have a direct customer or reputational impact (for
example, a major IT systems failure or fraudulent activity) or both.
Operational risk failures may also have a link with conduct risk as
evidenced by customer complaints made in connection with Payment
Protection Insurance.
Sources of risk
Operational risk may arise from a failure to manage operations,
transactions and assets appropriately. It may arise from forms of human
error, an inability to deliver change on time or adequately, or the
unavailability of technology services or the loss of customer data. Fraud
and theft are sources of operational risk, as is the impact of natural and
man-made disasters. It may also arise from a failure to take appropriate
measures to protect assets or take account of changes in law.
RBSs transformation programme is material and complex, affecting all
business areas and functions simultaneously, and so it has the potential
to increase the operational risk profile at least in the short term. The risks
associated with transformation are being managed in accordance with
the operational risk framework and the programme management
infrastructure.
The transformation programme affects many of its people and their tasks.
RBS is monitoring the resourcing impacts arising from this, as it
recognises that employee capacity and engagement are essential to
delivering change and completing day-to-day activities.
A key component of the programme was the implementation in 2014 of a
new functional operating model for operational risk to ensure it is
managed in a more standardised and consistent manner. The new
operating model supplemented activity undertaken by the customer
businesses to increase understanding of the operational risk profile and
the actions required to mitigate risks outside of appetite.
Following the major IT incident that occurred in 2012, a programme was

created to address the weaknesses identified, with its core objective to
deliver improvements to the technology processes, as well as the
efficiency and resilience of those processes, through a number of key
workstreams. In 2014, this programme improved technology resilience for
core banking services, operating practices and risk management across
the three lines of defence. Significant investments were made in
upgrading infrastructure and in improving a broad range of processes and
tools.
The threat to the security of RBSs information from cyber attacks is a key
focus for operational risk. During 2014 specific enhancements were made
to cyber security programmes, mitigating a number of identified
vulnerabilities. RBS continues to monitor this threat closely as it
continues to develop rapidly.
Risk governance
A strong operational risk management function is vital to support the
banks profitability. Better management of operational risk directly
supports RBSs strategic objective of improving stakeholder confidence
and is vital for stability and reputational integrity.
The operational risk function, an independent second line of defence,
plays a leadership role and seeks to achieve a robust risk management
framework and culture across the bank. The Director of Operational Risk,
Support Functions and Divested Businesses, who leads the function,
reports to the Chief Risk Officer.
The operational risk function is responsible for the design and
maintenance of the ORMF. The Operational Risk Policy and associated
standards are incorporated in the Group Policy Framework and provide
direction for the consistent identification, assessment, management,
monitoring and reporting of operational risk.
The Operational Risk Executive Committee (OREC), which is a subcommittee of the Executive Risk Forum, acts on all operational risk
matters. This includes reviewing the exposure against risk appetite;
identifying and assessing material operational risks, encompassing both
current and emerging material risks; reviewing and monitoring the
operational risk profile; and reviewing and approving material policy
changes.
Work started on enhancing the operational risk management framework

(ORMF). This will continue in 2015 and beyond. The intention is to
improve the ability to identify and assess operational risk by delivering an
ORMF that is implemented consistently.
*unaudited
188

Control Environment Certification (CEC) is used to review and assess the
internal control framework. Members of the senior management team are
required to provide a bi-annual assessment of the robustness of the
internal control environment including:
Compliance with the requirements of the UK Corporate Governance

Code;
Appropriateness of the risk frameworks and governance structures

of each customer-facing business and support function to help
ensure RBS operates within risk appetite;
Adequacy of reporting on the material risks for the business against

appetite; and
Action plans to mitigate those risks outside of appetite.
CEC outcomes are reported to the Board, the Group Audit Committee
and the Board Risk Committee, and are shared with external auditors.
Risk appetite
The objective of operational risk management is not to remove
operational risk altogether, but to manage it to an acceptable level, taking
into account the customer journey and the cost of minimising the risk
against the resultant reduction in exposure. Strategies to manage
operational risk include avoiding undertaking a particular type of activity
or operating in a particular market; transferring the risk to a third party;
accepting the risk as a cost of doing business; or mitigating the risk by
implementing controls.
Operational risk appetite measures and frameworks are reviewed
annually by the Executive Risk Forum (ERF). The operational risk
appetite statement comprises a number of specific measures of risk,
including operational risk capital adequacy and earnings volatility based
on the relationship between operational risk losses and the banks
estimated gross income. It also includes metrics covering control
environment performance. To confirm that RBS operates within the set
risk appetite, the high-level statement is aligned with strategic risk
objectives.
Operational risk appetite measures will be further refined in 2015, with
particular focus on developing an integrated operational risk appetite
framework which will be used to translate high-level objectives into
achievable risk appetite measures across RBS.
Risk identification and assessment
Risk assessments are used to identify and assess material operational
risks and key controls across all business areas. To provide a consistent
categorisation of risks and controls across RBS and to support
identification of risk concentrations, all risks and controls are mapped to
the risk taxonomy and the control catalogue. Risk assessments are
refreshed at least annually to ensure they remain relevant and capture
any emerging risks.
The process is designed to confirm that risks are effectively managed

and prioritised in line with the stated risk appetite. Controls are tested
frequently to verify that they remain fit for purpose and operate
effectively. Risk assessments are typically commenced in a workshop,
bringing together subject matter experts and key stakeholders from
across the bank. Financial and non-financial risk impacts are captured
and a risk appetite decision is made.
In 2014 there was a continued focus on implementing and embedding
risk assessments across the bank. This included the strengthening of
links between risk assessments and other elements of the operational
risk framework. In 2015, the risk framework will be further enhanced by
the introduction of end-to-end risk assessments which will help provide a
fuller understanding of the risk profile of the banks key services and
products.
The New Product Risk Assessment (NPRA) process aims to ensure that
the risks represented by new products (and material variations to existing
products) are identified and assessed before launch. There is now a
requirement to demonstrate that all products provide fair outcomes to
customers. Further enhancements to the NPRA process are under review
and are expected to be introduced in 2015.
Risk mitigation
Risks are mitigated by a suite of regularly assessed controls but, where
the residual exposure is outside of risk appetite, the relevant customer
business must decide how to reduce it. This is carried out in accordance
with the operational risk management process, the objective of which is
the adoption of a consistent approach to the management of issues and
actions to mitigate risks outside appetite. The process continues to be
enhanced, with analysis of common issues on an aggregated basis
across the bank, to identify emerging trends and to make improvements
to the quality of data.
RBS purchases insurance to provide the business with financial
protection against specific losses and to comply with statutory or
contractual requirements.
Risk monitoring
Monitoring and reporting are part of RBSs operational risk management
processes, which aim to ensure that risks and issues are identified,
escalated and managed quickly. Emerging risks, and actions taken to
mitigate them, are discussed at OREC. These are reported to the Board
and the ERF. Exposures specific to each business are communicated
through monthly risk and control reports that are discussed at business
risk committees.
Risk measurement
Scenario analysis is used to assess the impact of extreme but plausible
operational risks and is a key input to the capital model. It provides a
forward-looking basis for managing risk exposures, with a structured and
consistent approach to scenario scoping and measurement. Coupled with
internal and external loss data, it has a major impact on the estimated
capital requirements. Scenarios, along with internal and external loss
data, are a key input into the capital model and influence the capital
required significantly.
*unaudited
189
Operational risk* continued

Scenarios are run in their own dedicated workshops, bringing business
and risk and control experts together, thereby providing management
with a deeper understanding of risk exposures.
RBS further refined its approach to assessing the impact of the
economic cycle on its operational risk losses by assessing the impact of
the Prudential Regulation Authoritys published Anchor 6 scenario. This
describes the impact of a series of country-specific shocks on levels of
operational risk losses, and also capital adequacy requirements for
operational risk.
The impact of the Prudential Regulation Authoritys Anchor 6 scenario on
operational risk capital, as calculated under the standardised approach,
was also projected based on the outputs of the banks stress-testing
exercises. Operational risk impacts are also assessed based on
additional economic stress scenarios developed internally. This is used
as part of the overall stress input to capital planning and internal capital
adequacy assessment process (ICAAP).
Operational risk is measured utilising an economic Capital model. This
model is also included within the ICAAP assessment to ensure that
capital requirements are appropriately calculated using internal loss,
external loss and scenario data.
As a true risk sensitive measurement, this model is being rolled out

across RBS to ensure better information is available to businesses to
help manage their risk profile.
Event and loss data management
The event and loss data management process aims to ensure
compliance with standard requirements for the management of
operational risk events and the capture of loss data. It also entails
reporting operational risk events that meet defined threshold criteria to
RBS senior management. RBS has continued to focus on the timely and
accurate capture of operational risk losses; the use of a single RBS-wide
repository of operational risk events; and the escalation of material
operational risk events.
All losses and recoveries associated with an operational risk event are
reported against their financial accounting date. A single event can result
in multiple losses (or recoveries) that may take time to crystallise. Losses
and recoveries with a financial accounting date in 2014 may relate to
events that occurred, or were identified in, prior years.
Number and value of events
At 31 December 2014, four categories accounted for around 94% of all
operational risk events. These were: (i) clients, products and business
practices; (ii) execution, delivery and process management; (iii) fraud;
and (iv) employment practices and workplace safety. This proportion was
broadly in line with that of 2013
Value of events
At 31 December 2014, events aligned with clients, products and business

practices accounted for 95% of the losses (compared to 98% in 2013).
The losses in this category resulted from new conduct-related provisions,
and further increased provisions relating to Payment Protection Insurance
and Interest Rate Hedging Products, together with regulatory settlements.
*unaudited
A small number of operational risk events contribute a high percentage of

the total losses. In 2014, around 1% of the events contributed 96% of the
losses. This was in line with that of 2013.
Capital
RBS calculates the Pillar 1 capital requirement for operational risk using
the standardised approach. For 2014, RBSs minimum Pillar 1 capital
requirement was 2.9 billion (2013 - 3.4 billion).
190
Regulatory risk
192
192
192
192
192
192
192
Definition
Sources of risk
Governance
Risk appetite
Risk mitigation
191
Regulatory risk*
Definition
Regulatory risk is the risk of material loss or liability, legal or regulatory
sanctions, or reputational damage, resulting from the failure to comply
with (or adequately plan for changes to) relevant official sector policy,
laws, regulations, or major industry standards, in any location in which
RBS operates.
Sources of risk
Regulatory risk arises from the regulatory, business or operating
environment and from RBSs response to it.
The level of regulatory risk remained high during 2014, as policymakers
and regulators continued to strengthen regulation and supervision in
response to the events of 2007 and 2008. This resulted in high levels of
interaction between RBS and supervisory authorities through meetings,
requests for information, visits and investigations, as well as in policy
developments and proposals for new rules.
Governance
C&RA maintains well-established policies and supporting processes to
ensure timely identification of, and effective responses to, changes in
official requirements affecting the bank. C&RA also maintains a
structured and open engagement with regulators. That engagement
underpins a range of other policies and processes that address on-going
compliance with regulatory obligations (refer to the section on Conduct
risk on page 184 for further information).
To help manage the risks, the Mandatory Change Advisory Committee
(MCAC), chaired by C&RA, was established. The MCAC reports to the
Bank-Wide Investment Committee, and comprises representatives of the
banks customer businesses and functions. The MCAC acts as the
reception committee for reviewing externally mandated changes that
may affect RBS and recommending appropriate responses, including the
timely mobilisation of change implementation activities. In doing so, it
agrees business or function owners of individual risks; and commissions
and reviews impact assessments from customer businesses and
functions.
Board and Executive Committee oversight of changes to regulatory

requirements is supported by the MCAC.
C&RAs Regulatory Developments team maintains and develops RBS
Political, Legislative and Regulatory Environment Policy and supporting
documents, together with associated processes, tools and governance. It
also oversees the regulatory developments operating framework, to
ensure it meets the needs of all businesses and functions, and maintains
the Relationships with Regulators Policy.
Risk appetite
RBS believes that maintaining a strong regulatory risk framework is
fundamental to ensuring sustainable growth, rebuilding its reputation and
maintaining stakeholder confidence. Accordingly, its stated regulatory risk
and compliance risk appetite is for no material or widespread breaches of
rules, expectations, regulations or laws, individually or in aggregate.
However, it also recognises that genuine errors occur, and so it accepts
limited, non-material regulatory risk and subsequent loss.
C&RA ensures appropriate reporting of all material regulatory reviews
and other regulatory developments worldwide to the appropriate bankwide committees, including the Board, the Group Audit Committee, and
the Board Risk Committee. Half-yearly reporting to the Group Audit
Committee also captures all material investigations and tracks the status
of, and trends in, key regulatory relationships.
The level of regulatory risk remained high during 2014, as policymakers
and regulators continued to strengthen regulation and supervision in
response to the events of 2007 and 2008. This resulted in high levels of
interaction between RBS and supervisory authorities through meetings,
requests for information, visits and investigations, as well as in policy
developments and proposals for new rules.
Risk mitigation
C&RA also communicates information on regulatory developments and
follow-up engagement with customer-facing businesses and functions,
helping them identify and execute any required mitigating changes to
strategy or business models. The key regulatory policies are reviewed
annually.
Early identification and effective management of changes in legislation
and regulation, as well as other requirements, is critical to the successful
mitigation of regulatory risk. All regulatory and compliance changes are
managed to ensure timely compliance readiness. Those changes
assessed as having a high or medium-high impact are managed
especially closely, with the aim of mitigating the impact through, for
instance, changes to strategy or business activities, or external
engagement.
*unaudited
192
Reputational risk
194
Definition
194
Sources of risk
194
194
Governance
194
Risk appetite
194
194
Risk mitigation
193
Reputational risk*
Definition
Reputational risk is the risk to RBSs public image owing to a failure to
meet stakeholders expectations in relation to performance, conduct and
business profile. Stakeholders include customers, investors, employees,
suppliers, government, regulators, special interest and consumer groups,
media and the general public.
Sources of risk
Reputational risk can arise from the conduct of either RBS as a whole or
that of the individuals it employs; from the activities of customers and the
countries in which they operate; from the products RBS offers and the
transactions it supports; and from its operations and infrastructure.
The importance of reputational risk was reinforced with the appointment
of a Head of Reputational Risk, together with improvements to
governance frameworks to manage this risk in business franchises. A
senior RBS-wide Reputational Risk Forum (RRF) and fora in all business
franchises were established. These bodies consider customers,
transactions, products or issues that present material reputational risks to
the organisation, and have the power to decline business or to set
conditions.
A high-level Reputational Risk Policy was also developed to help
employees, businesses and functions effectively identify, assess and
manage issues that present reputational risks.
The most material threats to RBSs reputation continued to originate from
historical and more recent conduct deficiencies. As a result, RBS has
been the subject of investigations and reviews by a number of its
regulators, some of which have resulted in fines and public censure.
Refer to the Litigation, investigations and reviews section on page 430.
Governance
Managing reputational risk is taken very seriously, with Board-level
oversight reinforced by a Reputational Risk Policy, and by governance
frameworks across business franchises.
The Board and the Executive Committee have the ultimate responsibility
for managing RBSs reputation although all staff have some
responsibility. The Board has set RBSs Purpose, Vision and Values,
which outline the objective, which is to be trusted, respected and valued
by our customers, shareholders and communities. Refer to the Risk
governance section on page 176.
reputation issues including risk appetite for environmental, social and
ethical (ESE) issues.
The Boards oversight of reputational issues is supported by the senior
RBS-wide RRF which opines on cases that represent a material
reputational risk to the whole organisation. The RRF, which has
delegated authority from the Executive Risk Forum, also acts as a central
forum to review thematic issues and risk appetite positions. Business
franchises also have in place reputational risk approval fora to deliberate
on customers, transactions, products or issues that may present a
reputational risk for their businesses. An example is the Global
Reputational Risk Committee in CIB.
Risk appetite
The Reputational and ESE Risk management team assists business
franchises, as well as other control functions, to articulate risk appetite to
manage reputational risk. Risk appetite positions for certain issues or
markets, for example tax or money remitters, are developed through
conducting research on legislation, regulation and potential reputational
risk factors, undertaking peer analysis and engaging with internal and
external stakeholders to discuss the issues. The risk appetite positions
classify risks associated with a particular area into Normal, Sensitive and
Prohibited. Customers or transactions designated Sensitive require
enhanced due diligence and escalation to a reputational risk forum or
individual while those rated Normal can be approved by the business
without additional escalation. The team also helps set risk appetite to
manage reputational risk related to business engagements and customer
relationships in some sensitive industry sectors, such as mining and
defence, through the ESE policy framework.
A Reputational Risk Policy has also been developed to help employees,
businesses and functions effectively identify, assess and manage issues
that potentially represent a reputational risk. In addition, other policies,
such as those related to conduct, address key sources of reputational
risk. These policies are implemented in accordance with the Policy
Framework through business and functional policy standard owners. The
effectiveness of these policies within each franchise is reported on
through the Control Environment Certification process (Refer to the
Operational risk section on page 187). Reputational aspects also form a
core part of the RBS conduct risk framework, with a series of enhanced
policies developed in line with conduct risk appetite.
Emerging reputational issues are identified by the business and relevant
teams, including RBS Sustainability and Enterprise Wide Risk, which
assess new and emerging business, sector and country risks. The Risk
Management Monthly Report, provided to the Executive Committee and
BRC, may also discuss reputational risks facing RBS, and the annual
Sustainability Report covers progress on sustainability principles.
ESE ratings of customers and transactions are captured and analysed
centrally by the Reputational and ESE Risk Team.
Risk mitigation
Reputational risk is mitigated through governance frameworks and
training of staff to ensure early identification, assessment and escalation
of customers, transactions or products with potential reputational risk, if
appropriate. This includes creating appropriate fora, for example
reputational risk committees or individual reputational risk approvers.
Also important is the setting of clear reputational risk appetite criteria,
ensuring higher risk cases are escalated for senior level approval.
Effective communication channels and incident response planning also
ensure that cases that result in reputational impact are appropriately
managed, for example by declining or exiting business or by ensuring
incident management plans are implemented to manage the impact of
negative media coverage.
*unaudited
194
Capital management
196
Definition
196
Capital strategy
196
Overview and key developments
196
Regulatory capital requirements
197
Capital and stress testing management framework
197
Governance
198
Assessing, monitoring and maintaining adequate capital
199
Risk identification and material integrated risk assessment (MIRA)
199
Stress testing
202
Internal capital adequacy assessment process (ICAAP)
203
Capital planning
204
Future regulatory developments
205
Other developments
206
Measurement
206
- Capital and leverage ratios
207
- Capital resources
209
- Leverage exposure
210
- Risk-weighted assets
212
EAD and RWA density
214
Accounting to regulatory consolidation bridge
215
Balance sheet to EAD bridge
195
Capital management*
Definition
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.
Capital strategy
RBS has set out its strategy to be truly customer-centric, built upon high
levels of customer service and trust, delivering attractive and consistent
returns and underpinned by unquestioned safety and soundness. It
includes key risk metrics aligned to the strategic objectives (for example a
target Common Equity Tier 1 (CET1) ratio).
RBS has devised a risk appetite framework aligned to the above. This
framework establishes appetite targets on quantitative and qualitative
measures which are set by the Board and aligned with its key strategic
risk objectives including maintaining sufficient capital resources to meet
regulatory requirements and cover the potential for unexpected losses
RBSs CET1 ratio was 11.2% at 31 December 2014, an
improvement of 260 basis points compared with 8.6% as at 31

December 2013.
The leverage ratio under 2014 Basel III framework improved from
3.4% to 4.2% at 31 December 2014.
Key milestones achieved in 2014 include:
partial IPO of CFG;
run down of RCR and CIB assets; and
disposal of 9 billion of higher risk legacy available-for-sale
securities, thereby reducing stressed capital and RWAs.
Going forward, RBS is focused on delivering a capital plan in-line

with its strategic objectives which includes the divestment of CFG by
the end of 2016 and further run down of RCR and CIB assets.
From 2015 RBS will target a c.13% CET1 ratio during the period of
CIB restructuring and expects to achieve this by the end of 2016.
RBS plans to issue around 2 billion of CRR-compliant Additional

Tier 1 (AT1) capital instruments in 2015.
RBSs current Pillar 2A requirement is 3.5% of RWAs at 31 December

2014. From 1 January 2015, 56% of the total Pillar 2A or 2.0% of RWAs
is required to be met from CET1 capital. Pillar 2A is a point in time
assessment of the amount of capital that is required to be held to meet
the overall financial adequacy rules. The Prudential Regulation Authority
(PRA) assessment may change over time, including as a result of at least
an annual assessment and supervisory review of RBSs internal capital
adequacy assessment process.
RBSs 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 but this is subject to ongoing
review to accommodate regulatory and other changes.
Based on current capital requirements, including holding current
estimates of Pillar 2A constant for illustrative purposes, RBS estimates
that its fully phased CET1 MDA requirement would be 10.5% in 2019,
assuming RBSs current risk profile. It should be noted that this estimate
does not reflect the anticipated impact of RBSs planned restructuring
and balance sheet risk reduction programmes, changes in the regulatory
framework or other factors that could impact target CET1 ratios. The
estimated MDA requirement comprises:
4.5% Pillar 1 minimum CET1 ratio;
2.0% Pillar 2A CET1 ratio;
2.5% Capital conservation buffer; 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 2.5% to fully phased MDA trigger in 2019. This headroom
will be subject to ongoing review to accommodate regulatory and other
changes.
Regulatory capital requirements
The European Union has implemented the Basel III proposals through
the Capital Requirement Regulation (CRR) and the Capital Requirements
Directive (CRD), collectively known as CRD IV. CRD IV was implemented
on 1 January 2014. The European Banking Authoritys technical
standards which will provide clarification of the CRD IV, are either in
progress to be finalised through adoption by the European Commission
and implemented within the UK, or delegated regulation now adopted.
CRD IV imposes the following minimum requirements to be met by 2019:
Pillar 1 requirement of: CET1 of 4.5% of RWAs; Tier 1 of 6%; and

total capital of 8%;
Capital buffers: capital conservation buffer of 2.5% of RWAs;

countercyclical capital buffer of up to 2.5%; Global-Systemically
Important Bank (G-SIB) surcharge of 1.5%; and
Minimum Tier 1 leverage ratio of 3%.
*unaudited
196
In December 2013 the PRA issued its policy statement (PS7/13) outlining
changes to its Rulebook as a result of CRD IV, and finalising
requirements for the minimum level of CET1 capital as follows:
Firms must meet a 4% Pillar 1 CET1 requirement in 2014, rising to

4.5% from 1 January 2015. Similarly, the Tier 1 capital ratio will be
5.5%, rising to 6% from 1 January 2015 onwards. Total capital
remains at 8%.
All Pillar 2A risks, including pension risk, must be met with at least
56% CET1 capital from 1 January 2015 onwards. This matches the
proportion of CET1 capital required for Pillar 1. The remaining (44%)
allocation of Pillar 2A is restricted to 19% Tier 1 and 25% Tier 2.
All regulatory deductions from capital must align CET1 with the endpoint definition from January 2014, effectively making fully loaded
Basel III the regulatory definition, a stricter approach than the CRR
transitional arrangements.
Capital and stress testing management framework

This section covers a number of tools and processes which taken
together contributed to an integrated view of capital management and is
best presented by the diagram below.
On 31 October 2014 the Financial Policy Committee (FPC) published its

recommendation on the overall leverage ratio framework for the UK
banking system as follows:
Minimum Tier 1 leverage ratio of 3%. To be met 75% by CET1 and a

maximum 25% AT1;
A supplementary leverage buffer applying to G-SIBS equal to 35%

of the corresponding risk-weighted systemic risk buffer rates to be
met with CET1; and
A countercyclical leverage ratio buffer equal to 35% of the riskweighted countercyclical capital buffer rate to be met from CET1.
The countercyclical buffer is currently set at 0%.
MIRA: material integrated risk assessment

ICAAP: internal capital adequacy assessment process
Governance
The Board is the main decision making forum at RBS. It sets the strategic
direction and ensures RBS manages risk effectively by approving and
monitoring RBSs strategic risk appetite, considering RBS-wide stress
scenarios and agreed mitigants, as well as identifying longer-term
strategic threats to the business operations. The Board approves the
ICAAP.
The Board Risk Committee (BRC) is responsible for providing oversight
and advice to the Board in relation to current and potential future risk
exposures of RBS and future risk strategy, including determination of risk
appetite and tolerance. The BRC will review the performance of RBS
relative to risk appetite, provide oversight of the effectiveness of key
RBS-wide policies and provide risk input to remuneration decisions. The
BRC has responsibility for promoting a risk awareness within RBS.
Authority is delegated to the BRC by the Board and the BRC reports and
makes recommendations to the Board as required.
*unaudited
197
Capital management* continued

The Executive Committee is responsible for managing strategic, financial,
capital, risk and operational issues affecting RBS. It reviews and debates
relevant items before they are submitted to the Board and relevant board
committees. It also considers recommendations from the Executive Risk
Forum (ERF) in relation to risk management matters, including
recommendations on risk appetite, risk policies and risk management
strategies. ERF oversees stress testing approach, processes and results.
RBS Asset and Liability Committee (ALCo) is a sub-committee of ERF.
RBS ALCo is responsible for identifying, managing and controlling
balance sheet risks in executing its business strategy. RBS Treasury is
responsible for managing the RBS balance sheet in accordance with
RBS ALCo policy and direction. RBS ALCo is the body with responsibility
in determining that financial balance sheet risk limits and for ensuring the
asset and liability management functions manage their balance sheets
within the limits set by RBS ALCo.
Stress Testing Committee (STC) takes its delegated authority from ERF
and makes recommendations to the ERF on asset quality reviews and
stress testing, including the key vulnerabilities and scenario themes
identified, the results from the generated scenarios and expanded metrics
to be used in both internal and regulatory enterprise-wide stress tests.
STC ensures these are relevant and reflect RBS business model
vulnerabilities, and the results of both internal stress, reverse stress and
regulatory enterprise-wide stress tests (including mitigants).
Assessing, monitoring and maintaining adequate capital
It is RBSs policy to build and sustain a strong capital base and to use it
efficiently throughout its activities to support strategic objectives and
ultimately optimise shareholder returns while maintaining a prudent
relationship between its capital base and the underlying risks of the
business. In carrying out this policy, RBS follows the regulatory
requirements of the twin peaks regulatory structure in the UK under the
supervision of the FCA and the PRA, also having regard to other
regulators, rating agencies, its peer group and market expectations.
Each business in RBS is subject to performance metrics respecting

regulatory capital requirements to ensure that relevant Individual Capital
Guidance or minimum CET1 levels are met. RBS has a control
framework in place to guard against accidental breaches in capital ratios.
Monitoring
RBS continually reviews the potential impact on capital adequacy of
emerging regulatory developments and actively assesses headroom
against a range of stress scenarios. Recovery plans are dynamically
maintained and contingency or remediation options are calibrated to
determine scope to address potential capital shortfalls. All authorised
institutions in RBS are required to ensure adequate capital is maintained
at all times; they must also monitor and report regulatory capital and
RWAs on a regular basis. The level and appropriateness of internal
capital buffers at CET1, Tier 1, Tier 2 and total capital levels, is reviewed
by RBS ALCo and reset as considered appropriate, at least annually.
Capital allocation
Capital resources are allocated to businesses based on key performance
parameters agreed by the Board in the annual strategic planning process.
Principal among these is a profitability metric, which assesses the
effective use of the capital allocated to the business. Projected and actual
return on equity is assessed against strategic objectives. The allocations
also reflect strategic priorities, the intensity of regulatory capital use and
the usage of other key resources such as balance sheet liquidity and
funding.
Economic profit is also planned and measured for each business
annually. It is calculated by deducting the cost of equity utilised in the
particular business from its operating profit after tax and measures the
value added over and above the cost of equity.
RBS aims to deliver sustainable returns across the portfolio of
businesses with projected business returns stressed to test key
vulnerabilities.
The franchises use return on capital metrics when making pricing
decisions on products and transactions, to ensure customer activity is
appropriately aligned with RBS and segmental targets.
*unaudited
198
help identify material risks;
understand the nature and magnitude of these risks clearly; and
Stress test process and techniques

Stress testing is part of the financial and capital planning process and
results are presented to senior management (and BRC/Board) at least
semi-annually. It is now an integral part of enterprise risk management
and used to assess the impact of business decisions on the bank's
capital position. The stress testing process has four key stages:
appraise associated risk management frameworks robustly.
Risk identification and material integrated risk assessment (MIRA)

MIRAs are annual top down processes to:
MIRAs provide a process to assess the size and nature of exposure

to all risk types in the risk taxonomy, which is an exhaustive,
structured list of the types of risk that RBS can and could face.
MIRAs consider whether capital should be set aside against each

risk type and, if so, under which pillar, how much and of what type. If
capital is not appropriate, MIRAs outline how risk types are
otherwise managed. In so doing, MIRAs form a key input to the
ICAAP.
To focus risk management on areas of greatest benefit, MIRAs

consider in depth risks whose potential impact is material, that is
exceeding appropriately chosen financial or non-financial thresholds.
The key framework elements used to manage material risks
(owners, governing committees, limit or tolerance frameworks
including risk appetites, control policies and key reports) are
specified clearly and assessed for appropriateness and
effectiveness.
Stress testing
Stress testing is used to evaluate the capital position under severe but
plausible stress scenarios. Stress testing also refers to the broader
framework under which these tests are developed, evaluated and used
within the banks decision-making process in the context of the wider
economic environment.
RBS stress testing framework is designed to embed stress testing as a
key risk management technique into mainstream risk reporting, capital
planning and business processes at business, legal entity and RBS-wide
levels.
Define stress scenario:

RBS-specific vulnerabilities are identified and linked to
development of relevant stresses;
Scenario is defined, severity calibrated and full parameterisation
completed; and
Governance is put in place for stress theme approval and
scenario validation.
Stress test execution and governance:
Impacts of stress scenario is translated via relevant risk drivers
such as RWAs, impairments;
Profit and loss impacts of stress scenario are also assessed;
and
Review of stress output by the business as well as risk treasury
and finance teams.
Consolidation and capital planning:
Segmental results are consolidated to provide the total view of
stress impact;
Stressed profit and loss and RWA assessment contribute
towards arriving at a stressed capital plan;
Additional capital impacts under stress are considered such as
pension deficit, foreign exchange reserves; and
Final stressed CET1 ratios are produced for each year of the
scenario.
Management actions and governance:
Internal subject matter experts determine a menu of possible
management actions under stress conditions such as capital
raising, de-risking and sale of assets, cost reduction;
Review by senior risk management and executives; and
ERF and Board review and approval.
Risk-type specific stress testing is also conducted. For example, within

the market risk management framework, a comprehensive programme of
stress tests covers a variety of historical and hypothetical scenarios.
Portfolio-specific stress tests assess the reaction of key portfolios to
systemic shocks and identify potential vulnerabilities, including risks that
have not yet matured or are not yet visible. They assess the potential for
outsized losses and the impact of rebalancing portfolios.
*unaudited
199

RBS conducts reverse stress testing within the ICCAP for the specific
purpose of identifying and assessing scenarios most likely to render
RBSs business model unviable. For example, RBSs most recent reverse
stress test, which applied a pure macroeconomic stress only, indicated
that an instantaneous global shock of a similar scale as the 2008 financial
crisis which lasted for a full year could potentially render RBSs business
model unviable. However, the successful execution of RBSs
transformation plan, including the proposed restructuring of CIB, balance
sheet reduction and the implementation of the ring-fencing requirements,
would mitigate this risk.
Regulatory stress test exercises
RBS also takes part in a number of external stress tests as part of wider
stress testing frameworks implemented by regulatory authorities to test
industry-wide vulnerabilities under crystallising global systemic risks. In
2014, RBS participated in two regulatory scenarios designed by the
European Banking Authority (EBA) and the Bank of England (BOE).
The EBA adverse scenario assumed an increase in global investor risk
aversion that triggers financial market turmoil and has subsequent
adverse impacts on economic activity worldwide. The scenario envisaged
sharply rising long-term interest rates and yields in developed economies
alongside a souring of market sentiment globally, resulting in financial
markets distress and recessions in a range of countries, including the UK.
The stress test was conducted on a static balance sheet basis and thus
did not permit key strategic initiatives, such as, the wind down of higher
risk and capital intensive assets as part of RCR.
From an 8.6% CET1 capital under full CRR rules as at 31 December
2013, RBS achieved a CET1 ratio of 5.7% after the adverse scenario,
marginally above the minimum 5.5% required, an indication of the level of
stressed risk in RBSs exposures at the time. RBS strengthened its
capital throughout 2014 and had a CET1 ratio of 10.8% at 30 September
2014, prior to disclosure of the EBA stress test results in October 2014.
Unfortunately, in November 2014 an error was identified in the calculation
of the modelled CET1 ratio in the EBA stress test results which led to
RBSs published CET1 stress test ratios being overstated. Independent
assurance was sought and the error was corrected. The BRC will
continue to closely monitor the actions being taken to avoid a repeat of
this error.
RBS achieved a CET1 ratio of 5.2% after the impact of regulatory agreed
management actions, just above the minimum 4.5% required. RBS
strengthened its capital throughout 2014 and had a CET1 ratio of 10.8%
at 30 September 2014 prior to the publication of the BOE concurrent
stress test results in December 2014.
As the RBS risk profile improves as a result of deleveraging and rundown
of higher risk and capital intensive assets, RBS is well placed to
withstand extreme stress scenarios.
In March 2014, the Federal Reserve Board (FRB) completed its review of
CFGs 2014 capital plan. The Comprehensive Capital Analysis and
Review (CCAR) results follow the Federal Reserves publication of DoddFrank Act Stress Test results. In that test, across every category, CFGs
projected capital ratios ranked in the top quartile of the 30 largest bank
holding companies under the hypothetical supervisory severely adverse
stress scenario. However the FRB objected on qualitative grounds to the
capital plan submitted as part of the CCAR capital plan. FRB cited
significant deficiencies in capital planning processes, including
inadequate governance, weak internal controls and deficiencies in
practices for estimating revenues and losses under a stress scenario and
for ensuring the appropriateness of loss estimates across business lines
in a specific stress scenario. Although the FRB acknowledged that bank
holding companies such as CFG that are new to the CCAR process are
subject to different expectations, CFGs weaknesses were considered
serious enough to warrant FRBs objection. As a result, CFG are not
permitted to increase its capital distributions above 2013 levels until a
new capital plan is approved by the Federal Reserve Board.
In 2014, Ulster Bank Ireland Limited (UBIL) and RBS N.V. participated in
a comprehensive assessment performed by the European Central Bank
(ECB). The comprehensive assessment considered both a stress test
and an asset quality review (AQR). The assessment was conducted to
increase transparency in bank exposures, and to increase confidence in
the European banking sector by identifying whether institutions held
sufficient capital under a stress scenario. The AQR and stress test were
the first assessments carried out by the ECB under the single supervisory
mechanism.
The outcome of the AQR did not require an adjustment to the balance
sheets of either UBIL or RBS N.V. In the stress test, both UBIL and RBS
N.V. maintained capital ratios above the minimum 5.5% under the
adverse scenario.
The second regulatory stress test, designed by the BoE in cooperation

with the EBA, tested the combined impact of the global macroeconomic
and market elements of the EBA adverse scenario, and UK-specific
stress assumptions under the guidance of the FPC. In particular, the UK
variant scenario examined the resilience of UK banks to a housing
market shock and a snap-back in interest rates, triggered by sharp
sterling depreciation and inflationary pressures. Under the scenario, the
UK suffers a severe recession with economic uncertainty damaging
confidence and causing both business investment contraction and a
significant rise in unemployment.
*unaudited
200
Stress testing use

In addition to informing the ICAAP, stress testing within RBS has matured into business as usual process embedded across our risk management
framework. It has become a key risk management tool and is used to support strategic financial planning, risk appetite, risk identification and risk
mitigation as illustrated below.
Stress test usage across RBS

1
Strategic financial & capital planning
Assess impact of plausible downside scenarios on financial position.
Assessment of strategic plans against market concerns and headwinds.
2
Risk appetite
Better understanding of underlying risks to inform the setting of risk appetite (e.g. sector reviews, earnings volatility, reverse stress test).
Assess impact of current business strategies on risk appetite.
Identify drivers of risk appetite triggers.
3
Risk identification
Manage business through improved understanding of the underlying risk. Examples:
Tail risk assessment: identification of risky portfolios that breach series of pre-determined triggers.
Business vulnerabilities analysis: assessment of business model weaknesses through cross-functional discussions.
Identify high-risk portfolios to be investigated further.
4
Risk mitigation
Inform mitigating actions within RBS and segmental strategic plans.
Inform macro-hedge strategies.
Determine a schedule of potential management actions to be executed in the event of stress.
*unaudited
201

Internal capital adequacy assessment process (ICAAP)
The ICAAP assesses RBSs material risks and determines how much capital is required to cover these risks.
The ICAAP consists of two types of internal capital assessment:
Point-in-time capital assessment as at the financial year end:
- Pillar 1 - CET1 4.5% of credit, market and operational RWAs at the financial year end.
- Pillar 2A - additional capital requirements for risks not captured or not adequately captured in Pillar 1. A MIRA is performed to ensure that all
material risks are identified, appropriately managed and adequately capitalised where appropriate.
Forward-looking stress capital assessment:

- Pillar 2B - Capital planning buffer is set to ensure RBS maintains adequate capital resources in stress to allow it to continue to meet
the minimum capital requirements. Current capital planning buffer will be replaced by the PRA buffer from 1 January 2016.
The final ICAAP is approved by the Board prior to submission to the PRA.
Component parts of the ICAAP are set out in the diagram below.
*unaudited
202
Capital planning
RBS aims to maintain an appropriate level of capital to meet its business
needs and regulatory requirements, and operates within an agreed risk
appetite.
Impacts for capital planning

Strategic considerations in the medium-term capital plan will be driven by
key impacts such as a more restrictive approach to the capital base,
higher capital ratio targets and enhanced risk coverage:
RBS uses the budgeting cycle to forecast the future levels of capital
required at CET1, Tier 1, Tier 2 and total capital levels including bail-in or
gone-concern capital at both RBS level and for each of the major
operating entities. Those forecasts are then measured against minimum
regulatory requirements as well as specific regulatory guidance such as
the Individual Capital Guidance. Operating entities such as UBIL, RBS
N.V. and CFG also go through a similar planning process to ensure that
they are compliant with local regulatory rules. These plans are reviewed
and challenged to ensure that they are consistent with RBS risk appetite,
policies and strategic targets.
Absolute capital levels will need to be higher earlier;
Higher relative risk-weighted assets will exacerbate the absolute

capital required and the stress impact; and
Inclusion of PRA (and/or firm) stress buffers making stress a key

driver of bank target CET1 ratios.
Stress testing is an integral part of capital planning. Stress testing results

are produced through the same capital planning models used for the
budget. Models will be adjusted to reflect the specific parameters of a
particular stress test.
The capital plan outputs are subject to executive and Board review and
approval. The capital plan and performance against capital metrics are
reviewed each month at ALCo.
Total loss absorbing capital (TLAC) is a new requirement announced by
the Financial Stability Board (FSB) at its meeting in October 2014. TLAC
is intended to ensure that a bank group maintains sufficient consolidated
resources not only to reduce the likelihood of insolvency but also to allow
for orderly resolution and recapitalisation of insolvent operating
subsidiaries in the event of a banking groups insolvency.
Recovery and resolution planning.

In line with regulatory requirements, RBS prepares regular recovery
plans, which include a framework of indicators identifying the points at
which appropriate actions may be taken in the event of unexpected
weaknesses in its capital or liquidity resulting from either idiosyncratic or
systemic stress, as well as a menu of options for addressing such
weaknesses.
RBSs 2014 Recovery Plan was prepared in line with PRA policy
Statement PS8/13, requiring firms to prepare, maintain and review
recovery plans. These rules were supplemented by a supervisory
statement (SS18/13), (2), which sets out in more detail what the PRA
expects firms to consider in their recovery planning. Previous Recovery
Plans were submitted to the Financial Services Authority (the PRAs
predecessor body) in December 2011 and June 2012, and to the PRA in
June 2013.
Recovery Plans are required to be updated annually; it is anticipated that
RBSs 2015 Recovery Plan will be prepared in line with revised rules
taking into account the European Union Bank Recovery and Resolution
Directive of 2014 and the European Banking Authoritys regulatory
technical standards on recovery planning. These rules would require a
bank to notify the PRA, without delay, if it decides to take action under
the recovery plan or refrains from taking action.
*unaudited
203

Economic capital
Economic capital is an internal measure of the risks to which RBS is
exposed and is used as a supplement to other risk and capital
management tools, such as stress testing and regulatory capital. The
measure includes risk exposures for credit, market, business,
operational, pension, fixed asset and interest rate risk in the banking
book. These models capture risks not fully addressed within the Pillar 1
regulatory framework e.g. concentration, pension, interest rate, business
and diversification.
The characteristics of the models are consistent across risks, business
lines and throughout the economic cycle, but are also flexible to allow
outcomes to be employed for a number of purposes e.g. severity
level/confidence interval, time horizon and correlations. Models have
been developed internally but are subject to rigorous governance
including external benchmarking, independent validation and extensive
internal review and challenge. Models are regularly reviewed and
continue to be updated for new data sources and improvements in risk
modelling methodology.
The ability to change severity levels supports management of earnings
volatility and capital risk. Economic models are used in the ICAAP
assessing risk profiles within the risk appetite framework, functional risk
management e.g. credit exposures at both RBS and business levels,
assessing business line profitability on a risk adjusted basis and the
management and allocation of capital.
Future regulatory developments
Resolution and recovery directive
In addition to the capital requirements under CRD IV, the resolution and
recovery directive (RRD) introduces requirements for banks to maintain
at all times a sufficient aggregate amount of own funds and eligible
liabilities (that is, liabilities that may be bailed in using the bail-in tool),
known as the minimum requirements for eligible liabilities (MREL). The
aim is that the minimum amount should be proportionate and adapted for
each category of bank on the basis of their risk or the composition of their
sources of funding.
The UK government has transposed the RRD's provisions into law with a
requirement that the Bank of England adopt further secondary legislation
to implement MREL requirements by 2016 which will take into account
the regulatory technical standards to be developed by the EBA specifying
the assessment criteria that resolution authorities should use to
determine the minimum requirement for own funds and eligible liabilities
for individual firms.
The EBA noted that the technical standards would be compatible with the
proposed term sheet published by the FSB on TLAC requirements for GSIBs, but there remains a degree of uncertainty as to the extent to which
MREL and TLAC requirements may differ.
As the implementation of the capital requirements under RRD is the
subject to the adoption of secondary legislation and implementation in the
UK and overall capital requirements will be subject to the exercise of
certain discretion by the PRA, RBS is currently unable to predict the
impact such rules will have on the overall capital requirements or how
they will affect compliance with applicable capital and loss absorbency
requirements.
Pillar 2
The PRA launched a consultation paper in January 2015 on the Pillar 2
capital requirements for UK banks. Proposed changes are intended to
support a more risk sensitive and consistent approach to setting Pillar 2A
(P2A) capital and to provide greater transparency of the PRA capital
setting process by allowing firms to manage present and future regulatory
capital demands. Proposed changes are as follows:
The variable element of P2A to be expressed as a percentage of

RWAs plus fixed add-ons instead of the current method where P2A
is a formula comprising both a variable and a fixed element;
The PRA buffer will replace the current Capital Planning Buffer
(CPB). Use of the buffer will not be a breach in capital requirements
and will not result in capital distribution restrictions however, failure
to meet Pillar 2B (P2B) buffer may result in enhanced supervisory
action;
The P2B buffer will be calculated as a percentage of RWAs rather

than absolute terms and is to be met with CET1;
Firms already subject to a CPB will be required to meet P2B with

CET1 in full immediately;
Firms considered to have weak risk management and governance

will be required to hold additional PRA buffer applied on a scalar
ranging from 10-40% of a firms CET1 Pillar 1 plus P2A capital
requirements; and
Firms will have the discretion to publicly disclose their aggregate

P2A charge from 1 January 2016. Component parts of P2A and the
PRA buffer will remain confidential.
The PRA estimates that the total impact of proposals will increase overall
P2A requirements by 0.23% of RWAs. Implementation will be from 1
January 2016 in line with the CRD IV capital conservation and systemic
buffers and the EBAs Supervisory Review and Evaluation Process
guidelines.
Domestically Systemically Important Banks
Regulatory proposals relating to domestically systemically important
banks (DSIBs) continue to be progressed and could impact the level of
CET1 that is required to be held by RBS and specific legal entities
including NatWest and the Royal Bank. The EBA published in December
2014 a quantitative methodology as to how European regulators could
quantify which firms would qualify as DSIBs. In addition the FPC intends
to consult with firms in the UK on the UK framework during 2015.
Systemic risk buffer
In January 2015, HM Treasury issued an explanatory memorandum on
the systemic risk buffer for banks, building societies and investment
forms. The regulation implements Articles 133 and 134 of Directive
2013/36/EU and addresses the outstanding capital buffer element of the
ring-fencing policy recommended by the Independent Commission on
Banking (ICB) and agreed by the UK Government.
*unaudited
204
The purpose of the systemic risk buffer is to prevent and mitigate long
term non-cyclical systemic or macro prudential risks not covered by
existing regulation where there is potential for serious negative
consequences for the financial system and real economy.
TLAC will be distributed by resolution entities to material

subsidiaries which are themselves not resolution entities. Sufficient
internal TLAC will be prepositioned on the balance sheet of material
subsidiaries; and
The systemic risk buffer will apply to large banks with core (ring fenced
entity) deposits of more than 25 billion and large building societies with
deposits of more than 25 billion. Implementation will occur from 1
January 2019 and capital buffers will range from 0-3% of a firms RWAs.
Under the policy proposal TLAC is now defined as an additional

rather than a parallel capital requirement to the Basel III framework
and a breach of the minimum TLAC could trigger the same
restrictions set out in the Basel III framework for MDA. However, this
would technically be the consequence of a direct breach of the CRD
IV buffer rather than the TLAC due to the no double counting
principle.
The FPC will set out the framework for determining which institutions fall
into scope and the size of the buffer to be held. A consultation paper will
be published in 2015 and methodology by 31 May 2016. The PRA will be
responsible for applying the framework and will have ultimate discretion
over which firms must hold the buffer and its specific size.
Total loss absorbing capital (TLAC) and maximum distributable amounts
(MDA)
The FSB has issued policy proposals for public consultation on TLAC.
The new proposal is intended to replace the gone-concern loss absorbing
capital concept previously expected to be the template within the G-SIBs
resolution strategies.
The FSB is currently working on draft principles with the rule expected to
be in force by 1 January 2019.
Other developments
The following developments will also impact RBSs capital:
The Basel Committee on Banking Supervision:

Has proposed a recalibration of the credit risk standardised
approach with implementation in 2017 with initial view of the
new rules due in 2015.
Are reviewing the calibration of the operational risk calculation,
with revised rules due in 2015 and applicable from 2017.
Has instigated a fundamental review of the trading book which
will impact how the risk of trading book activity is measured.
Initial consultation papers on this are due in 2015.
The PRA and FPC are looking at placing a floor on the risk-weight
applied to mortgages in calculating the risk-weight. The level of the
floor is currently being debated and current expectations are
application in 2015.
The Financial Services (Banking Reform) Act passed into UK law in

December 2013 implementing recommendations of the ICB; and
The US Federal Reserve Boards final rule issued in February 2014,

establishing enhanced prudential standards for foreign banking
organisations.
The proposed minimum TLAC requirements are as follows:

Between 16% and 20% of RWAs and at least double the Basel III
Tier 1 leverage ratio requirements - 16% represents roughly twice
the minimum capital requirement (8%) under Basel III;
A certain minimum (currently undefined) amount of the TLAC

requirement will need to be met with non-equity instruments - AT1,
Tier 2 or even Tier 3 or bail-in able debt;
Minimum TLAC requirements will sit below the combined buffer

requirements which may lead to consequences on MDA restrictions;
The loss absorption should be legally enforceable and should not

give rise to systemic risk or disruption to the provision of critical
functions. Therefore, to prevent a G-SIB resolution to spread
contagion into the banking system, internationally active banks will
be prevented from holding TLAC issued by other G-SIBs;
*unaudited
205

Measurement
Capital and leverage ratios
Capital, RWAs and risk asset ratios, on the basis of transitional rules and end-point CRR, calculated in accordance with PRA definitions, are set out
below.
2014
End-point
CRR basis (1)
Capital
CET1 (3)
Tier 1
Total
RWAs
Credit risk
- non-counterparty
- counterparty
Market risk
Operational risk
Risk asset ratios

CET1 (3)
Tier 1
Total
Leverage ratio
Tier 1 capital
Exposure
Leverage ratio (4)
bn
2013
PRA
transitional
basis
bn
Estimated
end-point
CRR basis (1)
bn
2012
PRA
transitional
basis (2)
bn
Basel
2.5 basis
Basel
2.5 basis
bn
bn
39.9
39.9
48.6
39.6
47.1
60.7
36.8
36.8
45.5
36.8
44.3
58.2
42.2
50.6
63.7
47.3
57.1
66.8
264.7
30.4
24.0
36.8
355.9
264.7
30.4
24.0
36.8
355.9
317.9
39.1
30.3
41.8
429.1
317.9
39.1
30.3
41.8
429.1
291.1
22.3
30.3
41.8
385.5
323.2
48.0
42.6
45.8
459.6
11.2
11.2
13.7
11.1
13.2
17.1
8.6
8.6
10.6
8.6
10.3
13.6
10.9
13.1
16.5
10.3
12.4
14.5
2014
2013 (2)
2012 (2)
39.9bn
939.5bn
4.2%
36.8bn
1,082.0bn
3.4%
37.9bn
1,236.9bn
3.1%
Notes:
(1) Capital Requirements Regulation (CRR) as implemented by the Prudential Regulation Authority in the UK, with effect from 1 January 2014.
(2) Estimated.
(3) Common Equity Tier 1 (CET1) ratio with effect from 1 January 2014.
(4) Based on end-point CRR Tier 1 capital and revised 2014 Basel III leverage ratio framework.
General:
In accordance with the PRAs Policy Statement PS7/2013 issued in December 2013 on the implementation of CRD IV, all regulatory adjustments and deduction to CET1 have been applied in full (endpoint CRR) with the exception of unrealised gains on AFS securities which will be included from 2015 (PRA transitional basis).
CRD IV and Basel III impose a minimum CET1 ratio of 4.5%. Further, CET1 requirements will be imposed through buffers in the CRD. There are three buffers that will affect RBS: the capital conservation
buffer set at 2.5% of RWAs; the counter-cyclical capital buffer (up to 2.5% of RWAs), which will be calculated as the weighted average of the countercyclical capital buffer rates applied in the countries
where RBS has relevant credit exposures; and the highest of Global-Systemically Important Institution (G-SII), Other-Systemically Important Institution or systemic risk buffers set by the supervisory
authorities. RBS has been provisionally allocated a G-SII buffer of 1.5%. The regulatory target capital requirements will be phased in through CRR, and are expected to apply in full from 1 January 2019.
Until then, using national discretion the PRA can apply a top-up. As set out in the PRAs Supervisory Statement SS3/13, RBS and other major UK banks and building societies are required to maintain a
CET1 ratio of 7%, after taking into account certain adjustments set by the PRA.
From 1 January 2015, RBS must meet at least 56% of its Pillar 2A capital requirement with CET1 capital and the balance with Additional Tier 1 and/or Tier 2 capital. The Pillar 2A capital requirement is
the additional capital that RBS must hold, in addition to meeting its Pillar 1 requirements in order to comply with the PRAs overall financial adequacy rule.
Measures in relation to end-point CRR basis, including RWAs, are based on the current interpretation, expectations, and understanding, of the CRR requirements, as well as further regulatory clarity and
implementation guidance from the UK and EU authorities (end-point CRR basis). The actual end-point CRR impact may differ when the final technical standards are interpreted and adopted.
Capital base:
(1) Own funds are based on shareholders equity.
(2) Includes the nominal value of B shares (0.5 billion) on the assumption that RBS will be privatised in the future and that they will count as permanent equity in some form by the end of 2017.
(3) The adjustment arising from the application of the prudent valuation requirements to all assets measured at fair value, has been included in full. The prudential valuation adjustment relating to assets
under advanced internal ratings approach has been included in impairment provisions in the determination of the deduction from expected losses.
(4) Where the deductions from AT1 capital exceed AT1 capital, the excess is deducted from CET1 capital. The excess of AT1 deductions over AT1 capital in year one of transition is due to the
application of the current rules to the transitional amounts.
(5) Insignificant investments in equities of other financial entities (net): long cash equity positions are considered to have matched maturity with synthetic short positions if the long position is held for
hedging purposes and sufficient liquidity exists in the relevant market. All the trades are managed and monitored together within the equities business.
(6) Based on our current interpretations of the Commission Delegated Regulation issued in December 2013 on credit risk adjustments, RBSs standardised latent provision has been reclassified to
specific provision and is not included in Tier 2 capital.
Risk-weighted assets (RWAs):
(1) Current securitisation positions are shown as risk-weighted at 1,250%.
(2) RWA uplifts include the impact of credit valuation adjustments and asset valuation correlation on banks and central counterparties.
(3) RWAs reflect implementation of the full internal model method suite, and include methodology changes that took effect immediately on CRR implementation.
(4) Non-financial counterparties and sovereigns that meet the eligibility criteria under CRR are exempt from the credit valuation adjustments volatility charges.
(5) The CRR final text includes a reduction in the risk-weight relating to small and medium-sized enterprises.
*unaudited
206
Capital resources
2014
Shareholders equity (excluding non-controlling interests)

Shareholders' equity
Preference shares - equity
Other equity instruments
Regulatory adjustments and deductions
Own credit
Defined benefit pension fund adjustment
Net unrealised available-for-sale (AFS) losses
Cash flow hedging reserve
Deferred tax assets
Prudential valuation adjustments
Goodwill and other intangible assets
Expected losses less impairments
50% of securitisation positions
Other regulatory adjustments
CET1 capital
Additional Tier 1 (AT1) capital
Preference shares - debt
Innovative/hybrid Tier 1 securities
Qualifying instruments and related share premium subject to phase out
Qualifying instruments issued by subsidiaries and held by third parties
AT1 capital
Tier 1 deductions
50% of material holdings
Tax on expected losses less impairments
Tier 1 capital
2013
2012
End-point
CRR basis
m
PRA
transitional
basis
m
Estimated
end-point
CRR basis
m
PRA
transitional
basis
m
Basel 2.5
basis
m
Basel 2.5
basis
m
57,246
(4,313)
(784)
52,149
57,246
(4,313)
(784)
52,149
58,742
(4,313)
(979)
53,450
58,742
(4,313)
(979)
53,450
58,742
(4,313)
(979)
53,450
68,678
(4,313)
(979)
63,386
473
403
500
(238)
(1,029)
(1,222)
(384)
(7,781)
(1,491)
(585)
(12,230)
500
(238)
(1,029)
(1,222)
(384)
(7,781)
(1,491)
(855)
(12,500)
601
(172)
84
(2,260)
(781)
(12,368)
(1,731)
(55)
(16,682)
601
(172)
84
(2,260)
(781)
(12,368)
(1,731)
(55)
(16,682)
726
362
308
84
(12,368)
(19)
(748)
(103)
(11,758)
691
913
346
(1,666)
(13,545)
(1,904)
(1,107)
(197)
(16,469)
39,919
39,649
36,768
36,768
42,165
47,320
5,820
1,648
7,468
5,831
1,749
7,580
4,313
911
4,207
9,431
4,313
1,054
4,125
9,492
(976)
6
(970)
(295)
618
323
39,919
47,117
36,768
44,348
50,626
57,135
*unaudited
207

2014
End-point
CRR basis
m
Qualifying Tier 2 capital

Undated subordinated debt
Dated subordinated debt - net of amortisation
Qualifying instruments and related share premium
Unrealised gains on AFS equity shares
Collectively assessed impairment provisions
Tier 2 deductions
Tier 2 capital
Supervisory deductions
Unconsolidated investments
Other deductions
2013
PRA
transitional
basis
m
Estimated
end-point
CRR basis
m
2012
PRA
transitional
basis
m
Basel 2.5
basis
m
Basel 2.5
basis
m
5,542
3,175
8,717
6,136
7,490
13,626
3,582
5,151
8,733
4,431
9,374
13,805
2,109
12,436
114
395
15,054
2,194
13,420
63
399
16,076
(748)
(25)
(976)
(1,749)
(1,107)
(2,522)
(295)
(3,924)
8,717
13,626
8,733
13,805
13,305
12,152
48,636
60,743
45,501
58,153
(36)
(236)
(272)
63,659
(2,243)
(244)
(2,487)
66,800
The table below analyses the movement in end-point CRR CET1 and Tier 2 capital for the year.
At 1 January 2014
Loss for the year including reclassification of CFG, net of movements in fair value of own credit
Share capital and reserve movements in respect of employee share schemes
Ordinary shares issued
Foreign exchange reserve
AFS reserves
Decrease in goodwill and intangibles deduction
Deferred tax assets (DTA)
Excess of expected loss over impairment provisions
Dated subordinated debt issues
Net dated subordinated debt/grandfathered instruments
Foreign exchange movements
Other movements
At 31 December 2014
Key points
On the reclassification of CFG to disposal groups at 31 December
2014, the carrying value exceeded its fair value less costs to sell by
4 billion. The consequential write down has been ascribed to
goodwill relating to CFG.
CET1
m
Tier 2
m
Total
m
36,768
(3,571)
205
300
(208)
607
4,032
1,038
397
240
111
39,919
8,733
2,159
(1,537)
(638)
8,717
45,501
(3,571)
205
300
(208)
607
4,032
1,038
397
240
2,159
(1,537)
(638)
111
48,636
Tier 2 issuances of 2.2 billion comprised 1 billion 3.625%

subordinated notes and $2.25 billion 5.125% subordinated notes,
both maturing in 2024.
The lower regulatory capital deduction for DTA is due to the

reduction in the net DTA balance reflecting the write down of
deferred tax assets during the year.
*unaudited
208
Leverage exposure
The leverage exposure is based on the revised 2014 Basel III leverage ratio framework. The leverage ratio as originally included in the CRR is aligned
with the internationally agreed ratio from January 2015.
End-point CRR basis (2)
2014
2013 (3)
bn
bn
Leverage (1)
Derivatives
Loans and advances
Reverse repos
Other assets
Total assets
Derivatives
- netting
- potential future exposures
Securities financing transactions gross up
Weighted undrawn commitments
Regulatory deductions and other adjustments
Leverage exposure
354.0
419.6
64.7
212.5
1,050.8
288.0
418.4
76.4
245.1
1,027.9
(330.9)
98.8
25.0
96.4
(0.6)
939.5
(227.3)
128.0
59.8
100.2
(6.6)
1,082.0
Notes:
(1) Based on end-point CRR Tier 1 capital and revised 2014 Basel III leverage ratio framework.
(2) Capital Requirements Regulation (CRR) as implemented by the Prudential Regulation Authority in the UK, with effect from 1 January 2014.
(3) Estimated.
Additional analysis of derivative notionals and undrawn commitments, two of the major components included in the balance sheet contributing to the
leverage exposure, is set out below.
Derivative notionals
Derivative potential future exposures (PFE) are calculated based on the notional value of the contracts and is dependent on the type of contract. For
contracts other than credit derivatives the PFE is based on the type and maturity of the contract after the effect of netting arrangements.
The PFE on credit derivatives is based on add-on factors determined by the asset quality of the referenced instrument. Qualifying credit derivatives
attract a PFE add-on of 5% and have reference securities issued by public sector entities, multilateral development banks or other investment grade
issuers. Non-qualifying credit derivatives attract a PFE add-on of 10%.
The table below analyses the derivative notionals by maturity for contracts other than credit derivatives and credit derivatives by qualifying and not.
2014
Interest rate
Exchange rate
Equity
Commodities
Credit
Total
Derivative other than

credit derivative
<1 year
1-5 years
bn
bn
>5 years
bn
11,069
3,649
42
1
10,423
720
33
5,839
306
2
14,761
11,176
6,147
10,582
3,261
43
16,212
814
35
1
8,795
480
1
1
13,886
17,062
9,277
12,515
3,411
51
2
12,980
795
52
7,988
492
4
2
15,979
13,827
8,486
Credit derivative
Qualifying
Non-qualifying
bn
bn
99
99
Total
bn
26
26
27,331
4,675
77
1
125
32,209
64
64
35,589
4,555
79
2
253
40,478
83
83
33,483
4,698
107
4
553
38,845
2013
Interest rate
Exchange rate
Equity
Commodities
Credit
Total
189
189
2012
Interest rate
Exchange rate
Equity
Commodities
Credit
Total
470
470
*unaudited
209

Weighted undrawn commitments
2014
UK Personal &
Business
Banking
bn
Unconditionally cancellable items (1)

Items with a 20% CCF
Ulster
Bank
bn
Commercial
Banking
bn
Private
Banking
bn
Corporate &
Institutional
Banking
bn
Central items
bn
Citizens
Financial
Group
bn
3.1
0.4
4.8
0.1
8.4
0.1
1.0
0.3
1.4
1.0
0.7
9.8
2.2
13.7
0.2
0.1
1.4
0.8
2.5
2.4
3.2
36.8
10.2
52.6
1.6
3.9
5.5
1.8
0.4
7.8
1.5
11.5
3.1
0.4
5.8
0.1
9.4
0.2
1.0
0.3
1.5
0.4
0.6
12.5
2.4
15.9
0.1
0.6
1.0
1.4
3.1
0.7
1.5
41.9
12.0
56.1
2.7
2.7
1.7
0.2
7.1
1.6
10.6
2013
Unconditionally cancellable items (1)

RCR
bn
Total
bn
0.5
0.3
0.8
8.6
4.8
63.7
19.3
96.4
Non-Core
0.7
0.2
0.9
6.2
3.3
72.7
18.0
100.2
Note:
(1) Based on a 10% credit conversion factor.
The table below analyses the movement in credit risk RWAs by key drivers during the year.
Credit risk
Non-counterparty
Counterparty
bn
bn
Total
bn
At 1 January 2014 (Basel 2.5 basis)

CRR impact (1)
At 1 January 2014 (CRR basis)
Foreign exchange movement
Business movements
Risk parameter changes
Methodology changes
Model updates
Other changes
At 31 December 2014 (CRR basis)
291.1
26.8
317.9
1.5
(21.6)
(11.7)
(17.9)
(2.7)
(0.8)
264.7
22.3
16.8
39.1
(13.9)
5.2
30.4
313.4
43.6
357.0
1.5
(35.5)
(11.7)
(12.7)
(2.7)
(0.8)
295.1
Modelled (1)
Non-modelled
163.2
101.5
264.7
26.6
3.8
30.4
189.8
105.3
295.1
Note:
(1) Refer to RWA notes on page 206 for further information.
The table below analyses movements in market and operational risk RWAs during the year.
Market risk
At 1 January 2014 (Basel 2.5 and CRR bases)

Business and market movements
Methodology changes
Modelled (1)
Non-modelled
CIB
bn
Other
bn
Total Operational risk

bn
bn
Total
bn
22.4
(15.4)
11.9
18.9
7.9
(2.8)
5.1
30.3
(18.2)
11.9
24.0
41.8
(5.0)
36.8
72.1
(23.2)
11.9
60.8
14.9
4.0
18.9
3.3
1.8
5.1
18.2
5.8
24.0
36.8
36.8
18.2
42.6
60.8
Note:
(1) Modelled refers to advanced internal ratings basis for non-counterparty credit risk, internal model method for counterparty credit risk, and value-at-risk and related models for market risk. These
principally relate to CIB (83 billion) and Commercial Banking (48 billion).
*unaudited
210
The table below analyses RWA movements by segment during the year.
Total RWAs
At 31 December 2013 (Basel 2.5 basis)

Impact of dissolution of Non-Core and
creation of RCR
CRR impact
At 1 January 2014 (CRR basis)
Foreign exchange movement
Business movements
Risk parameter changes (1)
Methodology changes (2)
Model updates (3)
Other changes
UK Personal &
Business
Banking
bn
Ulster
Bank
bn
Commercial
Banking
bn
Private
Banking
bn
Corporate &
Institutional
Banking
bn
Central
items
bn
Citizens
Financial
Group
bn
RCR
bn
51.2
30.7
65.8
12.0
120.4
20.1
56.1
29.2
385.5
(1.5)
49.7
(0.3)
(5.0)
(1.6)
42.8
(1.9)
(0.6)
28.2
(1.1)
0.3
(3.6)
23.8
(2.7)
(1.6)
61.5
0.2
1.7
0.6
64.0
12.0
(0.2)
(0.3)
11.5
(10.0)
36.7
147.1
(1.0)
(36.8)
(2.0)
(0.2)
107.1
0.1
3.1
23.3
(6.1)
(0.4)
(0.5)
16.3
2.0
2.5
60.6
3.6
4.2
68.4
41.7
5.0
46.7
(20.0)
(3.3)
(0.3)
(1.1)
22.0
(29.2)
43.6
429.1
1.5
(58.7)
(11.7)
(0.8)
(2.7)
(0.8)
355.9
Non-Core
bn
Total
bn
Notes:
(1) Risk parameter changes relate to changes in credit quality metrics of customers and counterparties such as probability of default (PD) and loss given default (LGD). They comprise:
- UK PBB and Ulster Bank: primarily reflects recalibration of PD and LGD models reflecting improvements to the UK economy.
- RCR: decrease in defaulted assets (1.0 billion) and internal rating upgrades for certain counterparties (0.8 billion).
(2) Methodology changes included:
- Commercial Banking: revisions to both currency netting and maturity dates for securitisation liquidity facilities.
- CIB: 2.0 billion primarily represents inclusion of hedges in the credit valuation adjustments calculation. In addition there were offsetting movements of 11.4 billion reflecting transition of trading
book securitisations from credit risk to market risk; and 7.5 billion reflecting reclassification of new CRR related charges, primarily asset value correlation and certain exchange traded derivatives
from non-counterparty credit risk to counterparty credit risk.
(3) The following models were updated during the year:
- UK PBB: revised retail LGD model.
- Commercial Banking and RCR: new large corporate PD model.
- CIB: reduction due to the impact of exposure at default model 2.6 billion was offset by the new large corporate PD model.
Key points
RBS RWAs increased from 385 billion on a Basel 2.5 basis to 429
billion on a CRR basis principally reflecting:
1,250% risk weighting of securitisation positions; previously
capital deductions;
Impact of credit valuation adjustment and asset valuation
correlation relating to banks and central counterparty;
Implementation of CRR model suite; and
Reduction in risk weighting for small and medium sized
enterprises (SME).
UK PBB RWAs reduced due to improvements in credit quality,

recovery in the UK economy and lower balances.
In Commercial Banking, credit risk RWAs increased by 5 billion

due to growth in loans (2 billion) and methodology changes (2
billion) and model changes (1 billion), offset by a 2 billion
decrease in operational risk RWAs.
CIB managed down RWAs by 40 billion, through both balance

sheet and risk reductions. The reduction included 15 billion of
market risk RWAs due to the wind down of the US asset-backed
products business, 6 billion credit risk RWAs in GTS and Portfolio
and 10 billion in Rates reflecting counterparty reviews as well as
exits, novations and mitigation. Operational risk RWAs decreased by
3 billion.
The RCR disposal strategy and run-off resulted in a 25 billion

reduction in RWAs, 9 billion each in real estate finance and
corporate, and a further 5 billion and 2 billion in Markets and
Ulster Bank respectively.
In relation to RWA density:

The increase in RWA density of exposures reflected the impact of
credit valuation adjustments and asset valuation correlation and
those on structured entities related to revised RWA treatments, both
relating to the implementations of CRD IV.
Non-modelled standardised credit risk RWAs principally comprised

CFG (63 billion), and Private Banking (10 billion); repo
transactions undertaken by RBSSI, the broker-dealer and certain
securitisation exposures.
Total shipping portfolio exposure at default (EAD) was 10.9 billion

and RWAs of 8.4 billion of which 2.3 billion and 1.7 billion were
in RCR.
Oil and gas RWAs were 8.5 billion at a density of 49%. Mining and
metals RWAs were 3.3 billion with a density of 74%.
*unaudited
211

EAD and RWA density
The tables below analyse exposure at default (EAD) after credit risk mitigation (CRM), RWAs and related RWA density (RWAs as a percentage of EAD)
by sector cluster. RWAs at 31 December 2014 are under current rules and 31 December 2013 are on a Basel 2.5 basis. Refer to page 215 for a bridge
between balance sheet and EAD.
2014
EAD post CRM (1)

AIRB
STD
m
m
RWAs
Total
m
AIRB
m
STD
m
Total
m
AIRB
%
RWA density
STD
%
Total
%
Sector cluster
Sovereign
Central banks
Central government
Other sovereign
Total sovereign
44,007
16,373
4,936
65,316
50,539
9,944
6,548
67,031
94,546
26,317
11,484
132,347
1,632
1,775
1,250
4,657
78
61
386
525
1,710
1,836
1,636
5,182
4
11
25
7
1
6
1
2
7
14
4
Financial institutions (FI)

Banks
Other FI (2)
SSPEs (3)
Total FI
32,777
41,420
17,504
91,701
2,081
22,535
2,634
27,250
34,858
63,955
20,138
118,951
15,089
15,585
6,216
36,890
488
9,960
4,410
14,858
15,577
25,545
10,626
51,748
46
38
36
40
23
44
167
55
45
40
53
44
48,081
7,541
4,625
1,334
2,048
63,629
3,463
31
431
7,481
284
11,690
51,544
7,572
5,056
8,815
2,332
75,319
23,736
1,283
2,321
722
1,296
29,358
3,390
33
445
7,551
249
11,668
27,126
1,316
2,766
8,273
1,545
41,026
49
17
50
54
63
46
98
106
103
101
88
100
53
17
55
94
66
54
Corporates
Property
- UK
- Ireland
- Other Western Europe
- US
- RoW
Total property
Natural resources
- Oil and gas
- Mining and metals
- Other
Transport
- Shipping
- Other
Manufacturing
Retail and leisure
Services
TMT (4)
Total corporates
15,704
3,744
16,173
1,876
635
1,070
17,580
4,379
17,243
6,864
2,602
6,367
1,665
660
861
8,529
3,262
7,228
44
69
39
89
104
80
49
74
42
8,332
21,268
29,450
24,564
23,489
13,555
219,908
2,571
3,297
8,430
8,262
8,426
2,790
49,047
10,903
24,565
37,880
32,826
31,915
16,345
268,955
5,790
9,176
12,673
14,940
13,327
7,079
108,176
2,575
2,865
8,257
8,027
8,350
2,806
47,734
8,365
12,041
20,930
22,967
21,677
9,885
155,910
69
43
43
61
57
52
49
100
87
98
97
99
101
97
77
49
55
70
68
60
58
Personal
Mortgages
- UK
- Ireland
- US
- RoW
Total mortgages
Other personal
Total personal
Other items
Total
113,884
15,544
193
131
407
130,159
31,628
161,787
4,465
543,177
7,794
37
311
21,088
589
29,819
15,971
45,790
18,363
207,481
121,678
15,581
504
21,219
996
159,978
47,599
207,577
22,828
750,658
10,651
13,137
16
10
39
23,853
13,233
37,086
3,012
189,821
3,121
18
124
10,352
232
13,847
11,805
25,652
16,580
105,349
13,772
13,155
140
10,362
271
37,700
25,038
62,738
19,592
295,170
9
85
8
8
10
18
42
23
67
35
40
49
40
49
39
46
74
56
90
51
11
84
28
49
27
24
53
30
86
39
Pillar 3
Additional analysis of exposure at default and credit risk measures such as credit risk mitigation, counterparty credit risk and provisions and their
associated RWAs under the approaches according to the PRA permissions in force provided in RBSs Pillar 3 Report 2014.
*unaudited
212
EAD and RWA density
2013
Sector cluster
Sovereign
Central banks
Central government
Other sovereign
Total sovereign
EAD post CRM (1)

AIRB
STD
m
m
RWAs
Total
m
AIRB
m
STD
m
Total
m
AIRB
%
RWA density
STD
%
Total
%
34,809
17,940
5,323
58,072
59,351
8,401
5,525
73,277
94,160
26,341
10,848
131,349
1,289
2,418
1,451
5,158
180
30
149
359
1,469
2,448
1,600
5,517
4
13
27
9
2
9
15
4
Financial institutions (FI)

Banks
Other FI (2)
SSPEs (3)
Total FI
37,718
43,460
21,564
102,742
2,769
14,033
2,523
19,325
40,487
57,493
24,087
122,067
11,922
16,391
5,827
34,140
689
7,940
2,189
10,818
12,611
24,331
8,016
44,958
32
38
27
33
25
57
87
56
31
42
33
37
Corporates
Property
- UK
- Ireland
- US
- RoW
Total property
Natural resources
Transport
Manufacturing
Retail and leisure
Services
TMT (4)
Total corporates
50,250
10,338
8,764
1,126
3,579
74,057
29,403
31,677
24,649
23,974
22,716
13,550
220,026
2,771
107
143
6,527
317
9,865
2,826
3,024
7,775
7,744
8,757
2,222
42,213
53,021
10,445
8,907
7,653
3,896
83,922
32,229
34,701
32,424
31,718
31,473
15,772
262,239
27,904
3,087
4,937
600
2,817
39,345
15,586
21,678
13,607
18,302
15,972
8,470
132,960
2,461
136
130
6,272
253
9,252
2,435
2,709
7,599
7,591
8,382
2,198
40,166
30,365
3,223
5,067
6,872
3,070
48,597
18,021
24,387
21,206
25,893
24,354
10,668
173,126
56
30
56
53
79
53
53
68
55
76
70
63
60
89
127
91
96
80
94
86
90
98
98
96
99
95
57
31
57
90
79
58
56
70
65
82
77
68
66
Personal
Mortgages
- UK
- Ireland
- US
- RoW
Total mortgages
Other personal
Total personal
Other items
Total
110,470
17,148
202
121
396
128,337
33,358
161,695
4,756
547,291
7,841
33
507
19,717
242
28,340
14,521
42,861
19,189
196,865
118,311
17,181
709
19,838
638
156,677
47,879
204,556
23,945
744,156
14,412
16,108
25
15
50
30,610
15,286
45,896
4,061
222,215
3,267
12
202
9,756
107
13,344
10,703
24,047
15,798
91,188
17,679
16,120
227
9,771
157
43,954
25,989
69,943
19,859
313,403
13
94
12
12
13
24
46
28
85
41
42
36
40
49
44
47
74
56
82
46
15
94
32
49
25
28
54
34
83
42
Notes:
(1) Exposure at default post credit risk mitigation reflects an estimate of the extent to which a bank will be exposed under a specific facility, in the event of the default of a counterparty; AIRB: advanced
internal ratings based; STD: standardised.
(2) Non-bank financial institutions, such as US agencies, insurance companies, pension funds, hedge and leverage funds, broker-dealers and non-bank subsidiaries of banks.
(3) Securitisation structured purpose entities primarily relate to securitisation related vehicles.
(4) Telecommunications, media and technology.
*unaudited
213

Accounting to regulatory consolidation bridge
The table below provides a reconciliation between accounting and regulatory consolidation.
2014
Deconsolidation
Accounting of insurance and
balance sheet other entities (1)
m
m
Assets
Loans and advances
Debt securities
Equity shares
Settlement balances
Derivatives
Intangible assets
Deferred tax
Liabilities
Deposits by banks and customer accounts
Settlement balances
Short positions
Derivatives
Deferred tax
Owners equity
Total equity
2013
Consolidation
of banking
associates/
other entities (2)
m
Regulatory
consolidation
m
74,872
421,973
86,649
5,635
4,667
353,590
7,781
6,167
1,540
5,878
82,011
1,050,763
(13)
1,900
(290)
(30)
355
(457)
(38)
1,427
650
75,509
4,565
428,438
1,258
87,617
93
5,698
4,667
24
353,969
4
7,785
86
5,796
1,540
(508)
5,332
82,011
6,172 1,058,362
452,304
50,280
4,503
23,029
349,805
13,346
2,579
500
22,905
71,320
990,571
893
796
(241)
1,448
5,452
305
17
398
6,172
2,946
57,246
60,192
1,050,763
(21)
(21)
1,427
Consolidation
Deconsolidation
of banking
Accounting of insurance and
associates/
balance sheet other entities (1) other entities (2)
m
m
m
Regulatory
consolidation
m
82,659
494,793
113,599
8,811
5,591
288,039
12,368
7,909
3,478
7,614
3,017
1,027,878
1,191
(7)
(3)
(948)
(488)
(255)
430
83,089
3,572
499,556
1,086
114,678
8,808
5,591
288,039
12,368
32
6,993
3,478
(533)
6,593
3,017
4,587 1,032,210
458,649
51,381
4,503
23,029
349,822
13,503
2,579
500
22,905
71,320
998,191
534,859
67,819
5,313
28,022
285,526
16,017
3,210
507
24,012
3,378
968,663
(5)
(208)
(33)
(9)
(255)
4,150
139
298
4,587
2,925
57,246
60,171
6,172 1,058,362
473
58,742
59,215
1,027,878
(255)
473
58,742
59,215
4,587 1,032,210
539,004
67,819
5,313
28,022
285,318
16,123
3,210
498
24,310
3,378
972,995
Notes:
(1) RBS can only include particular types of subsidiary undertaking in the regulatory consolidation. Insurance undertakings and non-financial undertakings are excluded from the regulatory consolidation,
although they are included in the consolidation for financial reporting.
(2) RBS must proportionally consolidate its associates for regulatory purposes where they are classified as credit institutions or financial institutions. These will generally have been equity accounted for
financial reporting purposes.
*unaudited
214
Balance sheet to EAD bridge

The table below provides a bridge between the balance sheet and credit EAD by balance sheet caption.
2014
Cash and balances

at central banks
Reverse repurchase
agreements and stock
borrowing
Loans and advances
Debt securities
Equity shares
Settlement balances
Derivatives
Intangible assets
Property, plant and
equipment
Deferred tax
Prepayments, accrued
income and other assets
Total assets
Contingent obligations
Balance Consolidation
sheet differences (1)
bn
bn

Within the
Methodology
Regulatory
scope of
Credit Netting and
Capital Disposal
differences and
consolidation market risk (2) provisions (3) collateral (4) deduction (5) groups (6) reclassifications (7)
bn
bn
bn
bn
bn
bn
bn
Total Undrawn and

drawn off-balance
EAD sheet EAD
bn
bn
74.9
0.6
75.5
0.6
76.1
64.7
357.3
86.6
5.6
4.7
353.6
7.8
6.5
1.0
0.4
64.7
363.8
87.6
5.6
4.7
354.0
7.8
(49.3)
(4.9)
(4.7)
17.5
0.3
0.1
1.4
(37.8)
(33.4)
(295.3)
(8.4)
62.2
15.3
0.6
0.4
0.6
(11.2)
(0.2)
0.3
(9.1)
26.9
398.9
53.7
1.7
51.4
6.2
1.5
(0.4)
5.8
1.5
(1.2)
0.5
0.5
(0.2)
6.8
0.1
5.9
82.0
1,050.8
(0.5)
7.6
5.4
82.0
1,058.4
(58.9)
19.3
(366.5)
(9.6)
1.8
(82.0)
82.7
0.4
83.1
1.7
84.8
76.4
418.4
113.6
8.8
5.6
288.0
12.4
4.7
1.1
76.4
423.1
114.7
8.8
5.6
288.0
12.4
(56.7)
(7.2)
(5.6)
25.2
0.3
0.1
1.8
(51.3)
(28.4)
(242.8)
(0.4)
(1.5)
(12.4)
1.8
(9.7)
2.0
(0.1)
(2.1)
25.1
411.6
58.8
1.6
44.9
7.9
3.5
(0.9)
7.0
3.5
0.7
7.7
3.5
7.6
3.0
1,027.9
(1.0)
4.3
6.6
3.0
1,032.2
(69.5)
27.4
(322.5)
(1.1)
(15.4)
0.9
(2.7)
(0.1)
7.1
(20.0) 622.7
Total
EAD
bn
76.1
26.9
100.6 499.5
53.7
1.7
51.4
6.8
0.1
7.1
100.6 723.3
27.4 27.4
128.0 750.7
2013
Cash and balances

at central banks
Reverse repurchase
agreements and stock
borrowing
Loans and advances
Debt securities
Equity shares
Settlement balances
Derivatives
Intangible assets
Property, plant and
equipment
Deferred tax
Prepayments, accrued
income and other assets
Total assets
(6.4)
(0.3)
(14.2) 638.0
84.8
25.1
75.6 487.2
0.1 58.9
1.6
44.9
7.7
3.5
75.7 713.7
30.5 30.5
106.2 744.2
Notes:
(1) Represents proportional consolidation of associates and deconsolidation of certain subsidiaries, as required by regulatory rules. Refer to previous page for additional details.
(2) The exposures in regulatory trading book businesses are subject to market risk and are therefore excluded from EAD. Refer to the Market risk section on page 298.
(3) Impairment loss provisions on loans and advances and securities, and credit valuation adjustment on derivatives.
(4) Includes:
- Reverse repos: reflects regulatory approach for securities financing transactions including netting of collateral and cash legs.
- Loans and advances: cash collateral pledged with counterparties in relation to net derivative liability positions.
- Derivatives: impact of master netting arrangements.
(5) Capital deductions are excluded as EAD only captures exposures for credit RWAs.
(6) Amounts reclassified to balance sheet lines for EAD.
(7) Primarily includes:
- Loans and advances: offset related to cash management pooling arrangements not allowed under IFRS and standardised approach credit risk mitigation.
- Derivatives: EAD valuation adjustments offset by difference between netting arrangements and netting within regulatory model sets.
- Property, plant and equipment: includes residual value of operating leases.
*unaudited
215

217
Definition
217
217
Liquidity risk
217
- Policy, framework and governance
217
- Regulatory oversight and liquidity framework
218
- Measurement, monitoring and contingency planning
218
- Stress testing
219
- Liquidity portfolio
221
- Net stable funding ratio (NSFR)
222
Funding risk
222
- Funding markets
222
- Analysis
222
- Sources and uses of funding
222
- Key funding metrics
223
- Funding sources
224
- Notes issued
224
- Loan:deposit ratios and funding surplus/(gap)
225
- Repos
225
- Firm financing
225
- Maturity analysis
225
- Behavioural maturity
226
- Contractual maturity
228
- Encumbrance
228
- Collateral (on and off-balance sheet)
229
- Balance sheet encumbrance
216

Definition
Liquidity and funding risk is the risk that RBS is unable to meet its
financial obligations, including financing wholesale maturities or customer
deposit withdrawals, as and when they fall due.
Liquidity risk
Policy, framework and governance
Internal liquidity policies are designed to ensure that RBS:
Has a clearly stated liquidity risk tolerance: appetite for liquidity risk
is set by the Board as a percentage of the Individual Liquidity
Adequacy Assessment (ILAA) stressed outflows, and is managed on
a daily basis by legal entity, country, region and business. In setting
risk limits the Board takes into account the nature of RBS various
activities, the overall risk appetite, market best practice and
regulatory compliance.
Has in place strategies, polices and practices to ensure that RBS

maintains sufficient liquidity: the risk management framework
determines the sources of liquidity risk and the steps that can be
taken when these risks exceed certain actively monitored limits.
These actions include when and how to use the liquid asset
portfolio, and what other adjustments to the balance sheet should be
undertaken to manage these risks within the banks risk appetite.
RBS maintains an adequate liquid asset portfolio appropriate to the
business activities of RBS and its risk profile.
Incorporates liquidity costs, benefits and risks in product pricing and

performance management: RBS uses internal funds transfer pricing
to ensure that these costs are reflected in the measurement of
business performance, and to correctly incentivise businesses to
source the most appropriate mix of funding.
The risk arises through the maturity transformation role that banks
perform. It is dependent on RBS specific factors such as maturity profile,
composition of sources and uses of funding, the quality and size of the
liquidity portfolio as well as broader market factors, such as wholesale
market conditions alongside depositor and investor behaviour.
The liquidity position strengthened with the liquidity portfolio of
150.7 billion at 31 December 2014 covering short-term wholesale
funding (STWF) more than five times. STWF decreased by 4.6
billion to 27.8 billion mainly due to the buy-back and maturity of
medium-term notes in CIB.
The liquidity portfolio increased by 4.6 billion in the year, primarily

reflecting the proceeds from the Citizens IPO and the sale of 9
billion securities from the RBS N.V. bond portfolio. It includes 57
billion of secondary liquidity being assets eligible for discounting at
central banks. The costs associated with maintaining the secondary
liquidity portfolio are minimal being largely administrative and
operational costs.
The liquidity coverage ratio (LCR) was 112% at 31 December 2014,

based on RBSs interpretation of the EU guidelines. The
improvement in LCR from 102% at year end 2013 reflects
reductions in wholesale funding due to CIB balance sheet and risk
reduction and an increase in retail deposits. With effect from 1
October 2015, LCR will replace the PRAs current regime, with an
initial minimum requirement of 80% rising to 100% by 2018.
The net stable funding ratio (NSFR) based on RBSs interpretation

of the Basel framework was stable at 121% at 31 December 2014.
Liquidity risk appetite is measured by reference to the liquidity

portfolio as a proportion of net stressed outflows and ratio was 186%
(2013 - 145%) under the worst case stress scenario. The
improvement in 2014 reflected lower stress outflows due to balance
sheet reductions in CIB.
During 2014 RBS successfully issued 2.2 billion of Tier 2

subordinated debt, compared with 1.8 billion in 2013. RBSG plc
had senior unsecured debt outstanding of 6.9 billion, excluding
commercial paper and certificates of deposit, at 31 December 2014.
Based on its assessment of the Financial Stability Boards
proposals, RBS may issue between 3 - 5 billion per annum during
2015 - 2019 to meet total loss absorbing capital requirements.
The customer loan:deposit ratio remained broadly stable at 95%
compared with 94% at the end of 2013 with an increase in the
funding surplus in PBB of 4.4 billion (UK PPB - 1.4 billion; Ulster
Bank - 3.0 billion) being offset by a decrease in the funding surplus
in CPB of 6.6 billion (Commercial Banking - 5.7 billion; Private
Banking - 0.9 billion).
The Asset and Liability Management Committee (ALCo) sets and reviews
the liquidity risk management framework and limits within the risk appetite
set by the Board. ALCo, and by delegation the Liquidity Committee,
oversees the implementation of liquidity management across RBS. RBS
Treasury conducts the review, challenge and reporting of RBSs liquidity
performance, while the Liquidity Committees management of liquidity risk
is overseen by ALCo, the Executive Risk Forum, Executive Committee
and the Board.
Regulatory oversight and liquidity framework*
RBS operates across multiple jurisdictions and is subject to a number of
regulatory regimes.
The principal regulator, the Prudential Regulation Authority (PRA), has a
comprehensive set of liquidity regulations, the cornerstone of which is
Prudential sourcebook for Banks, Building Societies and Investment
Firms (BIPRU) 12 (until 30 September 2015). To comply with the PRA
regulatory process, RBS undertakes the following:
An annual exercise to complete the ILAA; and
An annual Focused Liquidity Review (FLR) process with the PRA - a

comprehensive review of the RBS ILAA, liquidity policies and risk
management framework. This results in the settings of the Individual
Liquidity Guidance, which influences the size and overall
composition of RBS liquid asset portfolio.
*unaudited
217
Liquidity risk continued

In addition, RBSs US operations meet liquidity requirements set out by
the Federal Reserve Board, the Office of the Comptroller of the Currency,
the Federal Deposit Insurance Corporation and the Financial Industry
Regulatory Authority. In Europe, Ulster Bank Ireland Limited and RBS
N.V. are both subject to oversight by the European Central Bank with
effect from 1 November 2014.
RBS actively monitors a range of market-wide and firm-specific early

warning indicators of emerging liquidity stresses. Indicators include such
areas as customer deposit outflows, market funding costs and
movements in the banks credit default swap premiums and debt
spreads. Early warning indicators and regulatory metrics are reported
daily to senior management, including the Chief Financial Officer and
Treasurer.
The Basel Committee on Banking Supervision (BCBS) has introduced a

new liquidity regime for banks, Basel III, which includes two liquidity
metrics, the LCR and NSFR, to be used by banks to monitor their liquidity
risk.
RBS maintains a CFP, which forms the basis of analysis and

management actions to be undertaken in a liquidity stress. The CFP is
linked to stress test results and forms the foundation for liquidity risk
limits. The CFP sets out the circumstances under which the plan would
be invoked; this includes material worsening of early warning indicators. It
also prescribes a communications plan, roles and responsibilities, as well
as potential management actions to take in response to various levels of
liquidity stress. On invocation of the CFP, the Contingency Liquidity Team
would be convened to identify the likely impact of the stress event and
determine the appropriate management response.
In January 2013, the BCBS published its final guidance for calculating the
LCR. This will be implemented in law across the EU by the European
Commission (EC), who published a final Delegated Act for the LCR in the
EU Journal in January 2015. The Delegated Act will introduce the LCR as
a regulatory minimum standard from 1 October 2015 on a phased basis,
such that banks are required to meet a 100% LCR ratio by 1 January
2018. In November 2014, the PRA confirmed in a consultation paper that
the current BIPRU 12 regime will be revoked on 1 October 2015 in favour
of the LCR, and that UK banks will be required to maintain a minimum
ratio of 80% from this point. The LCR will be a Pillar 1 metric, meaning
that the PRA will apply firm-specific Pillar 2 liquidity add-ons above and
beyond the minimum LCR requirement. The PRA has invited feedback
from UK banks on the consultation paper, but has not released any
guidance on the detailed calculation of LCR. Pending PRA reporting
guidelines, RBS monitors the LCR using its own internal interpretations of
existing guidance.
BCBS published its final recommendations for implementation of the
NSFR in October 2014, proposing an implementation date of 1 January
2018, by which time banks are expected to meet an NSFR ratio of 100%.
The EC has stated that it shall, if appropriate, submit a legislative
proposal to the European Parliament by the end of 2016 for implementing
NSFR in the EU. In the meantime, RBS uses the definitions and
proposals from the BCBS paper, and internal interpretations, to calculate
NSFR.
Several regulatory regimes outside the EU where RBS operates,
including the Joint Banking Supervisors of the US, have also published
consultation papers with guidance for their local implementation of the
LCR. RBS anticipates further guidance for LCR to be published across
other jurisdictions during the course of 2015.
Measurement, monitoring and contingency planning
In implementing the liquidity risk management framework, a suite of tools
are used to monitor, limit and stress test the risks within the balance
sheet. The limits control the amount and composition of funding sources,
asset and liability mismatches and funding concentrations, in addition to
the level of liquidity risk.
Liquidity risks are reviewed at a significant legal entity level daily, and at a
business level monthly, with performance reported to Asset and Liability
Management Committees at least monthly. Any breach of internal metric
limits will set in motion a series of actions and escalations that could lead
to activation of the Contingency Funding Plan (CFP).
Stress testing*
Under the liquidity risk management framework RBS maintains the ILAA,
a component of which is an assessment of net stressed liquidity outflows.
These liquidity stress tests apply scenario-based behavioural and
contractual assumptions to cash inflows and outflows under the worst of
three severe stress scenarios, as prescribed by the PRA. These are a
market-wide stress, an idiosyncratic stress and a combination of both.
A stress event can occur when either firm-specific or market-wide factors
or a combination of both lead to depositors and investors withdrawing or
not renewing funding on maturity. This could be caused by many factors
including fears over the viability of the firm. Additionally, liquidity stress
can be brought on by customers choosing to draw down on loan
agreements and facilities.
Simulated liquidity stress testing is performed at least monthly for each
business as well as the major operating subsidiaries in order to evaluate
the strength RBSs liquidity risk management. The stressed outflows are
measured over certain time periods which extend from two weeks to
three months. RBS is expected to be able to withstand the stressed
outflows through its own resources (primarily through the use of the
liquidity portfolio) without having to resort to extraordinary central bank or
governmental assistance.
Stress tests are designed to examine the impact of a variety of firmspecific and market-wide scenarios on the future adequacy of the liquidity
reserves. Stress test scenarios are designed to take into account RBSs
experiences during the financial crisis, recent market conditions and
events. These scenarios can be run at any time in response to the
emergence of firm-specific or market-wide risks that could have a
material impact on RBSs liquidity position. In the past these have
included credit rating changes and political and economic conditions
changing in particular countries.
RBSs liquidity risk appetite is measured by reference to the liquidity
portfolio as a percentage of net stressed ILAA outflows.
*unaudited
218
Key liquidity risk stress testing assumptions
Net wholesale funding - Outflows at contractual maturity of

wholesale funding, with no rollover/new issuance, prime brokerage,
100% loss of excess client derivative margin and 100% loss of
excess client cash.
Secured financing and increased haircuts - Loss of secured funding

capacity at contractual maturity date and incremental haircut
widening, depending upon collateral type.
Retail and commercial bank deposits - Substantial outflows as RBS

could be seen as a greater credit risk than competitors.
Intra-day cash flows - Liquid collateral held against intra-day

requirement at clearing and payment systems is regarded as
encumbered with no liquidity value assumed. Liquid collateral is held
against withdrawal of unsecured intra-day lines provided by third
parties.
Intra-group commitments and support - Risk of cash within

subsidiaries becoming unavailable to the wider bank and contingent
calls for funding on RBS Treasury from subsidiaries and affiliates.
Funding concentrations - Additional outflows recognised against

concentration of providers of wholesale secured financing.
Off-balance sheet activities - Collateral outflows due to market

movements, and all collateral owed by RBS to counterparties but not
yet called; anticipated increase in firms derivative initial margin
requirement in stress scenarios; collateral outflows contingent upon
a multi-notch credit rating downgrade of RBS entities; drawdown on
committed facilities provided to corporates, based on counterparty
type, creditworthiness and facility type; and drawdown on retail
commitments.
Franchise viability - Liquidity stress testing includes additional

liquidity in order to meet outflows that are non-contractual in nature,
but are necessary in order to support valuable franchise businesses.
Management action - Unencumbered marketable assets that are

held outside of the central liquidity portfolio and are of verifiable
liquidity value to the firm, are assumed to be monetised (subject to
haircut/valuation adjustment).
Liquidity portfolio
Liquidity risks are mitigated by a centrally managed liquidity portfolio. The
size of the portfolio is determined under the liquidity risk management
framework with reference to the RBSs risk appetite.
The majority of the portfolio is centrally managed by RBS Treasury, ringfenced from the CIB trading book, and is the ultimate responsibility of the
RBS Treasurer. This portfolio is held in the PRA regulated UK Defined
Liquidity Group (UK DLG) comprising RBSs five UK banks: The Royal
Bank of Scotland plc, National Westminster Bank Plc, Ulster Bank
Limited, Coutts & Co and Adam & Company.
Certain of RBS's significant operating subsidiaries - RBS N.V., Citizens
Financial Group Inc, and Ulster Bank Ireland Limited - hold locally
managed portfolios of liquid assets that comply with local regulations that
differ from PRA rules. These portfolios are the responsibility of the local
Treasurer who reports to the RBS Treasurer.
The UK DLG liquidity portfolio accounted for 88% of the total liquidity
portfolio, this portion is available to meet liquidity needs as they arise
across RBS. The remaining liquidity reserves are held locally within nonUK bank subsidiaries, the majority of this portion (12%) is restricted by
regulatory requirements and therefore assumed to only be available for
use locally.
Separately from the liquidity portfolio, RBS holds high quality assets to
meet payment systems collateral requirements, these are managed by
RBS Treasury but are not freely available to other areas of RBS.
RBS categorises its liquidity portfolio, including its locally managed
liquidity portfolios, into primary and secondary liquid assets.
Primary liquid assets that are eligible liquid assets, such as cash
and balances at central banks, treasury bills and other high quality
government and US agency bonds.
Secondary liquid assets that are eligible as collateral for local central
bank liquidity facilities but do not meet the core local regulatory
definition. These assets include own-issued securitisations or whole
loans that are retained on balance sheet and pre-positioned with a
central bank so that they may be converted into additional sources
of liquidity at very short notice.
The composition of the liquidity portfolio is subject to policies and limits

set by the Board, ALCo and the Liquidity Committee, it is influenced by
quality of counterparty, maturity mix and currency mix. The liquidity value
of the portfolio is determined with reference to current market prices and
the haircuts necessary to generate cash from the asset.
RBS efficiently manages the liquidity portfolio to optimise the risk and
rewards whilst not compromising its liquidity position. This optimisation
can lead to changes in the composition of the portfolio.
219
Liquidity risk continued

Liquidity metrics*
The table below sets out the key liquidity and related metrics monitored by RBS.
Liquidity portfolio
Stressed outflow coverage (1)
Liquidity coverage ratio (2)
Net stable funding ratio (3)
2014
2013
2012
151bn
186%
112%
121%
146bn
145%
102%
120%
147bn
128%
>100%
115%
Notes:
(1) RBS's liquidity risk appetite is measured by reference to the liquidity portfolio as a percentage of stressed contractual and behavioural outflows under the worst of three severe stress scenarios of a
market-wide stress, an idiosyncratic stress and a combination of both in RBS's ILAA. This assessment is performed in accordance with PRA guidance.
(2) In January 2013, the BCBS issued its revised final guidance for calculating liquidity coverage ratio with a proposed implementation date of 1 January 2015. Within the EU, the LCR is currently
expected to come into effect from the later date of 1 October 2015 on a phased basis, subject to the finalisation of the EU Delegated Act. Pending guidance from the PRA, RBS monitors the LCR
based on the EU Delegated Act and its internal interpretations of the expected final rules. Consequently RBSs ratio may change over time and may not be comparable with those of other financial
institutions.
(3) BCBS issued its final recommendations for the implementation of the net stable funding ratio in October 2014, proposing an implementation date of 1 January 2018. Pending further guidelines from
the EU and the PRA, RBS uses the definitions and proposals from the BCBS paper and internal interpretations, to calculate the NSFR. Consequently RBSs ratio may change over time and may not
be comparable with those of other financial institutions.
Liquidity portfolio
The table below shows RBSs liquidity portfolio by product, liquidity value and by carrying value. Liquidity value is lower than carrying value as it is
stated after discounts applied by the Bank of England and other central banks to instruments, within the secondary liquidity portfolio, eligible for
discounting.
Liquidity value
2014

Central and local government bonds
AAA rated governments
AA- to AA+ rated governments and US agencies
Below rated AA governments
Local government
UK DLG (1)
m
CFG
m
Other
m
Total
m
2013
Total
m
Average
m
2012
Total
m
Average
m
Average
m
66,409
1,368
633
68,410
61,956
74,362
80,933
70,109
81,768
Treasury bills
Primary liquidity
Secondary liquidity (2)
Total liquidity value
5,609
6,902
12,511
78,920
53,055
131,975
9,281
9,281
10,649
2,290
12,939
2,289
1,448
100
82
3,919
4,552
1,189
5,741
7,898
17,631
100
82
25,711
94,121
56,534
150,655
5,935
12,792
21
18,748
80,704
56,017
136,721
3,320
12,287
15,607
89,969
56,097
146,066
5,149
12,423
151
148
17,871
395
99,199
56,589
155,788
9,885
9,621
206
979
20,691
750
91,550
55,619
147,169
18,832
9,300
596
2,244
30,972
202
112,942
41,978
154,920
Total carrying value
167,016
13,914
6,055
186,985
184,233
187,942
The table below shows the liquidity value of the liquidity portfolio by currency.
Total liquidity portfolio
2014
2013
2012
GBP
m
93,861
100,849
84,570
USD
m
40,556
33,365
35,106
EUR
m
16,238
10,364
26,662
Other
m
1,488
831
Total
m
150,655
146,066
147,169
Notes:
(1) The PRA regulated UK Defined Liquidity Group (UK DLG) comprises RBSs five licensed deposit taking UK banks: The Royal Bank of Scotland plc, National Westminster Bank Plc, Ulster Bank
Limited, Coutts & Co and Adam & Company. In addition, certain of RBSs significant operating subsidiaries - RBS N.V., Citizens Financial Group Inc. and Ulster Bank Ireland Limited - hold liquidity
portfolios of liquid assets that comply with local regulations that may differ from PRA rules.
(2) Comprises assets eligible for discounting at the Bank of England and other central banks.
*unaudited
220
Net stable funding ratio (NSFR)*

The table below shows the composition of RBSs NSFR, based on RBSs interpretation of the rules published by BCBS in October 2014. RBSs NSFR
may change over time in line with regulatory developments and related interpretations.
2014
bn
Equity
- regulatory capital
- other equity
Wholesale funding > 1 year
Wholesale funding < 1 year
Derivative liabilities
Repurchase agreements
Deposits
- retail and SME - more stable
- retail and SME - less stable
- other
Other (2)
Cash
Inter-bank lending
Debt securities > 1 year
- governments AAA to AA- other eligible bonds
- other bonds
Debt securities < 1 year
Derivative assets
- assets equal to derivative liabilities
- excess over derivative liabilities
Customer loans and advances > 1 year
- other
Customer loans and advances < 1 year
Other (3)
Total assets
Derivative liabilities after mtm netting arrangements
Undrawn commitments
Total assets and undrawn commitments
2013
ASF/RSF (1)
bn
bn
2012
ASF/RSF (1)
bn
bn
ASF/RSF (1)
bn
Weighting
%
49
11
63
53
350
65
49
63
46
13
76
51
286
85
46
76
67
3
109
70
434
132
67
109
100
100
206
62
147
45
1,051
196
56
74
438
196
66
156
53
1,028
186
59
78
445
203
66
164
64
1,312
193
59
82
510
95
90
50
75
25
83
28
79
29
15
46
22
9
25
2
3
9
13
47
31
16
20
2
5
16
10
64
48
19
26
3
7
19
13
5
15
100
50
350
4
65
4
7
286
2
76
2
8
434
8
105
8
11
100
10
138
123
134
35
1,051
55
215
1,321
90
105
67
35
339
11
11
361
135
114
144
46
1,028
44
213
1,285
88
97
72
46
350
9
11
370
145
136
149
70
1,312
60
216
1,588
94
116
75
70
420
12
11
443
65
85
50
100
Net stable funding ratio
121%
120%
20
5
115%
Notes:
(1) Available stable funding and required stable funding.
(2) Deferred tax and other liabilities.
(3) Prepayments, accrued income, deferred tax, settlement balances and other assets.
As the NSFR calculation has been refined during 2014, some of the weightings on available stable funding and required stable funding have been
changed and prior periods restated (on the previously reported basis: 2013 -122%; 2012 - 117%).
*unaudited
221
At 31 December 2014, RBSs participation in central bank financing

operations amounted to 0.8 billion under European Central Banks
Targeted Long Term Refinancing Operations. RBS remains committed to
supporting the objectives of the Funding for Lending scheme.
Funding risk
Funding markets
RBSs primary funding source is its customer deposit base, primarily built
through its retail and commercial franchises in the UK, Ireland and the
US. These deposits form a stable base which fully funds RBSs customer
lending activities.
Analysis
Sources and uses of funding
The composition of RBSs balance sheet is a function of the broad array
of product offerings and diverse markets served by its core businesses.
The structural composition of the balance sheet is augmented as needed
through active management of both asset and liability portfolios. The
objective of these activities is to optimise the liquidity profile, while
ensuring adequate coverage of all cash requirements under extreme
stress conditions.
Complementary to its deposit funding, RBS maintains access to various

wholesale markets for funding, on both a public and private basis, across
a range of currencies, geographies and maturities. These include longterm secured and unsecured debt, short-term money markets and
repurchase agreements. RBS has set policies for the prudent use of
wholesale funding, as part of its wider liquidity policies.
RBS accesses the wholesale funding markets directly or through its main
operating subsidiaries via established funding programmes. The use of
different entities to access the market from time to time allows RBS to
further diversify its funding mix and in certain limited circumstances
demonstrate to regulators that specific operating subsidiaries enjoy
market access in their own right.
As set out below, RBSs asset and liability types broadly match.
Customer deposits provide more funding than customer loans utilise;
repurchase agreements are largely covered by reverse repurchase
agreements; interbank lending and funding largely nets off and this gap
has narrowed over the past 5 years; and derivative assets are largely
netted against derivative liabilities.
RBS may access various funding facilities offered by central banks from
time to time. The use of such facilities can be both part of a wider
strategic objective to support initiatives to help stimulate economic growth
or as part of the broader liquidity management and funding strategy.
Overall usage and repayment of available central bank facilities will fit
within the overall liquidity risk appetite and concentration limits.
Liabilities
2014
bn
Customer deposits (1)

Bank deposits (short-term only) (1)
Trading liabilities (2)
Other liabilities and equity (3)
Repurchase agreements
Term wholesale funding (1)
Funded balance sheet
Derivatives
400
13
71
95
65
57
701
350
1,051
The table below shows the sources and uses of funding.
2013
bn
407
14
67
100
85
69
742
286
1,028
Assets
2014
bn
372
13
89
64
65
94
697
354
1,051
2013
bn
373
18
93
90
76
90
740
288
1,028
Customer loans and advances (1)

Loan and advances to banks (1)
Trading assets (2)
Other assets (3)
Primary liquidity portfolio
Funded balance sheet
Derivatives
Notes:
(1) Excludes held for trading.
(2) Financial instruments classified as held-for-trading (HFT) excluding security financing transactions and derivatives.
(3) Includes non-HFT financial instruments and non financial assets/liabilities.
Key funding metrics

The table below summarises the key funding metrics.
Short-term wholesale funding (1)
Excluding
Including
derivative
derivative
collateral
collateral
bn
bn
2014
2013
2012
27.8
32.4
41.6
53.3
51.5
70.2
Total wholesale funding

Excluding
Including
derivative
derivative
collateral
collateral
bn
bn
90.5
108.1
150.4
116.0
127.2
179.0
Net inter-bank funding (2)
Deposits
bn
15.4
16.2
28.5
Loans (3)
bn
Net
inter-bank
funding
bn
(13.3)
(17.3)
(18.6)
2.1
(1.1)
9.9
Notes:
(1) Short-term wholesale funding is funding with a residual maturity of less than one year.
(2) Excludes derivative cash collateral.
(3) Primarily short-term balances.
222
Funding sources
The table below shows RBS's principal funding sources excluding repurchase agreements (repos).
By product
Deposits by banks
derivative cash collateral
other deposits
commercial paper (CP)
certificates of deposit (CDs)
medium-term notes (MTNs)
covered bonds
securitisations
Notes issued
Wholesale funding
Customer deposits
derivative cash collateral (1)
financial institution deposits
personal deposits
corporate deposits
Total customer deposits
Total funding excluding repos
Short-term
less than
1 year
m
2014
Long-term
more than
1 year
m
Short-term
less than
1 year
m
2013
Long-term
more than
1 year
m
25,503
13,137
38,640
2,294
2,294
25,503
15,431
40,934
19,086
14,553
33,639
1,690
1,690
625
1,695
7,741
1,284
10
11,355
3,274
14,629
53,269
149
29,007
5,830
5,564
40,550
19,857
60,407
62,701
625
1,844
36,748
7,114
5,574
51,905
23,131
75,036
115,970
1,583
2,212
10,385
1,853
514
16,547
1,350
17,897
51,536
13,003
46,359
185,781
159,782
404,925
458,194
1,422
6,121
2,403
9,946
72,647
13,003
47,781
191,902
162,185
414,871
530,841
7,082
44,621
183,799
167,100
402,602
454,138
Total
m
Short-term
less than
1 year
m
2012
Long-term
more than
1 year
m
19,086
16,243
35,329
28,585
18,938
47,523
9,551
9,551
28,585
28,489
57,074
65
36,779
7,188
7,240
51,272
22,662
73,934
75,624
1,583
2,277
47,164
9,041
7,754
67,819
24,012
91,831
127,160
2,873
2,605
13,019
1,038
761
20,296
2,351
22,647
70,170
391
53,584
9,101
11,220
74,296
24,951
99,247
108,798
2,873
2,996
66,603
10,139
11,981
94,592
27,302
121,894
178,968
2,265
8,115
4,687
15,067
90,691
7,082
46,886
191,914
171,787
417,669
544,829
7,949
54,793
165,137
180,082
407,961
478,131
2,253
14,335
9,443
26,031
134,829
7,949
57,046
179,472
189,525
433,992
612,960
Total
m
Total
m
Note:
(1) Cash collateral includes 12,036 million (2013 - 6,720 million; 2012 - 7,191 million) from financial institutions.
2014
By currency
Deposits by banks
commercial paper
certificates of deposit
medium-term notes
covered bonds
securitisations
Wholesale funding
% of wholesale funding
Customer deposits
Total funding excluding repos
% of total funding
GBP
m
USD
m
2013
EUR
m
Other
m
Total
m
GBP
m
USD
m
EUR
m
Other
m
Total
m
6,501
10,869
20,715
2,849
40,934
7,418
8,337
17,004
2,570
35,329
910
4,592
1,090
1,245
7,837
1,718
16,056
14%
276,039
292,095
73
747
11,292
1,895
14,007
13,360
38,236
33%
89,068
127,304
525
185
16,672
6,024
2,434
25,840
6,372
52,927
46%
39,526
92,453
27
2
4,192
4,221
1,681
8,751
7%
10,238
18,989
625
1,844
36,748
7,114
5,574
51,905
23,131
115,970
100%
414,871
530,841
4
336
6,353
984
1,897
9,574
1,857
18,849
15%
272,304
291,153
897
1,411
11,068
2,748
16,124
10,502
34,963
28%
86,727
121,690
682
476
23,218
8,057
3,109
35,542
8,984
61,530
48%
49,116
110,646
54
6,525
6,579
2,669
11,818
9%
9,522
21,340
1,583
2,277
47,164
9,041
7,754
67,819
24,012
127,160
100%
417,669
544,829
55%
24%
17%
4%
100%
54%
22%
20%
4%
100%
223
Funding risk continued

Notes issued
The table below shows RBS's debt securities in issue and subordinated liabilities by residual maturity.
Covered
MTNs
bonds Securitisations
m
m
m
Other CP
and CDs
m
2014
Less than 1 year

1-3 years
3-5 years
More than 5 years
Total
m
Subordinated
liabilities
m
Total
notes in issue
m
Total notes
in issue
%
2,320
144
5
2,469
7,741
11,954
7,103
9,950
36,748
1,284
2,229
812
2,789
7,114
10
3
5,561
5,574
11,355
14,327
7,918
18,305
51,905
3,274
906
2,663
16,288
23,131
14,629
15,233
10,581
34,593
75,036
20
20
14
46
100
3,795
61
4
3,860
10,385
14,920
6,497
15,362
47,164
1,853
3,621
867
2,700
9,041
514
7,240
7,754
16,547
18,602
7,364
25,306
67,819
1,350
3,944
4,209
14,509
24,012
17,897
22,546
11,573
39,815
91,831
19
25
13
43
100
5,478
385
1
5
5,869
13,019
20,267
13,374
19,943
66,603
1,038
2,948
2,380
3,773
10,139
761
540
10,680
11,981
20,296
24,140
15,755
34,401
94,592
2,351
7,252
756
16,943
27,302
22,647
31,392
16,511
51,344
121,894
18
26
14
42
100
2013
Less than 1 year

1-3 years
3-5 years
More than 5 years
2012
Less than 1 year

1-3 years
3-5 years
More than 5 years
Loan:deposit ratios and funding surplus/(gap)

The table below shows customer loans, deposits, loan:deposit ratios and funding surplus/(gap) by segment.
2014
Funding
surplus/(gap)
m
2013
Loan:deposit
ratio
%
Funding
surplus/(gap)
m
2012
Loan:deposit
ratio
%
Loans (1)
m
Deposits (2)
m
Loan:deposit
ratio
%
Funding
surplus/(gap)
m

Ulster Bank
Commercial Banking
Private Banking
Conduits (3)
Central items
RCR
Non-Core
Direct Line Group
127,244
22,008
149,252
85,053
16,523
101,576
72,751
613
59,606
11,003
n/a
n/a
394,801
148,658
20,561
169,219
86,830
36,105
122,935
59,402
1,583
60,550
1,182
n/a
n/a
414,871
86
107
88
98
46
83
122
39
98
nm
n/a
n/a
95
21,414
(1,447)
19,967
1,777
19,582
21,359
(13,349)
970
944
(9,821)
n/a
n/a
20,070
86
120
91
92
45
78
105
27
91
n/a
nm
n/a
94
20,013
(4,417)
15,596
7,429
20,529
27,958
(3,414)
792
4,839
n/a
(20,692)
n/a
25,079
93
130
98
91
44
77
96
3
86
n/a
nm
100
9,261
(6,683)
2,578
8,232
21,945
30,177
3,058
(2,458)
3,235
8,178
n/a
(41,846)
(881)
2,041
Of which: Personal
176,621
191,902
92
15,281
90
18,929
94
10,897
nm = not meaningful
Notes:
(1) Excludes reverse repo agreements and net of impairment provisions.
(2) Excludes repo agreements.
(3) All conduits relate to CIB and have been extracted and shown separately as they were funded by commercial paper issuance until the end of the third quarter of 2012.
Customer deposits insured through deposit guarantee schemes totalled 160 billion (2013 - 161 billion) the more material of them being Financial
Services Compensation Scheme 112 billion; US Federal Deposit Insurance Corporation 37 billion and Republic of Irelands Deposit Guarantee
Scheme 7 billion.
224
Repos
The table below analyses RBS's repos by counterparty type.
2014
m
Financial institutions
- central and other banks
- other financial institutions
Other corporate
26,525
28,703
9,354
64,582
2013
m
28,650
52,945
3,539
85,134
2012
m
44,332
86,968
1,072
132,372
RBS has access to the short-term money markets to supplement deposit and wholesale funding. RBSs reverse repos mainly within CIB are generally
used to fund repos or to cover short positions. In addition, repos are used to fund a small proportion of CIBs trading assets and by RBS Treasury as
part of the liquidity portfolio management.
The liquidity risk RBS is exposed to through security financing transactions is significantly lower than in relation to unsecured funding. RBS limits any
exposure by setting limits and monitoring any mismatch of quality, maturity or currency. The exposure is also monitored in the context of the available
liquid assets.
Firm financing*
The following table shows repos gross of IFRS offset arrangements (refer to Balance sheet analysis - Financial assets summary on page 275) by asset
quality and maturity.
Less than
1 month
bn
2014
AA- and above

Other
Total
More than
1 month
bn
Total
bn
67.2
12.2
79.4
11.6
4.4
16.0
78.8
16.6
95.4
69.5
27.6
97.1
21.6
7.1
28.7
91.1
34.7
125.8
2013
AA- and above

Other
Total
Maturity analysis
The contractual maturity of balance sheet assets and liabilities reflects the maturity transformation role banks perform, lending long-term but obtaining
funding predominantly through short-term liabilities such as customer deposits. In practice, the behavioural profiles of many liabilities exhibit greater
stability and longer maturity than the contractual maturity. This is particularly true of many types of retail and corporate deposits which, despite being
repayable on demand or at short notice, have demonstrated very stable characteristics even in periods of acute stress. In analysis to assess and
manage asset and liability maturity gaps RBS determines the expected customer behaviour through qualitative and quantitative techniques,
incorporating observed customer behaviours over long periods of time. This analysis is subject to governance through Asset and Liability Management
Committees down to a segment level.
Behavioural analysis*
Contractual maturity analysis and net behavioural funding surplus/(gap) are set out below.
2014
PBB
CPB
CIB
CFG
Other
Behavioural maturity
Net surplus/(gap)
Less than
Greater than
1 year 1-5 years
5 years
bn
bn
bn
14
11
(7)
7
(3)
22
2
20
(3)
(13)
(4)
2
4
(10)
(4)
7
(1)
(4)
Total
bn
20
21
(14)
1
(8)
20
Net surplus/(gap)
Less than
Greater than
1 year 1-5 years
5 years
bn
bn
bn
148
80
13
48
1
290
(32)
(35)
(21)
(29)
(6)
(123)
(96)
(24)
(6)
(18)
(3)
(147)
Contractual maturity
Loans to customers
Less than
Greater than
Total
1 year 1-5 years
5 years
bn
bn
bn
bn
20
21
(14)
1
(8)
20
16
42
45
10
2
115
37
36
22
31
6
132
96
24
6
19
3
148
Customer accounts
Less than
Greater than
Total
1 year 1-5 years
5 years
bn
bn
bn
bn
149
102
73
60
11
395
164
122
58
58
3
405
5
1
1
2
Total
bn
169
123
59
61
3
415
*unaudited
225

Contractual maturity
The following table shows the residual maturity of financial instruments, based on contractual date of maturity. Held-for-trading (HFT) assets and
liabilities have been excluded from the maturity analysis in view of their short-term nature and are shown in total in the table below. Hedging derivatives
are included within the relevant maturity bands.
Other than held-for-trading (HFT)
2014
Less than
1 month 1-3 months 3-6 months
m
m
m
6 months
-1 year
m
Subtotal
m
1-3 years
m
3-5 years
m
More than
5 years
m
Total
excluding
HFT
m
HFT
m
Total
m

Bank reverse repos
Customer reverse repos
Loans to banks
Loans to customers
Personal
Corporate
Debt securities
Equity shares
Settlement balances
Derivatives
Total financial assets
75,494
1,801
969
10,084
35,841
7,130
23,256
5,455
2,578
4,667
622
132,056
778
1,146
14,945
3,201
10,649
1,095
2,695
19,564
576
15,697
4,188
9,324
2,185
2,233
18,506
75,494
2,579
969
913
12,719
27,582
94,065
7,372
21,891
16,191
59,420
4,019
12,754
2,749
10,255
4,667
1,491
2,113
32,735 202,861
221
69,209
25,408
37,782
6,019
5,282
2,291
77,003
50
61,714
20,418
39,163
2,133
6,115
701
68,580
9
146,611
108,647
35,351
2,613
31,064
1,386
336
179,406
75,494
2,579
969
12,999
371,599
176,364
171,716
23,519
52,716
1,386
4,667
5,441
527,850
75,494
18,129
20,708
43,018
43,987
11,773
24,772
23,202
394,801
257
176,621
7,087
178,803
15,858
39,377
49,226
101,942
4,821
6,207
4,667
348,551
353,992
498,720 1,026,570
Bank repos
Customer repos
Deposits by banks
Customer accounts
Personal
Corporate
Settlement balances
Short positions
Derivatives
Other liabilities
Total financial liabilities
565
1,003
6,825
365,679
169,334
153,075
43,270
1,101
4,503
682
1,801
382,159
304
1,069
1,872
9,676
6,210
2,670
796
2,000
140
488
15,549
616
6,736
3,730
2,474
532
1,593
348
1,192
10,485
3,333
8,858
6,507
1,464
887
5,465
912
18,568
1,312
6,952
5,555
914
483
11,976
789
900
8
21,937
22
1,450
544
702
204
7,408
543
2,539
5
11,967
836
212
22
178
12
15,872
1,801
16,418
2
35,141
869
2,072
14,816
399,563
191,902
161,477
46,184
45,415
4,503
3,621
23,131
1,816
495,806
25,656
35,985
26,118
15,308
1,675
13,633
6,490
23,029
346,328
478,914
869
2,072
12,646
390,949
185,781
159,683
45,485
10,159
4,503
488
3,274
1,801
426,761
26,525
38,057
40,934
414,871
191,902
163,152
59,817
51,905
4,503
23,029
349,949
23,131
1,816
974,720
226
Other than held-for-trading (HFT)
2013
Less than
1 month 1-3 months 3-6 months
m
m
m

Bank reverse repos
Customer reverse repos
Loans to banks
Loans to customers
82,661
652
11,831
34,158
110
3,171
22,118
1,552
19,580
7,776
20,310
6,072
8,942
11,741
1,435
Debt securities
Equity shares
Settlement balances
Derivatives
1,608
5,591
546
Total financial assets

Bank repos
Customer repos
Deposits by banks
Customer accounts
6 months
-1 year
m
Total
excluding
HFT
m
1-3 years
m
3-5 years
m
82,661
762
443 16,997
26,424 102,280
69
72,388
13
56,249
546
142,503
82,661
762
17,625
373,420
25,795
49,897
9,952
19,170
82,661
26,557
49,897
27,577
392,590
4,141
13,175
2,264
7,108
16,970
2,346
27,967
62,196
12,117
24,008
43,207
5,173
20,107
34,227
1,915
100,664
38,746
3,093
172,746
178,376
22,298
239
5,561
13,370
172,985
183,937
35,668
954
1,787
2,324
1,282
6,673
5,591
1,828
7,425
2,148
8,782
427
34,161
1,612
129
57,041
1,612
5,591
4,532
56,582
7,199
283,508
113,623
8,811
5,591
288,040
137,047
26,353
22,919
30,473 216,792
82,030
65,471
178,951
543,244
452,103
995,347
3,045
3,059
10,676
360,031
1,297
1,125
1,882
16,093
1,382
8,567
4,342
4,184
125 14,065
9,236 393,927
1,181
82
10,140
109
2,627
1,309
739
5,523
4,184
15,565
407,433
23,127
52,300
19,764
10,236
28,650
56,484
35,329
417,669
160,261
158,138
41,632
10,370
4,458
1,265
5,562
2,369
636
7,262 183,455
1,476 166,441
498 44,031
6,789
2,690
661
1,449
728
450
20
681
38
191,713
170,540
45,180
1,809
8,427
191,713
172,349
53,607

Settlement balances
Short positions
Derivatives
Other liabilities
2,383
5,313
1
16
1,764
3,221
130
124
2,667
271
150
6,844
1,060
15,115
5,313
402
1,350
1,764
15,729
933
3,944
2
6,388
1,190
4,078
16
22,027
1,703
14,640
1
59,259
5,313
4,228
24,012
1,783
8,560
28,022
281,299
67,819
5,313
28,022
285,527
24,012
1,783
Total financial liabilities
386,288
23,872
13,037
17,265 440,462
32,011
14,408
40,419
527,300
423,308
950,608
Personal
Corporate
Financial Institutions
Personal
Corporate
Financial Institutions
Subtotal
m
More than
5 years
m
HFT
m
Total
m
227

Encumbrance
RBS reviews all assets against the criteria of being able to finance them
in a secured form (encumbrance) but certain asset types lend themselves
more readily to encumbrance. The typical characteristics that support
encumbrance are an ability to pledge those assets to another
counterparty or entity through operation of law without necessarily
requiring prior notification, homogeneity, predictable and measurable
cash flows, and a consistent and uniform underwriting and collection
process. Retail assets including residential mortgages, credit card
receivables and personal loans display many of these features.
From time to time RBS encumbers assets to serve as collateral to
support certain wholesale funding initiatives. The three principal forms of
encumbrance are own asset securitisations, covered bonds and
securities repurchase agreements.
RBS categorises its assets into three broad groups; assets that are:
Already encumbered and used to support funding currently in place

via own asset securitisations, covered bonds and securities
repurchase agreements.
Not currently encumbered but can for instance be used to access

funding from market counterparties or central bank facilities as part
of RBSs contingency funding.
Not currently encumbered. In this category, RBS has in place an

enablement programme which seeks to identify assets which are
capable of being encumbered and to identify the actions to facilitate
such encumbrance whilst not impacting customer relationships or
servicing.
RBSs balance sheet encumbrance ratios are set out below.

Encumbrance ratios
Total
Excluding balances relating to derivative transactions
Excluding balances relating to derivative and securities financing transactions
2014
%
2013
%
2012
%
13
14
11
17
19
11
18
22
13
Refer to the following page for further analysis.

Collateral (on and off-balance sheet)*
The table below summarises total on and off-balance sheet assets that are available to support funding and collateral requirements.
2014
bn
Total on-balance sheet assets

Less:
- Reverse repos and derivatives
- Other assets not available to be pledged
Total on-balance sheet assets available
Add:
- Fair value of securities received as collateral
Total assets available
Less:
- On-balance sheet assets pledged
- Securities collateral received that have been rehypothicated
Assets available to be pledged
2013
bn
1,050.8
1,027.9
(418.7)
(99.7)
532.4
(364.5)
(40.5)
622.9
100.9
633.3
124.2
747.1
(136.7)
(96.4)
(171.5)
(111.5)
400.2
464.1
*unaudited
228
Balance sheet encumbrance

Encumbered assets relating to:
2014
Cash and balances at central

banks
Loans and advances to
customers
- UK residential mortgages
- Irish residential mortgages
- US residential mortgages
- UK credit cards
- UK personal loans
- other
and stock borrowing
Debt securities
Equity shares
Settlement balances
Derivatives
Intangible assets
Deferred tax
Prepayments, accrued income
and other assets

Securitisations
Covered
and conduits
bonds
bn
bn
Encumbered
Other secured liabilities

Total
Secured encumbered
Derivatives
Repos balances (1)
assets (2)
bn
bn
bn
bn
Unencumbered
Readily realisable
(3)
Liquidity
Other (4) Cannot be (5)
portfolio
Other realisable encumbered
bn
bn
bn
bn
Total
bn
4.6
0.3
11.5
2.4
0.5
2.4
16.9
3
68
66.7
1.7
6.4
2.1
4.1
75.5
24.8
12.0
8.6
2.7
6.0
13.4
21.9
11.2
1.3
25.4
8.6
11.2
2.7
29.2
22
62
53
52
13
69.9 10.2
0.9 4.3
2.2
2.3
6.4
8.0 17.2
7.7
0.7
0.2
2.9
110.3
0.1
0.1
7.0
67.3
113.3
13.9
21.1
5.2
9.3
232.0
5.9
0.3
25.4
2.6
5.7
0.4
37.0
2.9
0.4
36
47
24.0 39.7
2.2
1.2
0.2
4.2
64.7
0.9
4.7
354.0
8.4
2.1
1.5
64.7
101.9
6.2
4.7
354.0
8.4
6.7
1.5
33.9
13.7
39.6
28.0
21.5
136.7
173.4 90.8
131.5
7.6
518.4
7.6
1,050.8
Securities retained
13.6

Liabilities secured
Intra-Group - secondary liquidity
Intra-Group - other
Third-party (6)
assets as a
% of related
assets
%
187.0
(13.1)
(11.6)
(5.6)
(7.1)
(39.6) (64.6)
(10.5)
(13.1)
(11.6)
(127.4)
(30.3)
(7.1)
(39.6) (64.6)
(10.5)
(152.1)
229

Balance sheet encumbrance
Encumbered assets relating to:
2013
Cash and balances at central

banks
Loans and advances to
customers
- UK residential mortgages
- Irish residential mortgages
- US residential mortgages
- UK credit cards
- UK personal loans
- other
and stock borrowing
Debt securities
Equity shares
Settlement balances
Derivatives
Intangible assets
Deferred tax
Prepayments, accrued income
and other assets

Securitisations Covered
and conduits
bonds
bn
bn
Encumbered
Other secured liabilities

Total
Secured encumbered
Repos
balances
assets (2)
bn
bn
bn
Derivatives
bn
assets as a Readily realisable (3)

% of related
Liquidity
Other (4)
Cannot be
assets
portfolio
Other realisable encumbered (5)
%
bn
bn
bn
bn
Total
bn
5.8
0.5
10.3
16.6
60
74.3
0.1
8.4
10.9
82.7
27.6
14.6
9.3
3.4
3.4
13.5
16.2
18.1
1.2
3.5
0.8
30.8
10.5
3.5
3.4
3.4
32.4
28
70
18
52
38
14
60.8
0.7
9.5
4.4
18.6
3.8
6.7
3.1
5.5
9.6
175.6
0.1
10.2
110.2
15.1
19.7
6.5
8.9
232.2
0.9
5.5
0.5
55.6
5.3
2.7
0.4
64.7
5.8
0.4
57
66
17.0
31.9
3.0
7.5
76.5
5.5
288.0
12.4
3.5
76.5
113.6
8.8
5.5
288.0
12.4
7.9
3.5
50.9
16.7
34.4
60.9
8.6
171.5
166.8 101.5
183.1
8.6
0.2
405.0
8.6
0.2
1,027.9
Securities retained
17.4

Liabilities secured
Intra-Group - secondary liquidity
Intra-Group - other
Third-party (6)
Unencumbered
184.2
(19.1)
(18.4)
(7.8)
(9.0)
(42.7) (85.1)
(6.0)
(19.1)
(18.4)
(150.6)
(45.3)
(9.0)
(42.7) (85.1)
(6.0)
(188.1)
Notes:
(1) Includes cash, coin and nostro balance held with the Bank of England as collateral against deposits and notes in circulation.
(2) Encumbered assets are those that have been pledged to provide security for the liability shown above and are therefore not available to secure funding or to meet other collateral needs.
(3) Unencumbered readily realisable assets are those assets on the balance sheet that can be readily used to meet funding or collateral requirements and comprise:
(a) Liquidity portfolio: cash balances at central banks, high quality debt securities and loans that have been pre-positioned with central banks. In
addition, the liquidity portfolio includes securitisations of own assets which has reduced over the years and has been replaced by loans.
(b) Other readily realisable assets: including assets that have been enabled for use with central banks; and unencumbered debt securities.
(4) Unencumbered other realisable assets are those assets on the balance sheet that are available for funding and collateral purposes but are not readily realisable in their current form. These assets
include loans that could be prepositioned with central banks but have not been subject to internal and external documentation review and diligence work.
(5) Assets that cannot be encumbered include:
(a) Derivatives, reverse repurchase agreements and trading related settlement balances.
(b) Non-financial assets such as intangibles, prepayments and deferred tax.
(c) Loans that cannot be pre-positioned with central banks based on criteria set by the central banks, including those relating to date of origination and
level of documentation.
(d) Non-recourse invoice financing balances and certain shipping loans whose terms and structure prohibit their use as collateral.
(6) In accordance with market practice, RBS employs securities recognised on the balance sheet, and securities received under reverse repo transactions as collateral for repos. Secured derivative
liabilities reflect net positions that are collateralised by balance sheet assets.
230
Credit risk
232
232
232
233
233
235
237
237
238
239
240
242
242
242
243
243
244
244
245
246
248
249
249
251
251
255
257
258
258
258
258
258
258
258
259
259
260
260
261
265
269
271
Definition
Sources of credit risk
Key developments
Risk governance
Risk management
Risk measurement
Credit risk assets
- Balance sheet to CRA bridge
- Portfolio overview
- Sector and geographical regional analyses
- Asset quality
Wholesale credit risk management
- Risk appetite frameworks
- Risk assessment
- Risk mitigation
- Problem debt management
- Restructuring
- Forbearance
- Impairments
- Sector and geographical regional analyses
- AQ10 or non-performing
- Watchlist
- Forbearance
- Key credit portfolios
- Commercial real estate
- Oil and gas
- Counterparty credit risk
Personal credit risk management
- Risk appetite
- Risk assessment
- Risk mitigation
- Problem debt management
- Collections
- Forbearance
- Recoveries
- Impairments
- Key portfolios
- Overview
- UK PBB
- Ulster Bank
- Private Banking
- CFG
231
Credit risk
Definition
Credit risk is the risk of financial loss due to the failure of a customer or
counterparty to meet its obligation to settle outstanding amounts.
Sources of credit risk
RBS is exposed to credit risk as a result of a wide range of business
activities. The most significant source of credit risk is lending. RBS offers
a number of lending products where it has an obligation to provide credit
facilities to a customer. To mitigate the risk of loss, security may be
obtained in the form of physical collateral such as commercial real estate
assets and residential property, or financial collateral such as cash or
bonds. Exposures arising from leasing activities are also included in
lending.
The second most significant source of credit risk arises from activities in
the derivatives and securities financing transaction markets. These result
in counterparty credit risk, which is the risk of financial loss arising from
the failure of a counterparty to meet obligations that vary in value by
reference to a market factor. To mitigate the risk of loss, collateral and
netting are used along with the additional legal rights provided under the
terms of over-the-counter contracts.
RBS holds some debt securities generally for liquidity management
purposes, and is exposed to credit risk as a result.
RBS is also exposed to credit risk from off-balance sheet products such
as trade finance activities and guarantees as well as through committed
but undrawn lending facilities.
Through its global activities in foreign exchange, trade finance and
payments, RBS is exposed to settlement risk.
Key developments
Credit quality and impairment - RBSs credit risk portfolio continued to
improve with an overall reduction in exposure, an improvement in credit
quality and a material provision release in 2014. These improvements
were driven by supportive economic and market conditions in the UK and
Ireland, better liquidity and increased collateral values, and also reflected
improvements in credit risk measurement. Through the credit risk
appetite frameworks the credit risk management function maintained a
continued focus on key portfolios and concentrations.
UK personal lending - The growth in UK PBB gross mortgage lending
was within credit risk appetite and against a backdrop of house price
increases over most of the year. Due to the withdrawal of products with
promotional rates in line with strategy, credit card exposure declined
during the year. Refer to Key portfolios - UK PBB on page 261.
Ulster Bank - Following the creation of RCR, exposure to personal

customers now represents 68% of the total Ulster Bank exposure. In the
personal portfolio, Ulster Banks proactive offers of forbearance to help
customers through financial difficulties saw significant uptake in the
Republic of Ireland with an increasing trend towards customers opting for
longer-term solutions (though mortgage recoveries stock remains high).
The quality of the Ulster Bank wholesale portfolio improved following the
transfer of commercial real estate (CRE) assets to RCR, with an
associated material decrease in impairments. Refer to Segment
performance - Ulster Bank on page 133.
CFG - 2014 was a year of growth in both the personal and wholesale
CFG portfolios. This was in line with business strategy to expand
personal mortgage lending and auto finance organically as well as
through acquisition. The growth in wholesale exposures has been across
a broad range of industry sectors and customer types, reflecting
improving economic conditions in the US and specific focus on areas
such as asset finance, CRE and franchise finance. Changes to strategy
or the risk appetite framework are subject to review in accordance with
CFGs and RBSs risk governance frameworks, so that risks are
understood and accepted. Refer to Segment performance - Citizens
Financial Group on page 147.
Oil prices - In the second half of 2014, oil prices reduced significantly,
driven by the growth in supply from non-OPEC producers, the return of
supply from Libya, Iran and Iraq and reduced demand expectations from
Europe and China. Exposures to this sector continue to be closely
managed through the sector concentration framework as well as ongoing
customer and sub-sector reviews, with stress testing highlighting specific
sub-sectors or customers particularly vulnerable to sustained low oil
prices. Risk appetite to the overall oil and gas sector was reduced during
the year, and action continues to mitigate exposure where possible. For
further information, refer to the Key credit portfolios section on page 255.
Russia/Ukraine - Ongoing tensions in Russia and Ukraine as well as the
imposition of sanctions, particularly in the oil and gas, defence, and
financial sectors, have adversely affected the credit risk profile of
customers who have exposure to or dealings with Russian or Ukrainian
entities. Accordingly, RBS reduced limits to customers affected by those
developments, including tightening transactional controls to mitigate
credit risk while ensuring sanctions compliance. For further information
regarding exposure to Russia, refer to the Country risk section on page
323.
Credit risk appetite - Credit risk appetite is continuously reviewed to
ensure that it remains relevant in light of changing economic conditions
and strategic objectives. Revisions were made to the sector credit risk
appetite framework to reflect the altered composition of the credit portfolio
following the creation of RCR. The asset and product class framework
was also revised to reflect changes in the portfolio together with market
developments. These included a revision of the credit risk appetite
framework relating to sponsor owned corporate transactions in order to
maintain portfolio credit quality following a weakening in terms and
conditions within the leverage market.
232
Risk governance
A strong credit risk management function is vital to support ongoing
profitability. The potential for loss is mitigated through a robust credit risk
culture and a focus on sustainable lending practices.
Operating model
The RBS credit risk management function, which is led by the Group
Chief Credit Officer (GCCO), acts as the ultimate authority for the
approval of credit and is responsible for ensuring that credit risk is within
the risk appetite set by the Board. The function is also responsible for
managing concentration risk and credit risk control frameworks as well as
developing and ensuring compliance with credit risk policies. In addition,
the function conducts RBS-wide assessments of provision adequacy.
The Executive Risk Forum (ERF) has delegated approval authority to the
Credit Risk Committee (CRC) to act on credit risk matters. These include,
but are not limited to, credit risk appetite and limits (within the overall risk
appetite set by the Board and the ERF), credit risk strategy and
frameworks, credit risk policy and the oversight of the credit profile across
RBS. There are separate CRCs for the wholesale and personal portfolios.
These are chaired by the GCCO or delegate.
The ERF has delegated approval authority to the RBS Provisions
Committee to manage provisions adequacy, both individual and
collective. The RBS Provisions Committee, which is chaired by either the
Chief Risk Officer or the GCCO, approves recommendations from lowerlevel provisions committees, which in turn have delegated approval
thresholds for certain provision adequacy decisions.
Key trends in the credit risk profile of RBSs performance against limits
and emerging risks are set out in the RBS Risk Management Monthly
Report provided to the Executive Committee, the Board Risk Committee
and the Board.
The Risk Infrastructure function provides a variety of services that enable
the credit risk management function to operate. These include reporting
of credit risk data, risk assurance, provision of credit risk models, systems
strategy and change management.
The RBS credit control and assurance framework has three key
components: credit policy; policy compliance assessment; and
independent assurance. These apply to both wholesale and personal
credit risk at both portfolio and individual customer level.
The first component is the RBS Credit Policy Standard, which is part of
the RBS Policy Framework. It sets out the rules that must be followed to
ensure that credit risks are identified and effectively managed through the
credit lifecycle.
The third component of RBS credit assurance framework is the credit

quality assurance activity carried out independently by Risk Assurance,
which is part of the Risk Infrastructure function. Risk Assurance
independently reviews lending activities to identify control breaches,
assess portfolio quality and recommend process improvements. These
findings are escalated to senior management and plans to address
shortcomings are recorded and tracked in RBSs operational risk system.
Risk Assurances credit quality assurance activities are overseen by the
Audit Committee and the results of its reviews are regularly shared with
the regulators.
In addition, controls and processes are regularly reviewed by RBSs
Internal Audit (IA) function. IA provides assurance to the Audit Committee
and senior executive that the main business risks have been identified
and that effective controls are in place to manage these risks.
Risk management*
RBS credit risk management is split into wholesale and personal,
reflecting the distinction between business types and the different risk
management approaches, metrics and issues these involve. Wholesale
focuses on activities with corporate and SME customers as well as banks
and financial institutions (these customers tend to be grouped by sector
and geography as well as by product/asset class). Personal covers
personal customers across UK PBB, Ulster Bank and CFG as well as
personal lending activities in Private Banking.
Risk appetite
Risk appetite across all risk types is set using specific quantitative targets
under stress, including earnings volatility and capital adequacy. The
credit risk appetite framework has been designed to reflect the factors
that influence the ability to meet those targets. These include product and
asset class, industry sector, single name and country concentrations. Any
of these factors could generate higher earnings volatility under stress
and, if not adequately controlled, they could undermine capital adequacy.
Tools such as stress testing and economic capital are used to measure
credit risk volatility and develop links between risk appetite targets and
the credit risk appetite framework. The frameworks are supported by a
suite of policies that set out the risk parameters within which franchises
must operate. Impairments, and associated key metrics such as loan loss
rates and provision coverage, are an integral part of standard credit risk
portfolio reviews and are presented to CRC monthly. These metrics are
also fully considered as part of the sector and product class appetite
reviews. RBS also manages its exposures to counterparty credit risk
closely, using portfolio limits and specific tools to control more volatile or
capital-intensive business areas.
For further information refer to the Wholesale credit risk management and
Personal credit risk management sub-sections.
The second component is a policy compliance assessment activity that

credit risk undertakes to provide the GCCO with evidence of the
effectiveness of credit risk management controls in place across RBS.
The results of these reviews support the self-certification that credit risk
must complete every six months.
*unaudited
233
Credit risk continued

Risk monitoring and problem debt management
A key aspect of credit risk management relates to problem debt
management, from early problem identification through to litigation and
recovery of cash when there is no realistic potential for rehabilitation.
Various tools and techniques are deployed during this part of the credit
cycle including the offering of forbearance. Practices differ across the
wholesale and personal portfolios. For further information refer to the
Wholesale credit risk management and Personal credit risk management
sub-sections.
Impairments and write-offs
Internal measures of credit risk are stated gross of impairments.
However, impairments and write-offs are used as key indicators of credit
quality as part of the overall assessment of credit risk incurred by RBS.
These are estimated as follows:
Impaired definition
A financial asset is impaired if there is objective evidence that an event or
events since initial recognition of the asset has adversely affected the
amount or timing of future cash flows from it. The loss is measured as the
difference between the carrying value of the asset and the present value
of estimated future cash flows discounted at the original effective interest
rate.
For both wholesale and personal exposures, days-past-due measures
are typically used to identify evidence of impairment. In both corporate
and personal portfolios, a period of 90 days past due is used. In
sovereign portfolios, the period used is 180 days past due. Other factors
are considered including: the borrowers financial condition; a
forbearance event; a loan restructuring; the probability of bankruptcy; or
any evidence of diminished cash flows.
Provisioning
If there is objective evidence that an impairment loss has been incurred,
the amount of the loss is measured as the difference between the asset
carrying amount and the present value of the estimated future cash flows
discounted at the financial assets original effective interest rate. The
current net realisable value of the collateral will be taken into account in
determining the need for a provision. This includes cash flows that may
result from foreclosure less the costs of obtaining and selling the
collateral, whether or not foreclosure is probable. No impairment
provision is recognised in cases where amounts due are expected to be
settled in full on realisation of the security. RBS uses one of the following
three different methods to assess the amount of provision required:
individual; collective; and latent.
Individually-assessed provisions
Loans and securities above a defined threshold deemed to be individually
significant are assessed on a case-by-case basis. Assessments of future
cash flows take into account the impact of any guarantees or collateral
held. Estimating the amount and timing of future cash flows involves
judgement based on the facts available at the time and assumptions
related to the future financial performance of the customer or
counterparty and any guarantors as well as future economic conditions
and the value of collateral. Projected cash flows are reviewed on
subsequent assessment dates as new information becomes available.
Collectively-assessed provisions
Provisions on impaired credits below an agreed threshold are assessed
on a portfolio basis, reflecting the homogeneous nature of the assets.
Such portfolios may be either wholesale or retail.
RBS segments them according to product type, such as credit cards,
personal loans and mortgages. The approach taken to assess impaired
assets in collections differs from the approach taken to assess those in
recoveries. For further details on the collections and recoveries functions
refer to the Problem debt management sub-section on page 258.
Provisions are determined based on a quantitative review of the relevant
portfolio. They take account of the level of arrears, the value of any
security, and historical and projected cash recovery trends over the
recovery period. The provisions also incorporate any adjustments that
may be deemed appropriate given current economic conditions. Such
adjustments may be determined based on a review of the latest cash
collections profile and operational processes used in managing
exposures.
Latent loss provisions
In the performing portfolio, latent loss provisions are held against losses
incurred but not identified before the balance sheet date. Latent loss
provisions reflect probability of default (PD) and loss given default (LGD)
as well as emergence periods. The emergence period is the period
between the occurrence of the impairment event and the identification
and reporting of a loan as impaired.
Emergence periods are estimated at a portfolio level and reflect the
portfolio product characteristics such as coupon period and repayment
terms, and the duration of the administrative process required to report
and identify an impaired loan as such. Emergence periods vary across
different portfolios from 120 to 270 days (365 days for forborne
exposures). They are based on actual experience within the particular
portfolio and are reviewed regularly.
RBSs personal businesses segment their performing loan books into
homogeneous portfolios such as mortgages, credit cards or unsecured
loans, to reflect their different credit characteristics. Latent provisions are
computed by applying portfolio-level LGDs, PDs and emergence periods.
The wholesale calculation is based on similar principles but there is no
segmentation into portfolios. PDs and LGDs are calculated individually.
*unaudited
Refer to pages 288 to 296 for analysis of impaired loans, related

provisions and impairments and 353 to 354 for details of accounting
policies.
234
Available-for-sale portfolios
RBS reviews its portfolios of available-for-sale financial assets for
evidence of impairment, which includes: default or delinquency in interest
or principal payments; significant financial difficulty of the issuer or
obligor; and increased likelihood that the issuer will enter bankruptcy or
other financial reorganisation. However, the disappearance of an active
market because an entitys financial instruments are no longer publicly
traded is not evidence of impairment. Furthermore, a downgrade of an
entitys credit rating is not, in itself, evidence of impairment, although it
may be evidence of impairment when considered with other available
information. A decline in the fair value of a financial asset below its cost
or amortised cost is not necessarily evidence of impairment. Determining
whether evidence of impairment exists requires the exercise of
management judgement. Unrecognised losses on RBSs available-forsale debt securities are concentrated in its portfolios of asset-backed
securities. Such losses reflect the widening of credit spreads as a result
of the reduced market liquidity in these securities and the current
uncertain macroeconomic outlook in the US and Europe. The underlying
securities remain unimpaired.
Sensitivity of impairments to assumptions
Key assumptions relating to impairment levels of secured lending relate
to the valuation of the security and collateral held, the timing of asset
disposals based on the underlying market depth and liquidity and
customer cooperation. Assumptions on timing also include an
assessment of the ease and timing of the enforceability of loan
agreements in varying legal jurisdictions. Assumptions are made on a
case by case basis in the case of individually assessed provisions and
are often based on judgement.
Key assumptions relating to impairment levels of unsecured lending
relate to economic conditions and the interest rate environment, which
have a direct impact on customers' debt servicing capabilities. For
individual impairments greater than 1 million, oversight is provided by
the Provisions Committee.
Write-offs
Impaired loans and receivables are written-off, that is, the impairment
provision is applied in writing down the loan's carrying value partially or in
full, when there is no longer any realistic prospect of recovery of part or
all of the loan. For loans that are individually assessed for impairment,
the timing of write-off is determined on a case-by-case basis. Such loans
are reviewed regularly and write-offs may be prompted by bankruptcy,
insolvency, forbearance and similar events.
Except for US personal portfolios, where the write-off of the irrecoverable
amount takes place within 60-180 days, the typical time frames from
initial impairment to write-off for collectively-assessed portfolios are:
Personal mortgages: Write-off usually occurs within five years of

default and is accelerated where accounts are closed earlier.
Credit cards: Write-off of the irrecoverable amount usually occurs at

12 months in arrears; the rest is expected to be recovered over a
further three years following which any remaining amounts
outstanding are written off.
Overdrafts and other unsecured loans: Write-off usually occurs

within six years of default.
Business loans: Write-off usually occurs within five years.
Commercial loans: Write-off generally occurs within five years but is

determined in the light of individual circumstances.
Amounts recovered after a loan has been written-off are credited to the
loan impairment charge for the period in which they are received.
Risk measurement*
Risk exposure measurement
RBS uses a range of measures for credit risk exposures. The internal
measure used, unless otherwise stated, is credit risk assets (CRA)
consisting of:
Lending exposure - measured using drawn balances and includes

cash balances at central banks and loans and advances to banks
and customers (including overdraft facilities, instalment credit and
finance leases).
Counterparty exposures - measured using the marked-to-market

value of derivatives after the effect of enforceable netting
agreements and regulator-approved models but before the effect of
collateral. Counterparty exposures include rate risk management,
which includes those arising from foreign exchange transactions,
interest rate swaps, credit default swaps and options.
Contingent obligations - measured using the value of the committed

amount and including primarily letters of credit and guarantees.
CRA exclude issuer risk (primarily debt securities) and securities

financing transactions. CRA take account of regulatory netting although,
in practice, obligations are settled under legal netting arrangements that
provide a right of legal set-off but do not meet the offset criteria under
IFRS.
Risk models
RBS uses the output of credit risk models in the credit approval process,
as well as for ongoing credit risk assessment, monitoring and reporting,
to inform credit risk appetite decisions. These models may be divided into
three categories:
Probability of default (PD)
PD models assess the probability of a customer failing its credit
obligations over a one-year period.
Wholesale models - A number of credit grading models consider risk

characteristics relevant to different customer types. These models
use a combination of quantitative inputs, such as recent financial
performance, and qualitative inputs such as management
performance or sector outlook. As part of the credit assessment
process, RBS assigns each customer an internal credit grade based
on its PD.
Personal models - Each customer account is scored and models are

used to assign a PD. Inputs vary across portfolios and include both
internal account and customer level data, as well as data from credit
bureaus. This score is used to support automated credit decisionmaking through the use of a statistically-derived scorecard.
*unaudited
235

Exposure at default (EAD)
EAD models provide estimates of credit facility utilisation at the time of a
customer default, recognising that customers may make further drawings
on unused credit facilities prior to default or that exposures may increase
due to market movements. Regulatory requirements stipulate that EAD
must always be equal to, or higher, than current utilisation. Exposure can
be reduced by a legally enforceable netting agreement.
Loss given default (LGD)
LGD models estimate the amount that cannot be recovered in the event
of customer default. When estimating LGD, RBSs models assess both
borrower and facility characteristics, as well as any credit risk mitigants.
The cost of collections and a time-discount factor for the delay in cash
recovery are also incorporated.
Changes to credit models
RBS reviews and updates models on an ongoing basis, reflecting the
impact of more recent data, changes to products and portfolios, and new
regulatory requirements. Extensive changes were made to wholesale
models in 2012 and 2013. This continued in 2014 with further changes,
notably in the corporate exposure class.
New PD models are being implemented for large corporate customers.
The roll-out will be completed by mid-2015. The updated calibrations
associated with these new models, which reference over 20 years of
rating agency default experience, may result in downwards rating
migrations across internal asset quality bands. For further information
regarding the impact of this change refer to the Asset quality section on
page 240.
Model changes affect year-on-year comparisons of risk measures in
certain disclosures. Where meaningful, in its commentary RBS has
differentiated between instances where movements in risk measures
reflect the impact of model changes, and those where such movements
reflect changes in the size of underlying credit portfolios or their credit
quality.
Economic capital
The credit economic capital model is a framework that allows for the
calculation of portfolio credit loss distributions and associated metrics
over a given risk horizon for a variety of business purposes.
The model takes into account migration risk (the risk that credit assets
will deteriorate in credit quality across multiple years), factor correlation
(the assumption that groups of obligors share a common factor) and
contagion risk (for example, the risk that the weakening of the sovereigns
credit worthiness has a significant impact on the creditworthiness of a
business operating in that country).
Risk mitigation
Risk mitigation techniques are used in the management of credit
portfolios across RBS, typically to mitigate credit concentrations in
relation to an individual customer, a borrower group or a collection of
related borrowers. Where possible, customer credit balances are netted
against obligations.
Mitigation tools applied can include: structuring a security interest in a
physical or financial asset; use of credit derivatives, including credit
default swaps, credit-linked debt instruments and securitisation
structures; and use of guarantees and similar instruments (for example,
credit insurance) from related and third parties.
When seeking to mitigate risk, at a minimum RBS considers the
following:
The suitability of the proposed risk mitigation, particularly if

restrictions apply;
The means by which legal certainty is to be established, including

required documentation, supportive legal opinions and the steps
needed to establish legal rights;
The acceptability of the methodologies to be used for initial and

subsequent valuation of collateral, the frequency of valuations and
the advance rates given;
The actions which can be taken if the value of collateral or other

mitigants is less than needed;
The risk that the value of mitigants and counterparty credit quality
may deteriorate simultaneously;
The need to manage concentration risks arising from collateral

types; and
The need to ensure that any risk mitigation remains legally effective
and enforceable.
The RBS business and credit teams are supported by specialist in-house
documentation teams. RBS uses industry-standard loan and security
documentation wherever possible. However, when non-standard
documentation is used, external lawyers are employed to review it on a
case-by-case basis. For further information refer to the Wholesale credit
risk management and Personal credit risk management sub-sections.
*unaudited
236
Credit risk assets*

Balance sheet to CRA bridge
The table below provides a bridge between balance sheet captions and the related components of credit risk assets (CRA).
2014

Loans and advances
Debt securities
Equity shares
Settlement balances
Derivatives
Other assets (7)
Total assets
Within
Balance
the scope of
sheet market risk (1)
bn
bn
74.9
64.7
357.3
86.6
5.6
4.7
353.6
103.4
1,050.8
(49.3)
(4.9)
(4.7)
(58.9)
Not within
the scope
of CRA (2)
bn
(3.8)
(64.7)
(52.6)
(1.3)
(18.5)
(140.9)
Netting
Credit
and
adjustments (3) collateral (4)
bn
bn
18.0
1.4
19.4
(33.4)
(295.3)
(328.7)
Methodology
differences
Disposal
and
groups (5) reclassifications (6)
bn
bn
0.6
62.2
15.3
0.6
0.4
(79.1)
(10.3)
8.2
(3.5)
(5.6)
CRA
bn
71.7
393.8
68.3
2.3
536.1
26.0
562.1
2013

Loans and advances
Debt securities
Equity shares
Settlement balances
Derivatives
Other assets (7)
Total assets
82.7
76.4
418.4
113.6
8.8
5.6
288.0
34.4
1,027.9
(56.7)
(7.2)
(5.6)
(69.5)
(3.9)
(76.4)
(3.0)
(56.9)
(1.6)
(25.6)
(167.4)
25.2
1.8
27.0
(28.4)
(242.8)
(271.2)
1.8
(1.8)
1.7
(9.3)
9.9
(6.0)
(3.7)
80.5
404.7
56.9
1.0
543.1
29.9
573.0
Notes:
(1) The exposures in regulatory trading book businesses are subject to market risk and are hence excluded from CRA. Refer to the Market risk section on page 298.
(2) Includes cash in ATMs and branches, reverse repurchase agreements, securities and other assets (refer to note below).
(3) Includes impairment loss provisions related to loans and advances and credit valuation adjustment on derivatives.
(4) Comprises:
- Loans and advances: cash collateral pledged with counterparties in relation to net derivative liability positions.
- Derivatives: impact of master netting arrangements.
(5) Amounts reclassified to balance sheet lines.
(6) Primarily includes:
- Loans and advances: cash management pooling arrangements not allowed under IFRS.
- Derivatives: differences between netting arrangements and regulatory model sets and balances with central counterparties after netting but before variation margin presented net on the balance
sheet.
(7) Includes intangible assets, property, plant and equipment, deferred tax, prepayments and accrued income and assets of disposal groups.
*unaudited
237

Portfolio overview
Personal
m

Ulster Bank
Commercial Banking
Private Banking
Central items
RCR
Non-Core
115,570
18,364
133,934
1,420
12,921
14,341
103
32,167
203
n/a
180,748
2014
Wholesale
m
13,952
8,501
22,453
81,576
5,584
87,160
147,368
62,858
32,031
29,447
n/a
381,317
Total
m
Total
%
129,522
26,865
156,387
82,996
18,505
101,501
147,471
62,858
64,198
29,650
n/a
562,065
23
5
28
15
3
18
26
11
12
5
n/a
100
Key points
Overall, CRA fell by 2% during 2014 (compared with an 8% fall in
2013). This is in line with the continued focus on reducing exposure
concentrations, improving overall portfolio credit quality and running
down assets in RCR.
RCR was established on 1 January 2014 and the most capital

intensive, highest-risk assets from across RBS were transferred into
it. As part of this process, certain assets which were previously
managed as Non-Core were returned to the non-RCR businesses.
Non-Core and RCR are therefore not directly comparable year on
year.
Excluding RCR, CRA in PBB and CPB represented 48% of
exposures while CIB represented 28% and CFG 12%. CPB
exposures have remained stable with a 2% increase in Commercial
Banking partially offset by a 7% reduction in Private Banking, where
the largest reduction in exposure in wholesale was in the banking
sector and the remainder of the reduction predominantly driven by
personal lending
Personal exposure grew by 2% during 2014. This was driven
predominantly by growth in UK PBBs mortgage book as well as a
rise in CFGs mortgage and auto finance exposures. For further
analysis of the personal portfolios refer to pages 258 to 273.
2013
Personal Wholesale
m
m
113,319
20,123
133,442
1,609
13,332
14,941
3
26,412
n/a
2,324
177,122
14,267
13,006
27,273
79,533
6,487
86,020
147,781
66,745
26,999
n/a
41,016
395,834
Total
m
Total
%
Personal
m
127,586
33,129
160,715
81,142
19,819
100,961
147,784
66,745
53,411
n/a
43,340
572,956
22
6
28
14
3
17
26
12
9
n/a
8
100
114,253
20,455
134,708
1,710
13,099
14,809
7
883
27,473
n/a
3,787
181,667
2012
Wholesale
m
15,082
13,777
28,859
79,283
6,814
86,097
177,810
62,280
27,563
n/a
61,433
444,042
Total
m
Total
%
129,335
34,232
163,567
80,993
19,913
100,906
177,817
63,163
55,036
n/a
65,220
625,709
21
5
26
13
3
16
29
10
9
n/a
10
100
There has been a significant increase in CFG exposure in both the

personal and wholesale portfolios, as well as across a broad range
of industry sectors, in line with business strategy and risk appetite.
Growth in personal CRA was driven by increases in auto finance
and residential mortgages, following portfolio acquisitions during the
year, partially offset by a reduction in home equity exposures,
including continued run-off in the non-performing portfolio. In
addition foreign exchange movements also affected the CFG
exposure, with 30% of the increase in CFG exposure driven by
foreign exchange movements.
The creation of RCR and run-down of assets within it has

contributed significantly to the reduction in wholesale exposure
during the year. In particular there has been a significant decrease
in wholesale exposures in Ulster Bank. Ulster Banks portfolio now
comprises 68% personal exposure, up from 61% at 2013, with the
majority of wholesale exposure to SME customers.
Central items predominantly represent RBS Treasurys exposures to

central banks in the UK and US. Central items exposure fell 6%
during the year, predominantly in the UK and Western Europe,
driven by RBSs liquidity requirements and cash positions.
At the year end, RCR accounted for 5% of total CRA (2013 NonCore - 8%) as asset disposals and run-offs continued. 50% of RCR
exposure was in the property sector as RBS continued to reduce its
concentration in this sector, in particular relating to CRE. For further
analysis of exposures in the wholesale portfolio refer to pages 242
to 257.
*unaudited
238
Sector and geographical regional analyses

The table below details CRA by business type and geographical region. Geographical region is based on the location of the customers operations (or,
in the case of individuals, location of residence).
UK
m
2014
Personal
Wholesale
of which: RCR
129,091
180,832
11,531
309,923
Western
Europe
(excl. UK)
m
16,802
76,282
12,003
93,084
North
America
m
Asia
Pacific
m
Latin
America
m
32,449
81,823
851
114,272
1,523
21,702
1,178
23,225
111
4,104
140
4,215
Other (1)
m
772
16,574
3,744
17,346
Total
m
180,748
381,317
29,447
562,065
RBS
excluding RCR
m
180,545
351,870
532,415
RCR
m
203
29,447
29,650
RBS excluding
2013
Non-Core
Personal
Wholesale
of which: Non-Core
127,620
192,360
15,895
319,980
18,751
85,539
18,152
104,290
28,616
67,493
1,832
96,109
1,418
27,271
1,793
28,689
61
4,685
197
4,746
656
18,486
3,147
19,142
177,122
395,834
41,016
572,956
174,798
354,818
529,616
Non-Core
2,324
41,016
43,340
RBS excluding
2012
Non-Core
Personal
Wholesale
of which: Non-Core
129,431
186,883
24,399
316,314
19,256
128,040
23,247
147,296
30,664
69,837
3,949
100,501
1,351
30,783
3,806
32,134
39
13,855
3,991
13,894
926
14,644
2,041
15,570
181,667
444,042
61,433
625,709
177,880
382,609
560,489
Non-Core
3,787
61,433
65,220
Note:
(1) Comprises Central and Eastern Europe, the Middle East, Central Asia and Africa, and supranationals such as the World Bank.
Key points
CRA fell in all geographic regions except North America. The
increase in North America resulted from increased exposures to
sovereigns and banks as well as increased exposure in both the
wholesale and personal portfolios in CFG. Foreign exchange
movements also contributed to the increased exposure in North
America.
There was no material change in wholesale sector distribution

during the year, with proportionate reductions observed throughout
the portfolio.
For the wholesale portfolio, sector analysis on a geographic basis

can be found on page 246. Information on personal portfolios can be
found on pages 258 to 273.
The main driver behind the wholesale reduction in the UK was

reduced exposure in central bank and CRE (down 22% and 18%
respectively).
*unaudited
239

Asset quality (AQ)
Credit grades play a key role in the internal reporting and oversight of
CRA. Customers are assigned credit grades based on various credit
grading models that reflect the key drivers of default for each customer
type. All credit grades map to both a RBS level asset quality scale, used
for external financial reporting, and a master grading scale for wholesale
exposures, used for internal management reporting across portfolios.
Accordingly, measures of risk exposure may be aggregated and reported
at differing levels of detail depending on stakeholder or business
requirements. Performing loans are defined as AQ1-AQ9 (where the PD
is less than 100%) and non-performing loans as AQ10 (where the PD is
100%).
Exposures are allocated to asset quality bands on the basis of statistically

driven models, which produce estimates of default rates. The variables
included in the models vary by product and geography. For portfolios
secured on residential property, these models typically include measures
of delinquency and loan-to-value as well as other differentiating
characteristics such as product features or account performance
information.
The table below shows CRA by asset quality band.
Wholesale
AQ band
Probability of default range
Personal
m
Of which RCR
m
Total
m
Total
%
Wholesale
excluding RCR
%
2014
AQ1
AQ2
AQ3
AQ4
AQ5
AQ6
AQ7
AQ8
AQ9
AQ10
Other (1)
0% - 0.034%
0.034% - 0.048%
0.048% - 0.095%
0.095% - 0.381%
0.381% - 1.076%
1.076% - 2.153%
2.153% - 6.089%
6.089% - 17.222%
17.222% - 100%
100%
5,369
760
5,502
84,613
34,644
13,607
6,174
3,799
3,660
8,424
14,196
180,748
115,755
23,337
35,059
67,569
49,393
27,015
18,527
4,785
1,729
21,636
16,512
381,317
121,124
24,097
40,561
152,182
84,037
40,622
24,701
8,584
5,389
30,060
30,708
562,065
22
4
7
27
15
7
4
2
1
5
6
100
0% - 0.034%
0.034% - 0.048%
0.048% - 0.095%
0.095% - 0.381%
0.381% - 1.076%
1.076% - 2.153%
2.153% - 6.089%
6.089% - 17.222%
17.222% - 100%
100%
5,714
2,583
3,324
63,197
39,409
16,417
13,687
4,440
4,001
8,966
15,384
177,122
126,802
21,844
38,701
56,798
40,852
31,197
19,877
5,951
3,511
33,591
16,710
395,834
3,315
1,414
627
4,481
2,306
2,972
1,937
846
720
20,513
1,885
41,016
32
6
10
18
14
7
5
1
2
5
100
Total
excluding
Non-Core
Of which
Non-Core
2013
AQ1
AQ2
AQ3
AQ4
AQ5
AQ6
AQ7
AQ8
AQ9
AQ10
Other (1)
1,415
345
1,344
3,200
1,123
2,089
1,822
1,397
566
15,917
229
29,447
132,516
24,427
42,025
119,995
80,261
47,614
33,564
10,391
7,512
42,557
32,094
572,956
23
4
7
21
14
8
6
2
1
8
6
100
24
4
8
22
15
8
6
2
1
4
6
100
*unaudited
240
2012
Wholesale
AQ band
AQ1
AQ2
AQ3
AQ4
AQ5
AQ6
AQ7
AQ8
AQ9
AQ10
Other (1)
0% - 0.034%
0.034% - 0.048%
0.048% - 0.095%
0.095% - 0.381%
0.381% - 1.076%
1.076% - 2.153%
2.153% - 6.089%
6.089% - 17.222%
17.222% - 100%
100%
Personal
m
8,126
1,568
3,382
57,672
44,907
14,888
14,271
6,134
4,810
9,419
16,490
181,667
131,074
26,007
42,582
61,355
54,811
36,445
23,993
8,113
6,112
34,988
18,562
444,042
Of which
Non-Core
m
7,069
2,238
1,875
5,499
6,785
5,129
5,284
1,052
1,989
22,603
1,910
61,433
Total
m
139,200
27,575
45,964
119,027
99,718
51,333
38,264
14,247
10,922
44,407
35,052
625,709
Total
%
Total
excluding
Non-Core
%
22
5
7
19
16
8
6
2
2
7
6
100
24
4
8
20
16
8
6
2
2
4
6
100
Note:
(1) Largely comprises assets covered by the standardised approach, for which a probability of default equivalent to those assigned to assets covered by the internal ratings based approach is not
available.
Key points
The proportion of exposure in the AQ10 band fell to 5% of the total
portfolio, driven by the disposal strategy in RCR and the improving
economic climate which also drove lower impairments during the
year.
Overall asset quality for performing assets improved year-on-year

with AQ1-AQ4 increasing overall by 6%. AQ1-AQ4 represented 60%
of the portfolio at the year end (2013 - 55%).
In addition to driving provision releases on individual cases, the

improvement in credit quality had a positive impact on the underlying
risk metrics (PD and LGD) used in collective and latent provisioning.
The reduction in the proportion of non-RCR exposures in the AQ1

band reflected the reduction in exposure to sovereigns, as well as
changes to the large corporate grading models. The updated
calibrations associated with these new models resulted in rating
migrations from higher to lower quality AQ bands, mostly in bands
AQ1-AQ5 (those associated with lower risk exposures). At 31
December 2014, 14% of RBSs exposure was graded using these
models and 64% had been re-rated using the revised models.
Approximately 40% of re-rated large corporate customers retained
their existing AQ band, with 40% moving down one AQ band and
15% moving down two AQ bands.
The increase in AQ4 was caused by the recalibration of models for

UK personal mortgages to reflect continued improvements in
observed default rates and the implementation of the large corporate
grading model.
*unaudited
241

Wholesale credit risk management
Wholesale credit risk management focuses on the credit risks arising
from activities with corporate and SME clients as well as banks, other
financial institutions and sovereigns.
Risk appetite frameworks*
Four formal frameworks are used to manage wholesale credit
concentration risk. RBS continually reassesses its frameworks to ensure
they remain appropriate for its varied business franchises and current
economic conditions as well as to reflect further refinements in RBSs risk
measurement models.
The sector concentration framework was revised in 2014. Previously,

sectors were classified according to size. Under the revised sector
framework, sectors are classified according to their risk (based on EC
and various qualitative factors) as well as size. This classification drives
the level of oversight and frequency of sector reviews. Reviews may
include an assessment of business strategy, credit risk profile, key risks
and mitigants, the current and expected future external environment,
vulnerability to stress events, regulatory developments and economic
capital usage to derive a proposed risk appetite along with transaction
acceptance standards.
Single name concentration

A single name concentration (SNC) framework addresses the risk of
outsized loss arising from a concentration of credit risk to a single
borrower or borrower group. The framework includes elevated approval
authority, additional reporting and monitoring, and the requirement for
plans to address exposures in excess of appetite.
As a result of the reviews carried out in 2014, RBS further reduced its risk
appetite in its most material corporate sector, CRE, as well as a number
of other corporate sectors such as retail, leisure and oil and gas. This
was in addition to the reduction of RCR exposures. For further details on
sector-specific strategies, exposure reduction and key credit risks, refer
to pages 251 to 273.
SNC excesses are reviewed on a gross basis as well as on a net basis

after taking mitigation into account. All net excesses are managed
through an approved, customer specific, exposure management plan. To
reduce its SNC exposures, RBS may decide to sell excess amounts or
rely on mitigation. To be considered effective under the framework,
mitigation must be eligible. Examples of eligible credit risk mitigants
include cash collateral, government or bank guarantees, credit default
swaps or trade insurance. Eligible credit risk mitigants must also be
structurally effective, legally certain, enforceable and characterised by an
appropriate maturity profile.
Product and asset class concentration framework

Product and asset class concentration risk is the risk of an outsized loss
arising from a concentration in certain products or asset classes. The
product and asset class framework monitors specific credit risk types
such as settlement or wrong-way risk and products such as long-dated
derivatives or securitisations. These product and asset classes may
require specific policies and expertise as well as tailored monitoring and
reporting measures. In some cases specific limits and thresholds are
deployed to ensure that the credit risk inherent in these lines of business
and products is adequately controlled. Exposures are reviewed regularly
in accordance with the product and asset class concentration framework.
The reviews consider the risks inherent in each product or asset class,
the risk controls applied, monitoring and reporting of the risk, the client
base, and any emerging risks to ensure risk appetite remains
appropriate.
Aggregate SNC exposures remain outside of RBSs longer-term appetite.

However, material reductions have been achieved since the framework
was introduced. This trend continued during the year, with a 52%
decrease in the number of excesses. The top ten SNC excesses
comprise 95% of RBSs total SNC excesses. Total SNC exposure was
reduced by 43%.
Sector concentration
Sector concentration risk is the risk of an outsized loss arising from a
concentration of credit risk to customers in the same sector or across
sectors that are susceptible to similar stress events. The sector
concentration framework enables RBS to manage this risk and acts as
one of the primary mechanisms for cascading the board-approved risk
appetite to business franchises. It also details the controls for managing
and reporting credit exposure to industry sectors.
Country concentration
The country concentration framework is described in the Country risk
section on pages 323 to 329.
Risk assessment
The credit risk function assesses, approves and manages the credit risk
associated with a borrower or group of related borrowers.
The Group Chief Credit Officer has established a framework of individual
delegated authorities, which are set out in the RBS Credit Risk Policy.
The framework requires at least two individuals to approve each credit
decision, one from the business and one from the credit risk function.
Both must hold appropriate delegated authority, which is dependent on
their experience and expertise. Only a small number of senior executives
hold the highest authority provided under the framework. While both
parties are accountable for the quality of each decision taken, the credit
risk approver holds ultimate sanctioning authority.
*unaudited
242
Assessments of credit risk must, at a minimum, specifically address the

following elements:
The amount, terms, tenor, structure, conditions, purpose and

appropriateness of all credit facilities;
Compliance with applicable RBS-wide and/or franchise-level credit

policies;
The customers ability to meet obligations, based on an analysis of

financial information and a review of payment and covenant
compliance history;
The source of repayment and the customers risk profile, including

its sector and sensitivity to economic and market developments, and
any credit risk mitigation;
Refinancing risk - the risk of loss arising from the failure of a

customer to settle an obligation on expiry of a facility through the
drawdown of another credit facility provided by RBS or by another
lender;
Consideration of other risks such as environmental, social and

ethical, regulatory and reputational risks; and
The portfolio impact of the transaction, including the impact on any

credit risk concentration limits or agreed business franchise risk
appetite.
At a minimum, credit relationships are reviewed and re-approved

annually. The renewal process addresses borrower performance,
including reconfirmation or adjustment of risk parameter estimates; the
adequacy of security; compliance with terms and conditions; and
refinancing risk.
Risk mitigation
RBS mitigates credit risk through the use of netting, collateral and the use
of market standard documentation.
The types of collateral RBS takes to mitigate the credit risk arising from
wholesale lending varies according to the nature of the counterparty and
its assets. The most common types are:
Commercial real estate - Refer to CRE section on page 251.
Other physical assets - These may include stock, plant, equipment,

machinery, vehicles, ships and aircraft. Such assets are suitable
collateral only if RBS can identify, locate, and segregate them from
other assets on which it does not have a claim. RBS values physical
assets in a variety of different ways, depending on the type of asset
concerned and may rely on balance sheet valuations in certain
cases.
Receivables - These are amounts owed to RBSs counterparties by

their own customers. RBS values them after taking into account the
quality of its counterpartys receivable management processes and
excluding any that are past due.
Financial collateral - Refer to Counterparty credit risk section on

page 257.
All collateral is assessed case-by-case to ensure that it will retain its

value independently of the provider. RBS monitors the value of the
collateral and, if there is a shortfall, will seek additional collateral.
Problem debt management
Early problem identification
Each segment has defined early warning indicators (EWIs) to identify
customers experiencing financial difficulty, and to increase monitoring if
needed. EWIs may be internal, such as a customers bank account
activity, or external, such as a publicly-listed customers share price. If
EWIs show a customer is experiencing potential or actual difficulty, credit
officers within the business franchise may decide to place the customer
on the Watchlist.
Watchlist*
For customers not managed in RCR, there are three Watch
classifications - Amber, Red and Black - reflecting progressively
deteriorating conditions. Watch Amber customers are performing
customers who show early signs of potential financial difficulty, or have
other characteristics that warrant closer monitoring. Watch Red
customers are performing customers who show signs of declining
creditworthiness and so require active management usually by
Restructuring (formerly known as Global Restructuring Group). The
Watch Black portfolio includes AQ10 exposures.
Once on the Watchlist, depending on the severity of the financial difficulty
and the size of the exposure, the customer relationship strategy is
reassessed by credit officers, by specialist credit risk or relationship
management units in the relevant business or by Restructuring. In
accordance with RBS-wide policies, a number of mandatory actions are
taken, including a review of the customers credit grade and facility and
security documentation.
In more material cases, a forum of experienced credit, portfolio
management and remedial management specialists in either the relevant
business or Restructuring may reassess the customer relationship
strategy.
Appropriate corrective action is taken when circumstances emerge that
may affect the customers ability to service its debt. Such circumstances
include deteriorating trading performance, imminent breach of covenant,
challenging macroeconomic conditions, a late payment or the expectation
of a missed payment.
For all Watch Red cases, credit specialists in the relevant business are
required to consult with their counterparts in Restructuring on whether the
relationship should be transferred to Restructuring (for more information
on Restructuring, refer to the section below). Watch Red customers that
continue to be managed by the business tend to be those requiring
subject matter expertise that is available in the business rather than in
Restructuring.
*unaudited
243

Remediation strategies available in the business include granting a
customer various types of concessions. Any decision to approve a
concession will be a function of specific country and sector appetite, the
credit quality of the customer, the market environment and the loan
structure and security. For further information, refer to the Forbearance
section below.
Other potential outcomes of the relationship review are to: take the
customer off the Watchlist; offer additional lending and continue
monitoring; transfer the relationship to Restructuring if appropriate; or exit
the relationship altogether.
Customers managed in RCR are by their nature subject to heightened
scrutiny and regular review against specific disposal plans. RCR
customers are separately identified in RBSs internal Watchlist reporting,
with their Watchlist classification based on asset quality.
Restructuring
Separately to the Credit Risk management function, the Restructuring
team manages RBSs wholesale problem debt portfolio in cases where its
exposure to the customer exceeds 1 million. In addition, Restructuring
has a specialist credit function, the Strategy Management Unit, for
distressed bilateral lending where the exposure is between 250,000 and
1 million.
The factor common to all customers managed by Restructuring is that
RBSs exposure is outside risk appetite. The primary function of
Restructuring is to restore customers to an acceptable credit profile,
minimise losses to RBS and protect RBSs capital.
Specialists in Restructuring work with customers experiencing financial
difficulties, and showing signs of financial stress, with the aim of restoring
their business to financial health whenever possible. The objective is to
find a mutually acceptable solution, including repayment, refinancing or
transfer to another bank if that is the customers preferred option.
The specialists conduct a detailed assessment of the viability of the
business, as well as the ability of management to deal with the causes of
financial difficulty, focusing on both financial and operational issues.
Following the assessment, various options are discussed with the
customer (which may involve debt restructuring or forbearance or both)
and bespoke solutions are developed.
If the customers finances are not viable and a mutually agreed exit is not
possible, insolvency may be considered as a last resort. However,
helping the customer return to financial health and restoring a normal
banking relationship is always the desired goal.
Forbearance
Definition
Forbearance takes place when a concession is made on the contractual
terms of a loan in response to a customers financial difficulties.
Concessions granted where there is no evidence of financial difficulty, or
where any changes to terms and conditions are within usual risk appetite
(for a new customer), or reflect improving credit market conditions for the
customer, are not considered forbearance.
A number of options are available. These are tailored to the customers
individual circumstances. The aim is to restore the customer to financial
health and to minimise risk to RBS. To ensure that forbearance is
appropriate for the needs and financial profile of the customer, RBS
applies minimum standards when assessing, recording, monitoring and
reporting forbearance.
Types of wholesale forbearance
Wholesale forbearance may involve the following types of concessions:
Payment concessions and loan rescheduling, including extensions in
contractual maturity, may be granted to improve the customers liquidity.
Concessions may also be granted on the expectation that the customers
liquidity will recover when market conditions improve. In addition, they
may be granted if the customer will benefit from access to alternative
sources of liquidity, such as an issue of equity capital. These options
have been used in CRE transactions, particularly during periods where a
shortage of market liquidity has ruled out immediate refinancing and
made short-term collateral sales unattractive.
Debt may be forgiven, or exchanged for equity, where the customers
business condition or economic environment is such that it cannot meet
obligations and where other forms of forbearance are unlikely to succeed.
Debt forgiveness can be used for stressed corporate transactions and
are typically structured on the basis of projected cash flows from
operational activities, rather than underlying tangible asset values.
Provided that the underlying business model, strategy and debt level are
viable, maintaining the business as a going concern is the preferred
option, rather than realising the value of the underlying assets.
The contractual margin may be amended to bolster the customers dayto-day liquidity to help sustain its business as a going concern. This
would normally be a short-term solution. As set out above, RBS would
seek to obtain a return commensurate to the risk that it is required to take
and this can be structured as set out above.
A temporary covenant waiver, a recalibration of covenants or a covenant
amendment may be used to cure a potential or actual covenant breach.
In return for this relief, RBS would seek to obtain a return commensurate
with the risk that it is required to take. The increased return for the
increased risk can be structured flexibly to take into account the
customers circumstances. For example it may be structured as either
increased margin on a cash or payment in kind basis, deferred return
instruments or both. While RBS considers these types of concessions
qualitatively different from other forms of forbearance, they constitute a
significant proportion of wholesale forborne loans and are therefore
included in these forbearance disclosures.
244
Loans may be forborne more than once, generally where a temporary

concession has been granted and circumstances warrant another
temporary or permanent revision of the loans terms. All customers are
assigned a PD and related facilities a LGD. These are re-assessed prior
to finalising any forbearance arrangement in light of the loans amended
terms and any revised grading is incorporated in the calculation of the
impairment loss provisions for RBSs wholesale exposures. Where
forbearance is no longer viable, RBS will consider other options such as
the enforcement of security, insolvency proceedings or both.
The ultimate outcome of a forbearance strategy is unknown at the time of
execution. It is highly dependent on the cooperation of the borrower and
the continued existence of a viable business. The following are generally
considered to be options of last resort:
Enforcement of security or otherwise taking control of assets Where RBS holds collateral or other security interest and is entitled
to enforce its rights, it may enforce its security or otherwise take
control of the assets. The preferred strategy is to consider other
possible options prior to exercising these rights.
Insolvency - Where there is no suitable forbearance option or the
business is no longer sustainable, insolvency will be considered.
Insolvency may be the only option that ensures that the assets of
the business are properly and efficiently distributed to relevant
creditors.
Impairments for forbearance

Wholesale loans granted forbearance are individually assessed in most
cases and are not therefore segregated into a separate risk pool.
Forbearance may result in the value of the outstanding debt exceeding
the present value of the estimated future cash flows. This may result in
the recognition of an impairment loss or a write-off.
Provisions for forborne wholesale loans are assessed in accordance with
normal provisioning policies. The customers financial position and
prospects as well as the likely effect of the forbearance, including any
concessions granted, are considered in order to establish whether an
impairment provision is required.
All wholesale customers are assigned a PD and related facilities a LGD.

These are re-assessed prior to finalising any forbearance arrangement in
light of the loans amended terms and any revised grading incorporated in
the calculation of the impairment loss provisions for RBSs wholesale
exposures.
For performing loans, credit metrics are an integral part of the latent
provision methodology and therefore the impact of covenant concessions
will be reflected in the latent provision. For non-performing loans,
covenant concessions will be considered in determining the overall
provision for these loans.
In the case of non-performing forborne loans, the loan impairment
provision assessment almost invariably takes place prior to forbearance
being granted. The amount of the loan impairment provision may change
once the terms of the forbearance are known, resulting in an additional
provision charge or a release of the provision in the period the
forbearance is granted.
The transfer of wholesale loans subject to forbearance from impaired to
performing status follows assessment by relationship managers and the
Credit Risk function in Restructuring. When no further losses are
anticipated and the customer is expected to meet the loans revised
terms, any provision is written-off and the balance of the loan returned to
performing status. This course of action is not dependent on a specified
time period and follows the credit risk managers assessment that it is
appropriate.
Impairments
Impairments in the wholesale portfolio decreased compared with 2013.
This reflected a better economic environment as well as improvements in
asset values in core markets.
There was a significant amount of credit impairment release during 2014,
in particular in RCR where the favourable environment and efficient deal
execution supported the disposal strategy. Improved market appetite and
greater liquidity was demonstrated, particularly in Ireland, where assets
have been realised more quickly and at better prices, than previously
anticipated.
Lower customer defaults in the business and commercial elements of
PBB and CPB resulted in modest new impairments in the wholesale
portfolio. The majority of provisions in the wholesale portfolio relate to
CRE. For further analysis of the provisions in the CRE portfolio refer to
page 251.
245

Sector and geographical regional analyses*
The table below details CRA by sector and geographical region for the wholesale portfolio. Sectors are based on RBSs sector concentration framework.
Geographical region is based on the location of the customers operations (or, in the case of individuals, location of residence).
2014
Banks
Other financial institutions
Sovereign (2)
Property
Natural resources
Manufacturing
Transport (3)
Retail and leisure
Telecoms, media and technology
Business services
UK
m
3,131
24,430
45,308
44,401
7,825
10,094
10,750
15,539
3,099
16,255
180,832
Western
Europe
(excl. UK)
m
North
America
m
Asia
Pacific
m
Latin
America
m
26,520
10,635
6,854
11,858
4,030
4,812
4,206
3,221
1,964
2,182
76,282
4,106
9,261
27,162
6,846
7,070
7,216
4,251
5,736
3,923
6,252
81,823
5,599
3,312
2,049
1,035
3,322
2,332
1,583
694
1,245
531
21,702
700
1,329
22
254
228
62
233
47
5
1,224
4,104
Other (1)
m
1,511
955
969
587
2,135
922
8,471
447
273
304
16,574
Total
m
41,567
49,922
82,364
64,981
24,610
25,438
29,494
25,684
10,509
26,748
381,317
RBS
excluding RCR
m
39,687
48,216
81,828
50,160
21,700
24,893
25,590
23,856
10,219
25,721
351,870
RCR
m
1,880
1,706
536
14,821
2,910
545
3,904
1,828
290
1,027
29,447
RBS excluding
2013
Banks
Sovereign (2)
Property
Natural resources
Manufacturing
Transport (3)
Retail and leisure
Business services
Non-Core
2,506
23,080
55,041
49,639
6,698
8,843
10,332
16,338
3,356
16,527
192,360
25,085
10,363
8,685
18,673
4,587
4,962
3,936
3,924
2,591
2,733
85,539
3,133
9,164
18,203
6,206
6,189
6,208
3,959
4,977
3,401
6,053
67,493
9,670
2,633
3,394
929
3,669
2,278
1,800
738
1,403
757
27,271
1,192
1,320
37
286
214
120
163
91
29
1,233
4,685
1,771
1,100
687
795
2,087
1,397
9,435
517
491
206
18,486
43,357
47,660
86,047
76,528
23,444
23,808
29,625
26,585
11,271
27,509
395,834
43,010
43,849
84,726
53,569
21,412
23,276
24,086
24,562
9,810
26,518
354,818
Non-Core
347
3,811
1,321
22,959
2,032
532
5,539
2,023
1,461
991
41,016
RBS excluding
2012
Banks
Sovereign (2)
Property
Natural resources
Manufacturing
Transport (3)
Retail and leisure
Business services
Non-Core
5,023
20,997
38,870
54,831
6,103
9,656
12,298
17,229
4,787
17,089
186,883
36,573
13,398
26,002
23,220
5,911
5,587
5,394
5,200
3,572
3,183
128,040
6,421
10,189
14,265
7,051
6,758
6,246
4,722
4,998
3,188
5,999
69,837
8,837
2,924
2,887
1,149
4,129
2,369
5,065
1,103
1,739
581
30,783
1,435
4,660
64
2,979
690
572
2,278
270
127
780
13,855
2,711
789
1,195
1,280
1,500
1,213
4,798
658
346
154
14,644
61,000
52,957
83,283
90,510
25,091
25,643
34,555
29,458
13,759
27,786
444,042
60,609
47,425
81,636
56,566
21,877
24,315
26,973
26,203
10,815
26,190
382,609
Non-Core
391
5,532
1,647
33,944
3,214
1,328
7,582
3,255
2,944
1,596
61,433
Notes:
(1) Comprises Central and Eastern Europe, the Middle East, Central Asia and Africa, and supranationals such as the World Bank.
(2) Includes cash held at central banks.
(3) Excludes net investment in operating leases in shipping and aviation portfolios as they are accounted for as property, plant and equipment. However, operating leases are included in the monitoring
and management of these portfolios.
*unaudited
246
Key points*
The revised RBS strategy and the creation of RCR as well as the general
economic environment had a direct impact on the portfolios during the
year, with the following key trends observed:
The banking sector was one of the largest in the portfolio with
exposure totalling 41.6 billion. Exposures were well diversified
geographically and limits are controlled through a combination of the
single name concentration framework, credit policies and country
limits. Overall exposure did not change materially, with the decrease
in Asia Pacific (largely driven by a reduction in lending in China)
partially offset by increases in North America, Western Europe and
the UK. Derivatives continued to generate the largest exposure for
banks (70% of credit risk assets in the banks sector).
Exposures to a range of financial companies, the largest of which

were funds (26% - 25% in 2013), securitisation vehicles (19% - 22%
in 2013), finance companies (17% - 14% in 2013) and financial
intermediaries (16% - unchanged from 2013) including broker
dealers and central counterparties (CCPs). The non-RCR other
financial institutions exposure increased by 10% in 2014 driven by
increased exposures to securitisation vehicles and finance
companies. Product-based sub-limits were in place to ensure that
exposure remained within appetite.
At the year end, the total exposure to CCPs was 5.4 billion (2013 4.1 billion) as regulatory initiatives encouraged the wider use of
CCPs for clearing over-the-counter derivatives.
The sovereign portfolio comprised exposures to central banks,

central governments and sub-sovereigns such as local authorities,
primarily in the UK, US and Western Europe. Exposures to central
banks were 75.3 billion at the year end, a reduction of 6% from
2013 driven by fluctuations in RBS Treasury activities.
Property
The majority of property exposure was CRE related in Ireland and
the UK (refer to the CRE section on page 251 for further details).
The remainder comprised lending to construction companies and
building materials groups, which decreased by 5% (following a 15%
reduction in 2013), and housing associations, which increased by
14% (2013 - 12%) and contributed to an improvement in the credit
quality of the property portfolio. 23% of total property exposure was
in RCR and the run-down of RCR property exposure contributed
significantly to the improvement of portfolio asset quality. The CIB
and CPB franchises accounted for 75% of total non-RCR property
exposure. Property exposures in Ireland (including RCR)
represented 12% of property CRA (down from 15% in 2013).
*unaudited
Shipping
RBSs exposure to the shipping sector, which is mostly within RCR
and CIB, declined 9% during the year, from 11.4 billion to 10.4
billion. The reduction was a result of scheduled loan repayments,
secondary sales (RCR) and prepayments.
Of the total exposure to the shipping sector, 7.9 billion (2013 - 8.6
billion) related to asset-backed ocean-going vessels. 5.7 billion of
the asset-backed ocean-going vessel exposures were in CIB.
The main concentration risks were the bulk sector which

represented 38% of the portfolio; tankers at 29% and containers at
17%. The remaining exposures comprised gas, including liquid
petroleum gas (10%) and others (6%).
Conditions remained generally subdued during 2014. There has

been a recent upturn in rates for tankers due to the fall in oil prices
but difficulties remained for containers due to over supply. The
majority of RBSs exposure is extended against security in vessels
of recent build (average age across the portfolio of 6.4 years
including RCR) with less than 3% of the CIB book being above 15
years of age. 87% of the portfolio was below 10 years.
A key protection for RBS is the minimum security covenant. The

overall loan-to-value (LTV) on the portfolio was 77% .The LTV for
the RCR portfolio was 92% and for the remaining portfolio was 73%.
In the CIB portfolio, approximately 20% of the portfolio had LTVs
above 100%.
Oil and gas

Within natural resources, RBS had 10.7 billion of CRA in exposure
to the oil and gas sector. CRA increased by 5% (528 million) during
2014. Further disclosures regarding exposure to this sector are
detailed on page 256.
Other corporate sectors
Exposure to the manufacturing sector increased by 7% driven
predominantly by increases in the industrials and agriculture subsectors which increased by 10% and 9% respectively during the
year.
The reduction in exposure to the retail and leisure sector was in line
with selective risk appetite. The reductions were predominantly in
relation to Ulster Bank and CIB exposure, partially offset by modest
growth in CFG in line with business strategy. The CPB retail and
leisure portfolio was stable compared to last year.
Exposure in the telecoms, media and technology sector fell by 7%

during the year mostly driven by a 22% reduction in telecoms.
Exposure in healthcare was 8.9 billion at the year end (2013 - 9.5
billion) with the exposure heavily biased towards the UK, which
represented 69% of the exposure (70% in 2013).
247

AQ10 or non-performing*
2014
2013
AQ10
AQ10 CRA by sector

Banks
Sovereign (1)
Property
Natural resources
Manufacturing
Transport (2)
Retail and leisure
Telecoms, media and
technology
Business services
RBS
excluding
RCR
m
RCR
m
2012
AQ10
Total
m
Sector
assets
%
RBS
excluding
Non-Core
m
Non-Core
m
AQ10
Total
m
Sector
assets
%
RBS
excluding
Non-Core
m
Non-Core
m
Total
m
Sector
assets
%
41
173
1
2,860
151
366
268
973
87
336
11,885
112
330
1,139
1,355
128
509
1
14,745
263
696
1,407
2,328
0.3
1.0
22.7
1.1
2.7
4.8
9.1
76
339
1
6,908
329
697
1,261
1,820
203
17,438
81
156
553
1,166
76
542
1
24,346
410
853
1,814
2,986
0.2
1.1
31.8
1.7
3.6
6.1
11.2
146
402
2
6,424
115
706
1,082
1,983
472
19,325
134
326
572
986
146
874
2
25,749
249
1,032
1,654
2,969
0.2
1.7
28.4
1.0
4.0
4.8
10.1
123
763
5,719
81
592
15,917
204
1,355
21,636
1.9
5.1
5.7
226
1,421
13,078
618
298
20,513
844
1,719
33,591
7.5
6.2
8.5
199
1,326
12,385
447
341
22,603
646
1,667
34,988
4.7
6.0
8.0
Notes:
(1) Includes cash held at central banks.
(2) Excludes net investment in operating leases in shipping and aviation portfolios as they are accounted for as property, plant and equipment. However, operating leases are included in the monitoring
and management of these portfolios.
Key points
The proportion of the wholesale portfolio rated AQ10 fell significantly
during the year. This was driven by asset disposals as well as writeoffs.
Trends in the wholesale non-performing credit risk exposures in

2014 were predominantly driven by the RCR portfolio which
accounted for 74% of the AQ10 CRA.
Excluding RCR less than 2% of wholesale exposure was rated
AQ10.
Property and in particular CRE continued to be the largest sector in

wholesale non-performing assets - 68% of total AQ10 exposure
(2013 - 73%).
Shipping represented 3.7% of wholesale non-performing assets,

largely unchanged from 2013.
Wholesale non-performing assets originated in Ulster Bank

(including RCR) decreased by 32%, representing 56% of total
Wholesale non-performing assets (2013 - 53%).
*unaudited
248
Watchlist*
At 31 December 2014, exposures to customers reported as Watchlist Red and managed by Restructuring were 2.9 billion (2013 - 12.7 billion) and
those managed in the business were 1.1 billion (2013 - 3.2 billion).
The following table shows a sector breakdown of Watchlist Red customers managed by Restructuring.
Watchlist Red CRA by current exposure

Property
Transport
Retail and leisure
Services
Other
Total
2014
Total
excluding
RCR
m
RBS
excluding
Non-Core
m
Non-Core
m
917
327
386
511
758
2,899
3,178
1,791
1,092
955
2,312
9,328
1,841
456
237
40
804
3,378
Key points
The number of Watchlist Red customers decreased significantly in
2014 as a result of the transfer of exposures to RCR. Customers
managed in RCR are subject to heightened scrutiny and regular
review against specific disposal plans. A breakdown of the asset
quality of the RCR portfolio is provided on page 240.
2013
2012
Total
m
5,019
2,247
1,329
995
3,116
12,706
RBS
excluding
Non-Core
m
Non-Core
m
5,605
2,238
1,542
870
3,087
13,342
4,377
478
432
84
1,177
6,548
Total
m
9,982
2,716
1,974
954
4,264
19,890
The remaining Restructuring population decreased during the year

both in number and value. This reflects a reduced flow of cases into
Restructuring, repayments and cases improving from Watchlist Red.
Forbearance
The table below shows the value of loans (excluding loans where RBS has initiated recovery procedures) where forbearance was completed during the
year, by sector and type.
2014
Wholesale forbearance during

the year by sector
Property
Transport
Retail and leisure
Services
Other
Performing
m
1,052
265
431
475
817
3,040
Nonperforming
m
4,363
233
553
352
252
5,753
2013
Provision
Total coverage (1)
m
%
5,415
498
984
827
1,069
8,793
66
32
51
53
56
62
NonPerforming performing
m
m
1,759
1,016
455
405
670
4,305
4,802
229
390
234
510
6,165
2012
Provision
Total coverage (1)
m
%
6,561
1,245
845
639
1,180
10,470
60
34
37
77
27
55
m
m
3,365
1,174
732
324
1,575
7,170
3,899
130
113
51
550
4,743
Provision
Total coverage (1)
m
%
7,264
1,304
845
375
2,125
11,913
16
23
34
30
40
20
Note:
(1) Provision coverage reflects impairment provision as a percentage of non-performing loans.
*unaudited
249

Forbearance arrangements
The table below shows the incidence of the main types of wholesale forbearance arrangements by loan value.
Wholesale forbearance during the year by arrangement type (1)
Payment concessions and loan rescheduling
Covenant-only concessions
Forgiveness of all or part of the outstanding debt
Variation in margin
Other (2)
2014
%
2013
%
2012
%
73
20
4
4
7
78
16
9
2
31
49
30
21
6
14
Notes:
(1) Total exceeds 100% as an individual case can involve more than one type of forbearance.
(2) The main types of other concessions include formal standstill agreements and release of security.
Key points
Forbearance completed on loans decreased during 2014 compared
with 2013. This was in line both with improving market conditions
and the RCR disposal strategy.
Non-RCR customers managed by Restructuring were granted

forbearance on loan facilities totalling 1.3 billion during 2014. This
equates to 34.1% of loans managed by Restructuring (excluding
loans to customers where recovery procedures have commenced).
Year-on-year analysis of forborne loans may be skewed by

individual material cases during a given year. This is particularly
relevant when comparing the value of forbearance completed in the
property and transport sectors in 2014 with previous years.
Of the loans granted forbearance by Restructuring (excluding those

transferred to RCR) in 2013, 24% returned to performing portfolios
managed by the originating businesses by 31 December 2014.
Some non-forborne loans were also returned from Restructuring to
performing portfolios managed by the originating businesses.
Loans totalling 4.3 billion were granted credit approval for

forbearance but had not yet reached legal completion at 31
December 2014 (2013 - 9.4 billion). These loans are referred to as
in process and are not included in the tables above. 84% of these
were non-performing loans, with associated provision coverage of
48%; and 16% were performing loans. The principal types of
arrangements offered were payment concessions and loan
rescheduling.
4.8 billion of completed forbearance granted during the year was to

customers managed by RCR. RCR uses forbearance as a tool to
assist with the orderly realisation of assets. By value, 94% of the
performing non-RCR loans granted forbearance in 2013 remained
performing at 31 December 2014.
Provisions for the non-performing loans disclosed above are

individually assessed and therefore not directly comparable across
periods. Provision coverage increased in 2014, driven by the
provision coverage level in Ulster Bank (including Ulster Bank RCR
cases).
The data presented in the tables above include loans forborne

during 2012 and 2013 which individually exceeded thresholds set at
franchise or reportable segment level. RBS continues to refine its
reporting processes for forborne loans. During 2012 the reporting
threshold ranged from nil to 10 million and from 2013 until April
2014 thresholds ranged from nil to 3 million. From April 2014 no
threshold were in use.
Forbearance in the transport sector was historically driven by

exposure to shipping. There has been lower forbearance in the
shipping portfolio in 2014 as asset values have improved, reducing
the instances of minimum security covenant breaches.
The value of loans forborne during 2013 and 2014 and still
outstanding at 31 December 2014 was 12.2 billion (2013 - 18.4
billion; 2012 - 17.7 billion), of which 3.4 billion related to
arrangements completed during 2013 (2012 - 8.0 billion; 2011 9.3 billion).
Additional provisions charged in 2014 relating to loans forborne

during 2013 totalled 0.6 billion, predominantly driven by RCR and
Restructuring cases. Provision coverage of these loans at 31
December 2014 was 77%.
250
Key credit portfolios

Commercial real estate*
The commercial real estate (CRE) sector comprised exposures to entities involved in the development of, or investment in, commercial and residential
properties (including house builders). The analysis of lending utilisations below is gross of impairment provisions and excludes rate risk management
and contingent obligations.
During 2014, an RBS-wide centre of excellence was created to develop, implement and oversee risk management strategy for this portfolio. The centre
of excellence is responsible for the management of CRE credit risk, including setting CRE-specific credit risk appetite, credit policies and portfolio
controls as well as oversight of valuations, environmental and flood appraisals. This sector is reviewed regularly at the Credit Risk Committee (CRC)
and Executive Risk Forum (ERF) due to its relative size and riskiness. Both CRC and ERF monitor the performance of the portfolio to ensure it remains
in line with expectations relative to credit quality, capital consumption and control framework compliance.
Ongoing credit risk management is supported by dedicated credit teams covering the CPB and CIB portfolios, a team specialising in commercial and
residential property developments, and senior underwriters sanctioning the most sizeable and complex CRE exposures.
2014
By segment
UK PBB
Ulster Bank
Commercial Banking
Private Banking
RCR
Non-Core
2012
Development
m
Total
m
Investment
m
Development
m
Total
m
Investment
m
Development
m
Total
m
3,757
952
4,709
15,145
1,051
16,196
721
5,017
6,169
n/a
32,812
501
336
837
2,775
244
3,019
255
6,394
n/a
10,505
4,258
1,288
5,546
17,920
1,295
19,215
976
5,017
12,563
n/a
43,317
3,931
3,419
7,350
16,616
n/a
16,616
898
4,018
n/a
11,624
40,506
510
718
1,228
2,957
n/a
2,957
183
n/a
7,704
12,072
4,441
4,137
8,578
19,573
n/a
19,573
1,081
4,018
n/a
19,328
52,578
4,793
3,575
8,368
17,711
n/a
17,711
1,479
3,857
n/a
17,686
49,101
618
729
1,347
3,473
n/a
3,473
372
3
n/a
8,744
13,939
5,411
4,304
9,715
21,184
n/a
21,184
1,851
3,860
n/a
26,430
63,040
Investment
By geography (1)
2013
Investment
m
Commercial
m
Development
Residential
m
Commercial
m
Residential
m
Total
m
Investment
RBS
excluding
RCR
m
RCR
m
Development
RBS
excluding
RCR
m
RCR
m
Total
m
2014
UK (excluding NI (2))
Ireland (ROI and NI (2))
Western Europe (other)
US
RoW (2)
17,327
2,864
1,222
4,063
406
25,882
4,757
740
53
1,358
22
6,930
600
1,499
189
34
2,322
3,446
4,469
24
59
185
8,183
26,130
9,572
1,488
5,480
647
43,317
2013
US
RoW (2)
20,861
4,405
4,068
3,563
314
33,211
5,008
1,028
183
1,076
7,295
678
1,919
22
30
2,649
3,733
5,532
17
8
133
9,423
30,280
12,884
4,290
4,647
477
52,578
2012
US
RoW (2)
25,864
4,651
5,995
4,230
454
41,194
5,567
989
370
981
7,907
839
2,234
22
65
3,160
4,777
5,712
33
15
242
10,779
37,047
13,586
6,420
5,226
761
63,040
19,882
770
232
5,376
383
26,643
2,203
2,834
1,042
45
45
6,169
3,506
329
4
53
219
4,111
539
5,639
210
6
6,394
RBS
excluding
Non-Core
Non-Core
RBS
excluding
Non-Core
Non-Core
21,297
2,763
223
4,313
286
28,882
4,572
2,670
4,028
326
28
11,624
3,500
686
11
8
163
4,368
911
6,765
28
7,704
RBS
excluding
Non-Core
Non-Core
RBS
excluding
Non-Core
Non-Core
23,312
2,877
403
4,629
194
31,415
8,119
2,763
5,962
582
260
17,686
4,184
665
24
15
307
5,195
1,432
7,281
31
8,744
26,130
9,572
1,488
5,480
647
43,317
30,280
12,884
4,290
4,647
477
52,578
37,047
13,586
6,420
5,226
761
63,040
*unaudited
251

UK
Ireland
(excl NI (2)) (ROI and NI (2))
By sub-sector (1)
Western Europe
(other)
US
RoW (2)
Total
2014
Residential
Office
Retail
Industrial
Mixed/other
8,203
3,297
4,909
2,588
7,133
26,130
5,209
504
809
367
2,683
9,572
78
609
173
32
596
1,488
1,417
81
157
2
3,823
5,480
206
137
91
29
184
647
15,113
4,628
6,139
3,018
14,419
43,317
8,740
4,557
6,979
3,078
6,926
30,280
6,560
813
1,501
454
3,556
12,884
200
1,439
967
43
1,641
4,290
1,085
32
84
30
3,416
4,647
133
121
73
13
137
477
16,718
6,962
9,604
3,618
15,676
52,578
10,344
6,112
7,529
3,550
9,512
37,047
6,701
1,132
1,492
476
3,785
13,586
403
1,851
1,450
143
2,573
6,420
996
99
117
4
4,010
5,226
242
176
129
39
175
761
18,686
9,370
10,717
4,212
20,055
63,040
2013
Residential
Office
Retail
Industrial
Mixed/other
2012
Residential
Office
Retail
Industrial
Mixed/other
Notes:
(1) Data at 31 December 2014 includes CRE lending from Private Banking in CPB of 1.3 billion that was excluded from 2013 and 2012 data. At 31 December 2013 CRE lending in Private Banking
totalled 1.4 billion (2012 - 1.4 billion).
(2) ROI: Republic of Ireland; NI: Northern Ireland; RoW: Rest of World.
Key points
The overall gross lending exposure to CRE fell by 9.3 billion (18%)
to 43.3 billion. Most of the decrease occurred in RCR exposure
originated by Ulster Bank, CPB and CIB and was due to
repayments, asset sales and write-offs.
The increase in US exposure was predominantly driven by improved

economic conditions, which contributed to increased business
volumes in CFG, in line with risk appetite and business strategy.
The RCR portfolio of 12.6 billion represented 29% of the RBS CRE
portfolio. Geographically, 67% of the RCR portfolio was held in
Ireland, 22% in the UK, 10% in Western Europe and 1% in the US
and the rest of world.
*unaudited
252
Maturity profile of portfolio
UK PBB
Ulster
Bank
Commercial
Banking
Private
Banking
Corporate &
Institutional
Banking
Citizens
Financial
Group
RCR
Total
2014
1 year (1)
1-2 years
2-3 years
> 3 years
Not classified (2)
808
299
575
2,552
24
4,258
493
63
58
627
47
1,288
4,297
2,730
2,516
8,081
296
17,920
495
228
181
391
1,295
122
140
80
623
11
976
857
988
940
2,232
5,017
9,318
1,629
463
858
295
12,563
821
427
490
2,680
23
4,441
2,740
360
177
860
4,137
5,995
3,009
4,231
5,941
397
19,573
n/a
n/a
n/a
n/a
n/a
n/a
469
203
123
286
1,081
602
669
739
2,008
4,018
14,860
1,891
474
1,968
135
19,328
1,501
449
410
2,861
190
5,411
3,000
284
215
805
4,304
7,138
3,550
3,407
6,736
353
21,184
n/a
n/a
n/a
n/a
n/a
n/a
275
413
505
658
1,851
797
801
667
1,595
3,860
16,335
5,225
1,317
3,339
214
26,430
2013
16,390
6,077
4,813
15,364
673
43,317
Non-Core
1 year (1)
1-2 years
2-3 years
> 3 years
Not classified (2)
2012
25,487
6,559
6,234
13,743
555
52,578
Non-Core
1 year (1)
1-2 years
2-3 years
> 3 years
Not classified (2)
29,046
10,722
6,521
15,994
757
63,040
Notes:
(1) Includes on-demand and past-due assets.
(2) Predominantly comprises overdrafts for which there is no single maturity date.
(3) The UK PBB portfolio comprises Business Banking and Williams & Glyn CRE exposure. Williams & Glyn accounts for 3.3 billion (79%).
Key points
The overall maturity profile has changed, with the proportion of
short-term (1 year) maturities reducing in favour of more medium
term (> 3 years) maturities. This reflected the reductions in RCR as
well as new lending activity in Commercial Banking and CFG.
By asset quality band
AQ1-AQ2
m
Reductions in the Ulster Bank less than one year band between
2013 and 2014 are predominantly the result of transfers to RCR.
AQ3-AQ4
m
AQ5-AQ6
m
AQ7-AQ8
m
AQ9
m
AQ10
m
Total
m
758
758
9,431
228
9,659
13,857
556
14,413
3,873
502
4,375
215
87
302
2,620
11,190
13,810
30,754
12,563
43,317
441
441
7,801
376
8,177
13,396
1,433
14,829
5,199
1,341
6,540
665
176
841
5,748
16,002
21,750
33,250
19,328
52,578
767
177
944
6,011
578
6,589
16,592
3,680
20,272
6,575
3,200
9,775
1,283
1,029
2,312
5,382
17,766
23,148
36,610
26,430
63,040
2014
RBS excluding RCR

RCR
2013
RBS excluding Non-Core

Non-Core
2012

Non-Core
Key points
The overall asset quality of the portfolio has improved, including a

significant reduction in the proportion rated AQ10. This was a result
of reductions in RCR, improving general market conditions and the
quality of new lending activity which is subject to the policies and
controls put in place in recent years.
The increase in AQ3-AQ4 exposure was predominantly driven by

new lending in CFG and Commercial Banking.
*unaudited
253

Credit risk mitigation for commercial real estate
The market value of the collateral typically exceeds the loan amount at origination date. The market value is defined as the estimated amount for which
the asset could be sold in an arms length transaction by a willing seller to a willing buyer. External valuations for CRE lending are required at the
inception of the loan. In addition to external valuations at inception, RBS uses a range of other types of information to value such collateral, including
expert judgement and indices. External valuations may be sought should an adverse credit event occur - this requirement is assessed as part of the
Watchlist process. The table below shows CRE (Non-RCR and RCR) lending split by loan-to-value ratio, which represents loan value before provisions
relative to the value of the property financed.
loan-to-value ratio
Performing
m
RCR
Non-performing
m
Total
m
RBS excluding RCR

Performing Non-performing
m
m
Total
m
Performing
m
Total
Non-performing
m
Total
m
2014
<= 50%
> 50% and <= 70%
> 70% and <= 90%
> 90% and <= 100%
> 100% and <= 110%
> 110% and <= 130%
> 130% and <= 150%
> 150%
Total with LTVs
Minimal security (1)
Other
Total
Total portfolio average LTV (2)
300
602
220
41
56
49
6
65
1,339
34
1,373
45
173
554
116
211
438
404
4,160
6,101
3,168
1,921
11,190
345
775
774
157
267
487
410
4,225
7,440
3,168
1,955
12,563
9,833
8,750
2,285
343
168
326
135
305
22,145
33
5,956
28,134
220
301
409
134
148
201
128
495
2,036
38
546
2,620
10,053
9,051
2,694
477
316
527
263
800
24,181
71
6,502
30,754
10,133
9,352
2,505
384
224
375
141
370
23,484
33
5,990
29,507
265
474
963
250
359
639
532
4,655
8,137
3,206
2,467
13,810
10,398
9,826
3,468
634
583
1,014
673
5,025
31,621
3,239
8,457
43,317
75%
338%
291%
56%
133%
62%
57%
287%
116%
2013
<= 50%
> 50% and <= 70%
> 70% and <= 90%
> 90% and <= 100%
> 100% and <= 110%
> 110% and <= 130%
> 130% and <= 150%
> 150%
Total with LTVs
Other
Total
Non-Core
Total
419
867
1,349
155
168
127
13
69
3,167
51
108
3,326
142
299
956
227
512
1,195
703
7,503
11,537
3,069
1,396
16,002
561
1,166
2,305
382
680
1,322
716
7,572
14,704
3,120
1,504
19,328
7,589
9,366
2,632
796
643
444
356
400
22,226
9
5,266
27,501
143
338
405
295
327
505
896
1,864
4,773
88
888
5,749
7,732
9,704
3,037
1,091
970
949
1,252
2,264
26,999
97
6,154
33,250
8,008
10,233
3,981
951
811
571
369
469
25,393
60
5,374
30,827
285
637
1,361
522
839
1,700
1,599
9,367
16,310
3,157
2,284
21,751
8,293
10,870
5,342
1,473
1,650
2,271
1,968
9,836
41,703
3,217
7,658
52,578
75%
292%
245%
64%
187%
85%
65%
261%
142%
727
2,231
3,038
711
295
599
263
569
8,433
7
225
8,665
142
708
750
1,570
1,635
1,078
1,261
7,841
14,985
1,573
1,207
17,765
869
2,939
3,788
2,281
1,930
1,677
1,524
8,410
23,418
1,580
1,432
26,430
6,624
10,239
3,802
1,235
835
642
412
1,026
24,815
4
6,406
31,225
157
346
456
712
357
610
426
1,471
4,535
55
795
5,385
6,781
10,585
4,258
1,947
1,192
1,252
838
2,497
29,350
59
7,201
36,610
7,351
12,470
6,840
1,946
1,130
1,241
675
1,595
33,248
11
6,631
39,890
299
1,054
1,206
2,282
1,992
1,688
1,687
9,312
19,520
1,628
2,002
23,150
7,650
13,524
8,046
4,228
3,122
2,929
2,362
10,907
52,768
1,639
8,633
63,040
84%
223%
173%
67%
148%
80%
71%
206%
122%
2012
<= 50%
> 50% and <= 70%
> 70% and <= 90%
> 90% and <= 100%
> 100% and <= 110%
> 110% and <= 130%
> 130% and <= 150%
> 150%
Total with LTVs
Other
Total
Notes:
(1) Total portfolio average LTV is quoted net of loans with minimal security given that the anticipated recovery rate is less than 10%. Provisions are marked against these loans where required to reflect
the relevant asset quality and recovery profile.
(2) Weighted average by exposure.
254
Key points
The average LTV for the performing book improved from 65% to
57% over the past year. The LTV for the performing portfolio in the
UK was 56%. The reductions in the higher LTV bands occurred
mainly in the RCR book originated by Ulster Bank and CIB,
reflecting reductions through repayments, asset sales and write-offs.
Interest on performing investment property secured loans was

covered 1.6x and 2.9x within RCR and RBS excluding RCR,
respectively. Performing loans include general corporate loans,
typically unsecured, to CRE companies (including real estate
investment trusts), and major UK house builders, in addition to
facilities supported by guarantees. The credit quality of these
exposures was consistent with that of the performing portfolio
overall. Non-performing loans are subject to standard provisioning
policies.
Credit quality
Credit quality metrics relating to CRE lending were as follows:
Total
Lending (gross)
Of which REIL
Provisions
REIL as a % of gross loans to customers
Provisions as a % of REIL
2014
2013
2012
RCR
2014
43,317m
13,345m
9,027m
30.8%
68%
52,578m
20,129m
13,209m
38.3%
66%
63,040m
22,108m
10,077m
35.1%
46%
12,563m
11,112m
8,067m
88.5%
73%
Non-Core
2013
19,328m
14,305m
10,639m
74.0%
74%
2012
26,430m
17,052m
8,349m
64.5%
49%
Notes:
(1) Excludes property related lending to customers in other sectors managed by Real Estate Finance.
(2) Data at 31 December 2014 includes CRE lending from Private Banking in CPB of 1.3 billion that was excluded from 2013 and 2012 data. At 31 December 2013 CRE lending in Private Banking
totalled 1.4 billion (2012 - 1.4 billion).
Corporate risk elements in lending and potential problem loans

(excluding CRE)
2014
Secured
Unsecured
2013
2012
Loans
m
Provisions
m
Loans
m
Provisions
m
Loans
m
Provisions
m
5,082
1,953
3,109
1,365
7,686
2,496
4,347
1,685
9,936
1,894
4,704
1,170
Oil and gas*

RBS has 10.7 billion of credit risk assets (CRA) to the oil and gas
sector. Including committed but undrawn facilities, the exposure to the
sector is 24.1 billion.
The price of crude oil is subject to global demand and supply factors and
therefore determined globally. It has fallen by more than 50% since June
2014. This steep decline has been driven by excess supply fears
resulting from a combination of factors. These include the growth in US
shale production and OPEC maintaining current production levels, as well
as weaker demand in Europe and slower growth in China.
The price of natural gas is determined regionally. US natural gas prices

have been relatively stable compared with the recent price of crude oil.
The price of natural gas is not highly correlated to oil prices.
Exposures to this sector continue to be closely managed through the
sector concentration framework and through ongoing customer and subsector reviews including stress testing. Risk appetite to the overall oil and
gas sector was reduced during 2014. Further action is ongoing to mitigate
exposure where possible.
*unaudited
255

The table below provides a breakdown of oil and gas sector exposure on both a CRA basis and total exposure (including committed but undrawn
exposure and contingent obligations) basis by business segment.
2014
CRA
m
Commercial Banking
Others
RCR
Of which: lending exposure
2013
Total
m
CRA
m
Total
m
671
8,297
1,251
101
352
10,672
6
78
12
1
3
100
1,035
20,278
2,134
243
457
24,147
4
84
9
1
2
100
772
8,264
819
144
145
10,144
8
82
8
1
1
100
1,203
20,924
1,284
276
147
23,834
5
88
5
1
1
100
7,744
73
17,695
73
6,996
69
16,693
70
During 2014, CFGs exposure to this sector increased, partly due to the
transfer of 0.4 billion (total exposure) of oil and gas exposures from CIB.
The committed lending exposure included legal commitments to
syndicated bank facilities, with tenors up to five years. These committed
facilities are for general corporate purposes including funding of operating
needs and capital expenditures. These facilities are available as long as
counterparties remain compliant with the terms of the credit agreement.
Contingent obligations relate to guarantees, letters of credit and
suretyships provided to customers.
At the year end, RBSs exposure to commodities financing was 1.0

billion, predominantly in relation to oil (0.7 billion), metals (0.2 billion)
and coal (0.1 billion).
CIB oil and gas*
Sub-sector and geography
The tables below provide a breakdown of CIBs oil and gas sector
exposure - which represents 84% of RBSs exposure to this sector
(including committed but undrawn exposure) - split by sub-sector and
geography. The analysis is based on RBSs sector concentration
framework.
RBS had no high-yield bond underwriting positions as at 31 December

2014; it had a simple sub investment grade loan underwriting of $86
million in the Americas which, subsequent to year end, had been
syndicated.
Western
2014
Producers (incl. integrated oil companies)

Oilfield service providers
Other wholesale and trading activities
Refineries
Pipelines
Including committed undrawn exposures

Of which: exploration and production
UK
m
Europe
(excl. UK)
m
North
America
m
Asia
Pacific
m
Latin
America
m
CEEMA(1)
m
Total
m
833
153
295
1
96
1,378
1,101
675
794
177
48
2,795
4,822
1,007
683
2,700
2,359
11,571
263
742
907
591
49
2,552
115
141
33
289
848
535
122
67
121
1,693
7,982
3,112
2,801
3,677
2,706
20,278
145
3,118
115
150
37
3,568
5,333
1,078
553
2,203
2,563
11,730
459
507
893
993
41
2,893
5
61
131
197
748
323
147
231
196
1,645
8,358
2,984
2,805
3,694
3,083
20,924
2013
Producers (incl. integrated oil companies)

Oilfield service providers
Other wholesale and trading activities
Refineries
Pipelines
748
180
297
1
188
1,414
1,065
835
915
135
95
3,045
Note:
(1) Includes exposures to Central and Eastern Europe as well as the Middle East and Africa.
*unaudited
256
The sub-sector within which a customer operates is a primary

consideration for assessing the credit risk of a customer. Current areas of
focus are towards customers involved in exploration and production
principally in producers (E&P) and oilfield service providers (OFS). E&P
customers represent approximately 18% of CIBs exposure to the oil and
gas sector and OFS customers represent 15%.
E&P is most immediately exposed to the oil price decline and E&P
companies are the primary customers for the service providers and are
experiencing an adverse impact on their financial performance from a
reduced level of contracts and lower contract rates as well as pressure to
re-price existing services.
The other principal components of RBSs exposure to producers are

Integrated Oil Companies (IOC) and National Oil Companies (NOC). IOC
and NOC are less vulnerable to the oil price decline due to scale,
diversification and in the case of NOC, explicit support from governments.
Asset quality
The table below provides a breakdown of the asset quality of CIBs oil
and gas sector portfolios.
2014
m
Asset quality - AQ band

AQ1
AQ2
AQ3
AQ4
AQ5
AQ6
AQ7
Other
At the year end 83%, of the portfolio exposure was investment grade
(AQ1-AQ4).
The impact of continuing low oil prices on the credit quality of the portfolio
is subject to ongoing review, including stress testing. RBS is in regular
contact with customers to understand the impacts on them of a sustained
low oil price. This activity is backed up by a suite of early warning
indicators used to identify customers who may be experiencing financial
difficulty.
At the year end, the proportion of RBSs total oil and gas portfolio,
excluding RCR, designated as Watchlist Red (performing customers who
show signs of declining creditworthiness and so require active
management) was 0.4%, of which 0.02% was managed by Restructuring.
Counterparty credit risk
RBS mitigates counterparty credit risk arising from both derivatives and
repurchase agreements through the use of netting, collateral and market
standard documentation.
3,948
1,999
3,455
7,521
2,035
1,025
293
2
20,278
20
10
17
37
10
5
1
100
Amounts owed by RBS to a counterparty are netted against amounts the

same counterparty owes it, in accordance with relevant regulatory and
internal policies. However, generally, this is only done if a netting and
collateral agreement is in place as well as a legal opinion to the effect
that the agreement is enforceable in the relevant jurisdictions.
Collateral may consist of either cash or securities. In the case of
derivatives, collateral generally takes the form of cash. In the case of
securities financing transactions, collateral usually takes the form of debt
and, to a much lesser extent, equity securities at the outset. However, if
the value of collateral falls relative to that of the obligation, RBS may
require additional collateral in the form of cash (variation margin). The
vast majority of agreements are subject to daily collateral calls with
collateral valued using RBSs internal valuation methodologies.
Industry standard documentation, such as master repurchase
agreements and credit support annexes accompanied by legal opinion, is
used for financial collateral taken as part of trading activities.
RBS limits counterparty credit exposures by setting limits which take into
account the potential adverse movement of an exposure after adjusting
for the impact of netting and collateral where applicable.
Mitigation of counterparty credit risk

Securities received as collateral (1,2)
Derivative assets gross exposure
Counterparty netting
Cash collateral held (2)
Securities received as collateral (2)
2014
bn
2013
bn
2012
bn
64.7
(64.7)
76.5
(76.4)
104.8
(104.7)
354.0
(295.3)
(33.3)
(7.0)
288.0
(241.3)
(24.4)
(6.0)
441.9
(374.9)
(34.3)
(5.6)
Notes:
(1) In accordance with normal market practice, at 31 December 2014 60.2 billion (2013 - 63.7 billion; 2012 - 100.7 billion) had been resold or re-pledged as collateral for RBS's own transactions.
(2) At fair value.
*unaudited
257

Personal credit risk management
Personal credit risk management focuses on RBSs personal customers
in UK PBB, Ulster Bank and CFG as well as personal lending activities in
Private Banking.
Risk appetite
RBS uses a product and asset class framework to control credit risk for
its personal businesses. The framework sets limits that measure and
control, for each relevant franchise or reportable segment, the quality of
both existing and new business. The actual performance of each portfolio
is tracked relative to these limits and action taken where necessary.
These limits apply to a range of credit risk related measures including
expected loss of the portfolio, the expected loss in a given stress
scenario, projected credit default rates and the LTV of personal mortgage
portfolios.
Risk assessment
Personal lending entails making a large number of small-value loans. To
ensure that these lending decisions are made consistently, RBS analyses
credit information, including the historical debt servicing behaviour of
customers with respect to both RBS and their other lenders. RBS then
sets its lending rules accordingly, developing different rules for different
products. The process is then largely automated, with customers
receiving a credit score that reflects a comparison of their credit profile
with the rule set. However, for relatively high-value, complex personal
loans, including some residential mortgage lending, specialist credit
managers make the final lending decisions.
Risk mitigation
RBS takes collateral in the form of residential property to mitigate the
credit risk arising from mortgages and home equity lending. RBS values
residential property during the loan underwriting process by either
appraising properties individually or valuing them collectively using
statistically valid models. RBS updates residential property values
quarterly using the relevant residential property index, namely the Halifax
Quarterly Regional House Price Index in the UK, the Case-Shiller Home
Price Index in the US, the Central Statistics Office Residential Property
Price Index in the ROI, and the Nationwide House Price Index in Northern
Ireland. For automobile lending in the US, new vehicles are valued at
cost and used vehicles at the average trade-in value.
Problem debt management
Collections
Collections functions in each of RBSs personal businesses provide
support to customers who cannot meet their obligations to RBS. Such
customers may miss a payment on their loan, borrow more than their
agreed limit, or ask for help. Dedicated support teams are also in place to
identify and help customers who have not yet missed a payment but may
be facing financial difficulty. The collections function may use a range of
tools to initiate contact with such customers, establish the cause of their
financial difficulty and support them where possible. In the process, they
may consider granting the customer forbearance.
Additionally, in the UK and Ireland support is provided to customers with

unsecured loans who establish a repayment plan with RBS through a
debt advice agency or a self-help tool. Such breathing space suspends
collections activity for a 30-day period to allow time for the repayment
plan to be put in place. Arrears continue to accrue for customer loans
granted breathing space.
If collections strategies are unsuccessful the relationship is transferred to
the recoveries team. For further details on recoveries, refer to following
page.
Forbearance
Definition
Forbearance takes place when a concession is made on the contractual
terms of a loan in response to a customer's financial difficulties. It is
granted either permanently or temporarily, following an assessment of the
customer's circumstances.
Identification
Customers who contact RBS directly because of financial difficulties, or
who are already in payment arrears, may be granted forbearance. In the
course of assisting customers, more than one forbearance treatment may
be granted.
Types of personal forbearance
Forbearance is granted principally to customers with mortgages and less
frequently to customers with unsecured loans.
Mortgage portfolios
Forbearance options include, but are not limited:
Payment concessions - A temporary reduction in, or elimination of,

the periodic (usually monthly) loan repayment is agreed with the
customer. At the end of the concessionary period, forborne principal
and accrued interest outstanding is scheduled for repayment over
an agreed period. Ulster Bank and CFG also offer payment
concessions in the form of discounted interest rates that involve the
forgiveness of some interest.
Capitalisation of arrears - The customer repays the arrears over the

remaining term of the mortgage and returns to an up-to-date
position.
Term extensions - The maturity date of the loan is extended.
Interest only conversions - The loan converts from principal and

interest repayment to interest only repayment on a permanent or, in
Ulster Bank only, temporary basis.
258
Unsecured portfolios
Types of forbearance offered in the unsecured portfolios vary by
reportable segment.
Monitoring of forbearance
Forborne loans may be either performing or impaired and are subject to
the same impairment triggers as the rest of the portfolio (refer to
impairment section). A loan is deemed impaired if the borrower has failed
to make repayments of principal, payments of interest or both for 90 days
or more, or in the case of forborne loans, the borrower has been granted
a payment concession such as interest forgiveness.
The granting of forbearance does not generally change the delinquency
status of the loan affected. An exception is a loan for which RBS has
agreed to capitalise arrears. Capitalisation of principal and interest in
arrears brings the loan up to date. If it remains up to date for six months
and is deemed likely to continue to do so, it is transferred to the
performing book. In Ulster Bank, if a customer makes payments that
reduce loan arrears below 90 days, the loan is transferred to the
performing book. In addition, a small portfolio of loans past due 90 days
is managed by PBBs collections function. Loans in this portfolio may
also be transferred to the performing book if the customer makes
payments that reduce arrears below 90 days. In CFG, all forborne loans
are included in the non-performing book regardless of whether or not
RBS has agreed to capitalise interest past due for 90 days or more.
Mortgages granted forbearance are reviewed regularly to ensure that
customers are meeting the agreed terms. Key metrics have been
developed to record the proportion of loans that fail to meet the agreed
terms over time, as well as the proportion of loans that return to
performing with no arrears. Personal forbearance loans can be modified
more than once.
Impairments for forbearance
Performing loans in UK PBB and Ulster Bank are subject to a latent loss
provision but form a separate risk pool (for 24 months in UK PBB and for
the period of forbearance in Ulster Bank). The higher of the observed
default rates, or PD, is used in UK PBB in the latent provisioning
calculations for these loans to ensure that appropriate provision is held.
In Ulster Bank, the PD model used in latent provision calculations is
calibrated separately for forborne loans, using information on the historic
performance of loans subject to similar arrangements. Furthermore, for
these portfolios the latent provision incorporates extended emergence
periods. Once such loans are no longer separately identified, the use of
account level PDs, refreshed monthly in the latent provision methodology,
captures the underlying credit risk without a material time lag. There is no
reassessment of the PD at the time forbearance is granted but the loan is
subject to the latent provisioning methodology described above.
Provisions for all non-performing personal loans are collectively

assessed. The loans are grouped by asset type. Characteristics such as
LTVs, arrears status and default vintage are also considered when
assessing recoverable amount and calculating the related provision
requirement. Ulster Bank personal non-performing loans in the Republic
of Ireland form a separate risk pool where specific LGDs are allocated
using observed performance of these loans. While non-performing
forbearance personal loans in the UK (10% of portfolio) do not form a
separate risk pool, the LGD models used to calculate the collective
impairment provision are affected by forbearance agreements.
In CFG, personal loans subject to forbearance are assessed individually,
taking into account the value of any collateral, for impairment loss
throughout their lives until repaid or fully written off. If there is no
collateral the impairment amount considers the excess of the loans
carrying amount over the present value of expected future cash flows.
Any confirmed losses are charged off immediately.
Recoveries
Once a loan has been identified as impaired it is managed by recoveries
teams in the relevant businesses. They seek to reduce RBSs loss by
maximising cash recovery while treating customers fairly. Where an
acceptable repayment arrangement cannot be agreed with the customer
litigation may be considered. In the UK and Northern Ireland, no
repossession procedures are initiated until at least six months following
the emergence of arrears (in the Republic of Ireland, regulations prohibit
taking legal action for an extended period). Additionally, certain
forbearance options are made available to customers managed by the
recoveries function.
Impairments
Impairments in the personal portfolios decreased compared with 2013.
Ulster Bank was a significant driver of this decrease as a result of the
better economic environment and higher asset prices, which led to the
release of credit impairments during the year. Outside of Ulster Bank,
impairments in the UK portfolio decreased which also saw provision
releases owing to rising asset prices and strong recoveries. The level of
new impairments in the UK portfolio decreased by 26% compared to
2013.
259

Key portfolios
Overview of personal portfolios split by product type and segment*
2014
2013
Private
UK PBB
m
Ulster Bank
m
Banking
m
Private
CFG
m
Total
m
UK PBB
m
Ulster Bank
m
Banking
m
CFG
m
Total
m
Mortgages (1)
of which: interest only
buy-to-let
forbearance
103,235
24,287
11,602
4,873
17,506
1,263
2,091
3,880
8,889
6,357
1,388
100
21,122
9,929
147
409
150,752
41,836
15,228
9,262
99,338
25,439
9,073
5,446
19,034
2,069
2,242
2,782
8,701
5,968
1,024
127
19,584
9,272
241
373
146,657
42,748
12,580
8,728
Other lending (2)

of which: credit cards
loans
overdrafts
auto loans
Total
12,335
4,951
5,020
2,364
115,570
591
192
322
77
18,097
5,186
124
4,298
365
14,075
10,924
952
1,933
91
7,947
32,046
29,036
6,219
11,573
2,897
7,947
179,788
13,760
5,766
5,357
2,637
113,098
740
212
421
107
19,774
5,353
129
4,656
355
14,054
8,302
945
1,712
100
5,545
27,886
28,155
7,052
12,146
3,199
5,545
174,812
3.3%
20.3%
1.0%
1.4%
4.5%
3.9%
18.3%
0.7%
1.5%
4.9%
Non-performing %
Notes:
(1) It is possible for a mortgage loan to appear in more than one category.
(2) There are other less material categories of personal lending not listed.
Overview of impairments and REIL

2014
2013
Private
Private
UK PBB
Ulster Bank
Banking
CFG
UK PBB
Ulster Bank
Banking
CFG
2.0%
(1.0%)
2.9%
0.1%
(0.1%)
0.2%
0.8%
1.8%
1.2%
2.2%
0.6%
0.5%
1.0%
Loan impairment provisions (m)

Mortgages
Other lending
217
1,515
1,413
104
27
35
146
49
259
1,671
1,726
187
33
50
123
33
Risk elements in lending (m)

Mortgages
Other lending
1,218
1,520
3,362
110
95
80
949
195
1,702
1,863
3,235
193
116
80
761
148
Loan impairment charge as a % of gross customer loans

and advances
Mortgages
Other lending
*unaudited
260
UK PBB
Overview
The majority of the UK PBB personal portfolio consists of mortgages.
Total gross personal lending of 115.6 billion comprised 64% of RBSs
gross personal lending of 179.8 billion. 103.2 billion related to
mortgage lending and 12.3 billion to other lending (loans, credit cards
and overdrafts).
Loan-to-value ratio by value

<= 50%
> 50% and <= 70%
> 70% and <= 90%
> 90% and <= 100%
> 100% and <= 110%
> 110% and <= 130%
> 130% and <= 150%
Total with LTVs
Other (2)
Total
2014
m
m
34,889
38,355
23,660
2,837
609
143
27
100,520
486
101,006
57%
Total
m
430 35,319
783 39,138
705 24,365
187
3,024
73
682
29
172
2
29
2,209 102,729
20
506
2,229 103,235
67%
Average LTV on new originations during the year (3)
Of which:
IOL (1)
m
7,802
9,935
4,978
1,071
413
104
4
24,307
(20)
24,287
57%
Mortgages
Risk mitigation
The table below shows LTVs for the UK PBB residential mortgage
portfolio split between performing (AQ1-AQ9) and non-performing
(AQ10), with the average LTV calculated on a weighted-value basis.
Loan balances are shown as at the end of the year whereas property
values are calculated using property index movements since the last
formal valuation.
2013
m
m
Total
m
26,392
34,699
28,920
4,057
1,790
552
37
96,447
511
96,958
313
591
854
315
182
100
5
2,360
20
2,380
26,705
35,290
29,774
4,372
1,972
652
42
98,807
531
99,338
62%
75%
62%
71%
Of which:
IOL (1)
m
5,977
9,280
6,909
1,846
1,039
382
6
25,439
25,439
2012
m
m
Total
m
22,306
27,408
34,002
7,073
3,301
1,919
83
96,092
486
96,578
327
457
767
366
290
239
26
2,472
12
2,484
22,633
27,865
34,769
7,439
3,591
2,158
109
98,564
498
99,062
66%
80%
67%
67%
Of which
IOL (1)
m
5,702
7,921
9,267
2,370
1,666
1,091
45
28,062
7
28,069
65%
Notes:
(1) Interest only loans.
(2) Where no indexed LTV is held.
(3) Average LTV weighted by value is calculated using the LTV on each individual mortgage and applying a weighting based on the value of each mortgage.
Key points
The UK personal mortgage portfolio increased by 4% to 103.2

billion, of which 91.6 billion (2013 - 90.3 billion) was owneroccupied and 11.6 billion (2013 - 9.0 billion) buy-to-let.
Based on the Halifax Price Index at September 2014, the portfolio

average indexed LTV by volume was 50.4% (2013 - 54.1%) and
57.3% by weighted value of debt outstanding (2013 - 62.0%). The
ratio of total outstanding balances to total indexed property
valuations was 41.5% (2013 - 45.1%).
Fixed interest rate products of varying time durations accounted for

approximately 56%, with 3% a combination of fixed and variable
rates and the remainder variable rate. Approximately 19% of owneroccupied mortgages were on interest only terms with a bullet
repayment and 7% were on a combination of interest only and
capital and interest.
During 2014 buy-to-let balances increased by 2.6 billion (28.2%) in

support of UK PBBs growth strategy with new business subject to
rental cover and loan-to-value risk appetite requirements.
Approximately 63% of buy-to-let mortgages were on interest only
lending terms with a bullet repayment, 34% repayable by regular
capital and interest repayments and the remaining 3% a
combination of interest only and capital and interest. Buy-to-let
lending includes lending to customers who were originally owner
occupiers who subsequently, with the agreement of RBS, let out the
property to a third party, this represents 26.5% of buy-to-let
mortgages.
The portfolio average indexed LTV improved from 62.0% to 57.3%.

Within owner-occupied, the average LTV by weighted value
improved from 61.6% to 57.0% and within buy-to-let from 66.0% to
59.6%.
261
Gross new mortgage lending of 19.7 billion (2013 - 14.4 billion)

had an average LTV by weighted value of 70.5%, which was higher
than 2013 (66.6%), reflecting growth in the market and RBSs strong
support for the Help To Buy scheme. Within this: owner-occupier
lending was 16.6 billion (2013 - 13.2 billion) and had an average
LTV by weighted value of 71.7% (2013 - 66.9%). Buy-to-let lending
was 3.1 billion (2013 - 1.3 billion) with an average LTV by
weighted value of 63.9% (2013 - 63.0%).
The arrears rate (more than three payments in arrears, excluding

repossessions and shortfalls after property sale), fell from 1.3% to
1.0%. The number of repossessions was also lower (1,129
compared with 1,532 in 2013). The arrears rate for buy-to-let
mortgages was 0.6% (2013 - 0.9%).
There was an overall release of impairment provision of 26 million.

This compares to a charge of 31 million in 2013 and reflects
improvements in underlying asset quality, including house price
increases.
All new mortgage business is subject to a comprehensive

assessment which includes: i) an affordability test; ii) credit scoring;
iii) a maximum loan-to-value of 90% (75% on buy-to-let), with the
exception of government-backed schemes, for example Help to Buy
and New Buy, where lending of up to 95% is provided; and iv) a
range of policy rules that restrict the availability of credit to riskier
borrowers.
Arrears status and provisions

The mortgage arrears information for accounts in forbearance and related provision are shown in the tables below.
No missed payments
Balance
m
2014
2013
2012
4,158
4,596
4,006
1-3 months in arrears
Provision
m
15
17
20
Balance
m
364
426
388
>3 months in arrears
Provision
m
16
23
16
Balance
m
351
424
450
Total
Provision
m
26
51
64
Balance
m
4,873
5,446
4,844
Provision
m
57
91
100
Forborne
balances (1)
%
4.7
5.5
4.9
Notes:
(1) As a percentage of mortgage loans.
(2) Until June 2014, forbearance in UK PBB included all changes to the contractual payment terms, including those where the customer was up-to-date on payments and there was no obvious evidence
of financial difficulty. From July 2014, only customers exhibiting signs of financial stress are reported in forbearance disclosures.
(3) Includes the current stock position of forbearance deals agreed since early 2008 for UK PBB.
The incidence of the main types of personal forbearance on the balance sheet are analysed below.
2014
m
Interest only conversions - temporary and permanent

Term extensions - capital repayment and interest only
Payment concessions
Capitalisation of arrears
Other
Total (1)
1,632
2,308
228
876
223
5,267
2013
m
1,784
2,478
241
907
366
5,776
2012
m
1,220
2,271
215
932
452
5,090
Note:
(1) As an individual case can include more than one type of arrangement, the analysis above exceeds the total value of cases subject to forbearance.
262
The table below shows forbearance agreed during the year analysed between performing and non-performing.
2014
m
Performing forbearance
Non-performing forbearance
Total forbearance (1,2)
2013
m
785
148
933
1,332
186
1,518
2012
m
1,809
184
1,993
Notes:
(1) An individual case can include more than one type of arrangement.
(2) Includes all arrangements agreed during the year (new customers and renewals) including those deals that have expired at the year end. Balances are as at the year end.
Key points
At 31 December 2014, forbearance balances where the forbearance
treatment was provided in the last 24 months amounted to 1.2
billion, representing 1.2% of total mortgage stock.
The flow of new forbearance was 367 million in the second half of
2014. This compared to 748 million in the first half 2014, which
included changes in contractual terms for both financially stressed
and non-financially stressed customers. The underlying flow of new
forbearance continued on a downward trend and, on a like-for-like
basis, was 18% lower in 2014 compared to 2013.
Since January 2008, 4.7% of total mortgage assets (4.9 billion)
have been subject to a forbearance arrangement with stock levels
decreasing by 10.5% since the end of 2013. The year-on-year
reduction partly reflects the change in definition to report only
financially stressed customers from July 2014 onwards. On a likefor-like basis underlying stock was down by 5.3%.
The majority (91%) of UK PBB forbearance is permanent in nature

(term extensions, capitalisation of arrears, historic conversions to
interest only). Temporary forbearance comprises payment
concessions such as reduced or deferred payments with such
arrangements typically agreed for a period of three to six months.
The most frequently granted forbearance types were term

extensions (44% of forbearance loans at 31 December 2014),
interest only conversions (31%) and capitalisations of arrears (17%).
Conversions to interest only have only been permitted on a very

exceptional basis since the fourth quarter of 2012 and have not
been permitted for customers in financial difficulty since 2009.
Approximately 85% of forbearance loans (2013 - 85%) were up to

date with payments compared with approximately 98% of assets not
subject to forbearance activity. The impairment provision cover on
forbearance loans remained significantly higher than that on assets
not subject to forbearance as a result of a bespoke provisioning
methodology.
Interest only*
UK PBB stopped offering interest only terms for owner-occupier mortgages from 1 December 2012. This policy is reviewed periodically. Interest only
repayment remains an option for buy-to-let mortgages. Exposure to interest only reduced by 5% during 2014.
Variable rate
Fixed rate
Interest only loans
Mixed repayment (1)
Total
2014
Mortgages
m
2013
Mortgages
m
15,165
9,122
24,287
6,820
31,107
18,400
7,039
25,439
7,665
33,104
Note:
(1) Mortgages with partial interest only and partial capital repayments.
*unaudited
263

The tables below show interest only mortgage portfolios (excluding mixed repayment mortgages) split by type and by contractual year of maturity.
2015 (1)
m
2014
Bullet principal repayment (2)
503
2014 (3)
m
2013
460
2016-17
m
2018-22
m
2023-27
m
2028-32
m
2033-42
m
1,086
3,853
5,300
6,965
6,277
2015-16
m
2017-21
m
2022-26
m
2027-31
m
2032-41
m
1,006
4,045
5,255
7,194
7,109
After 2042
m
303
Total
m
24,287
After 2041
m
370
Total
m
25,439
Notes:
(1) 2015 includes pre-2015 maturity exposure.
(2) Includes 1.6 billion (2013 - 1.8 billion) of repayment mortgages that have been granted interest only concessions (forbearance).
The table below shows the arrears status of the personal mortgage portfolio by mortgage type.
2014
Interest only
Bullet principal
repayment
m
Arrears status
Current
1 to 90 days in arrears
90+ days in arrears
Total
Key points
UK PBBs interest only mortgages require full principal repayment
(also known as a bullet payment) at the time of maturity. Typically
such loans have remaining terms of between 10 and 20 years.
Customers are reminded of the need to have an adequate
repayment vehicle in place during the mortgage term.
Of the 24.3 billion interest only mortgages, 17.0 billion (70.0%)

were residential owner occupied mortgages (2013 - 19.9 billion)
and 7.3 billion (30.0%) related to buy-to-let lending (2013 - 5.6
billion).
Of the bullet loans that matured in the six months to 30 June 2014,
60.3% had been fully repaid by 31 December 2014. The unpaid
balance totalled 58.8 million, of which 94.4% continued to meet
agreed payment arrangements (including balances with a term
extension agreed on either a capital and interest or interest only
basis). Of the 58.8 million unpaid balance, 84.1% of the loans had
an indexed LTV of 70% or less with 2.6% above 90%.
Customers may be offered an extension to the term of an interest
only mortgage or a conversion of an interest only mortgage to one
featuring repayment of both capital and interest, subject to
affordability and characteristics such as the customers' income and
ultimate repayment vehicle. These term extensions are considered
forbearance and are subject to a bespoke provision methodology
resulting in a higher provision rate.
23,445
514
328
24,287
2013
Other
m
77,056
1,214
678
78,948
Total
m
100,501
1,727
1,007
103,235
Interest only
Bullet principal
repayment
m
24,395
612
432
25,439
Other
m
71,629
1,390
880
73,899
Total
m
96,024
2,002
1,312
99,338
UK PBB personal recognises impairment provisions in respect of

interest-only mortgages that are due to mature within five years. The
impairment calculation is based on historical analysis coupled with
data obtained from a sample of customers who were asked about
how they intended to repay their borrowing at the end of term. The
impairment provision held recognises that a proportion of customers
may not be able to fulfil their contractual obligation to repay the debt.
The analysis is updated as new trends and data become available.
Personal lending
The UK PBB personal lending portfolio comprised credit cards,
unsecured loans and overdrafts, and totalled 12.3 billion at 31
December 2014 (2013 - 13.8 billion). Credit card balances fell by 14.1 %
reflecting RBSs withdrawal from the 0% interest rate balance transfer
market. Unsecured loans fell by 6.3% and overdrafts fell by 10.3%.
The impairment charge on unsecured lending was 241 million for the
year, down 17.6% on 2013. The reduction reflects continued strong
underlying credit quality together with fortuitous recoveries from aged
defaulted debt.
Forbearance levels are low and comprise reduced or deferred payments.
Arrangements for the repayment of overdraft excesses or loan arrears
can be agreed dependent on affordability. Where repayment
arrangements are not affordable debt consolidation loans can be
provided to customers in collections. 100 million of balances (0.83% of
the total unsecured balances) were subject to forbearance at the 2014
year end.
*unaudited
264
Ulster Bank
Overview
The majority (97%) of the Ulster Bank personal portfolio related to
mortgage lending. Total gross lending of 18.1 billion comprised 10.1% of
RBSs gross lending of 179.8 billion. 17.5 billion related to mortgage
lending and 0.6 billion to other lending (loans and overdrafts).
Mortgages
Risk mitigation
The table below shows LTVs for the Ulster Bank residential mortgage
(AQ10), with the average LTV calculated on a weighted value basis. Loan
balances are shown as at the end of the year whereas property values
are calculated using property index movements since the last formal
valuation.
2014

<= 50%
> 50% and <= 70%
> 70% and <= 90%
> 90% and <= 100%
> 100% and <= 110%
> 110% and <= 130%
> 130% and <= 150%
> 150%
Total
m
m
2,529
2,316
2,856
1,406
1,404
2,382
1,554
481
14,928
2013
Of which:
Total
IOL (1)
m
m
188 2,717
203 2,519
276 3,132
174 1,580
203 1,607
512 2,894
547 2,101
475
956
2,578 17,506
88%
115%
m
m
100
118
184
101
127
295
218
120
1,263
2,025
1,837
2,326
1,214
1,302
2,509
2,202
2,385
15,800
92%
103%
75%
2012
Of which:
Total
IOL (1)
m
m
170 2,195
195 2,032
288 2,614
162 1,376
182 1,484
461 2,970
549 2,751
1,227 3,612
3,234 19,034
130%
m
m
113
118
206
122
129
332
425
624
2,069
108%
73%
2,182
1,635
2,019
1,119
1,239
2,412
2,144
3,156
15,906
108%
Total
m
274 2,456
197 1,832
294 2,313
156 1,275
174 1,413
397 2,809
474 2,618
1,290 4,446
3,256 19,162
132%
Of which:
IOL (1)
m
166
170
271
169
181
457
613
1,110
3,137
112%
74%
Notes:
Key points
Of Ulster Banks portfolio of 17.5 billion, 86% was in the Republic
of Ireland and 14% in Northern Ireland. At constant exchange rates,
the portfolio decreased 2.4% during the year as a result of
amortisation.
The average LTV of new business for owner occupier mortgages

was 75%, compared to 69% for buy-to-let.
Indexed loan to value, excluding 2014 new business, was 93% as at

31 December 2014.
The assets included 2.1 billion (12%) of residential buy-to-let loans.
Repossessions increased to 497 in 2014 from 262 in 2013.
The interest rate product mix was approximately 64% on tracker rate
products, 23% on variable rate products and 13% on fixed rate.
Interest only represented 7% of the total portfolio.
Ulster Bank stopped offering interest only loans as a standard

mortgage offering for new lending in the Republic of Ireland in 2010
and in Northern Ireland in 2012.
The average individual LTV on new originations was 75% in 2014,

(2013 - 73%); the volume of new business increased from 438
million in 2013 to 618 million in 2014. The maximum LTV available
to Ulster Bank customers was 90%.
Ulster Bank provisioning methodology used a point-in-time provision

rate based on the latest available house price index prepared by the
Central Statistics Office. This is used to create an indexed valuation
at property level, which also takes into account costs of realisation
and a discount for forced sales, and is one of the primary factors
used in the determination of the likely size of the loss upon
crystallisation. Loss likelihood rates are also determined and
(amongst other considerations) assess whether an active
forbearance arrangement is in place. The provision rate is then a
combination of these measures and is updated as required
depending on the movement of the drivers applied as part of the
methodology.
Based on updated house price indices as at October 2014, the

portfolio average indexed LTV improved from 108% to 92% during
2014, reflecting positive house price index trends over the last 12
months. In particular, the Republic of Ireland house price index
increased by 16% during 2014, with the Irish market being led by the
Dublin area, where the index increased by 22% during the year. The
Republic of Ireland house price index is 38% below its peak, which
was in September 2007.
REIL increased from 3.2 billion to 3.4 billion primarily reflecting

higher forbearance arrangements. Provision coverage was lower at
41% (2013 - 53%) reflecting an increase in collateral values.
265

No missed payments
Balance
m
2014
2013
2012
2,231
1,362
915
Provision
m
299
166
100
Balance
m
689
631
546
Provision
m
110
76
60
Balance
m
Total
Provision
m
960
789
527
267
323
194
Balance
m
3,880
2,782
1,988
Provision
m
Forborne
balances (1)
%
676
565
354
22.2
14.6
10.4
Notes:
(2) Forbearance in Ulster Bank includes all changes to the contractual payment terms, including those where the customer is up-to-date on payments and there is no obvious evidence of financial
difficulty.
(3) Includes the current stock position of forbearance deals agreed since early 2009 for Ulster Bank.
The incidence of the main types of personal forbearance on the balance sheet are analysed below.
2014
m

Payment concessions (1)
Capitalisation of arrears
Total (2)
346
501
2,305
1,364
4,516
2013
m
512
325
1,567
494
2,898
2012
m
924
183
762
119
1,988
Notes:
(1) Includes 77 million of loans (2013 - 365 million; 2012 - 10 million) where an interest rate discount has been agreed resulting in a reduction of contractual cash flows through forgiveness of
interest.
The table below shows forbearance agreed during the year split between performing and non-performing.
2014
m
2,177
1,053
3,230
2013
m
2,223
1,213
3,436
2012
m
2,111
1,009
3,120
Notes:
266
Key points
At 31 December 2014, 22.2% of total mortgage assets (3.9 billion)
were subject to a forbearance arrangement, an increase of 40%
(2.8 billion) from 31 December 2013. This reflects Ulster Banks
proactive strategies to contact customers in financial difficulty to
offer assistance.
Although the forbearance stock increased by 40% during the year,

the number of customers approaching Ulster Bank for assistance for
the first time has declined through 2014. This can be attributed to a
greater number of mortgages being moved to longer-term
arrangements, and therefore not exiting forbearance.
The majority of loans subject to forbearance arrangements (75%)
were less than 90 days in arrears.
The remaining forbearance loans were short-term arrangements

accounting for 39% of the forbearance portfolio.
Temporary interest only arrangements decreased during 2014 to 8%

of forbearance loans at 31 December 2014 (2013 - 18%). This
reflects Ulster Banks strategy to transition customers in financial
difficulty to long-term arrangements.
Payment concessions represented the remaining 31%, comprising:

arrangements where payments amortised the outstanding balance
(26%); a diminishing portfolio of arrangements that negatively
amortised (4%); and payment holidays (1%).
The impairment provision cover on forbearance loans remained

significantly higher than that on assets not subject to forbearance.
The mix of forbearance treatments in Ulster Bank changed, with an

increase in longer-term solutions. A total of 61% of forbearance
loans were subject to a long-term arrangement at 31 December
2014 (2013 - 41%). These long-term arrangements were comprised
of: i) Capitalisations which represented 30% of forbearance stock at
31 December 2014 (2013 - 17%); ii) Term extensions - 11%
(unchanged from 2013); and iii) economic concessions - 20% (2013
- 13%). Economic concessions are offered for periods up to eight
years and incorporate different levels of repayment based on
customer circumstances.
Interest only*
Ulster Bank stopped offering interest only loans as a standard mortgage offering for new lending in the Republic of Ireland in 2010 and in Northern
Ireland in 2012. Interest only mortgages are now granted only to high net worth customers or customers in need of forbearance.
2014
Mortgages
m
Variable rate
Fixed rate
Interest only loans
Mixed repayment (1)
Total
1,238
25
1,263
204
1,467
2013
Mortgages
m
2,031
38
2,069
277
2,346
Note:
*unaudited
267

The tables below show interest only mortgage portfolios (excluding mixed repayment mortgages) by type and by contractual year of maturity.
2015 (1)
m
2014

Conversion to amortising (2,3)
Total
9
366
375
2014 (4)
m
2013

Total
10
864
874
2016-17
m
30
206
236
2015-16
m
25
350
375
2018-22
m
2023-27
m
80
29
109
2017-21
m
2028-32
m
109
2
111
250
4
254
2022-26
m
85
120
205
2033-42
m
2027-31
m
106
9
115
After 2042
m
152
152
2032-41
m
224
13
237
Total
m
26
26
656
607
1,263
After 2041
m
200
27
227
Total
m
28
8
36
678
1,391
2,069
Notes:
(2) Includes 0.3 billion (2013 - 0.5 billion) of repayment mortgages that have been granted interest only concessions (forbearance).
(3) Maturity date relates to the expiry of the interest only period.
The table below shows the arrears status of the personal mortgage portfolio by mortgage type.
2014
Interest only
Bullet principal
Conversion to
repayment
amortising
m
m
Arrears status
Current
90+ days in arrears
Total
561
25
70
656
474
54
79
607
Other
m
12,756
1,058
2,429
16,243
Total
m
13,791
1,137
2,578
17,506
2013
Interest only
Bullet principal
Conversion to
repayment
amortising
m
m
565
35
78
678
1,053
152
186
1,391
Other
m
12,642
1,352
2,971
16,965
Total
m
14,260
1,539
3,235
19,034
Key points
Ulster Banks interest only mortgages require full principal
repayment (bullet) at the time of maturity; or payment of both capital
and interest from the end of the interest only period, typically seven
years, so that customers meet their contractual repayment
obligations. For bullet customers, contact strategies are in place to
remind them of the need to repay principal at the end of the
mortgage term.
Typically interest only mortgages have a remaining term of 16 years.
The impairment charge on unsecured lending was 19.9 million for the
year, down 12% on 2013.
Of the bullet mortgages that matured in the six months to 30 June

2014 (3.3 million), 37% had been fully repaid by 31 December
2014 leaving residual balances of 2.1 million, 81% of which were
meeting the terms of a revised repayment schedule. Of the
amortising loans that matured in the six months to 30 June 2014
(232.6 million), 66% were either fully repaid or meeting the terms of
a revised repayment schedule.
Of the 1.3 billion interest only mortgages 0.9 billion related to

owner-occupier mortgages and 0.3 billion related to buy-to-let
mortgages.
Personal lending
The Ulster Bank personal lending portfolio comprised credit cards,
unsecured loans and overdrafts, and totalled 591 million at 31
December 2014 (2013 - 740 million). Loans decreased by 24%.
Unsecured retail forbearance was 4m in 2014 (out of 591m unsecured

loans).
*unaudited
268
Mortgages
Risk mitigation
The table below shows LTVs for the Private Banking residential mortgage
(AQ10), with the average LTV calculated on a weighted value basis. Loan
balances are shown as at the end of the year whereas property values
are calculated using property index movements since the last formal
valuation.
Private Banking
Overview
The majority of the Private Banking personal lending portfolio relates to
mortgage lending. Total gross lending of 14.1 billion comprised 7.8% of
RBSs gross personal lending of 179.8 billion. 8.9 billion related to
mortgage lending and 5.2 billion to other lending (loans, overdrafts and
current accounts).
2014

<= 50%
> 50% and <= 70%
> 70% and <= 90%
> 90% and <= 100%
> 100% and <= 110%
> 110% and <= 130%
> 130% and <= 150%
> 150%
Total with LTVs
Other (2)
Total
2013
Of Which:
Total
IOL (1)
m
3,493
3,667
1,379
64
33
15
12
22
8,685
124
8,809
14
14
24
9
5
9
1
3
79
1
80
3,507
3,681
1,403
73
38
24
13
25
8,764
125
8,889
51%
80%
51%
2,727
2,711
679
44
35
22
12
22
6,252
105
6,357
m
2012
Of Which:
Total
IOL (1)
m
3,400
3,397
1,337
87
87
27
4
24
8,363
215
8,578
16
20
44
7
15
6
4
6
118
5
123
3,416
3,417
1,381
94
102
33
8
30
8,481
220
8,701
51%
77%
51%
48%
2,561
2,332
660
65
96
30
7
26
5,777
191
5,968
Total
3,905
2,790
1,080
93
69
49
16
29
8,031
674
8,705
9
12
27
7
13
7
3
3
81
81
3,914
2,802
1,107
100
82
56
19
32
8,112
674
8,786
51%
78%
51%
Of Which:
IOL (1)
m
2,982
1,897
474
74
75
50
19
22
5,593
245
5,838
52%
Notes:
Forbearance
Forbearance is offered to private banking customers on a limited basis and represents less than 1.1% of the total mortgage portfolio. The main types of
forbearance offered are in the form of term extensions.
No missed payments
Balance
m
2014
2013
2012
91
112
38
Provision
m
1
3
Balance
m
3
6

Balance
m
6
9
7
Total
Provision
m
Balance
m
100
127
45
Provision
m
2
3
Forborne
balances (1)
%
1.1
1.5
0.5
Note:

Payment concessions
Other
Total (1)
2014
m
2013
m
2012
m
1
46
18
35
100
29
12
86
127
6
27
9
3
45
Note:
269

2014
m
2013
m
2012
m
89
22
111
41
22
63
18
2
20
Notes:
Interest only*
Private Banking portfolios offer interest only mortgages to high net worth customers.
The table below shows interest only mortgages by interest rate and repayment type.
2014
Mortgages
m
Variable rate
Fixed rate
Interest only loans
Mixed repayment (1)
Total
4,810
1,547
6,357
6,357
2013
Mortgages
m
Other loans
m
1,779
99
1,878
11
1,889
5,062
906
5,968
375
6,343
Other loans
m
1,276
71
1,347
6
1,353
Note:
The tables below show interest only mortgage portfolios (excluding mixed repayment mortgages) by type and by contractual year of maturity.
2014
2015 (1)
m
2016-17
m
2018-22
m
Bullet principal repayment
1,290
1,634
2,284
2013
2014 (2)
m
2015-16
m
2017-21
m
2022-26
m
1,853
1,853
2,250
2
2,252
Bullet principal repayment

Conversion to amortising (3)
Total
239
1
240
911
911
2023-27
m
630
2028-32
m
2033-42
m
356
2027-31
m
After 2042
m
162
2032-41
m
492
4
496
1
After 2041
m
159
9
168
48
48
Total
m
6,357
Total
m
5,952
16
5,968
Notes:
The table below shows the arrears status of Private Bankings personal mortgage portfolio by mortgage type.
2014
Interest only
Bullet principal
repayment
m
Arrears status
Current
90+ days in arrears
Total
6,311
13
33
6,357
Other
m
2,497
19
16
2,532
Total
m
8,808
32
49
8,889
2013
Interest only
Bullet principal
Conversion to
repayment
amortising
m
m
5,839
33
80
5,952
16
16
Other
m
2,694
17
22
2,733
Total
m
8,549
50
102
8,701
*unaudited
270
Mortgages
Risk mitigation
The table below shows LTVs for CFG, residential mortgages split
between performing (AQ1-AQ9) and non-performing (AQ10), with the
average LTV calculated on a weighted value basis. Loan balances are
shown as at the end of the year whereas property values are calculated
using property index movements since the last formal valuation.
CFG
Overview
The majority of the CFG personal portfolio relates to mortgage lending.
Total gross lending of 32.0 billion comprised 17.8% of RBSs gross
personal lending of 179.8 billion. 21.1 billion related to mortgage
lending and 10.9 billion to other lending (loans and overdrafts) and auto
loans.
2014
Loan-to-value ratio by value (1)

<= 50%
> 50% and <= 70%
> 70% and <= 90%
> 90% and <= 100%
> 100% and <= 110%
> 110% and <= 130%
> 130% and <= 150%
> 150%
Total with LTVs
Other (3)
Total
4,498
6,601
6,350
1,256
672
516
119
64
20,076
624
20,700
67%
2013
Of which:
Total
IOL (2)
m
77 4,575
105 6,706
141 6,491
48 1,304
24
696
17
533
4
123
3
67
419 20,495
3
627
422 21,122
73%
1,792
3,436
3,372
624
311
191
32
14
9,772
157
9,929
4,669
5,529
5,553
1,309
752
637
183
102
18,734
463
19,197
67%
67%
68%
2012
Of which:
Total
IOL (2)
m
98 4,767
89 5,618
110 5,663
39 1,348
22
774
17
654
5
188
4
106
384 19,118
3
466
387 19,584
69%
2,146
2,929
3,019
525
223
144
32
20
9,038
234
9,272
67%
68%
4,167
4,806
6,461
2,011
1,280
1,263
463
365
20,816
292
21,108
75%
Total
m
51 4,218
76 4,882
114 6,575
57 2,068
43 1,323
42 1,305
14
477
14
379
411 21,227
19
311
430 21,538
86%
Of which:
IOL (2)
m
1,433
2,363
3,595
959
509
431
123
98
9,511
30
9,541
75%
64%
Notes:
(1) Includes residential mortgages and home equity loans and lines.
Key points
The mortgage portfolio consisted of 7.8 billion of residential
mortgages (1% in second lien position) and 13.3 billion of home
equity loans and lines of credit (HELOC) - first and second liens.
Home equity consisted of 45% in first lien position. A Serviced By
Others (SBO) portfolio, which is predominantly (95%) second lien, is
included in the home equity book.
The SBO portfolio, which was closed to new purchases in the third
quarter of 2007, decreased from 1.4 billion to 1.3 billion.
The overall mortgage portfolio credit characteristics are stable with a

weighted average LTV of 67% at 31 December 2014. The weighted
average LTV of the portfolio, excluding SBO, was 65%.
CFG continued to focus on its footprint states of New England, MidAtlantic and Mid-West regions. At 31 December 2014, the portfolio
consisted of 17.1 billion (82% of the total portfolio) within footprint.
271

No missed payments
Balance
m
2014
2013
2012
310
287
Provision
m
25
26
Balance
m
34
33
179
Provision
m
4
3
25
Balance
m
Total
Provision
m
65
53
160
Balance
m
10
Provision
m
409
373
339
29
29
35
Forborne
balances (1)
%
1.9
1.9
1.6
Note:
The incidence of the main types of personal forbearance on the balance sheet are shown below.

Payment concessions (1)
Other
Total (2)
2014
m
2013
m
2012
m
56
254
99
409
35
246
92
373
339
339
Notes:
(1) Includes 18 million of loans (2013 - 62 million) where an interest rate discount has been agreed resulting in a reduction of contractual cash flows through forgiveness of interest.
2014
m
2013
m
2012
m
76
76
101
101
88
71
159
Notes:
Key point
CFG participates in the US-government mandated Home Affordable Modification Program, as well as its own proprietary programme. Both feature
a combination of term extensions, capitalisations of arrears, interest rate reductions and loan conversions from interest only to amortising. These
tend to be permanent changes to contractual terms. In order to qualify for either of these programmes, customers must meet government-specified
or internal criteria that provide evidence of financial difficulty and demonstrate a willingness to pay. The 12-month default rate, on a value basis, for
forbearance was 15% in 2014.
Interest only*
The table below shows the interest only mortgage and HELOC portfolios by interest rate and repayment type.
2014
Mortgages
m
Variable rate
Fixed rate
Interest only loans
Mixed repayment
Total
9,637
292
9,929
788
10,717
Other loans
m
59
34
93
93
2013
Mortgages
m
9,221
51
9,272
1,149
10,421
Other loans
m
23
40
63
63
*unaudited
272
The table below shows the interest only mortgage and HELOC portfolios (excluding mixed repayment mortgages) by type and contractual year of
maturity.
2014
2015 (1)
m
2016-17
m
2018-22
m
2023-27
m

Total
93
1,156
1,249
70
1,879
1,949
9
4,432
4,441
2,147
2,147
2013
2014 (3)
m
2015-16
m
2017-21
m
2022-26
m

Total
133
997
1,130
193
5,609
5,802
13
2,123
2,136
2028-32
m
2033-42
m
19
19
2027-31
m
13
133
146
9
9
2032-41
m
17
17
After 2042
m
115
115
After 2041
m
17
7
24
17
17
Total
m
172
9,757
9,929
Total
m
403
8,869
9,272
Notes:
The table below shows the arrears status of personal mortgages and HELOC loans by type.
2014
Interest only
Bullet principal
Conversion to
repayment
amortising
m
m
Arrears status
Current
90+ days in arrears
Total
145
17
10
172
9,365
314
78
9,757
Other
m
10,247
612
334
11,193
Total
m
19,757
943
422
21,122
2013
Interest only
Bullet principal
Conversion to
repayment
amortising
m
m
348
37
18
403
8,529
260
80
8,869
Other
m
10,002
65
245
10,312
Total
m
18,879
362
343
19,584
Key points
CFG has a portfolio of interest only bullet repayment HELOC loans
(0.2 billion at 31 December 2014) for which repayment of principal
is due at maturity, and an interest only portfolio that comprises loans
that convert to amortising after an interest only period (typically ten
years). The majority of the bullet loans are due to mature in 2015.
Personal lending
CFGs credit card portfolio is comprised of good quality consumer loans
originated in-footprint through the branch network and totalled 952
million at 31 December 2014 (2013 - 945 million). The product portfolio
credit quality continued to improve with weighted average credit scores
for new originations throughout 2014 higher than the portfolio average.
The auto portfolio totalled 7.9 billion at 31 December 2014 of which 6.9
billion has been originated through dealer networks and 1.0 billion of
purchased pools of prime auto loans. CFG increased its exposure to auto
loans during the year, within the risk appetite set as part of CFGs
strategy.
Of the bullet repayment loans that matured in the six months to 30

June 2014, 48.9% had been fully repaid by 31 December 2014. The
unpaid balance totalled 103 million, 90.8% of which continued to
meet agreed payment arrangements. Of the amortising loans that
matured in the six months to 30 June 2014, 64.3% had been fully
repaid by 31 December 2014. The unpaid balance totalled 15
million, 83.2% of which continued to meet agreed payment
arrangements.
For loans secured by vehicles and credit cards, CFG may offer temporary
interest rate modifications, but no principal reductions. Forbearance may
also be offered to student loan customers consistent with the policy
guidelines of the US Office of the Comptroller of the Currency. 140
million (1.3% of the unsecured balances) were subject to forbearance at
31 December 2014 (includes auto and recreational vehicle marine
portfolios and excludes small business loans as these are included as
part of wholesale reporting).
*unaudited
273

275
Financial assets
275
- Exposure summary and credit mitigation
277
- Sector concentration
279
- Asset quality
281
Debt securities
281
- Issuer and IFRS measurement classification
282
- Ratings
283
- Asset-backed securities
284
Equity shares
285
Derivatives
285
- Summary and uncollateralised exposure
287
- Settlement basis and central counterparties
287
- Credit derivatives
288
REIL, provisions and AFS reserves
288
- Loans and related credit metrics
288
- Segmental analysis
290
- Sector and geographical concentration
293
- REILs and impairments
297
- AFS reserves
297
- By issuer
297
- Gross unrealised losses
274

Credit risk assets analysed on pages 237 to 241 are reported internally to senior risk management. However, they exclude certain exposures, primarily
securities and reverse repurchase agreements and take account of legal netting agreements, that provide a right of legal set-off but do not meet the
criteria for offset in IFRS. The tables that follow are therefore provided to supplement the credit risk assets analysis and other analysis to reconcile to the
balance sheet. All the disclosures in this section are audited.
Financial assets
Exposure summary and credit mitigation
The following table analyses financial assets exposures, both gross and net of offset arrangements as well as credit mitigation and enhancement.
2014

Reverse repos
Lending
Debt securities
Equity shares
Derivatives
Settlement balances
Total
Short positions
Net of short positions
Gross
exposure
bn
IFRS
offset (1)
bn
Carrying Balance sheet

value (2)
offset (3)
bn
bn
Exposure
Collateral
post credit
Real estate and other
Credit mitigation and
Cash (4) Securities (5) Residential (6) Commercial (6) enhancement(7) enhancement
bn
bn
bn
bn
bn
bn
75.5
95.5
423.4
101.9
6.2
599.4
6.7
1,308.6
(23.0)
1,285.6
75.5
(30.8)
64.7
(3.8)
419.6
101.9
6.2
(245.4)
354.0
(2.0)
4.7
(282.0) 1,026.6
(23.0)
(282.0) 1,003.6
(5.0)
(40.2)
(295.3)
(340.5)
(340.5)
(1.6)
(33.3)
(34.9)
(34.9)
(59.7)
(4.1)
(7.0)
(70.8)
(70.8)
(149.5)
(149.5)
(149.5)
(57.7)
(57.7)
(57.7)
(5.8)
(0.2)
(14.3)
(20.3)
(20.3)
75.5
160.7
101.7
6.2
4.1
4.7
352.9
(23.0)
329.9
82.7
117.2
423.6
113.6
8.8
553.7
8.2
1,307.8
(28.0)
1,279.8
(40.7)
(3.4)
(265.7)
(2.7)
(312.5)
(312.5)
(11.4)
(37.2)
(241.3)
(0.3)
(290.2)
(290.2)
(1.6)
(24.4)
(26.0)
(26.0)
(65.0)
(2.7)
(6.0)
(73.7)
(73.7)
(145.4)
(145.4)
(145.4)
(60.0)
(60.0)
(60.0)
(3.9)
(1.3)
(7.3)
(12.5)
(12.5)
82.7
0.1
169.4
112.3
8.8
9.0
5.2
387.5
(28.0)
359.5
2013

Reverse repos
Lending
Debt securities
Equity shares
Derivatives
Settlement balances
Total
Short positions
82.7
76.5
420.2
113.6
8.8
288.0
5.5
995.3
(28.0)
967.3
Notes:
(1) Relates to offset arrangements that comply with IFRS criteria and transactions cleared through and novated to central clearing houses, primarily London Clearing House and US Government
Securities Clearing Corporation.
(2) The carrying value on the balance sheet represents the exposure to credit risk by class of financial instrument.
(3) Balance sheet offset reflects the amounts by which RBSs credit risk is reduced through master netting and cash management pooling arrangements. Derivative master netting agreements include
cash pledged with counterparties in respect of net derivative liability positions and are included in lending.
(4) Includes cash collateral pledged by counterparties based on daily mark-to-market movements of net derivative positions with the counterparty.
(5) Securities collateral represent the fair value of securities received from counterparties, mainly relating to reverse repo transactions as part of netting arrangements.
(6) Property valuations are capped at the loan value and reflect the application of haircuts in line with regulatory rules to indexed valuations. Commercial collateral includes ships and plant and
equipment collateral.
(7) Credit enhancement comprises credit derivatives (bought protection) and guarantees and reflects notional amounts less fair value and notional amounts respectively.
275
Balance sheet analysis continued
2012

Reverse repos
Lending
Debt securities
Equity shares
Derivatives (3)
Settlement balances
Other financial assets
Total
Short positions
Gross
exposure
bn
IFRS
offset (1)
bn
Carrying
value
bn
Balance sheet
offset (2)
bn
Exposure
post offset
bn
79.3
143.2
464.7
164.6
15.2
815.4
8.1
1.1
1,691.6
(27.6)
1,664.0
(38.4)
(1.5)
(373.5)
(2.4)
(415.8)
(415.8)
79.3
104.8
463.2
164.6
15.2
441.9
5.7
1.1
1,275.8
(27.6)
1,248.2
(17.4)
(42.2)
(409.2)
(1.8)
(470.6)
(470.6)
79.3
87.4
421.0
164.6
15.2
32.7
3.9
1.1
805.2
(27.6)
777.6
Notes:
(1) Relates to offset arrangements that comply with IFRS criteria and transactions cleared through and novated to central clearing houses, primarily London Clearing House and US Government
Securities Clearing Corporation.
(2) This reflects the amounts by which RBSs credit risk is reduced through master netting and cash management pooling arrangements. Derivative master netting agreements include cash pledged with
counterparties in respect of net derivative liability positions and are included in lending.
(3) Includes cash collateral required against derivative assets of 34.3 billion.
Key points
Financial assets after credit mitigation and enhancement fell by 35
billion or 9% principally reflecting lower funded assets (35 billion)
as both CIB and RCR implemented strategic balance sheet
reductions through wind-down and disposals.
The major components of net exposure are cash and balances at

central banks, unsecured commercial, corporate and bank loans,
debt securities and short-term settlement balances.
Of the 102 billion of debt securities, 25 billion are asset-backed

but underlying collateral is not reflected above as RBS only has
access to cash flows from the collateral.
276
Sector concentration
The following tables analyse financial assets by industry sector.
2014
Central and local government

Financial institutions - banks
- other (2)
Personal - mortgages
- unsecured
Property
Construction
Manufacturing
Finance leases and instalment credit
Retail, wholesale and repairs
Transport and storage
Health, education and leisure
Utilities
Other
Total gross of provisions
Provisions
Total
Reverse
repos
m
Lending
m
Securities
Debt
m
Equity
m
Derivatives
m
Other
financial
assets
m
Balance
sheet value
m
Offset (1)
m
Exposure
post offset
m
10
20,708
43,682
265
30
64,695
64,695
9,079
24,812
39,611
150,572
29,155
51,546
5,657
22,035
14,030
18,498
14,299
15,932
7,969
4,825
29,593
437,613
(18,040)
419,573
69,842
5,090
24,735
165
11
665
21
252
214
59
4
242
919
102,219
(277)
101,942
693
1,842
137
53
1,602
438
57
25
37
127
1,263
6,274
(67)
6,207
4,857
240,415
92,851
2,360
389
2,194
26
735
2,261
670
180
4,357
2,697
353,992
353,992
251
84,039
75,494
367,212
4,284
207,005
150,572
2
29,157
8
54,216
6,110
48
26,809
14,077
13
19,936
16,831
16,686
8,190
9,551
61
34,563
80,161 1,044,954
(18,384)
80,161 1,026,570
(5,041)
(248,341)
(108,993)
(903)
(896)
(2,032)
(1)
(1,735)
(1,027)
(709)
(198)
(1,150)
(2,776)
(373,802)
n/a
(373,802)
78,998
118,871
98,012
150,572
29,157
53,313
5,214
24,777
14,076
18,201
15,804
15,977
7,992
8,401
31,787
671,152
(18,384)
652,768
247
26,557
49,156
466
28
76,454
76,454
8,643
27,640
35,948
148,533
28,160
62,292
6,331
21,377
13,587
19,574
16,697
16,084
6,942
4,960
28,624
445,392
(25,225)
420,167
70,267
7,869
33,219
225
24
735
14
244
299
103
5
176
762
113,942
(319)
113,623
688
2,538
326
117
2,168
5
446
82
86
57
285
2,112
8,910
(99)
8,811
4,049
200,091
69,851
2,794
451
1,265
13
882
2,186
661
218
3,271
2,308
288,040
288,040
578
83,784
82,661
345,506
4,859
195,571
148,533
6
28,166
65,637
7
6,930
43
26,054
13,619
11
21,157
19,264
14
16,948
7,222
23
8,715
50
33,884
88,252 1,020,990
(25,643)
88,252
995,347
(4,433)
(207,203)
(90,610)
(689)
(1,370)
(2,525)
(17)
(1,962)
(866)
(853)
(165)
(1,064)
(2,776)
(314,533)
n/a
(314,533)
79,351
138,303
104,961
148,533
28,166
64,948
5,560
23,529
13,602
19,195
18,398
16,095
7,057
7,651
31,108
706,457
(25,643)
680,814
2013

- other (2)
- unsecured
Property
Construction
Manufacturing
Utilities
Other
Provisions
Total
277
2012

- other (2)
- unsecured
Property
Construction
Manufacturing
Utilities
Other
Provisions
Total
Reverse
repos
m
441
34,783
69,256
326
24
104,830
104,830
Securities
Debt
m
Lending
m
9,853
31,394
42,198
149,625
32,212
72,219
8,049
23,787
13,609
21,936
18,341
16,705
7,877
6,631
30,057
484,493
(21,262)
463,231
97,339
11,555
50,104
774
17
836
82
461
659
314
144
1,311
1,886
165,482
(858)
164,624
Equity
m
1,643
2,672
318
264
1,639
1
1,807
382
554
51
638
5,380
15,349
(112)
15,237
Derivatives
m
5,791
335,521
80,817
4,118
820
1,759
13
914
3,397
904
493
3,170
4,201
441,918
441,918
Other
financial
assets
m
Balance
sheet value
m
Offset (1)
m
Exposure
post offset
m
591
114,015
79,308
494,204
5,591
250,638
149,625
4
32,216
77,429
9,150
144
28,491
13,705
41
25,159
2
22,781
59
18,536
11
8,576
50
11,800
172
41,720
85,973 1,298,045
(22,232)
85,973 1,275,813
(5,151)
(341,103)
(106,021)
(1,333)
(1,687)
(3,775)
(1,785)
(3,240)
(964)
(348)
(2,766)
(2,403)
(470,576)
n/a
(470,576)
108,864
153,101
144,617
149,625
32,216
76,096
7,463
24,716
13,705
23,374
19,541
17,572
8,228
9,034
39,317
827,469
(22,232)
805,237
Notes:
(1) This shows the amount by which credit risk exposure is reduced through arrangements, such as master netting agreements and cash management pooling, which give RBS a legal right to set off the
financial asset against a financial liability due to the same counterparty. In addition, RBS holds collateral in respect of individual loans and advances to banks and customers. This collateral includes
mortgages over property (both personal and commercial); charges over business assets such as plant, inventories and trade debtors; and guarantees of lending from parties other than the borrower.
RBS obtains collateral in the form of securities in reverse repurchase agreements. Cash and securities are received as collateral in respect of derivative transactions.
(2) Includes loans made by consolidated conduits to asset owning companies.
For geographic concentrations refer to:

Lending: Loans and related credit metrics
Debt securities: Issuer and IFRS measurement and Country risk
Equity shares; and
Derivatives: Summary and uncollateralised exposures
Mortgage lending grew by 2.0 billion reflecting a 3.9 billion

increase in UK PBB, partially offset by a 1.5 billion decrease in
Ulster Bank where repayments outstripped new lending. CFG also
saw an increase reflecting portfolio acquisition as well as through
foreign currency movements
Key points
Overall exposure before impairment provision post offset fell by
35.3 billion or 5% in 2014 to 671.2 billion. This was in line with
RBS's continued focus on reducing exposure concentrations,
running down assets in RCR and winding down certain portfolios in
CIB.
Property and construction exposure fell by 12.0 billion, 9.3 billion

of which was in commercial real estate lending (refer to Credit risk Key credit portfolios - Commercial real estate on page 251).
There has been a significant increase in CFG lending across a

broad range of industry sectors reflecting in line with business
strategy and risk appetite
278
Asset quality
The asset quality analysis presented below is based on internal asset
quality ratings which have ranges for the probability of default, as set out
below. Customers are assigned credit grades, based on various credit
grading models that reflect the key drivers of default for the customer
type. All credit grades across RBS map to both an asset quality scale,
used for external financial reporting, and a master grading scale for
wholesale exposures used for internal management reporting across
portfolios. Debt securities are analysed by external ratings and are
therefore excluded from the following table and are set out on pages 281
to 283.
The table below details for illustrative purposes only, the relationship
between internal asset quality (AQ) bands and external ratings published
by S&P, for illustrative purposes only. This relationship is established by
observing S&Ps default study statistics, notably the one year default
rates for each S&P rating grade. A degree of judgement is required to
relate the probability of default (PD) ranges associated with the master
grading scale to these default rates given that, for example, the S&P
published default rates do not increase uniformly by grade and the
historical default rate is nil for the highest rating categories.
Asset quality band

AQ1
AQ2
AQ3
AQ4
AQ5
AQ6
AQ7
AQ8
AQ9
AQ10

0% - 0.034%
0.034% - 0.048%
0.048% - 0.095%
0.095% - 0.381%
0.381% - 1.076%
1.076% - 2.153%
2.153% - 6.089%
6.089% - 17.222%
17.222% - 100%
100%
Indicative
S&P rating
AAA to AA
AAA+ to A
A- to BBBBB+ to BB
BB- to B+
B+ to B
B- to CCC+
CCC to C
D
The mapping to the S&P ratings is used by RBS as one of several

benchmarks for its wholesale portfolios, depending on customer type and
the purpose of the benchmark. The mapping is based on all issuer types
rated by S&P. It should therefore be considered illustrative and does not,
for instance, indicate that exposures reported against S&P ratings either
have been or would be assigned those ratings if assessed by S&P. In
addition, the relationship is not relevant for retail portfolios, smaller
corporate exposures or specialist corporate segments given that S&P
does not typically assign ratings to such issuers.
Loans and advances
2014
AQ1
AQ2
AQ3
AQ4
AQ5
AQ6
AQ7
AQ8
AQ9
AQ10
Past due
Impaired
Impairment
provision
Cash and
balances at
central banks
m
73,871
1,433
185
Banks (1)
Derivative
Reverse
cash
Bank
repos collateral
loans
m
m
m
2,479
4,143
2,538
8,336
2,076
636
500
3,765
4,625
1,348
1,391
225
58
90
1
6
Total
m
5,463 11,707
818 9,586
3,047 6,933
2,891 12,618
572 2,873
106
800
292
882
40
41
32
38
42
42
Customers
Derivative
Reverse
cash Customer
repos collateral
loans
m
m
m
Settlement
balances and
other financial
Contingent
Total
assets Derivatives Commitments
liabilities
m
m
m
m
m
27,007 12,526 33,913 73,446

400 1,602 18,077 20,079
8,664 4,335 29,093 42,092
5,124 2,798 122,349 130,271
1,902
520 72,994 75,416
42
45 41,468 41,555
848
34 26,203 27,085
6
6,386
6,392
9
4,727
4,736
984
984
8,196
8,196
26,536 26,536
1,610 65,632
146 100,222
460 123,882
852 49,929
438 10,872
43
1,118
26
1,146
12
533
173
31
485
1,049
53,246
17,483
29,768
56,122
35,622
13,268
6,991
848
404
1,132
(40)
(40)
(18,000) (18,000)
75,494 20,708 11,509 13,263 45,480 43,987 21,875 372,926 438,788
4,667 353,992
214,884
6,364
3,064
5,946
5,821
2,505
1,223
930
149
245
55
Total
m
Total
%
285,876
150,580
210,514
255,798
127,726
58,007
37,060
7,980
5,596
2,687
9,245
26,578
24.7
13.0
18.1
22.1
11.0
5.0
3.2
0.7
0.5
0.2
0.8
2.3
(18,040)
26,302 1,159,607
(1.6)
100
279

Loans and advances
Banks (1)
Cash and
Derivative
balances at Reverse
cash
Bank
central banks
repos collateral
loans
m
m
m
m
2013
AQ1
AQ2
AQ3
AQ4
AQ5
AQ6
AQ7
AQ8
AQ9
AQ10
Past due
Impaired
Impairment
provision
80,305
1
1,873
479
5,885
4,744
2,164
9,864
1,776
1,823
301
2,043
4,930
1,502
1,451
416
1
Total
m
Reverse
repos
m
6,039 13,967 30,233

672 10,346
996
2,347 6,013
1,857
7,031 18,346 10,642
662 2,854
5,403
157 1,981
82
237
538
684
48
48
34
34
70
70
(63)
(63)
82,661 26,557 10,343 17,234 54,134 49,897
Customers
Derivative
cash Customer
collateral
loans
m
m
10,042
1,899
3,796
1,894
297
38
50
10
41
Settlement
balances and
other financial
Contingent
Total
assets DerivativesCommitments
liabilities
m
m
m
m
m
34,395 74,670
17,695 20,590
29,364 35,017
99,258 111,794
77,045 82,745
39,324 39,444
30,279 31,013
8,482
8,492
16,944 16,985
730
730
9,068
9,068
37,101 37,101
2,707
192
746
470
717
59
22
58
620
71,497
69,949
94,678
39,157
8,826
1,487
978
132
641
695
(25,162) (25,162)
18,067 374,523 442,487
5,591 288,040
42,963 15,022 39,734 97,719

710
704 13,101 14,515
2,886
3,917 25,252 32,055
14,079
2,144 104,060 120,283
8,163
679 92,147 100,989
86
50 40,096 40,232
1,133
12 36,223 37,368
4
2 12,812 12,818
23
7 17,431 17,461
807
807
249 10,285 10,534
38,365 38,365
2,671 100,652
185 108,733
539 152,810
1,202 58,705
659 13,244
73
2,175
191
3,205
8
262
137
1,360
1
772
999
(114) (114)
(21,148) (21,148)
79,308 34,783 12,789 18,491 66,063 70,047 22,786 409,165 501,998
6,665 441,918
64,453
28,717
23,126
40,984
33,507
14,138
7,437
1,183
1,020
1,274
6,739
2,940
7,057
4,430
2,087
1,426
918
119
317
137
Total
m
Total
%
314,338
132,735
168,510
215,660
130,736
58,535
40,906
10,035
18,997
2,836
9,688
37,171
28.2
11.9
15.1
19.3
11.7
5.3
3.7
0.9
1.7
0.3
0.9
3.3
(25,225)
215,839 26,170 1,114,922
(2.3)
100
2012
AQ1
AQ2
AQ3
AQ4
AQ5
AQ6
AQ7
AQ8
AQ9
AQ10
Past due
Impaired
Impairment
provision
78,039 17,806
12 3,556
1,156 5,703
100 6,251
1,183
282
3,713 10,913 32,432

4,566
526 8,648
2,241 2,757 10,701
1,761 2,734 10,746
469
787 2,439
39
357
678
236
238
68
68
93
93
134
134
63,785
20,333
23,727
40,196
28,165
13,854
19,219
5,688
1,363
1,454
8,113
2,810
7,431
5,736
2,598
1,380
1,275
185
95
238
383,411
155,236
228,419
236,968
148,094
58,392
61,496
19,029
20,510
3,272
11,533
38,499
28.5
11.6
17.0
17.6
11.0
4.4
4.6
1.4
1.5
0.2
0.9
2.9
(21,262)
217,784 29,861 1,343,597
(1.6)
100
Note:
(1) Excludes items in the course of collection from other banks of 995 million (2013 - 1,454 million; 2012 - 1,531 million).
Key points
The improving economic climate and credit conditions and disposals
strategy in RCR resulted in the proportion of investment-grade
(AQ1-AQ4) increasing from 75% to 78%.
The increase of 23 billion in AQ4 customer loans was primarily due

to the recalibration of UK residential mortgage models following
improvements in observed default rates and the implementation of
the large corporate PD model.
Derivatives increased by 66.0 billion, primarily in AQ2-AQ4 bands.
Reverse repos: AQ1 balances decreased by 6.6 billion reflecting

reduced overall trading in line with balance sheet management
strategies. Also, changes to the large corporate grading models
resulted in migrations from higher to lower quality AQ bands; this
contributed to the 7.2 billion increase in AQ3.
Changes to the residential mortgage model and large corporate PD

model also resulted in increases of 6.6 billion and 15.1 billion in
AQ3 and AQ4 commitments.
Past due loans decreased by 0.9 billion including 0.5 billion in

Ulster Bank reflecting increased work with customers in arrears and
improving economic conditions. Past due loans comprise 1.6 billion
(2013 - 2.2 billion) of accruing past due 90 days or more loans
included within risk elements in lending and 6.6 billion (2013 - 6.8
billion) of loans that are past due less than 90 days. Of the total past
due loans, 4.8 billion (2013 - 5.2 billion) relates to personal loans.
Asset quality of customer lending in AQ1-AQ3 remained stable with

higher cash collateral against increased fair value of derivatives,
partially offset by a reduction in traded loans in CIB asset-backed
products.
280
Debt securities
Issuer and IFRS measurement classification
The table below analyses debt securities by issuer and IFRS measurement classifications. US central and local government includes US federal
agencies. The other financial institutions category includes US government sponsored agencies and securitisation entities, the latter principally relating
to asset-backed securities (ABS).
2014
Held-for-trading (HFT)
Designated as at fair value (DFV)
Available-for-sale (AFS)
Loans and receivables (LAR)
Held-to-maturity
Long positions
Of which US agencies
Short positions (HFT)
Available-for-sale
Gross unrealised gains
Gross unrealised losses

UK
US
m
m
Other
m
Banks
m
Other financial
institutions
m
Corporate
m
Total
m
Of which
ABS
m
6,218
4,747
4,537
15,502
7,709
11,011
18,720
24,451
111
11,058
35,620
1,499
2
3,404
185
5,090
7,372
4
14,585
2,774
24,735
1,977
161
137
2,275
49,226
117
44,966
3,096
4,537
101,942
3,559
18,884
2,734
25,177
6,222
10,860
17,082
16,053
(4,167)
(6,413)
(10,276)
(557)
(674)
(731)
(22,818)
451
(1)
210
(117)
541
(3)
8
(1)
361
(158)
6
(2)
1,577
(282)
389
(257)
6,764
6,436
10
13,210
10,951
12,880
1
23,832
22,818
104
10,303
33,225
1,720
5,974
175
7,869
12,406
17
17,330
3,466
33,219
1,947
1
184
136
2,268
56,606
122
53,107
3,788
113,623
10,674
15
24,174
3,423
38,286
5,599
13,132
18,731
18,048
(1,784)
(6,790)
(16,087)
(889)
(1,387)
(826)
(27,763)
(36)
201
(69)
428
(86)
445
(32)
70
(205)
386
(493)
11
(2)
1,541
(887)
458
(753)
7,692
9,774
5
17,471
17,349
19,046
36,395
27,195
123
16,155
43,473
2,243
86
8,861
365
11,555
21,876
610
23,890
3,728
50,104
2,015
54
3,167
390
5,626
78,370
873
80,893
4,488
164,624
18,619
516
30,743
3,707
53,585
5,380
21,566
26,946
24,828
(1,538)
(10,658)
(11,355)
(1,036)
(1,595)
(798)
(26,980)
(17)
1,007
1,092
(1)
1,187
(14)
110
(509)
660
(1,319)
120
(4)
4,176
(1,847)
764
(1,817)
2013
Held-for-trading
Designated as at fair value
Available-for-sale
Loans and receivables
Long positions
Available-for-sale
2012
Held-for-trading
Available-for-sale
Long positions
Available-for-sale
281

Key points
HFT- Holdings of US government and ABS (primarily in the US)
decreased reflecting sales and continued focus on balance sheet
reduction and capital management in CIB. The increase in other
government bonds reflected higher activity and timing of auctions.
There was an increase in German, French and Austrian government
bonds, partially offset by reductions in Italian, Spanish and
Japanese bonds. The decrease in short positions reflects positions
settled due to increased prices resulting from low yields due to
economic volatility in the eurozone.
Gross unrealised losses on AFS debt securities have declined

significantly from 1.8 billion in 2012 and 0.9 billion in 2013 to 282
million at the end of 2014. 257 million of the 282 million was due
to asset-backed securities, of which only 128 million related to
those that had been in a loss position for more than a year primarily
reflecting risk reduction in RCR compared with 0.6 billion and 1.8
billion in 2013 and 2012.
AFS - Treasury took advantage of improved market conditions to

reduce legacy banks and other financial institutions positions;
consequently it no longer has any mortgage-backed covered bonds
(2013 - 4.6 billion).
Ratings
The table below analyses debt securities by issuer and external ratings. Ratings are based on the lowest of Standard and Poors, Moodys and Fitch.
2014
AAA
AA to AA+
A to AABBB- to ANon-investment grade
Unrated

UK
US
m
m
Other
m
Banks
m
Other financial
institutions
m
Corporate
m
Total
m
Total
%
Of which
ABS
m
15,502
15,502
6
18,714
18,720
15,533
9,879
4,958
4,822
331
97
35,620
1,319
283
2,670
277
61
480
5,090
6,086
12,215
2,534
1,184
1,247
1,469
24,735
77
117
340
772
603
366
2,275
23,021
56,710
10,502
7,055
2,242
2,412
101,942
23
56
10
7
2
2
100
4,762
16,956
688
853
1,060
858
25,177
13,210
13,210
18
23,812
2
23,832
13,106
7,847
4,200
7,572
494
6
33,225
1,434
446
1,657
3,761
341
230
7,869
8,155
16,825
1,521
2,627
2,444
1,647
33,219
162
138
290
854
427
397
2,268
22,875
62,278
7,668
14,814
3,706
2,282
113,623
20
55
7
13
3
2
100
6,796
21,054
1,470
4,941
2,571
1,454
38,286
17,471
17,471
31
36,357
6
1
36,395
17,167
7,424
11,707
6,245
928
2
43,473
2,304
1,144
2,930
4,430
439
308
11,555
11,502
26,403
3,338
4,217
3,103
1,541
50,104
174
750
1,976
1,643
614
469
5,626
48,649
72,078
19,957
16,535
5,084
2,321
164,624
30
44
12
10
3
1
100
10,758
28,775
2,897
7,394
2,674
1,087
53,585
2013
AAA
AA to AA+
Unrated
2012
AAA
AA to AA+
Unrated
282
Asset-backed securities
The table below summarises the ratings of asset-backed securities on the balance sheet.
RMBS (1)
2014
AAA
AA to AA+
A to AABBB- to ANon-investment grade (3)
Unrated (4)
Of which:
US
UK
Europe
RoW
Government
sponsored
or similar (2)
m
Prime
m
Nonconforming
m
Sub-prime
m
MBS
covered
bond
m
CMBS (1)
m
CDOs
m
CLOs
m
Other
ABS
m
Total
m
12,906
120
13,026
2,417
5
83
92
211
22
2,830
775
656
27
137
261
1,856
14
17
3
12
135
24
205
30
3,156
41
18
65
474
3,784
29
7
6
4
240
9
295
4
72
11
59
52
31
229
1,493
137
397
531
96
298
2,952
4,762
16,956
688
853
1,060
858
25,177
12,906
120
13,026
1,177
879
770
4
2,830
251
1,605
1,856
196
7
2
205
3,205
507
72
3,784
226
69
295
101
6
122
229
632
975
1,320
25
2,952
18,694
3,979
2,475
29
25,177
871
16,226
158
13
5
17,273
2,974
192
151
126
559
100
4,102
790
634
227
162
369
16
2,198
24
28
34
95
492
225
898
145
216
48
3,806
351
4,566
165
3,224
60
102
160
498
4,209
66
60
25
258
21
430
313
309
167
165
144
118
1,216
1,448
225
565
447
233
476
3,394
6,796
21,054
1,470
4,941
2,571
1,454
38,286
14,870
2,403
17,273
1,532
1,696
775
99
4,102
379
1,770
49
2,198
775
78
45
898
48
202
4,316
4,566
3,523
558
127
1
4,209
314
1
115
430
823
15
378
1,216
1,349
943
1,063
39
3,394
23,613
5,263
9,271
139
38,286
2,454
23,692
201
990
20
27,357
2,854
613
302
53
641
108
4,571
1,487
88
275
141
454
8
2,453
11
26
33
86
330
298
784
639
102
155
4,698
136
5,730
396
2,551
808
441
304
23
4,523
92
7
74
32
421
94
720
1,181
887
146
291
133
388
3,026
1,644
809
903
662
235
168
4,421
10,758
28,775
2,897
7,394
2,674
1,087
53,585
22,460
4,879
18
27,357
717
2,552
912
390
4,571
477
1,918
58
2,453
660
73
46
5
784
48
204
5,478
5,730
3,274
821
425
3
4,523
480
22
218
720
2,550
12
464
3,026
1,401
1,400
1,309
311
4,421
32,067
7,002
13,789
727
53,585
2013
AAA
AA to AA+
Unrated (4)
Of which:
US
UK
Europe
RoW
2012
AAA
AA to AA+
Unrated (4)
Of which:
US
UK
Europe
RoW
Notes:
(1) Residential mortgage-backed securities (RMBS) and commercial mortgaged-backed securities (CMBS) are securities that represent an interest in a portfolio of residential and commercial mortgages
respectively. Repayments made on the underlying mortgages are used to make payments to holders of the mortgage-backed securities (MBS). The risk of the MBS will vary primarily depending on
the quality and geographic region in which the underlying mortgage assets are located and the credit enhancement of the securitisation structure. Several tranches of notes are issued, each secured
against the same portfolio of mortgages, but providing differing levels of seniority to match the risk appetite of investors. The most junior (or equity) notes will suffer early capital and interest losses
experienced by the referenced mortgage collateral, with each more senior note benefiting from the protection provided by the subordinated notes below. Additional credit enhancements may be
provided to the holder of senior MBS notes.
The main categories of mortgages that serve as collateral to RMBS held by RBS are set out below and described in the Glossary on pages 505 to 511. The US market has more established
definitions of differing underlying mortgage quality and these are used as the basis for RBS's RMBS categorisation.
(2) Includes US agency and Dutch government guaranteed securities.
(3) Comprises HFT 387 million (2013 - 1,275 million; 2012 - 1,177 million), DFV nil (2013 - nil; 2012 - 7 million), AFS 645 million (2013 - 1,138 million; 2012 - 1,173 million) and LAR 28 million
(2013 - 158 million; 2012 - 317 million).
(4) Comprises HFT 100 million (2013 - 504 million; 2012 - 808 million), AFS 30 million (2013 - 26 million; 2012 - 149 million) and LAR 728 million (2013 - 924 million; 2012 - 130 million).
283

Equity shares
The table below analyses holdings of equity shares for eurozone countries and other countries with balances of more than 100 million by country,
issuer and measurement classification. The HFT positions in CIB, primarily in run-off and recovery businesses, are used mainly for economic hedging of
debt issuances and equity derivatives. The AFS portfolios include capital stock in the Federal Home Loan Bank (a government sponsored entity,
included in other financial institutions) and the Federal Reserve Bank, which together amounted to 0.6 billion (2013 - 0.6 billion; 2012 - 0.7 billion)
that CFG are required to hold. The remaining AFS balances are individually small holdings in unlisted companies, mainly acquired through debt for
equity transactions in Restructuring.
2014
HFT
Countries
Spain
Ireland
Italy
Portugal
Eurozone periphery
Luxembourg
Other
Total eurozone
US
UK
Japan
Australia
Other
Total
2013
2012
Banks
m
Other financial
institutions (2)
m
AFS/DFV (1)
Corporate
m
Total
m
Banks
m
Other financial
institutions (2)
m
Corporate
m
Total
AFS/DFV
m
Total
m
AFS
reserves
m
20
20
19
16
3
1
39
19
36
3
1
59
6
5
11
1
20
4
25
1
26
9
36
20
62
12
1
95
3
3
150
44
214
5
88
132
155
135
349
5
5
72
83
58
83
135
171
155
270
520
17
17
1
303
4
39
33
383
164
445
161
34
33
1,051
123
1,458
1,509
36
129
3,387
288
2,206
1,674
109
195
4,821
305
310
392
206
1
109
791
4
173
25
285
701
379
1
134
1,386
989
2,585
1,675
109
329
6,207
26
84
52
179
515
1,301
1,645
2,056
5,039
9,972
7,199
13,329
173
342
893
616
546
950
1,612
1,908
8,811
15,237
149
84
Notes:
(1) Designated as at fair value through profit or loss balances are 301 million (2013 - 400 million; 2012 - 533 million), of which 130 million are other financial institutions (2013 - 105 million; 2012 61 million) and 171 million are corporate (2013 - 295 million; 2012 - 472 million).
(2) Includes government sponsored entities.
(3) HFT short positions of 211 million (2013 - 259 million; 2012 - 611 million) included 15 million (2013 - 75 million; 2012 - 101 million) relating to non-periphery eurozone countries.
284
Derivatives
Summary and uncollateralised exposures
The table below analyses derivatives by type of contract. The master netting agreements and collateral shown below do not result in a net presentation
on the balance sheet under IFRS.
2014
Notional (1)
USD
Euro
bn
bn
GBP
bn
Interest rate (2)

Exchange rate
Credit
Equity and commodity
5,335
319
2
21
9,829
2,110
66
22
7,822
667
36
24
Counterparty mark-to-market netting

Cash collateral
Securities collateral
Net exposure
Net exposure by sector
Banks
Corporate
Government
Net exposure by region of counterparty

UK
Europe
US
RoW
Asset quality of uncollateralised derivative assets
Other
bn
2013
Total
bn
4,345 27,331
1,579 4,675
21
125
11
78
Assets
m
Liabilities Notional (1)

m
bn
269,912 259,971
78,707
83,781
2,254
2,615
3,119
3,582
353,992 349,949
(295,315) (295,315)
(33,272) (30,203)
(7,013) (14,437)
18,392
9,994
35,589
4,555
253
81
Assets
m
2012
Liabilities Notional (1)

m
bn
218,041 208,698
61,923
65,749
5,306
5,388
2,770
5,692
288,040 285,527
(241,265) (241,265)
(24,423) (25,302)
(5,990)
(8,257)
16,362
10,703
1,875
4,035
11,186
1,296
18,392
1,534
3,721
4,382
357
9,994
1,524
4,619
9,351
868
16,362
1,574
4,484
4,217
428
10,703
9,037
5,628
1,544
2,183
18,392
3,233
3,521
1,280
1,960
9,994
8,937
4,497
1,441
1,487
16,362
3,681
3,717
1,806
1,499
10,703
AQ1
3,783
5,902
AQ2
1,623
271
AQ3
2,875
1,799
AQ4
6,266
2,115
AQ5
1,779
2,833
AQ6
673
1,635
AQ7
606
749
AQ8
151
857
AQ9
151
103
AQ10
485
98
18,392
16,362
33,483
4,698
553
111
Assets
m
Liabilities
m
363,454 345,565
63,067
70,481
11,005
10,353
4,392
7,941
441,918 434,340
(374,887) (374,887)
(34,291) (31,863)
(5,644) (11,702)
27,096
15,888
Notes:
(1) Includes exchange traded contracts of 2,436 billion (2013 - 2,298 billion; 2012 - 2,497 billion) principally interest rate. Trades are margined daily hence carrying values were insignificant: assets 8 million (2013 - 69 million; 2012 - 41 million) and liabilities - 119 million (2013 - 299 million; 2012 - 255 million).
(2) Interest rate notional includes 18,452 billion (2013 - 22,563 billion; 2012 - 15,864 billion) in respect of contracts with central clearing counterparties to the extent related assets and liabilities are
offset.
285

Key points
Interest rate contracts: notional balances were 8.3 trillion lower due
to increased participation in trade compression cycles in 2014. The
fair value increased due to significant downward shifts in major
yields following further rate cuts by the European Central Bank,
European instability including Germany as well as concerns over
falling oil prices. This was partially offset by the impact of
strengthening of sterling against the euro and participation in tear
ups.
Foreign exchange contracts: the increase in fair value is driven by

the strengthening of the US dollar against the Japanese yen as the
portfolio was materially positioned long US dollar and short
Japanese yen.
Credit derivatives: notional and fair value decreased reflecting

participation in trade compression cycles and reduction in the US
Agency business within CIB. Tightening of credit spreads in Europe
and long dated spreads in the US also contributed to decrease in
fair values.
Uncollateralised derivatives predominantly comprise:
Corporates: predominantly large corporates with whom RBS

may have netting arrangements in place, but operational
capability does not support collateral posting. Transactions
include foreign exchange hedges and interest rate swaps.
Banks: transactions with certain counterparties with whom RBS

has netting arrangements but collateral is not posted on a daily
basis; certain transactions with specific terms that may not fall
within netting and collateral arrangements; derivative positions
in certain jurisdictions for example China which are either
uncollateralised or the collateral agreements are not deemed to
be legally enforceable.
Other financial institutions: transactions with securitisation

structured purpose entities and funds where collateral posting is
contingent on RBSs external rating.
Government: sovereigns and supranational entities with one

way collateral agreements in their favour.
286
Settlement basis and central counterparties

The table below analyses the derivative notional and fair value by trading and settlement method.
Traded on
recognised
exchanges
bn
2014
Interest rate
Exchange rate
Credit
Notional
Traded over the counter
Not settled
Settled by central
by central
counterparties counterparties
bn
bn
Asset
Liability
Traded on
recognised
exchanges
m
Total
bn
Traded
over the
counter
m
Traded on
recognised
exchanges
m
Traded
over the
counter
m
2,383
53
18,452
22
6,496
4,622
103
78
27,331
4,675
125
78
269,908
78,706
2,254
3,116
114
259,966
83,781
2,615
3,468
2,203
94
22,565
2
30
1
10,821
4,459
223
80
35,589
4,555
253
81
65
217,976
61,923
5,306
2,766
79
220
208,619
65,749
5,388
5,472
2,388
108
15,864
15,231
4,590
553
110
33,483
4,698
553
111
13
28
363,441
63,067
11,005
4,364
55
200
345,510
70,481
10,353
7,741
2013
Interest rate
Exchange rate
Credit
2012
Interest rate
Exchange rate
Credit
Credit derivatives
RBS trades credit derivatives to meet client needs and to mitigate its own credit risk. Credit derivative exposures relating to proprietary trading are
minimal. The table below analyses bought and sold protection.
2014
By type
Client-led trading/residual risk (1)
Credit hedging - banking book (2)
Credit hedging - trading book
- rates
- credit and mortgage markets
- other
Notional
Bought
bn
Sold
bn
2013
Fair value
Bought
bn
Sold
bn
Notional
Bought
bn
Sold
bn
Notional
Bought
bn
Sold
bn
Sold
bn
Fair value
Bought
bn
Sold
bn
52.1
1.8
50.0
0.9
0.1
1.3
124.7
2.3
111.7
0.2
1.2
0.2
1.5
250.7
5.4
240.7
0.4
3.4
0.1
3.1
14.1
0.4
0.5
68.9
6.1
56.1
0.2
0.2
1.4
0.3
1.6
5.1
2.2
0.8
135.1
4.0
1.3
0.1
117.3
0.1
0.5
2.0
0.1
0.3
1.9
9.4
22.4
1.4
289.3
5.8
16.0
0.6
263.5
0.1
0.9
4.5
0.1
0.7
3.9
2014
of which:
Monoline insurers (3)
CDPCs (3)
2012
Fair value
Bought
bn
2013
Notional
bn
Notional
bn
0.1
15.2
1.6
18.8
2012
Net
exposure
bn
0.1
0.1
Notional
bn
4.6
21.0
Net
exposure
bn
0.4
0.2
Notes:
(1) Residual risk relates to legacy positions in RCR in 2014 and in Non-Core in 2013 and 2012.
(2) Credit hedging in the banking book principally relates to portfolio management in RCR and Non-Core.
(3) Credit valuation relating to monoline insurers and credit derivative product companies (CDPCs) were 47 million (2013 - 99 million; 2012 - 506 million).
287

REIL, provisions and AFS reserves
Risk elements in lending (REIL) comprises impaired loans and accruing loans past due 90 days or more as to principal or interest. Impaired loans are all
loans (including loans subject to forbearance) for which an impairment provision has been established; for collectively assessed loans, impairment loss
provisions are not allocated to individual loans and the entire portfolio is included in impaired loans. Accruing loans past due 90 days or more comprise
loans past due 90 days where no impairment loss is expected.
Loans and related credit metrics
Segmental analysis
The tables below analyse gross loans and advances (excluding reverse repos) and the related credit metrics by reportable segment.
2014

Ulster Bank
Commercial Banking
Private Banking
Central items
RCR
Gross loans to
Banks
Customers
m
m
REIL
m
Provisions
m
REIL as a %
of gross loans
to customers
%
Credit metrics
Provisions Provisions as a %
as a %
of gross loans
of REIL
to customers
%
%
Impairment
charge/
(release)
m
Amounts
written-off
m
641
1,381
2,022
486
972
1,458
16,910
2,178
1,728
516
24,812
129,848
24,719
154,567
86,008
16,599
102,607
72,957
619
60,142
21,909
412,801
3,778
4,775
8,553
2,506
226
2,732
197
7
1,330
15,400
28,219
2,604
2,711
5,315
955
76
1,031
206
6
536
10,946
18,040
2.9
19.3
5.5
2.9
1.4
2.7
0.3
1.1
2.2
70.3
6.8
69
57
62
38
34
38
105
86
40
71
64
2.0
11.0
3.4
1.1
0.5
1.0
0.3
1.0
0.9
50.0
4.4
268
(365)
(97)
77
(5)
72
(7)
(12)
194
(1,320)
(1,170)
728
131
859
436
37
473
55
300
3,591
5,278
760
591
1,351
701
1,531
2,232
20,550
2,670
406
431
27,640
127,781
31,446
159,227
85,071
16,764
101,835
69,080
341
50,551
36,718
417,752
4,663
8,466
13,129
4,276
277
4,553
1,661
1
1,034
19,014
39,392
2,957
5,378
8,335
1,617
120
1,737
976
66
272
13,839
25,225
3.6
26.9
8.2
5.0
1.7
4.5
2.4
0.3
2.0
51.8
9.4
63
64
63
38
43
38
59
nm
26
73
64
2.3
17.1
5.2
1.9
0.7
1.7
1.4
19.4
0.5
37.7
6.0
497
1,774
2,271
652
29
681
598
65
151
4,646
8,412
967
277
1,244
587
15
602
360
284
1,856
4,346
695
632
1,327
746
1,545
2,291
21,632
3,196
435
477
2,036
31,394
129,193
32,652
161,845
85,243
17,074
102,317
80,335
107
51,271
56,343
881
453,099
5,735
7,533
13,268
4,007
248
4,255
1,097
1,146
21,374
41,140
3,467
3,910
7,377
1,547
109
1,656
743
1
285
11,200
21,262
4.4
23.1
8.2
4.7
1.5
4.2
1.4
2.2
37.9
9.1
60
52
56
39
44
39
68
nm
25
52
nm
52
2.7
12.0
4.6
1.8
0.6
1.6
0.9
0.9
0.6
19.9
4.7
740
1,364
2,104
543
46
589
218
1
83
2,320
5,315
745
72
817
358
15
373
564
391
2,121
4,266
2013

Ulster Bank
Commercial Banking
Private Banking
Central items
Non-Core
2012

Ulster Bank
Commercial Banking
Private Banking
Central items
Non-Core
Direct Line Group
288
Individual
Gross
Releases
m
m
UK PBB
Ulster Bank
PBB
Commercial Banking
Private Banking
CPB
CIB
Central items
CFG
RCR
Total
13
8
21
224
8
232
88
11
36
761
1,149
(18)
(18)
(85)
(10)
(95)
(63)
(23)
(1,759)
(1,958)
Impairment losses/(releases) for year ended 31 December 2014

Collective
Latent
Gross
Releases
Gross
Releases
m
m
m
m
330
221
551
124
124
142
220
1,037
(133)
(251)
(384)
(103)
(103)
(235)
(722)
77
103
180
3
1
4
1
16
201
(19)
(428)
(447)
(86)
(4)
(90)
(33)
(307)
(877)
Impairment provision at
31 December 2014
Total
Gross
m
420
332
752
351
9
360
89
11
194
981
2,387
Releases
m
Individual
m
(152)
(697)
(849)
(274)
(14)
(288)
(96)
(23)
(2,301)
(3,557)
14
42
56
493
69
562
110
1
83
10,565
11,377
Collective
m
2,319
2,355
4,674
366
366
157
150
5,347
Latent
m
271
314
585
96
7
103
96
5
296
231
1,316
Key points
Loans to banks decreased by 2.8 billion in the year to 24.8 billion.
This reflected RWA focused reduction in trade finance (5.4 billion)
being partially offset by derivative collateral increase, both in CIB,
as well as Ulster Banks increased cash deposits with Central Bank
of Ireland ahead of new regulatory liquidity requirements.
Loan impairment provision coverage of REIL remained stable at

64% and now stands at 18.0 billion, a 7.2 billion reduction in the
year. Provision coverage of gross loans has declined steadily during
2014 and is now 4.4% compared with 6.0% at the end of 2013, the
latter reflecting the creation of RCR. The reduction in provision
reflected write-off of 5.3 billion (3.6 billion in RCR) and impairment
Overall customer loans fell by 5.0 billion to 412.8 billion reflecting

RCR disposal strategy being partly offset by increases in CFG and
UK PBB.
releases of 3.5 billion (2.3 billion in RCR) partially offset by new

charges of 2.4 billion (1.0 billion in RCR) and currency and other
movements.
There has been a significant increase in CFG lending across a

broad range of industry sectors, including residential mortgages,
auto loans and commercial loans, in line with business strategy and
risk appetite. Exchange rate movements also contributed to the
increase.
Disposal of assets by RCR, primarily in the second half of the year,

at higher than anticipated sale prices together with favourable
market conditions in Ireland and the UK resulted in impairment
releases. Overall, there was a net loan impairment release of 1.2
billion, 1.3 billion in RCR for 2014.
UK PBBs mortgage book grew strongly by 3.9 billion to 103.2

billion as advisor capacity increased (refer to Credit Risk Key credit
portfolios on page 261 for more details). This was partially offset by
lower unsecured lending.
Commercial real estate (CRE) gross lending reduced by 9.3 billion

to 43.3 billion, related REIL is almost half of total RBS REIL and
has a provision coverage of 68%. Of the total CRE REIL of 13.3
billion, 11.1 billion is in RCR.
Property and construction lending fell by 11.4 billion, of which 9.3

billion related to commercial real estate lending. Refer to Credit Risk
Key loan portfolios on page 251 for more details.
REIL decreased by 11.2 billion to 28.2 billion, a 28% reduction in

the year from 39.4 billion, across all segments except CFG. REIL
as a proportion of gross loans improved to 6.8% from 9.4% in 2013
reflecting sales and repayments of 10.2 billion (6.9 billion in RCR),
write-offs of 5.3 billion (3.6 billion in RCR), transfers to performing
book of 1.5 billion, partially off set by new impaired loans of 7.1
billion (3.0 billion in RCR). The execution of RCR strategy, resulted
in a number of disposals of REIL in the year, primarily in the fourth
quarter.
Within the business segments:

RCR REIL decreased by 8.7 billion or 36% to 15.4 billion from
24.1 billion at 1 January 2014 primarily due to a mixture of asset
disposals and write-offs. Provision coverage of REIL and REIL as a
proportion of loans were both around 70%.
In Ulster Bank, REIL as a proportion of loans decreased to 19%

from 27% in 2013 and provision coverage of REIL reduced to 57%
from 64% in 2013 mainly reflecting asset transfers to RCR on 1
January 2014 but also due to improved market conditions and
higher collateral values also contributed.
Commercial Banking REIL as a proportion of loans decreased to

2.9% from 5.0% in 2013, and REIL decreased by 41% (1.8 billion)
to 2.5 billion, with 0.6 billion of the reduction due to the creation of
RCR. REIL reductions in the year were mainly due to lower
individual cases, albeit some increases were seen in the fourth
quarter and reductions in collectively assessed due to improved
credit conditions.
289

Sector and geographical concentration
The tables below analyse gross loans and advances to banks and customers (excluding reverse repos) and related credit metrics by sector and
geography based on the location of lending office.
2014

Finance
- unsecured
Property
Construction
of which: Commercial real estate
Manufacturing
Finance leases (1)
Utilities
Other
Latent
Geographic regional analysis
UK
- personal lending
- property
- construction
- other
Europe
- personal lending
- property
- construction
- other
US
- personal lending
- property
- construction
- other
RoW
- personal lending
- property
- construction
- other
Customers
Banks
Gross
loans
m
REIL
m
Provisions
m
REIL
as a % of
gross loans
%
Credit metrics
Provisions
as a %
of REIL
%
Provisions
as a % of
gross loans
%
Impairment
charge/
(release)
m
Amounts
written-off
m
9,079
39,611
150,572
29,155
51,546
5,657
43,317
22,035
14,030
18,498
14,299
15,932
7,969
4,825
29,593
412,801
1
364
5,634
1,964
13,021
971
13,345
461
156
956
1,146
734
1,094
156
1,519
28,177
1
234
1,521
1,585
8,918
612
9,027
322
113
645
500
366
574
85
1,208
1,316
18,000
0.9
3.7
6.7
25.3
17.2
30.8
2.1
1.1
5.2
8.0
4.6
13.7
3.2
5.1
6.8
100
64
27
81
68
63
68
70
72
67
44
50
52
54
80
64
0.6
1.0
5.4
17.3
10.8
20.8
1.5
0.8
3.5
3.5
2.3
7.2
1.8
4.1
4.4
(1)
(5)
36
401
(1,083)
76
(1,067)
(26)
106
37
9
(40)
16
(10)
(676)
(1,160)
23
236
737
2,625
202
2,750
188
75
160
211
349
109
5
349
5,269
113,521
15,923
37,547
4,098
113,782
284,871
1,394
1,674
6,026
676
3,287
13,057
191
1,452
3,676
361
2,467
8,147
1.2
10.5
16.0
16.5
2.9
4.6
14
87
61
53
75
62
0.2
9.1
9.8
8.8
2.2
2.9
(23)
290
(221)
(1)
(146)
(101)
76
546
1,917
175
847
3,561
15,629
1,051
8,021
1,055
19,104
44,860
3,268
76
6,907
289
2,860
13,400
1,178
66
5,197
245
2,361
9,047
20.9
7.2
86.1
27.4
15.0
29.9
36
87
75
85
83
68
7.5
6.3
64.8
23.2
12.4
20.2
(10)
9
(862)
78
(440)
(1,225)
10
66
699
24
561
1,360
21,203
11,164
5,332
413
31,338
69,450
957
195
64
1
200
1,417
150
49
19
1
342
561
4.5
1.7
1.2
0.2
0.6
2.0
16
25
30
100
171
40
0.7
0.4
0.4
0.2
1.1
0.8
69
102
2
1
174
150
125
7
1
39
322
219
1,017
646
91
11,647
13,620
15
19
24
5
240
303
2
18
26
5
194
245
6.8
1.9
3.7
5.5
2.1
2.2
13
95
108
100
81
81
0.9
1.8
4.0
5.5
1.7
1.8
(2)
(1)
(5)
(8)
2
2
22
26
412,801
28,177
18,000
6.8
64
4.4
(1,160)
5,269
24,812
42
40
0.2
95
0.2
(10)
For the note to this table refer to page 292.
290
2013

Finance
- unsecured
Property
Construction
Manufacturing
Finance leases (1)
Utilities
Other
Latent
UK
- personal lending
- property
- construction
- other
Europe
- personal lending
- property
- construction
- other
US
- personal lending
- property
- construction
- other
RoW
- personal lending
- property
- construction
- other
Customers
Banks
Gross
loans
m
REIL
m
Provisions
m
REIL
as a % of
gross loans
%
Credit metrics
Provisions
as a %
of REIL
%
Provisions
as a % of
gross loans
%
Impairment
charge/
(release)
m
Amounts
written-off
m
8,643
35,948
148,533
28,160
62,292
6,331
52,578
21,377
13,587
19,574
16,697
16,084
6,942
4,960
28,624
417,752
2
593
6,025
2,417
20,283
1,334
20,129
742
263
1,187
1,491
1,324
1,427
131
2,103
39,322
2
292
1,799
1,909
13,189
774
13,209
559
190
783
635
756
812
80
1,370
2,012
25,162
1.6
4.1
8.6
32.6
21.1
38.3
3.5
1.9
6.1
8.9
8.2
20.6
2.6
7.3
9.4
100
49
30
79
65
58
66
75
72
66
43
57
57
61
65
64
0.8
1.2
6.8
21.2
12.2
25.1
2.6
1.4
4.0
3.8
4.7
11.7
1.6
4.8
6.0
2
4
392
415
5,130
291
5,212
195
16
268
487
359
281
54
489
44
8,427
72
441
861
1,642
160
1,749
104
121
128
229
119
194
23
212
4,306
110,515
17,098
44,252
4,691
110,466
287,022
1,900
2,052
9,797
941
4,684
19,374
319
1,718
5,190
515
3,202
10,944
1.7
12.0
22.1
20.1
4.2
6.8
17
84
53
55
68
56
0.3
10.0
11.7
11.0
2.9
3.8
39
264
2,014
194
1,091
3,602
180
681
950
159
537
2,507
17,540
1,267
13,177
979
22,620
55,583
3,155
141
10,372
351
4,057
18,076
1,303
129
7,951
227
3,498
13,108
18.0
11.1
78.7
35.9
17.9
32.5
41
91
77
65
86
73
7.4
10.2
60.3
23.2
15.5
23.6
195
19
3,131
72
1,012
4,429
26
26
659
465
1,176
19,901
8,722
4,279
313
27,887
61,102
951
207
85
34
198
1,475
173
45
19
24
589
850
4.8
2.4
2.0
10.9
0.7
2.4
18
22
22
71
297
58
0.9
0.5
0.4
7.7
2.1
1.4
161
114
(11)
25
65
354
233
151
25
1
131
541
577
1,073
584
348
11,463
14,045
19
17
29
8
324
397
4
17
29
8
202
260
3.3
1.6
5.0
2.3
2.8
2.8
21
100
100
100
62
65
0.7
1.6
5.0
2.3
1.8
1.9
(3)
18
(4)
31
42
2
3
8
69
82
417,752
39,322
25,162
9.4
64
6.0
8,427
4,306
27,640
70
63
0.3
90
0.2
(15)
40
For the note to this table refer to the following page.
291
2012

Finance
- unsecured
Property
Construction
Manufacturing
Finance leases (1)
Utilities
Other
Latent
UK
- personal lending
- property
- construction
- other
Europe
- personal lending
- property
- construction
- other
US
- personal lending
- property
- construction
- other
RoW
- personal lending
- property
- construction
- other
Customers
Banks
Gross
loans
m
REIL
m
Provisions
m
REIL
as a % of
gross loans
%
Credit metrics
Provisions
as a %
of REIL
%
Provisions
as a % of
gross loans
%
Impairment
charge/
(release)
m
Amounts
written-off
m
9,853
42,198
149,625
32,212
72,219
8,049
63,040
23,787
13,609
21,936
18,341
16,705
7,877
6,631
30,057
453,099
592
6,549
2,903
21,223
1,483
22,108
755
442
1,143
834
1,190
1,597
118
2,177
41,006
317
1,824
2,409
9,859
640
10,077
357
294
644
336
521
726
21
1,240
1,960
21,148
1.4
4.4
9.0
29.4
18.4
35.1
3.2
3.2
5.2
4.5
7.1
20.3
1.8
7.2
9.1
54
28
83
46
43
46
47
67
56
40
44
45
18
57
52
0.8
1.2
7.5
13.7
8.0
16.0
1.5
2.2
2.9
1.8
3.1
9.2
0.3
4.1
4.7
145
948
631
2,212
94
2,016
134
44
230
289
144
176
(4)
322
(73)
5,292
380
461
793
1,080
182
1,186
203
263
176
102
100
102
395
4,237
109,530
20,498
53,730
6,507
122,029
312,294
2,440
2,477
10,521
1,165
3,729
20,332
457
2,152
3,944
483
2,611
9,647
2.2
12.1
19.6
17.9
3.1
6.5
19
87
37
41
70
47
0.4
10.5
7.3
7.4
2.1
3.1
122
479
964
100
674
2,339
32
610
490
158
823
2,113
17,836
1,905
14,634
1,132
27,424
62,931
3,092
226
10,347
289
4,451
18,405
1,151
208
5,766
146
2,996
10,267
17.3
11.9
70.7
25.5
16.2
29.2
37
92
56
51
67
56
6.5
10.9
39.4
12.9
10.9
16.3
526
38
1,264
(11)
817
2,634
50
13
441
12
539
1,055
21,929
8,748
3,343
388
29,354
63,762
990
199
170
8
352
1,719
208
48
29
1
630
916
4.5
2.3
5.1
2.1
1.2
2.7
21
24
17
13
179
53
0.9
0.5
0.9
0.3
2.1
1.4
298
109
(11)
(86)
310
377
162
83
12
149
783
330
1,061
512
22
12,187
14,112
27
1
185
21
316
550
8
1
120
10
179
318
8.2
0.1
36.1
95.5
2.6
3.9
30
100
65
48
57
58
2.4
0.1
23.4
45.5
1.5
2.3
2
5
(5)
5
2
9
2
8
66
210
286
453,099
41,006
21,148
9.1
52
4.7
5,292
4,237
31,394
134
114
0.4
85
0.4
23
29
Note:
(1) Includes instalment credit.
292
REILs and impairments

The table below analyses REIL between UK and overseas, based on the location of the lending office.
2014
RBS excluding
RCR
m
Impaired loans
- UK
- overseas
Accruing loans past due 90 days or more

- UK
- overseas
Total REIL
REIL as a % of gross loans and advances (1)
Provisions as a % of REIL
2013
RCR
m
Total
m
RBS excluding
Non-Core
m
2012
Non-Core
m
Total
m
RBS excluding
Non-Core
m
Non-Core
m
Total
m
5,527
5,844
11,371
6,035
9,173
15,208
11,562
15,017
26,579
9,288
9,145
18,433
8,193
10,545
18,738
17,481
19,690
37,171
9,332
8,219
17,551
9,081
11,867
20,948
18,413
20,086
38,499
1,418
30
1,448
12,819
117
75
192
15,400
1,535
105
1,640
28,219
1,709
236
1,945
20,378
253
23
276
19,014
1,962
259
2,221
39,392
1,759
456
2,215
19,766
248
178
426
21,374
2,007
634
2,641
41,140
3.3%
55%
70.3%
71%
6.8%
64%
5.3%
56%
51.8%
73%
9.4%
64%
5.0%
51%
37.9%
52%
9.1%
52%
Note:
(1) Gross loans and advances to customers includes disposal groups but excludes reverse repos.
REIL flow statement

REIL are stated without giving effect to any security held that could reduce the eventual loss should it occur or to any provisions marked.
UK PBB
m
At 31 December 2013
Impact of dissolution of
Non-Core and creation of RCR
At 1 January 2014
Currency translation and
other adjustments
Disposal of subsidiaries
Additions
Transfers (1)
Transfers to performing book
Repayments
Amounts written-off
At 31 December 2014
Ulster Commercial
Bank
Banking
m
m
Private
Banking
m
CIB
m
Central
items
m
CFG
m
RBS
excluding
RCR
m
RCR
m
Non-Core
m
Total
m
4,663
8,466
4,276
277
1,661
1,034
20,378
19,014
39,392
137
4,800
(3,547)
4,919
(560)
3,716
277
(1,421)
240
289
1,323
(5,102)
15,276
24,116
24,116
(19,014)
39,392
1,353
(309)
(326)
(1,012)
(728)
3,778
(250)
555
(120)
(198)
(131)
4,775
1,716
31
(582)
(1,884)
(491)
2,506
(3)
58
(15)
(3)
(51)
(37)
226
100
4
(92)
(56)
197
75
335
(103)
(300)
1,330
(171)
4,117
(289)
(1,123)
(3,304)
(1,687)
12,819
(879)
(6)
2,951
29
(337)
(6,883)
(3,591)
15,400
(1,050)
(6)
7,068
(260)
(1,460)
(10,187)
(5,278)
28,219
293

Ulster Commercial
Bank
Banking
m
m
UK PBB
m
At 1 January 2013
Currency translation and other adjustments
Additions
Transfers (1)
Transfer to performing book and repayments
Amounts written-off
At 31 December 2013
5,735
8
1,638
(445)
(1,306)
(967)
4,663
7,533
134
2,479
(1,403)
(277)
8,466
Private
Banking
m
CIB
m
248
2
132
(90)
(15)
277
1,097
(15)
1,337
196
(594)
(360)
1,661
4,007
8
3,597
355
(3,104)
(587)
4,276
Central
items
m
CFG
m
RBS
excluding
Non-Core
m
Non-Core
m
Total
m
1,146
(21)
282
(89)
(284)
1,034
19,766
116
9,466
106
(6,586)
(2,490)
20,378
21,374
279
(89)
3,397
(1)
(4,090)
(1,856)
19,014
41,140
395
(89)
12,863
105
(10,676)
(4,346)
39,392
Notes:
(1) Represents transfers between REIL and potential problem loans.
(2) For details on impairment methodology refer to Credit risk on page 231 and Accounting policy 15 Impairment of financial assets on page 353.
Impairment provisions flow statement

RBSs consumer portfolios, which consist of high volume, small value credits, have highly efficient largely automated processes for identifying problem
credits and very short timescales, typically three months, before resolution or adoption of various recovery methods. Corporate portfolios consist of
higher value, lower volume credits, which tend to be structured to meet individual customer requirements.
Provisions are assessed on a case by case basis by experienced specialists with input from professional valuers and accountants. RBS operates a
transparent provisions governance framework, setting thresholds to trigger enhanced oversight and challenge.
The movement in loan impairment provisions by segment is shown in the table below.
UK PBB
m
At 31 December 2013
Impact of dissolution of
Non-Core and creation of RCR (1)
At 1 January 2014
Currency translation
and other adjustments
Amounts written-off
Recoveries of amounts
previously written-off
Charged to income statement
- continuing operations
- discontinued operations
Unwind of discount
(recognised in interest income)
At 31 December 2014
Individually assessed
- banks
- customers
Collectively assessed
Latent
Ulster Commercial
Bank
Banking
m
m
Private
Banking
m
CIB
m
Central
items
m
CFG
m
RBS
excluding
RCR
m
RCR
m
Non-Core
m
Total
m
2,957
5,378
1,617
120
976
66
272
11,386
13,839
25,225
150
3,107
(1,985)
3,393
(306)
1,311
120
(766)
210
66
246
518
(2,661)
8,725
16,500
16,500
(13,839)
25,225
(728)
(172)
(131)
10
(436)
(1)
(37)
(55)
21
(300)
(134)
(1,687)
(555)
(6)
(3,591)
(689)
(6)
(5,278)
24
23
12
103
166
39
205
268
(365)
77
(5)
(7)
(12)
194
(44)
194
(1,320)
(1,364)
194
(67)
2,604
(37)
2,711
(19)
955
(3)
76
206
536
(126)
7,094
(121)
10,946
(247)
18,040
14
2,319
271
2,604
42
2,355
314
2,711
493
366
96
955
69
7
76
1
109
96
206
5
6
83
157
296
536
1
811
5,197
1,085
7,094
39
10,526
150
231
10,946
40
11,337
5,347
1,316
18,040
Note:
(1) Transfers in Non-Core dissolution and RCR creation includes amounts in relation to latent.
294
UK PBB
m
At 1 January 2013
and other adjustments
Amounts written-off
Recoveries of amounts
previously written-off
Charge to income statement
Unwind of discount (recognised in interest income)
At 31 December 2013
- banks
- customers
Latent
Ulster Commercial
Bank
Banking
m
m
Private
Banking
m
CIB
m
Central
Items
m
CFG
m
RBS
excluding
Non-Core
m
Non-Core
m
Total
m
3,467
3,910
1,547
109
743
285
10,062
11,200
21,262
(2)
(967)
51
(277)
17
(587)
(15)
(16)
(360)
31
(284)
81
(2,490)
28
(77)
(1,856)
109
(77)
(4,346)
47
14
17
89
168
88
256
497
(85)
2,957
1,774
(81)
5,378
652
(26)
1,617
29
(3)
120
598
(6)
976
65
66
151
272
3,615
4,490
8,105
151
156
307
(201)
(190)
(391)
11,386 13,839 25,225
2
2,741
214
2,957
2,078
2,596
704
5,378
1,116
283
218
1,617
109
11
120
62
765
149
976
66
66
60
118
94
272
62
4,196
5,738
1,390
11,386
1
12,650
565
623
13,839
63
16,846
6,303
2,013
25,225
Past due analysis

The table below shows loans and advances to customers that were past due at the balance sheet date but are not considered impaired.
Past due 1-29 days

Past due 30-59 days
Past due 60-89 days
Past due 90 days or more
Past due analysis by sector

Personal
Property and construction
Financial institution
Other corporate
2014
m
2013
m
2012
m
4,834
1,055
667
1,640
8,196
4,765
1,260
822
2,221
9,068
5,599
1,117
1,177
2,641
10,534
4,837
1,343
86
1,930
8,196
5,172
1,373
368
2,155
9,068
5,501
1,863
103
3,067
10,534
295

Impairment charge analysis
The table below analyses the impairment charge for loans and securities.
2014
Latent loss
Loans to customers
Loans to banks
Securities
Charge/(release) to income statement
UK PBB
m
13
197
58
268
268
Ulster Commercial
Bank
Banking
m
m
(10)
(30)
(325)
(365)
(365)
139
21
(83)
77
77
Private
Banking
m
CIB
m
Central
items
m
(2)
(3)
(5)
(5)
25
(32)
(7)
(2)
(9)
(12)
(12)
(12)
Citizens
Financial
Group
m
36
142
16
194
3
197
2013
Latent loss
Loans to customers
Loans to banks
Securities
3
517
(23)
497
5
502
1,082
580
112
1,774
1,774
629
49
(26)
652
652
32
(3)
29
29
590
6
17
613
(15)
81
679
65
65
(1)
64
16
189
(54)
151
5
156
2012
Latent loss
Loans to customers
Loans to banks
Securities
8
767
(35)
740
740
457
787
120
1,364
1,364
514
47
(18)
543
2
545
42
4
46
46
196
46
(47)
195
23
12
230
39
40
15
237
(169)
83
8
91
RBS
excluding
RCR
m
RCR
m
Total
m
189
330
(369)
150
1
151
(988)
(15)
(307)
(1,310)
(10)
14
(1,306)
(799)
315
(676)
(1,160)
(10)
15
(1,155)
RBS
excluding
Non-Core
Non-Core
2,417
1,341
23
3,781
(15)
90
3,856
4,502
123
21
4,646
(70)
4,576
RBS
excluding
Non-Core
Non-Core
1,233
1,884
(145)
2,972
23
61
3,056
1,936
312
72
2,320
(97)
2,223
6,919
1,464
44
8,427
(15)
20
8,432
3,169
2,196
(73)
5,292
23
(36)
5,279
296
AFS reserves
By issuer
Available-for-sale financial assets are initially recognised at fair value plus directly related transaction costs and are subsequently measured at fair value
with changes in fair value reported in owners equity until disposal, at which stage the cumulative gain or loss is recognised in profit or loss. When there
is objective evidence that an available-for-sale financial asset is impaired, any decline in its fair value below original cost is removed from equity and
recognised in profit or loss.
The table below analyses available-for-sale debt securities and related reserves, gross of tax.
UK
m
2014
US
m
Other
m
Total
m
UK
m
2013
US
m
Other
m
Total
m
UK
m
2012
US
m
Other
m
Total
m

Banks
Corporate
Total
4,747
508
1,505
23
6,783
11,011
9,912
15
20,938
11,058
2,896
3,168
123
17,245
26,816
3,404
14,585
161
44,966
6,436
492
2,335
21
9,284
12,880
92
8,327
71
21,370
10,303
5,390
6,668
92
22,453
29,619
5,974
17,330
184
53,107
9,774
1,085
2,861
1,318
15,038
19,046
357
10,613
719
30,735
16,155
7,419
10,416
1,130
35,120
44,975
8,861
23,890
3,167
80,893
Of which ABS
1,478
15,626
1,780
18,884
2,487
13,149
8,538
24,174
3,558
14,209
12,976
30,743
27
363
17
407
77
(22)
(445)
(390)
667
763
(1,277)
153
AFS reserves (gross)

The table below shows the fair value of available-for-sale debt securities that were in an unrealised loss position at the end of the year and the related
gross unrealised losses.
Less than 12 months
More than 12 months
Fair value
m
Gross
unrealised
losses
m

- UK
- US
- other
Banks
Corporate
Total
1
2,417
607
36
684
3,745
Of which ABS
2014
Total
Fair value
m
Gross
unrealised
losses
m
Fair value
m
Gross
unrealised
losses
m
1
82
3
1
49
136
1,239
154
1,130
5
2,528
35
109
2
146
1
3,656
761
36
1,814
5
6,273
1
117
3
1
158
2
282
3,108
129
1,813
128
4,921
257
6,987
4,189
2,605
726
6,063
19
20,589
69
85
18
1
65
2
240
8
852
3,319
4,842
15
9,036
1
14
204
428
647
6,987
4,197
3,457
4,045
10,905
34
29,625
69
86
32
205
493
2
887
8,964
119
8,067
634
17,031
753
59
1,625
398
248
346
2,676
1
2
2
19
4
28
145
3,466
7,686
4
11,301
12
507
1,300
1,819
59
1,770
3,864
7,934
350
13,977
1
14
509
1,319
4
1,847
398
20
10,999
1,797
11,397
1,817
2013

- UK
- US
- other
Banks
Corporate
Total
Of which ABS
2012

- US
- other
Banks
Corporate
Total
Of which ABS
297
Market risk
299
299
299
303
303
316
Definition
Sources of risk
Risk governance
Traded market risk
Non-traded market risk
298
Market risk
Definition
Market risk is the risk of losses arising from fluctuations in interest rates,
credit spreads, foreign currency rates, equity prices, commodity prices
and other factors, such as market volatilities, that may lead to a reduction
in earnings, economic value or both.
RBS is exposed to traded market risk through its trading activities and to
non-traded market risk as a result of its banking activities. In many
respects, it manages its traded and non-traded market risk exposures
separately, as described in this section, largely in line with the regulatory
definitions of the trading and non-trading books.
Key developments in 2014*
Traded market risk
RBSs traded market risk profile decreased significantly, with market risk
limits being reduced across all businesses, in some instances by 50-60%.
These reductions resulted from:
The creation of RCR and consequent accelerated wind-down of
capital-intensive and potentially volatile exposures; and
In relation to CIB:
the continuing run-down of non-strategic products and
exposures in the run-off and recovery business set up towards
the end of 2013; and
the decision to exit the US asset-backed product (ABP) trading
business.
Technology and process improvements continued to be made to enhance
the measurement and management of market risk exposures. This
covered key systems spanning areas such as market data and
information technology architectures.
Risk measurement improvements also continued. Notably, credit and
funding valuation adjustments were included in the internal measure of
RBSs value-at-risk (VaR) (refer to page 304 for more information).
Previously, only associated hedges were included. The change in scope
reflects a more comprehensive economic view of the risk.
RBS continued to manage its non-traded market risk exposures within
risk limits throughout the year. Although the restructure of customer
facing businesses in 2014 did not affect underlying non-traded market
risk exposures, the planned divestment of CFG is expected
to reduce structural interest rate and foreign exchange risk exposures.
However, at the year end RBS retained a majority stake in CFG and fully
consolidated the position.
Longer-term interest rates remained at historically low levels during
2014. RBS maintained its structural hedge of invested equity and rateinsensitive customer deposit portfolios. The aim of the hedge is
to stabilise interest earnings. During the year, the duration profile of the
hedge did not change materially but action was taken to match the
hedges currency profile more closely to underlying balance sheet
exposures.
The increased hedging of US dollar structural exposures was related to

the planned disposal of CFG. This was balanced by the requirement to
maintain RBSs current capital ratio sensitivity to foreign exchange rate
movements within risk limits.
Sources of risk
Traded market risk
The majority of traded market risk exposure arises in CIB and RCR.
The primary objective of RBSs trading activities is to provide a range of
financing, risk management and investment services to its customers including major corporations and financial institutions around the world.
From a market risk perspective, the trading activities are included within
the following markets: currencies; emerging markets; rates; asset-backed
products; and traded credit.
RBS undertakes transactions in financial instruments including debt
securities, loans, deposits and equities, as well as securities financing
and derivatives.
Some of these transactions involve trading or clearing financial
instruments on an exchange, including interest rate swaps, futures and
options. Holders of these instruments provide margin on a daily basis
with cash or other security at the exchange.
Other products are not transacted on an exchange. Of these over-thecounter transactions, those with standard terms may be cleared through
central counterparties, while those that are more complex are settled
directly with the counterparty and may give rise to counterparty credit
risk. For more information on the management of counterparty credit risk,
refer to the Credit risk section on page 231.
The majority of RBSs non-traded market risk exposure arises from retail
and commercial banking activities in all franchises from assets and
liabilities that are not classified as held for trading.
The management of non-traded market risk is largely organised in line
with the following three key categories: non-traded interest rate risk; nontraded foreign exchange risk; and non-traded equity risk.
Interest rate risk
Non-traded interest rate risk (NTIRR) arises from the provision to
customers of a range of banking products that have differing interest rate
characteristics. Therefore, when aggregated, these products form
portfolios of assets and liabilities with varying degrees of sensitivity to
changes in market interest rates. Mismatches in these characteristics can
give rise to volatility in net interest income as interest rates rise and fall.
NTIRR comprises four primary risk factors: repricing risk, yield curve risk,
basis risk and optionality risk. For more information, refer to page 316.
*unaudited
299
Market risk continued

Foreign exchange risk
Non-traded foreign exchange risk exposures arise from two main
sources:
Structural foreign exchange risk - arising from the capital deployed

in foreign subsidiaries, branches and associates and related
currency funding where it differs from sterling; and
Equity risk
Non-traded equity risk is the potential variation in income and reserves
arising from changes in the values of non-trading book equity positions.
Equity exposures may arise through strategic acquisitions, venture capital
investments and certain restructuring arrangements.
Pension risk
Pension-related activities also give rise to market risk. Refer to pages 331
and 332 for more information on risk related to pensions.
Transactional foreign exchange risk - arising from customer

transactions and profits and losses that are in a currency other than
the functional currency of the transacting operation.
300
Linkage to balance sheet*

The table below analyses RBSs balance sheet by trading and non-trading business.
2014
Assets
Debt securities
Equity shares
Derivatives
Settlement balances
Other assets
Total assets
Liabilities
Deposits by banks
Customer deposits
Settlement balances
Short positions
Derivatives
Other liabilities
Total liabilities
Total
bn
Trading
Non-trading
business (1)
bn
business (2)
bn
Non-trading business
primary risk factor
75.5
24.8
394.8
64.7
101.9
6.2
354.0
4.7
24.2
1,050.8
11.2
23.2
61.1
49.3
4.9
350.1
4.7
504.5
75.5
13.6
371.6
3.6
52.6
1.3
3.9
24.2
546.3
Interest rate, foreign exchange

Interest rate
Interest rate
Interest rate
Interest rate
Equity
40.9
414.9
64.6
51.9
4.5
23.0
350.0
23.1
17.7
990.6
25.5
14.2
60.0
12.4
4.5
23.0
346.9
486.5
15.4
400.7
4.6
39.5
3.1
23.1
17.7
504.1
Interest rate
Interest rate
Interest rate
Interest rate
82.7
27.6
390.8
76.4
113.6
8.8
288.0
5.6
34.4
1,027.9
9.3
19.4
75.7
56.7
7.2
284.9
5.6
458.8
82.7
18.3
371.4
0.7
56.9
1.6
3.1
34.4
569.1

Interest rate
Interest rate
Interest rate
Interest rate
Equity
35.3
414.4
85.1
67.8
5.3
28.0
285.5
24.0
23.3
968.7
19.2
9.7
73.6
19.7
5.3
28.0
283.4
438.9
16.1
404.7
11.5
48.1
2.1
24.0
23.3
529.8
Interest rate
Interest rate
Interest rate
Interest rate
Interest rate

Interest rate
Interest rate, credit spreads
2013
Assets
Debt securities
Equity shares
Derivatives
Settlement balances
Other assets
Total assets
Liabilities
Deposits by banks
Customer deposits
Settlement balances
Short positions
Derivatives
Other liabilities
Total liabilities
Interest rate

Interest rate
Interest rate, credit spreads
Notes:
(1) Trading businesses are entities that primarily have exposures that are classified as trading book under regulatory rules. For these exposures, the main methods used by RBS to measure market risk
are detailed under Traded market risk measurement on page 304.
(2) Non-trading businesses are entities that primarily have exposures that are not classified as trading book. For these exposures, with the exception of pension-related activities, the main measurement
methods are sensitivity analysis of net interest income, internal non-traded VaR and fair value calculations. For more information refer to pages 316 to 322.
*unaudited
301
Market risk continued

Trading balance sheet and VaR linkage
The table below shows the trading business balance sheet split by trading portfolios within CIB and the associated trading VaR for the period ended
31 December 2014.
Portfolio
Rates
Currencies
Asset-backed
products
Credit
Liabilities
bn
414.0
409.0
Provides currency services to corporate, institutional

and retail clients globally covering FX, emerging and
short-term markets.
Structures and distributes mortgage-backed securities,
asset-backed securities and commercial mortgagebacked securities, covering both agency and nonagency segments of the market, from executing flow
business to creating complex structured derivatives.
33.4
33.1
2.4 Foreign exchange and

interest rates
9.1
3.2
4.9 Interest rates and credit

spreads.
Provides liquidity and capital to corporates and

operates across investment-grade, high-yield and
distressed credit. Offers a full-service credit-trading
platform covering derivatives, bonds, bank loans and
trade claims.
12.8
8.7
2.6 Credit spreads
20.2
20.3
(26.9)
489.5
474.3
21.3
14.3
11.1
Run-off & Recovery Responsible for active divestment of all products

identified for exit from RBS, through a combination of
restructuring, asset sales or, where possible, business
sales.
Centre
Primarily relates to the Counterparty Exposure

Management desk which manages counterparty risk
exposures arising from over-the-counter derivative
contracts, primarily credit risk and funding risk.
VaR diversification
Total CIB
Total RCR
Standalone internal
99% 1-day VaR
m
Assets
bn
Delivers interest rate services through research-based
insight to corporates, central banks, financial institutions
and hedge funds.
RCR is responsible for the accelerated rundown of

assets that are capital intensive or have volatile
outcomes under stress.
Principal market risk exposure
23.7 Interest rates
4.2 Equities, interest rates and

credit spreads.
10.4 Credit spreads, interest rates

and foreign exchange,
3.0 Equities, interest rates and

credit spreads.
Notes:
(1) The VaR amounts presented above represent the risk associated with external and internal transactions within each portfolio. VaR diversification represents the degree of correlation between
portfolios within RBS. The diversification factor is the sum of the VaR on individual businesses less the total portfolio VaR.
(2) Assets and liabilities presented above represent external transactions for each portfolio.
(3) VaR in Centre relates primarily to market risks arising from credit valuation adjustment (CVA), funding valuation adjustment (FVA) and the related hedges which are booked and managed centrally.
The corresponding assets and liabilities are reflected in the underlying portfolio amounts where the CVA and FVA risks arise.
302
Risk governance
The Market Risk function is responsible for identifying, measuring,
monitoring and controlling the market risk arising from both trading and
non-trading activities.
For general information on risk governance, refer to the Risk governance
section on page 176.
More specific information on the governance, management and
measurement of traded and non-traded market risk is provided in each of
the dedicated sections below.
Traded market risk
The market risk control and assurance framework has three key
components: market risk policy; assurance approach policy; and
independent assurance.
The Group Market Risk Policy Standard is part of the Group Policy
Framework. It sets out the rules that RBSs businesses must follow to
ensure that market risks are identified, measured and effectively
managed.
The assurance approach policy comprises various elements, including
the Risk and Control Assurance Framework process. This process
ensures that, on an ongoing basis, specifically designed controls are in
place for the risks that RBS faces to ensure that its exposure does not
exceed its appetite. The adequacy and effectiveness of these controls
are tested according to their rating, at least annually. The results of this
testing are shared regularly at the Market Risk Governance and Control
Committee.
Market Risk Assurance forms part of Risk Assurance. This independent
second line of defence function provides assurance on the robustness of
the market risk framework within RBS, via centralised analysis of the
control framework, complemented by the application of expert judgement
through qualitative reviews. These findings are escalated to senior
management and plans to address any shortcomings are recorded and
tracked in the operational risk system. Market Risk Assurance activities
are also reported directly and independently to the Group Audit
Committee.
For information on valuation controls, independent price verification and
model validation, refer to page 315.
Risk appetite*
Market risk appetite is the level of market risk that RBS accepts when
pursuing its business objectives, taking into account stressed scenarios.
A comprehensive structure and controls are in place aimed at ensuring
that this appetite is not exceeded.
*unaudited
RBSs qualitative market risk appetite is set out in policy statements.

These define the governance, responsibilities, control framework and
requirements for the identification, measurement, analysis, management
and reporting of market risk arising from trading and non-trading
activities. These policies are also cascaded, as appropriate, to the legal
entities, franchises and businesses to ensure there is a consistent control
framework throughout.
The quantitative market risk appetite is expressed in terms of limits for
the trading and non-trading activities. These limits, which establish a set
of comprehensive boundaries within which business activities are
conducted and monitored based on business plans, are proposed by the
Director of Market Risk.
Once RBS-level limits are approved by the Executive Risk Forum (ERF),
the Director of Market Risk may cascade the limits further down the
organisation as required. For each trading business, a document known
as a dealing authority compiles details of all applicable limits and trading
restrictions.
The limit framework at RBS-level comprises VaR, stressed value-at-risk
(SVaR) and sensitivity and stress limits (for more details on VaR and
SVaR, refer to pages 304 to 309). The limit framework at the lower levels
also comprises additional metrics that are specific to the market risk
exposures within its scope. These additional metrics aim to control
various risk dimensions such as product type, exposure size, aged
inventory, currency and tenor.
The limits are reviewed to reflect changes in risk appetite, business
plans, portfolio composition and the market and economic environments.
Limit breaches at RBS-level require escalation by the Director of Market
Risk, as appropriate, to the ERF. Limit breaches at the lower levels
require escalation by the head of the relevant market risk segment to the
Director of Market Risk, as appropriate.
Risk assessment
Identification and assessment of traded market risk is achieved through
gathering, analysing, monitoring and reporting market risk information by
business line or at a consolidated level. Industry expertise, continued
system developments and techniques such as stress testing are also
used to enhance the effectiveness of the identification and assessment of
all material market risks.
This is complemented by the New Product Risk Assessment process,
which requires market risk teams to assess and quantify the market risk
associated with all proposed new products.
Risk monitoring
Traded market risk exposures are monitored against limits and analysed
daily by market risk reporting and control functions. A daily report that
summarises market risk exposures against the limits set by the ERF is
sent to the Chief Risk Officer and market risk managers across the
franchises.
303
Traded market risk continued

The market risk functions also prepare daily risk reports that detail
exposures against a more granular set of limits and triggers.
Limit reporting is supplemented with regulatory capital and stress testing
information as well as ad hoc reporting.
A market risk update is also included in the RBS Risk Management
Monthly Report provided to the Executive Committee, the Board Risk
Committee and the Board. The update focuses on risk positions relative
to risk appetite; it also covers the key risks and trends, together with a
discussion of relevant issues and market topics.
The reporting and updates facilitate frequent reviews and discussions of
traded market risk exposures and related issues between the market risk
functions, senior management and the front office.
Risk control
To ensure approved limits are not breached and that RBS remains within
its risk appetite, triggers at RBS and lower levels have been set such that
if exposures exceed a specified level, action plans are developed by the
front office, Market Risk and Finance.
Risk measurement
RBS uses a comprehensive and complementary set of methodologies
and techniques to measure traded market risk that collectively ensure a
complete approach to the measurement of material market risks.
The main measurement methods are VaR
and SVaR. Risks that are not adequately
captured by these model methodologies
are captured by the Risks Not in VaR
(RNIV) framework to ensure that RBS is
adequately capitalised for market risk. In
addition, stress testing is used to identify
any vulnerabilities and potential losses in
excess of VaR and SVaR.
These methods have been designed to capture correlation effects and

allow RBS to form an aggregated view of its traded market risk across
risk types, markets and business lines while also taking into account the
characteristics of each risk type.
Value-at-risk
VaR is a statistical estimate of the potential change in the market value of
a portfolio (and, thus, the impact on the income statement) over a
specified time horizon at a given confidence level.
For internal risk management purposes, VaR assumes a time horizon of
one trading day and a confidence level of 99%. The VaR model is based
on a historical simulation, utilising data from the previous 500 days on an
equally weighted basis.
The internal traded VaR model captures all trading book positions
including those products approved by the regulator. As noted earlier, from
February 2014, credit and funding valuation adjustments were included in
the internal measure of VaR. For an explanation of the distinction
between internal VaR and regulatory VaR, refer to page 311.
The internal VaR model captures the impact on the income statement of
the following risk factors:
Interest rate risk, which arises from the impact of changes in interest
rates and volatilities on cash instruments and derivatives. This
includes interest rate tenor basis risk and cross-currency basis risk.
Credit spread risk, which arises from the impact of changes in the
credit spreads of sovereign bonds, corporate bonds, securitised
products and credit derivatives.
Currency risk, which arises from the impact of changes in currency

rates and volatilities.
Equity risk, which arises from the impact of changes in equity prices,
volatilities and dividend yields.
Commodity risk, which arises from the impact of changes in

commodity prices and volatilities.
The factors noted above are sufficient to define RBSs overall market risk
exposures. Other types of risk which are components of the abovementioned factors, are also monitored by individual businesses to identify
and address any material concentrations.
Examples of such risk types include:
Basis risk, which is the risk that imperfect correlation between two
instruments in a hedging strategy creates the potential for excess
gains or losses, thus adding risk to the position;
Prepayment risk, which is the risk associated with early unscheduled

return of principal on a fixed rate security; and
Inflation risk, which is the risk of a decrease in the value of

instruments as a result of changes in inflation rates and associated
volatilities.
304
VaR limitations*
Historical VaR and RBSs implementation of this risk measurement
methodology have a number of known limitations, as summarised
below, and VaR should be interpreted in light of these. RBSs
approach is to supplement VaR with other risk metrics that address
these limitations to ensure appropriate coverage of all material
market risks.
Historical simulation VaR may not provide the best estimate of future
market movements. It can only provide a forecast of portfolio losses
based on events that occurred in the past. The RBS model uses the
previous two years of data; this period represents a balance
between model responsiveness to recent shocks and risk factor data
coverage.
The use of a 99% confidence level VaR statistic does not provide
information about losses beyond this level, usually referred to as
tail risks. These risks are more appropriately assessed using
measures such as Stressed VaR and stress testing.
The use of a one-day time horizon does not fully capture the profit
and loss implications of positions that cannot be liquidated or
hedged within one day. This may not fully reflect market risk at times
of severe illiquidity in the market when a one-day period may be
insufficient to liquidate or hedge positions fully. Thus, the regulatory
VaR that is used for modelled market risk capital uses a ten-day
time horizon.
When RBS uses ten-day risk factor changes in the calculation of the
regulatory VaR, the ten-day periods overlap, which can introduce an
autocorrelation bias in the 99% confidence level VaR statistic. The
analysis performed has shown the bias to be small and acceptable
for a ten-day period.
The VaR of trading positions is computed at the close of business.

Positions may change substantially during the course of the trading
day and so intra-day price volatility and trading may not be captured
by the model.
The data used in the model are collected from global sources. For
some sources, local end-of-day, rather than London end-of-day,
data may be used, resulting in a timing mismatch. This timing
mismatch is more material for 1-day return periods than for 10-day
periods (which are used for capitalisation purposes) as the overlaps
are inherently smaller across shorter periods. When deciding
whether or not to use local end-of-day timing, the internal model
review committee balances the principle of aligning the treatment of
positions and their associated hedges against the goal of using
London end-of-day timing consistently.
Risk factors relevant to a specific portfolio may be omitted, due to a

lack of reliable data, or the use of proxy risk factors, for example.
RBS has developed the RNIV framework to address these issues.
1-Day 99% traded internal VaR 2014.*
*unaudited
305

1-day 99% traded internal VaR
The table below analyses internal VaR for RBSs trading portfolios, segregated by type of market risk exposure, and split between CIB and RCR or NonCore.
Average
m
Interest rate
Credit spread
Currency
Equity
Commodity
Diversification (1)
Total
17.4
23.1
4.7
3.0
0.6
CIB
RCR
Non-Core
2014
Period end
Maximum
m
m
Minimum
m
Average
m
39.8
42.8
9.7
6.5
2.5
10.8
13.4
1.0
1.2
0.3
37.2
60.0
8.6
5.8
0.9
27.8
16.9
14.2
5.5
3.7
0.4
(18.2)
22.5
58.2
17.1
26.3
4.5
n/a
21.3
3.0
n/a
48.8
16.2
n/a
15.5
2.6
n/a
2013
Period end
Maximum
m
m
Minimum
m
Average
m
78.2
86.8
20.6
12.8
3.7
19.1
33.3
3.6
3.2
0.3
62.6
69.2
10.3
6.0
2.0
79.3
44.1
37.3
6.5
4.1
0.5
(23.7)
68.8
118.8
42.1
64.2
n/a
19.3
52.4
n/a
15.2
104.6
n/a
24.9
35.6
n/a
14.9
2012
Period end
Maximum
m
m
Minimum
m
95.7
94.9
21.3
12.5
6.0
40.8
44.9
2.6
1.7
0.9
97.3
75.6
74.1
7.6
3.9
1.5
(55.4)
107.3
137.0
66.5
74.6
n/a
30.1
88.1
n/a
22.8
118.0
n/a
41.9
47.4
n/a
22.0
Note:
(1) RBS benefits from diversification as it reduces risk by allocating positions across various financial instrument types, currencies and markets. The extent of the diversification benefit depends on the
correlation between the assets and risk factors in the portfolio at a particular time. The diversification factor is the sum of the VaR on individual risk types less the total portfolio VaR.
Key points
Total traded VaR decreased significantly in 2014 compared with
2013, on both a period-end and average basis, for the following two
key reasons:
The declines in interest rate and credit spread VaR were also
affected by specific factors:
Interest rate VaR declined in Q1 2014 due to reduced risk

appetite for flow market-making in the Rates business in CIB.
Credit spread VaR declined in H2 2014, because the volatile

credit spread series rolled out of the 500-day window for VaR.
the inclusion of CVA and FVA trades in the internal VaR

measure in February 2014, which primarily affected Q1 2014.
Prior to this change, VaR was higher as only the associated
hedges, which had a risk-additive impact on overall trading
book exposures, were captured in the internal risk
management framework.
the decision to exit the US ABP trading business and the

unwinding of equity positions in Run-off & Recovery (RoR)
within CIB in line with the exit strategy, which largely affected
the last three quarters of the year.
Total VaR was notably volatile in the second half of the year, largely
as a result of heightened geopolitical risks given the Ukraine/Russia
crisis and Middle East tensions and the developments in the
eurozone periphery.
The decrease in the average and period end RCR VaR reflects the
inclusion of CVA and FVA trades in the calculation of internal VaR
and the accelerated wind-down of capital-intensive and potentially
volatile exposures.
306
VaR validation*
A dedicated model-testing team in Market Risk works with the risk
managers to:
Test the accuracy of the valuation methods used in the VaR model
on appropriately chosen test portfolios and trades;
Apply in-house models to perform advanced internal back-testing to

complement the regulatory back-testing;
Identify risks not adequately captured in VaR, and ensure that such
risks are addressed via the RNIV framework (refer to page 309);
There are two types of profit and loss (P&L) used in back-testing
comparisons: Clean P&L and Hypothetical (Hypo) P&L.
The Clean P&L for a particular business day is the firms actual P&L for
that day in respect of the trading activities within the scope of the firms
regulatory VaR model, including any intraday activities, adjusted by
stripping out:
Fees and commissions;
Brokerage;
Identify any model weaknesses or scope limitations and their

impact; and
Additions to, and releases from, reserves that are not directly related
to market risk; and
Identify and give early warning of any market or portfolio weakness

that may become significant.
Any Day 1 P&L exceeding an amount of 500,000 (per transaction).
In addition, independent VaR model reviews are carried out by Model

Risk (as detailed on page 315).
As well as being an important market risk measurement and control tool,
the VaR model is also used to determine a significant component of the
market risk capital requirement (refer to page 311 for more information on
calculation of capital requirements). Therefore, it is subject to not only
ongoing internal review and validation but also regulator-prescribed backtesting.
VaR back-testing*
The main approach employed to assess the ongoing model performance
is back-testing, which counts the number of days when a loss exceeds
the corresponding daily VaR estimate, measured at a 99% confidence
level.
The Hypo P&L reflects the firms Clean P&L excluding any intra-day
activities.
A portfolio is said to produce a back-testing exception when the Clean or
Hypo P&L exceeds the VaR level on a given day. Such an event may be
caused by a large market movement or may highlight issues such as
missing risk factors or inappropriate time series. Any such issues
identified are analysed and addressed through taking appropriate
remediation or development action. RBS monitors both Clean and Hypo
back-testing exceptions.
Regulatory back-testing is performed and reported on a daily basis for
legal entities and major business portfolios. Franchise-level market risk
teams also perform back-testing at the lower levels as part of the internal
ongoing VaR model validation.
The back-testing described above primarily applies to CIB and RCR
models, which are approved by the regulators. However, where
appropriate, back-testing is also performed for other portfolios that are
not subject to regulatory approval.
The graph below presents 1-day 99% regulatory VaR vs. Hypo P&L for RBS plc, RBS's largest legal entity by market risk RWAs and positions.
*unaudited
307

The table below shows regulatory back-testing exceptions for a period of 250 days for 1-day 99% traded regulatory VaR vs. Clean and Hypo P&L for the
legal entities approved by the PRA and De Nederlandsche Bank.
Back-testing exceptions
Clean
Description
The Royal Bank of Scotland plc
National Westminster Bank Plc
RBS Securities Inc (RBSSI)
RBS Financial Products Inc
The Royal Bank of Scotland N.V.
Key points
Statistically RBS would expect to see back-testing exceptions 1% of
the time over a one-year period. From a capital requirement
perspective, the PRA categorises a firms VaR model as green,
amber or red. A green model status is consistent with a satisfactory
VaR model and is achieved for models that have four or fewer
exceptions in a continuous 12 month period. RBSs VaR model has
maintained a green status for its regulated legal entities and hence
has considered that no action is required to rectify or adapt its VaR
models.
3
1
Model
status
Hypo
3
1
Green
Green
Green
Green
Green
The exceptions at the NatWest level were driven by: the re-marking
in August of certain inflation products following independent price
verification; losses on euro and sterling positions as foreign
exchange spot rates moved significantly in September; and a oneday delay in booking by a trader in September.
The exception at the RBS N.V. level in December was primarily

driven by the unwinding of a Brazilian fund.
The exception at the RBSSI level resulted from losses in the US

Credit business relating to the mining and chemical sectors and from
losses on inflation securities.
The table below shows internal back-testing exceptions for a period of 250 days for 1-day 99% traded internal VaR vs. Clean and Hypo P&L for major
CIB businesses.
Back-testing exceptions
Actual
Description
Credit
Currencies
CIB ROR
Hypo
1
2
2
Note:
(1) The business classification for the purpose of back-testing has been revised to bring it in line with the new RBS business hierarchy effective 3 February 2014. Back-testing exceptions for these
businesses are also counted from this date.
Key points
As noted above, statistically RBS would expect to see back-testing
exceptions 1% of the time over a one-year period. At RBS plc level,
there was one exception during 2014, confirming that the model was
satisfactory.
The top-level businesses presented in the table above are subject to

quarterly governance by the PRA. For some of these businesses,
exceptions were noted during 2014 and analysis conducted as
explained below.
The exceptions in the Currencies business occurred in the normal

course of business and were mainly due to market moves adversely
affecting spot and volatility foreign exchange positions in the
business.
The exceptions in the Credit business mainly occurred due to CDS

spread tightening adversely affecting the overall short position.
CIB RoR experienced one actual and two hypothetical exceptions

during 2014. All exceptions were due to fair value differences on the
execution of a risk migration trade.
*unaudited
308
Stressed VaR (SVaR)*

As with VaR, the SVaR technique produces estimates of the potential
change in the market value of a portfolio, over a specified time horizon, at
a given confidence level. SVaR is a VaR-based measure using historical
data from a one-year period of stressed market conditions.
RBS adopts two approaches for the quantification of RNIVs:
A standalone VaR approach. Under this approach, two values are

calculated: (i) the VaR RNIV; and (ii) the SVaR RNIV.
A stress-scenario approach. Under this approach, an assessment of

ten-day extreme, but plausible, market moves is used in
combination with position sensitivities to give a stress-type loss
number - the stressed RNIV value.
The risk system simulates 99% VaR on the current portfolio for each 260day period from 1 January 2005 to the current VaR date, moving forward
one day at a time. The SVaR is the worst VaR outcome of the simulated
results.
This is in contrast with VaR, which is based on a rolling 500-day historical
data set. For the purposes of both internal risk management and
regulatory SVaR calculation, a time horizon of ten trading days is
assumed with a confidence level of 99%.
Trading SVaR*
Total RBS
CIB
RCR
Non-Core
2014
m
2013
m
2012
m
194
189
23
n/a
309
298
n/a
51
396
372
n/a
69
Key point
The period end traded SVaR declined in 2014 compared with 2013.
This was consistent with the decrease in VaR and was primarily
driven by the decision to exit the US ABP trading business.
Risks not in VaR (RNIVs)*
The RNIV approach is used for market risks that fall within the scope of
VaR and SVaR but that are insufficiently captured by the model
methodology, for example due to a lack of suitable historical data. The
RNIV framework has been developed to quantify these market risks and
to ensure that RBS holds adequate capital.
The need for an RNIV calculation is typically identified in one of the
following two circumstances: (i) as part of the New Product Risk
Assessment process, when a risk manager assesses that the associated
risk is not adequately captured by the VaR model; or (ii) as a result of a
recommendation made by Model Risk or the model validation team when
reviewing the VaR model.
The RNIV calculations provide a capital estimate of risks not captured in
the VaR model and are regularly reported and discussed with senior
management and the regulator. The methodology used in the material
RNIV calculations is internally reviewed by Model Risk. Where
appropriate, risk managers set sensitivity limits to control specific risk
factors giving rise to the RNIV. RNIV calculations form an integral part of
RBSs ongoing model and data improvement efforts to capture all market
risks in scope for model approval in VaR and SVaR. Since the
introduction of the RNIV framework, progress has been made in
transitioning RNIVs into the VaR model.
For each legal entity covered by the PRA VaR approval (refer to
Regulatory VaR), RNIV amounts are aggregated to obtain the following
three measures: (i) Total VaR RNIV; (ii) Total SVaR RNIV; and (iii) Total
stressed RNIV. In each of these categories, potential diversification
benefits between RNIVs are ignored.
The top ten RNIVs represent approximately two thirds of the total RNIV
capital requirement.
RNIVs are broadly classified as follows:
Proxied sensitivities or risk factors: to cover instruments for which

market data is not available.
Higher-order sensitivity terms: to account for the fact that the VaR
model is based on a P&L approximation function rather than full
repricing of deals.
Interpolation and re-bucketing inaccuracy: to cover residual errors

resulting from the pre-processing of risk factors into a standard set
across tenors.
Data selection bias: to cover the possibility of suboptimal data

sources being selected for risk factors.
Static pricing parameters: to cover the possibility that suboptimal

assumed values are used for certain unobserved parameters
in pricing models.
Missing basis risks: to cover cases where data sources are not
detailed enough to differentiate the risks of long and short pairs of
closely related instruments.
The most material of these are proxied sensitivities, followed by higherorder sensitivity terms.
RNIVs that are related specifically to instruments that have level 3
valuation hierarchy assumptions (refer to pages 388 and 389) are mainly
included in the following categories: proxied sensitivities or risk factors;
higher-order sensitivity terms; and static pricing parameters.
*unaudited
309

The table below analyses capital requirements related to RNIVs.
Risks not in VaR

Risks not in SVaR
Stressed RNIV
Key point
The RNIV charge increased by 41% year on year. This was primarily
due to the removal of the materiality threshold in Q1, and hence all
RNIVs are now subject to capital requirements, following an
agreement with the PRA. This initial increase was partially offset by
risk reductions across the portfolio in H2.
Stress testing*
RBS undertakes daily market risk stress testing to identify vulnerabilities
and potential losses in excess of or not captured in VaR. The calculated
stresses measure the impact of changes in risk factors on the fair values
of the trading and available-for-sale portfolios.
RBS conducts historical, macroeconomic and vulnerability-based stress
testing.
Scenario-based sensitivity analysis measures the sensitivity of the
current portfolio to defined movements in market risk factors. These risk
factor movements and the resulting valuation changes are typically
smaller than those considered in other stress tests.
Historical stress testing is a measure that is used for internal
management. Using a similar technical framework to VaR, the current
portfolio is stressed using historical data since 1 January 2005. The
methodology simulates the impact of the worst loss that would be
incurred by historical risk factor movements over the period, assuming a
holding period specific to the risk factors and the businesses. At present,
a holding period of 60 business days is applied for credit risk factors
including in the case of asset-backed securities (ABS) and for the
available-for-sale (AFS) portfolios that are held by CIB Treasury and
generally a period of 10 business days for other risk factors. RBS reviews
the holding periods annually.
Historical stress tests form part of the market risk limit framework and
their results are reported daily to senior management.
2014
m
2013
m
57
79
183
319
30
39
149
218
Vulnerability-based stress testing begins with the analysis of a portfolio

and expresses the key vulnerabilities of the portfolio in terms of plausible,
so-called vulnerability scenarios under which the portfolio would suffer
material losses. These scenarios can be historical, forward-looking,
macroeconomic or hypothetical. Vulnerability-based stress testing is used
for internal management information and is not subject to limits. However,
relevant scenarios are reported to senior management.
Economic capital
A market risk economic capital framework was developed in 2013 and
was introduced in internal reporting in 2014.
The associated models calculate the market and default risk in the
trading book and are aligned with other models that are used for limit
setting and market risk management. The results are annualised to be
consistent with the other economic capital models to permit consolidation
of all risk types as part of the RBS-wide economic capital programme.
Other risk measures
In addition to SVaR and stress tests, RBS uses a range of other risk
measures to complement VaR. These measures often represent local
(small-amplitude) risk calculations which provide valuable additional
controls, often at individual desk or business unit level. They mainly
include, but are not limited to, sensitivity and position-based risk
measures.
Sensitivity measures refer to the changes in deal or portfolio value that
result from small changes in market parameters that are subject to the
market risk limit framework.
Position-based measures are also used and are stated in terms that
relate directly to the business activity they are applied to. Examples of
such measures include the aggregate open foreign exchange position or
the long, short and net amount of security or currency held and aged
inventory in trading books.
Macroeconomic stress tests are carried out periodically as part of the

firm-wide, cross-risk capital planning process. The scenario narratives
are translated into risk factor shocks using historical events and insights
by economists, risk managers and the front office. Market risk stress
results are combined with those for other risks into the capital plan that is
presented to the Board. The cross-risk capital planning process is
conducted twice a year, in April/May and October/November, with a
planning horizon of five years. The scenario narratives cover both
regulatory scenarios such as the PRA Anchor and the Federal Reserve
Comprehensive Capital Analysis and Review and macroeconomic
scenarios identified by the firm such as a euro crisis and a China hard
landing.
*unaudited
310
Calculation of regulatory capital*

Regulatory treatment
The market risks subject to capital requirements under Pillar 1 are
primarily interest rate, credit spread and equity risks in the trading book
and foreign exchange and commodity risks in both the trading and nontrading books. Interest rate and equity risks are split between general and
specific risks. General risks represent market risks due to a move in a
market as a whole, such as a main index or yield curve, while specific
risks represent market risks arising from events particular to an
underlying issuer.
RWAs by legal entity and by regulatory approach*

Market risk RWAs of 24 billion and minimum capital requirement of 1.9
billion are analysed below.
Firms can choose from two broad methodologies to calculate their market
risk capital charge: (i) the standard rules, whereby regulator-prescribed
rules must be applied, and (ii) the internal model approach, where,
subject to regulatory approval, a model such as VaR is used to calculate
the capital charge.
RBS uses both methods, with the internal model approach being used to
calculate about 76% (2013 - 86%) of its capital charge.
VaR and SVaR capture general and specific risks but not risks arising
from the impact of defaults and rating changes associated with traded
credit products and their derivatives. For these risks, three productdependent approaches are used:
The incremental risk charge (IRC) model captures risks arising from
rating migration and default events for the more liquid traded credit
instruments and their derivatives.
The all price risk model covers the generally lower-liquidity

correlation trades and their liquid hedges (such as first-to-default
basket trades). RBS ceased using an internal model for all price risk
during Q2 2014, refer to the following page.
Securitisation and re-securitisation risks in the trading book are

treated with the non-trading book standardised capitalisation
approach.
Regulatory VaR*
RBSs VaR model has been approved by the PRA to calculate its
regulatory market risk capital requirement for the trading book for those
legal entities under its jurisdiction. These legal entities are The Royal
Bank of Scotland plc, RBS Securities Inc, RBS Financial Products Inc,
and National Westminster Bank Plc. As from 1 December 2014, this
approval takes the form of an internal model approach permission,
replacing the earlier VaR waiver.
While internal VaR provides a measure of the economic risk,
regulatory VaR is one of the measures of regulatory capital by legal
entity.
The calculation of regulatory VaR differs from that of the internal VaR as
it takes into account only regulator-approved products, locations and
legal entities and it is based on a ten-day, rather than a one-day, holding
period for market risk capital calculations.
*unaudited
The PRA approval covers general market risk in interest rate, foreign
exchange, equity and commodity products and specific market risk in
interest rate and equity products.
311

VaR back-testing*
For RBSs trading book, a green model status was maintained throughout
2014. For details of back-testing results for regulatory VaR, refer to the
table on page 307.
Regulatory SVaR*
RBSs SVaR model has also been approved by the PRA for use in the
capital requirement calculation. The regulatory SVaR differs from internal
SVaR as it covers only regulator-approved products, locations and legal
entities.
Risks not in VaR
As discussed earlier, RBS has an established RNIV framework that
ensures that the risks not captured in VaR are adequately covered by its
capital.
The RNIV framework does not include tail event risks; these risks are
covered indirectly by the regulatory multiplier applied to VaR and directly
by relevant charges, notably the IRC discussed below.
Incremental risk charge (IRC)*
The IRC model quantifies the impact of rating migration and default
events on the market value of instruments with embedded credit risk (in
particular, bonds and credit default swaps) that are held in the trading
book. It further captures basis risk between different instruments,
maturities and reference entities. Following the internal ratings-based
approach for credit risk, the IRC is calculated over a one-year capital
horizon with a 99.9% confidence level.
The dependency of positions is modelled using a single-factor Gaussian

copula, which facilitates an efficient calculation of the charge using
numerical integration.
IRC is mainly driven by three-month transition, default and correlation
parameters. The portfolio impact of correlated defaults and rating
changes is assessed by observing changes in the market value of
positions using stressed recovery rates and modelled credit spread
changes. Revaluation matrices are used to capture any non-linear
behaviour.
The model has distinct parameter sets for sovereign and corporate
exposures. It reflects the overall liquidity of each position referencing an
entity, using product type, product maturity and product concentration
characteristics.
The constant level of risk requirement is met by replacing positions that
default or migrate in one period with equivalent positions in the next. The
average liquidity horizon by position at the year end was 3.3 months
(2013 - 3.7 months).
All price risk (APR)*
Until Q2 2014, RBSs APR model was used to determine the capital that
should be held against all material price risks, including those arising
from defaults and credit rating changes affecting securities in the hedged
portfolio, using a 99.9% confidence level over a one year time horizon.
This model was applied to the correlation trading portfolio subject to
certain eligibility criteria (principally that the underlying names be liquid
corporate CDS positions).
Given the reduction in the size of the correlation trading portfolio, RBS
ceased using an internal model for all price risk during Q2 2014. With the
PRAs approval, all remaining open risk is now capitalised under
standardised rules.
*unaudited
312
Market risk capital*

Minimum capital requirements
The following table analyses RBSs total market risk minimum capital requirement of 1,917 million at 31 December 2014, calculated in accordance with
the Capital Requirements Regulation (CRR); this represents 8% of the corresponding RWA amount, 24 billion. It comprises a number of regulatory
capital requirements split into two categories: (i) the standardised position risk requirement (PRR) of 459 million, which has several components; and
(ii) the Pillar 1 model-based PRR of 1,458 million, which comprises several modelled charges. For 2013 and 2012, the capital requirements were
calculated in accordance with Basel 2.5.
CRR
2014
m
Interest rate position risk requirement

Equity position risk requirement
Option position risk requirement
Commodity position risk requirement
Foreign currency position risk requirement
Specific interest rate risk of securitisation positions
Total (standard method)
Pillar 1 model based position risk requirement
Total market risk minimum capital requirement
116
1
7
2
63
270
459
1,458
1,917
Basel 2.5
2013
m
Basel 2.5
2012
m
147
1
10
13
39
123
333
2,086
2,419
254
1
26
2
12
156
451
2,959
3,410
The following table analyses the principal contributors to the Pillar 1 model based PRR presented in the previous table. Following the implementation of
the CRR on 1 January 2014, credit hedges eligible for CVA are no longer included in the modelled market risk capital charges. Such hedges are now
included in the CVA capital charge, which forms part of the capital calculation for counterparty credit risk.
Average
m
2014
Value-at-risk
Stressed VaR
Incremental risk charge
All price risk
Risk not in VaR
Key points
RBSs total market risk minimum capital requirement fell in 2014,
largely driven by the decreases in the Pillar 1 model-based
contributors (primarily VaR, SVaR and the IRC). The standard
method requirement rose, chiefly driven by the rise in the specific
interest rate risk of securitisation positions.
The interest rate position risk requirement decreased, primarily due

to the closure of the interest rate trading business in Japan and the
associated disposal of bond positions.
The decrease in the commodity position risk requirement was driven

by a change in the treatment of options under the CRR standardised
approach.
The foreign currency position risk requirement increased, reflecting

increased foreign currency cash positions over the period.
Specific interest rate risk of securitisation positions: This charge

rose, reflecting the change in treatment regarding securitisation
exposures with a risk weight of 1,250%.
323
681
402
2
412
CRR
2014
Maximum
m
527
856
530
6
472
Minimum
m
232
511
299
319
Period end
m
329
511
299
319
1,458
Basel 2.5
2013
Period end
m
576
841
443
8
218
2,086
Basel 2.5
2012
Period end
m
825
1,226
467
12
429
2,959
Overall, the Pillar 1 model-based PRR declined 30% during 2014,

driven by reductions in the VaR and SVaR charges and the IRC,
offset somewhat by an increase in the RNIV charge.
The decrease in the VaR and SVaR charges was primarily driven by
the removal of the CVA eligible hedges (as noted above) in Q1 and
ongoing risk reduction in Q2 and Q3 relating to the asset backed
product portfolio as part of the risk reduction strategy.
The IRC declined by 32%, notably in Q4 reflecting a reduced

exposure to the eurozone periphery and continued risk reduction in
the US ABP portfolio. The IRC figures presented in the table above
differ from those in the table on the following page for the reasons
explained in the note to that table.
Given the reduction in the size of the correlation trading portfolio,

RBS ceased using an internal model for all price risk during Q2.
With the PRAs approval, all remaining open risk is now capitalised
under standardised rules.
For details of the drivers of the increase in the RNIV charge, refer to
the commentary on page 310.
*unaudited
313

IRC by rating and product category
The following table analyses the IRC by rating and product.
2014
Product categories
Cash - asset-backed securities
Cash - regular
Derivatives - credit
Derivatives - interest rate
Other
Total
A
m
Internal ratings (1)

BBB
m
AAA
m
AA
m
BB
m
1.6
36.3
(3.9)
(10.0)
0.8
24.8
49.4
(11.8)
(1.4)
36.2
0.2
71.0
4.4
0.2
75.8
0.3
67.0
3.2
1.5
72.0
(1.6)
53.4
(19.1)
1.2
33.9
31.4
73.5
(4.5)
29.7
1.7
131.8
15.5
(1.2)
5.4
19.7
7.2
(4.6)
0.6
3.2
0.2
132.3
(21.4)
165.5
276.6
(1.5)
21.4
(19.5)
5.8
6.2
B
m
CCC
m
Total
m
0.6
3.5
0.8
4.9
2.3
(0.3)
2.0
1.1
282.9
(26.7)
(8.5)
0.8
249.6
0.1
2.9
(13.4)
0.6
(9.8)
33.9
(23.0)
10.9
30.2
286.7
(87.6)
207.6
1.7
438.6
2013
Product categories
Cash - asset backed securities
Cash - regular
Derivatives - credit
Derivatives - interest rate
Other
Total
Notes:
(1) Based on an assessment of S&P, Moodys and Fitch ratings, where available, or on RBSs internal master grading scale.
(2) The figures presented are based on the spot IRC charge at 31 December 2014 and will therefore not agree with the IRC position risk requirement, as this is based on the 60-day average. The figures
presented above are in capital terms.
(3) The IRC figures by product category presented above are based on an internal allocation and do not constitute standalone position risk requirements.
Key points
Spot IRC capital fell 189 million or 43% year on year, for the same
reasons noted on the previous page for the IRC PRR. The largest
decline was in the interest rate derivatives (much of it due to
decreased positions in BBB-rated EU periphery exposure). This was
partially offset by the removal of CVA eligible hedges under the
CRR, which drove the movement in credit derivatives.
The decrease in the AAA rating category reflects the continued

reduction in US ABP business.
Securitisation positions in the trading book

The following table shows the capital requirement for trading book securitisation positions by rating.
Ratings (1)
AA
m
A
m
Non-investment
BBB
grade
m
m
Unrated
m
Total (1,2)
m
STD PRR (3)

%
Capital
deductions
m
2014
AAA
m
Trading book securitisation charge
3.9
1.0
4.1
22.1
148.9
90.3
270.3
10.0
8.9
6.2
12.7
35.5
54.5
5.4
123.2
42.9
932.1
2013
Trading book securitisation charge
Notes:
(1) Based on S&P ratings.
(2) Excludes the capital deductions.
(3) Percentage of total standardised position risk requirement.
Key point
The increase in the non-investment grade and unrated categories was caused by the change in treatment regarding securitisation exposures with a
risk weight of 1,250%. This increase was partially offset by the disposal of assets across the rating categories.
*unaudited
314
Valuation and independent price verification

Traders are responsible for marking-to-market their trading book
positions daily, ensuring that assets and liabilities in the trading book are
measured at their fair value. Any profits or losses on the revaluation of
positions are recognised daily.
Product controllers are responsible for ensuring that independent price
verification processes are in place covering all trading book positions held
by their business. Independent price verification and trader supervision
are the key controls over front office marking of positions.
For more information on valuation controls, refer to page 303. The
validation of pricing models is discussed below.
Model validation
The independent model validation framework governing both pricing
models and risk models (including VaR) is described below.
RBS uses a variety of models to manage and measure market risk, as
described below. These models comprise pricing models (used for
valuation of positions) and risk models (for risk measurement and capital
calculation purposes). They are developed in both RBS-level and lowerlevel functions and are subject to independent review and sign-off.
A dedicated independent model review and challenge function - Model
Risk - performs reviews of relevant models in two instances: (i) for new
models or amendments to existing models and (ii) as part of its ongoing
programme to assess the performance of these models.
The review process comprises the following steps:
The committees prioritise models for review by Model Risk,

considering the materiality of the risk booked against the model and
an assessment of the degree of model risk, that is the valuation
uncertainty arising from the choice of modelling assumptions.
Model Risk quantifies the model risk by comparing front office model
outputs with those of alternative models independently developed by
Model Risk.
The sensitivities derived from the pricing models are validated.
The conclusions of the review are used by Market Risk to inform risk
limits and by Finance to inform model reserves.
Risk models*
All new risk models are subject to review and sign-off by Model Risk.
All model changes are approved through model governance at the
franchise level. Changes to existing models that have an impact on VaR
exceeding 5% at legal entity level or 15% at a major business level are
also subject to Model Risk review and sign-off as are all model changes
that require regulator approval before implementation.
Model Risks independent review comprises some or all of the following
steps, as appropriate:
A new model is typically introduced when an existing model is no longer

fit for purpose or a new product requires a new methodology or model to
quantify the risk appropriately. Amendments are usually made when a
weakness is identified during use of a model or following analysis either
by the model developers or by Model Risk.
Testing and challenging the logical and conceptual soundness of the

methodology;
Pricing models*
Pricing models are developed by a dedicated front office quantitative
team, in conjunction with the trading desk. They are used for the
valuation of positions for which prices are not directly observable and for
the risk management of the portfolio.
Testing the assumptions underlying the model, where feasible,

against actual behaviour. In its validation report, Model Risk will
opine on the reasonableness and stability of the assumptions and
specify which assumptions, if any, should be routinely monitored in
production;
Testing whether all key market risks have been sufficiently captured;
Re-applying the proposed approach to verify that the same outcome

is achieved;
Any pricing models that are used as the basis for valuing books and
records are subject to approval and oversight by asset-level modelled
product review committees.
Comparing outputs with results from alternative methods;
Testing parameter selection and calibration;
Ensuring model outputs are sufficiently conservative in areas where

there is significant model uncertainty;
Confirming the applicability of tests for accuracy and stability;

recalculating and ensuring that results are robust; and
Ensuring appropriate sensitivity analysis has been performed and

documented.
These committees comprise representatives of the major stakeholders in

the valuation process - trading, finance, market risk, model development
and model review functions.
*unaudited
315

Based on the review and findings from Model Risk, an internal model
governance committee with appropriate delegated authority considers
whether a model can be approved for use and whether any conditions
need to be imposed, including those relating to the remediation of
material issues raised through the review process. Once approved
through internal governance, the new or amended model is implemented.
Models used for regulatory reporting may additionally require PRA
approval before implementation.
Model Risk also reassesses the appropriateness of approved risk models
on a periodic basis according to the approved Periodic Review Policy.
Each periodic review consists of a quick scan assessment and a
subsequent decision by an internal model governance committee with
appropriate delegated authority to re-ratify a model based on the quick
scan assessment or to perform additional work prior to making a decision
whether or not to re-ratify a model. In the quick scan assessment Model
Risk assesses changes since the last approval along the following
dimensions: change in size/composition of the portfolio, market changes,
model performance, model changes, status of any outstanding issues,
scheduled activities including work carried over from previous reviews.
This independent oversight also provides additional assurance that RBS
holds appropriate capital for the market risk to which it is exposed.
Risk assessment, monitoring and mitigation

Interest rate risk
Non-traded interest rate risk (NTIRR) factors are grouped into the
following categories:
Repricing risk, which arises when asset and liability positions either
mature (in the case of fixed-rate positions) or their interest rates
reset (in the case of floating-rate positions) at different dates. These
mismatches may give rise to net interest income and economic
value volatility as interest rates vary.
Yield curve risk, which arises from unanticipated changes in the

shape of the yield curve, such that rates at different maturity points
may move differently. Such movements may give rise to interest
income and economic value volatility.
The two risk factors above incorporate the duration risk arising from
the reinvestment of maturing swaps hedging net free reserves (or
net exposure to equity and other low fixed-rate or non-interestbearing liability balances including, but not limited to, current
accounts).
Basis risk, which arises when related instruments with the same
tenor are valued using different reference yield curves. Changes in
the spread between the different reference curves can result in
unexpected changes in the valuation of or income difference
between assets, liabilities or derivative instruments. This occurs, for
example, in the retail and commercial portfolios, when products
valued on the basis of the Bank of England base rate are funded
with LIBOR-linked instruments.
Optionality risk, which arises when customers have the right to

terminate, prepay or otherwise alter a transaction without penalty,
resulting in a change in the timing or magnitude of the cash flows of
an asset, liability or off-balance sheet instrument. This risk primarily
arises in the US mortgage business in CFG where long-term fixedrate loans are the norm and prepayment penalties are rare.
The model testing team in Market Risk also performs regular VaR model
testing, which is discussed in more detail under Risk measurement value-at-risk on page 304.
Risk governance
RBS manages the three key categories of non-traded market risk
separately. The categories are: non-traded interest rate risk; non-traded
foreign exchange risk; and non-traded equity risk.
The Chief Risk Officer delegates responsibility for day-to-day control of
non-traded interest rate risk and foreign exchange risk to the Director of
Market Risk.
Non-traded market risk positions are reported to the ALCo and the Board,
monthly in the case of interest rate risk and quarterly in the case of
foreign exchange and equity risk.
The ERF approves the non-traded market risk framework. The nontraded market risk policy statement sets out the governance and risk
management framework through effective identification, measurement,
reporting, mitigation, monitoring and control.
The models used for managing non-traded market risk are subject to the
validation process described on page 315.
Risk appetite*
The ERF sets RBSs appetite for non-traded market risk and approves
appropriate risk limits as recommended by the Director of Market Risk
and the ALCo. Further information on the process and the limit framework
can be found on pages 196 to 205.
*unaudited
Due to the long-term nature of many non-trading book portfolios and their
varied interest rate repricing characteristics and maturities, it is likely that
net interest income will vary from period to period, even if interest rates
remain the same. New business originated in any period will alter RBSs
interest rate sensitivity if the resulting portfolio differs from portfolios
originated in prior periods, depending on the extent to which exposure
has been hedged.
RBSs policy is to manage the interest rate sensitivity within risk limits
that are approved by the ERF and endorsed by the ALCo before being
cascaded to lower levels. These include, in particular, interest rate
sensitivity and VaR limits.
In order to manage exposures within these limits, RBS aggregates its
interest rate positions and hedges them externally using cash and
derivatives - primarily interest rate swaps.
This task is primarily carried out by RBS Treasury, to which all
businesses except CFG and CIB transfer most of their NTIRR. The main
exposures and limit utilisations are reported to the ALCo and the Board
monthly.
316

The only material non-traded open currency positions are the structural
foreign exchange exposures arising from investments in foreign
subsidiaries, branches and associates and their related currency funding.
These exposures are assessed and managed by RBS Treasury to
predefined risk appetite levels under delegated authority from the ALCo.
RBS Treasury seeks to limit the potential volatility impact on RBSs
Common Equity Tier 1 (CET1) ratio from exchange rate movements by
maintaining a structural open currency position. Gains or losses arising
from the retranslation of net investments in overseas operations are
recognised in equity reserves and reduce the sensitivity of capital ratios
to foreign exchange rate movements primarily arising from the
retranslation of non-sterling-denominated RWAs. Sensitivity is minimised
where, for a given currency, the ratio of the structural open position to
RWAs equals RBSs CET1 ratio. The sensitivity of the CET1 capital ratio
to exchange rates is monitored monthly and reported to the ALCo at least
quarterly.
Foreign exchange exposures arising from customer transactions are sold
down by businesses on a regular basis in line with RBS policy.
Equity risk
Non-traded equity risk is the potential variation in the income and
reserves arising from changes in non-trading book equity valuations. Any
such risk is identified prior to any investments and then mitigated through
a framework of controls.
Investments, acquisitions or disposals of a strategic nature are referred to
RBSs Acquisitions and Disposals Committee (ADCo). Once approved by
ADCo for execution, such transactions are referred for approval to the
Board, the RBS Executive Committee (ExCo), the RBS Chief Financial
Officer or as otherwise required. Decisions to acquire or hold equity
positions in the non-trading book that are not of a strategic nature, such
as customer restructurings, are taken by authorised persons with
delegated authority under the credit approval framework.
Risk measurement
Interest rate risk
NTIRR can be measured from either an economic value-based or
earnings-based perspective (or both). Value-based approaches measure
the change in value of the balance sheet assets and liabilities over a
longer timeframe, including all cash flows. Earnings-based approaches
measure the potential short-term (generally one year) impact on the
income statement of charges in interest rates.
RBS uses both approaches to quantify its interest rate risk: VaR as its
value-based approach and sensitivity of net interest income (NII) as its
earnings-based approach.
These two approaches provide different yet complementary views of the
impact of interest rate risk on the balance sheet at a point in time. The
scenarios employed in the NII sensitivity approach incorporate business
assumptions and simulated modifications in customer behaviour as
interest rates change. In contrast, the VaR approach assumes static
underlying positions and therefore does not provide a dynamic
measurement of interest rate risk. In addition, while the NII sensitivity
calculations are measured to a 12-month horizon and thus provide a
shorter-term view of the risks on the balance sheet, the VaR approach
can identify risks not captured in the sensitivity analysis, in particular the
impact of duration and repricing risk on earnings beyond 12 months.
Value-at-risk
RBSs standard VaR metrics - which assume a time horizon of one
trading day and a confidence level of 99% - are based on interest rate
repricing gaps at the reporting date. Daily rate moves are modelled using
observations over the last 500 business days. These incorporate
customer products plus associated funding and hedging transactions as
well as non-financial assets and liabilities such as property, plant and
equipment, capital and reserves. Behavioural assumptions are applied as
appropriate.
The table below shows the NTIRR VaR for RBSs retail and commercial
banking activities at a 99% confidence level together with a currency
analysis of period end VaR.
Average
m
2014
2013
2012
50
45
46
Euro
Sterling
US dollar
Other
Key points
The decline in VaR between 2013 and 2014 reflects RBS policy to
reduce economic exposure to changes in interest rates. This notably
related to US dollar and sterling interest rate exposures.
Period end
m
Maximum
m
Minimum
m
23
51
21
79
57
65
23
30
20
2014
m
2013
m
2012
m
2
12
27
3
4
19
44
2
19
17
15
4
The reduction in exposure was achieved in the second half of the

year through both hedging and the utilisation of naturally arising
balance sheet offsets, such as the increase in net free reserves
following the partial IPO of CFG. This resulted in period end VaR
decreasing significantly more than the average for the year.
These movements remained well within RBSs approved market risk

appetite.
317
Non-traded market risk continued

Sensitivity of net interest income*
To analyse earnings sensitivities, forecasts are generated using implied
forward rates, projected new business volumes, mix and pricing
generated using business assumptions. Based on the balance sheet at
the most recent month end, two NII forecasts are calculated each month:
(i) a forecast for the current full year, which incorporates actuals monthly
as the year progresses; and (ii) a base-case 12 month rolling forecast.
The following table shows the sensitivity of net interest income, over the
next 12 months, to an immediate upward or downward change of 100
basis points to all interest rates. In addition, the table includes the impact
of a gradual 400 basis point steepening (bear steepener) and a gradual
300 basis point flattening (bull flattener) of the yield curve at tenors
greater than a year.
The scenarios represent annualised interest rate stresses of a scale
deemed sufficient to trigger a modification in customer behaviour. The
asymmetry in the steepening and flattening scenarios reflects the
difference in the expected behaviour of interest rates as they approach
zero.
In addition, the 12 month rolling forecast is re-run using alternative rates

under various scenarios, incorporating changes in customer behaviour
and business assumptions as appropriate. Variances between these
scenarios are analysed to identify key drivers. These forecasts and
sensitivities form part of the information used by senior management to
manage the bank's NII targets.
The reported sensitivities will vary over time due to a number of factors
such as market conditions and strategic changes to the balance sheet
mix and should not therefore be considered predictive of future
performance.
This sensitivity analysis also incorporates assumptions relating to

optionality risk.
2014
+ 100 basis point shift in yield curves

100 basis point shift in yield curves
Bear steepener
Bull flattener
Euro
m
Sterling
m
US dollar
m
Other
m
Total
m
Of which CFG
US$m
(28)
(34)
347
(298)
214
(87)
(17)
(12)
516
(431)
406
(116)
154
(85)
105
(58)
59
(29)
416
(333)
175
(82)
31
(15)
681
(459)
403
(273)
183
(76)
122
(88)
(29)
(20)
472
(257)
119
(29)
27
(11)
589
(317)
216
(77)
255
(76)
65
(33)
2013

Bear steepener
Bull flattener
2012

Bear steepener
Bull flattener
Key points
Interest rate exposure remains asset sensitive, such that rising rates
will have a positive impact on net interest income.
The decreased sensitivity to parallel shifts in the yield curve over a

12 month horizon is due to increased exposure to fixed rate assets
and changes in assumptions regarding the impact on customer
pricing.
Structural hedging*
Banks generally have the benefit of a significant pool of stable, non and
low interest bearing liabilities, principally comprising equity and money
transmission accounts. These balances are usually hedged, either by
investing directly in longer-term fixed rate assets or by the use of interest
rate swaps, in order to provide a consistent and predictable revenue
stream.
RBS targets a weighted average life for these economic hedges. This is
accomplished using a continuous rolling maturity programme, which is
primarily managed by Treasury to achieve the desired profile. The
maturity profile of the hedge aims to reduce the potential sensitivity of
income to rate movements. The structural hedging programme is RBSwide, capturing the position in the UK banking businesses and regulated
subsidiaries in other jurisdictions.
*unaudited
318
Product hedging*
Product structural hedges are used to minimise the volatility on earnings related to specific products, primarily customer deposits. The balances are
primarily hedged with medium-term interest rate swaps, so that reported income is less sensitive to movements in short -term interest rates. The size
and term of the hedge are based on the stability of the underlying portfolio.
The table below shows the impact on net interest income associated with product hedges managed by RBS Treasury. These relate to the main UK
banking businesses except Private Banking. The figure shown represents the incremental contribution of the hedge relative to short-term wholesale
cash rates.
Net interest income

Commercial Banking
Total product hedges
Key points
The incremental impact of product hedges on net interest income

remained positive in 2014, increasing from 585 million to 648
million. Throughout the year, short term wholesale cash rates
remained at or close to historical low levels. The notional size of the
hedge increased from 48 billion to 64 billion. The scope of the
hedging programme was extended to cover not only customer
current accounts but also customer savings deposits. The
incremental yield on the portfolio above 3-month LIBOR fell from
1.2% to 1.0%, largely as a result of the one-off effect of establishing
the new hedge. At the end of December 2014, the equivalent
incremental yield available in the market was 0.8% compared with
1.5% at the end of 2013.
2014
m
2013
m
393
180
75
648
387
121
77
585
Across RBS, banking book exposure to medium-term fixed rates fell

during 2014. The increased exposure established by the product
hedge was offset by reducing exposure in Treasury.
Equity hedging*
Equity structural hedges are used to minimise the volatility on earnings
arising from returns on equity. The hedges managed by Treasury relate
mainly to the UK banking businesses and contributed 0.8 billion to these
businesses in 2014 (2013 - 0.8 billion), which is an incremental benefit
relative to short-term wholesale cash rates. The size of the hedge
increased from 39 billion in 2013 to 41 billion in 2014. The fall in yield
mainly results from reinvestment of maturing hedges at lower rates.
*unaudited
319

The table below shows structural foreign currency exposures.
Net assets of
overseas
operations
m
2014
US dollar
Euro
Other non-sterling
Noncontrolling
interests
m
Net assets of
overseas operations
excluding NCI (1)
m
Net
Structural foreign
investment currency exposures
hedges pre-economic hedges
m
m
Economic
hedges (2)
m
Residual structural
foreign currency
exposures
m
11,402
6,076
4,178
21,656
(2,321)
(39)
(456)
(2,816)
9,081
6,037
3,722
18,840
(3,683)
(192)
(2,930)
(6,805)
5,398
5,845
792
12,035
(4,034)
(2,081)
(6,115)
1,364
3,764
792
5,920
16,176
6,606
4,233
27,015
(9)
(372)
(381)
16,176
6,597
3,861
26,634
(1,581)
(190)
(3,185)
(4,956)
14,595
6,407
676
21,678
(3,808)
(2,226)
(6,034)
10,787
4,181
676
15,644
17,313
8,903
4,754
30,970
(1)
(2)
(260)
(263)
17,312
8,901
4,494
30,707
(2,476)
(636)
(3,597)
(6,709)
14,836
8,265
897
23,998
(3,897)
(2,179)
(6,076)
10,939
6,086
897
17,922
2013
US dollar
Euro
Other non-sterling
2012
US dollar
Euro
Other non-sterling
Notes:
(1) Non-controlling interests (NCI) represents the structural foreign exchange exposure not attributable to owners equity, which consisted mainly of CFG in US dollar in 2014 (2013 and 2012: mainly
RFS MI in other non-sterling)
(2) Economic hedges mainly 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.
Key points
Structural foreign currency exposure at 31 December 2014 was
12.0 billion and 5.9 billion before and after economic hedges,
respectively, 9.6 billion and 9.7 billion lower than at 31 December
2013, of which 7.5 billion related to CFG. Movements in structural
foreign currency exposure result from changes in the net assets of
overseas operations, non-controlling interests and net investment
hedges.
Net assets of overseas operations declined by 5.4 billion, largely

due to write-downs relating to CFG and US deferred tax assets.
Non-controlling interests increased by 2.4 billion, as a result of the

partial disposal of CFG during the year.
Net investment hedges increased by 1.8 billion, primarily due to an

increase in US dollar hedging to manage the disposal of CFG.
Economic hedges, which mainly consist of equity capital securities

in issue, remained broadly unchanged.
Changes in foreign currency exchange rates affect equity in

proportion to structural foreign currency exposure. For example, a
5% strengthening in foreign currencies against sterling would result
in a gain of 0.6 billion in equity (2013 - 1.1 billion), while a 5%
weakening would result in a loss of 0.6 billion in equity (2013 - 1
billion).
320
Equity risk
Equity positions are carried at fair value on the balance sheet based on available market prices where possible. In the event that market prices are not
available, fair value is based on appropriate valuation techniques or management estimates.
Refer to the table below for the balance sheet carrying value of non-traded book equity positions.
Exchange-traded equity
Private equity
Other
2014
m
2013
m
2012
m
132
544
681
1,357
368
621
623
1,612
472
632
799
1,903
The exposures may take the form of (i) equity shares listed on a recognised exchange, (ii) private equity shares or (iii) other equity shares consisting
mainly of Federal Reserve and Federal Home Loan Bank stock. Refer to the table below for the net realised and unrealised gains from these positions.
Net realised gains arising from disposals

Unrealised gains included in Tier 1 or Tier 2 capital
2014
m
2013
m
2012
m
111
199
48
232
89
168
Note:
(1) Includes gains or losses on available-for-sale instruments only.
Gains on equity securities designated at fair value through profit or loss but not held for trading purposes were 222 million for 2014 (2013 - gains of 96
million; 2012 - gains of 184 million).
321

VaR for selected AFS non-trading portfolios
Available-for-sale portfolios in CIB and RCR, other than the structured credit portfolio, do not typically form part of the structural interest rate framework
due to the short-term nature of the interest rate risks they carry. They are thus monitored and managed through the same framework and using the
same metrics as portfolios in the trading book.
Average
m
Interest rate
Credit spread
Currency
Equity
Diversification (1)
Total
2.7
3.6
0.5
0.7
CIB
RCR
Non-Core
2014
Period end
Maximum
m
m
Minimum
m
Average
m
6.8
5.4
1.1
1.2
1.1
2.4
0.1
2.7
8.5
1.3
0.2
4.6
2.7
2.4
0.4
0.8
(2.5)
3.8
7.1
3.0
3.9
2.3
n/a
3.6
1.5
n/a
5.8
3.5
n/a
2.6
1.5
n/a
2013
Period end
Maximum
m
m
Minimum
m
Average
m
4.8
13.3
2.8
0.3
1.9
4.4
1.0
6.9
10.5
3.0
1.7
9.2
2.4
4.4
1.0
0.1
(2.9)
5.0
13.6
5.0
8.7
n/a
2.2
5.0
n/a
0.4
12.7
n/a
3.4
5.0
n/a
0.4
2012
Period end
Maximum
m
m
Minimum
m
10.7
15.4
4.5
1.9
4.1
7.3
1.3
0.3
11.8
4.5
8.8
1.3
0.3
(5.4)
9.5
18.3
8.5
11.3
n/a
2.5
7.5
n/a
3.4
19.0
n/a
3.6
7.1
n/a
1.6
Notes:
(1)
RBS benefits from diversification as it reduces risk by allocating positions across various financial instrument types, currencies and markets. The extent of the diversification benefit depends on the
correlation between the assets and risk factors in the portfolio at a particular time. The diversification factor is the sum of the VaR on individual risk types less the total portfolio VaR.
(2)
The table above excludes the structured credit portfolio and loans and receivables.
Key points
The average VaR for the non-trading book, predominantly
comprising available-for-sale portfolios, was 4.6 million during 2014
compared with 9.2 million during the same period in 2013. This
was largely driven by a decline in the credit spread VaR in Q1,
which partly reflected a decision to switch some of the securities
held as collateral from floating-rate notes issued by financial
institutions to government bonds during March as part of RWA
reductions.
A further driver of the decline, which largely affected the last three
quarters of the year, was the decision to reduce the US ABP
business in line with the exit strategy.
Structured credit portfolio

The structured credit portfolio is measured on a notional and fair value
basis because of its illiquid nature. Notional and fair value decreased to
0.4 billion and 0.3 billion respectively (2013 - 0.7 billion and 0.5
billion), reflecting the sale of underlying assets, primarily consumer ABS,
RMBS and CLOs/CDOs, in line with RCR strategy.
Calculation of regulatory capital

RBS holds capital for two types of non-traded market risk exposures:
NTIRR and non-trading book foreign exchange.
Capital for NTIRR is captured under the Pillar 2A process. This is
calculated by considering the potential impact on RBSs economic value
over a one year horizon. The four main sources of NTIRR - repricing,
yield curve, basis and optionality risks - are captured in the calculation.
Pillar 1 capital must be held for non-trading book foreign exchange
exposures, as outlined under CRR Articles 455 and 92(3)c. Structural
foreign exchange exposures are excluded from the calculations as
outlined under CRR Article 352(2); such exposures are considered under
Pillar 2A.
Non-traded equity risk is captured in credit risk RWAs.
The capital calculations under internal capital adequacy assessment
process are also used for economic capital purposes.
322
Country risk
324
324
324
324
324
324
325
325
325
325
326
Definition
Sources of risk
Overview
Outlook for 2015
Governance
Risk appetite
Risk mitigation
Risk monitoring
Measurement
Basis of preparation
Summary of country exposures
323
Country risk
Definition
Country risk is the risk of losses occurring as a result of either a country
event or unfavourable country operating conditions. As country events
may simultaneously affect all or many individual exposures to a country,
country event risk is a concentration risk. For other types of concentration
risks such as product, sector or single-name concentration, refer to the
Credit risk section.
Outlook for 2015*

In 2015, recovery in the advanced economies will likely remain uneven,
with widening differentials between the US and Europe in growth, price
levels and policies. The policy divergence will be amplified by the January
2015 ECB announcement of a 1,000 billion quantitative easing
programme, aimed at reversing deflation and stimulating credit growth,
while the US Federal Reserve is expected to start tightening interest
rates in the second half of 2015.
Sources of risk
Country risk has the potential to affect all parts of RBSs portfolio across
wholesale and retail activities that are directly or indirectly linked to the
country in question. It arises from possible economic or political events in
each country to which RBS has exposure, and from unfavourable
conditions affecting daily operations in a country.
The Chinese economy continues its structural slowdown; broad reforms

aim at ensuring more sustainable long-term growth, but accumulated
financial vulnerabilities bear downside risks. Growth in emerging markets
is expected to be restrained by reduced capital inflows, depressed global
commodity prices, and geopolitical conflicts, at times resulting in market
volatility in the most vulnerable economies.
Country events may include a sovereign default, a political conflict, a

banking crisis or a deep and prolonged recession leading to possible
counterparty defaults. Transfer or convertibility restrictions imposed by a
countrys government to stem the loss of foreign currency reserves may
temporarily prevent counterparties from meeting their foreign currency
payment obligations. Major currency depreciation may also affect a
customers income or debt burden, leading to default.
Governance*
The Executive Risk Forum (ERF) delegates authority to set sovereign
ratings, sovereign loss given default rates, and country Watchlist colours
to the Group Chief Credit Officer (CCO), who may further delegate this
authority to Strategic Risk. The ERF delegates authority to decide on
country risk matters such as risk appetite, risk management strategy and
framework, and risk exposure and policy to the Credit Risk Committee
(CRC), which may further delegate it to Country Risk Management
(CoRM). This includes the setting of country limits, where appropriate
including allocations for specific product groups. The CCO and CRC can
escalate issues to the ERF when necessary.
Unfavourable operating conditions may include the risk that a weak or

creditor-unfriendly legal system within a country makes it difficult for RBS
to recover its claims in the event of customer default. An unreliable or
unstable political system may lead to sudden compliance or reputational
issues, or even expropriation without proper compensation.
Overview*
The conflict between Ukraine and Russia and the consequent escalating
tensions between Russia and the West triggered an internal review of
credit grades. Limits for both countries were adjusted, additional credit
restrictions were placed on new business and exposures were reviewed
against international sanctions.
The eurozone region emerged from recession, with some of the periphery
countries recovering but growth in other countries, including Germany
mostly sluggish. The EUs Single Supervisory Mechanism (SSM)
commenced in November 2014 when the European Central Bank (ECB)
assumed supervisory responsibility for the 130 largest banks of the
eurozone, after concluding a detailed Asset Quality Review of their
books, adjusting balance sheets and stress testing their capital positions.
This SSM is the first pillar of the EU Banking Union that should reduce
the risk of a repeat of the financial crisis over the longer term and that
helps to support the quality of the banks exposure, particularly in Europe.
The other pillar will be the Single Resolution Mechanism, scheduled for
2016.
Important shifts in exposure occurred in 2014 as a result of the sale of a
significant portion of RBS N.V.s liquidity portfolio AFS bonds following
internal asset quality reviews and stress tests. The sale consisted of
Spanish covered bonds, contributing to a reduction in Spanish net
balance sheet exposure to 3.3 billion (2013 - 9.1 billion; 2012 - 11.5
billion).
For further information on governance, refer to the Risk governance

section on page 176.
Risk appetite*
RBSs country risk appetite framework has top-down and bottom-up
components.
The top-down component is guided by global risk appetite; each countrys
internal sovereign rating; its strategic importance to the bank; the
composition of the banks portfolio; the funding profile; and an
assessment of the potential for losses arising from possible key country
risk events. This component provides a clear structure for the
consideration of downside scenarios, the identification of countries that
pose material concentration risks to the bank, and possible management
actions.
Bottom-up analysis includes the risk/return relationship as well as
reputational and regulatory risk.
Country limits are set for almost all countries. The UK is an exception,
given its home country status. The US is another exception because of
the specific local risk management structure, the size of the local portfolio
and corresponding role in RBS-wide risk management, together with the
country's strong ratings.
*unaudited
324
Risk mitigation*
Part of RBSs exposure is mitigated by guarantors or insurers (including
export credit agencies), credit default swap (CDS) protection providers, or
collateral in third countries, which will not be directly affected by a country
event in the obligors country. Further details on credit mitigation
instruments are provided in the Credit risk section.
CDS contracts are used to hedge either entire portfolios or specific
individual exposures. These transactions are subject to regular
margining, which usually takes the form of cash collateral. For European
peripheral sovereigns, credit protection is purchased from a number of
major European banks, mostly outside the country of the reference entity.
In a few cases where protection was bought from banks in the country of
the reference entity, giving rise to wrong-way risk, this risk is mitigated
through specific collateralisation and monitored weekly.
Risk monitoring*
The CoRM team monitors and reports on exposures to all countries, and
follows up with the customer businesses in the event of limit excesses.
CoRM has delegated authority up to specified levels to decide on country
limit increases; any such decision must be reported to the CRC.
Persistent excesses are escalated to the CRC.
A country risk Watchlist process identifies emerging issues, facilitating
the development of mitigation strategies. Monthly reports discussing
RBSs main country risks and trends are sent to the CRC leadership
team, with any key risks reported to the Executive Committee and the
Board Risk Committee.
Measurement*
In this section, country exposure includes wholesale and retail net onbalance sheet exposure (drawn amounts under lending facilities, net of
provisions, mark-to-market derivatives positions and issuer-risk debt
securities positions in the banking book and trading book) together with
off-balance sheet exposure (contingent obligations and undrawn
commitments).
RBS also estimates its funding mismatches at risk of redenomination in
vulnerable eurozone countries. These mismatches are defined as the
exposures (net of provisions) that would be expected to convert to a new
national currency minus the liabilities that would be expected to redenominate at the same time. Exposures exclude balances at low risk of
redenomination, as identified through consideration of the relevant
documentation, particularly the currency of exposure, governing law,
court of jurisdiction, precise definition of the contract currency (for euro
facilities), and location of payment.
Basis of preparation
The tables on pages 326 to 327 show RBSs exposure at 31 December
2014, 2013 and 2012. Exposures are reported by country of operation of
the obligor, except exposures to governments and individuals, which are
shown by country of residence.
The country of operation is the country where the main operating assets
of a legal entity are held, or where its main cash flows are generated,
taking account of the entitys dependency on subsidiaries' activities.
Countries Watchlisted Amber are monitored closely. Appetite for

countries Watchlisted Red is limited to short-term business in areas such
as trade finance and derivatives, unless the country is deemed a strategic
priority country.
Countries shown are those which had ratings of A+ or below from

Standard and Poors, Moodys or Fitch at 31 December 2014, where
RBSs balance sheet exposure (as defined in this section) to
counterparties operating (or individuals residing) in them exceeded 1
billion. Also included are selected eurozone countries.
Detailed portfolio reviews are conducted to ensure that the composition of

country portfolios remains aligned with RBSs country risk appetite in light
of economic and political developments. Changes in sovereign ratings or
country Watchlist status trigger a review of appetite and, where
appropriate, are referred to the CRC for discussion.
The exposures are stated before taking into account risk mitigants such
as guarantees, insurance or collateral (with the exception of reverse
repos) which may have been put in place to reduce or eliminate exposure
to country risk events. The tables show CDS positions separately, as
RBS may be either a net buyer or a net seller of protection.
Exposures relating to ocean-going vessels are not included as they
cannot be meaningfully assigned to specific countries from a country risk
perspective.
*unaudited
325
Country risk continued

2014
Sovereign
m
Net balance sheet exposure

Other
Banks
FI Corporate Personal
m
m
m
m
Total
m
Analysis of net balance sheet exposures

Net
Debt securities
Net
lending AFS/LAR HFT (net) Derivatives
m
m
m
m
SFT
m
Offbalance
sheet
m
Total
exposure
m
Eurozone
Ireland
Italy
Spain
Portugal
Greece
Cyprus
826
127
251
111
8
726
2,519
583
246
258
839
368
164
97
1
5,653 14,593
1,187
25
2,184
88
322
8
92
17
113
14
22,637 21,176
4,226 1,095
3,270 2,024
784
282
376
63
127
108
56
169
47
20
413
5
364
152
8
991
2,957
835
330
305
19
2,922
2,031
1,923
222
23
16
25,559
6,257
5,193
1,006
399
143
Eurozone
periphery
1,323
4,332
1,469
9,551 14,745
31,420 24,748
292
942
5,437
7,137
Germany
14,982
France
5,206
Netherlands
998
Belgium
806
Luxembourg
18
Other
1,708
3,940
7,089
5,557
2,330
556
762
5,496
1,924
5,981
93
645
132
2,083
1,774
2,130
396
781
533
26,587
16,074
14,695
3,646
2,005
3,151
7,121 5,653
1,951 4,034
1,690 2,509
274
375
329
70
456
930
8,317
6,392
6,830
2,334
461
1,148
895
766
84
84
177
5
6,090
8,586
9,323
858
1,475
1,047
Total
eurozone
86
81
29
21
5
16
25,041 24,566 15,740 17,248 14,983
Japan
4,264
China
459
India
611
Russia
53
South Korea
325
Turkey
161
1,927
1,011
133
711
507
217
514
363
156
101
108
103
325
1,674
1,053
915
397
716
33
41
36
50
3
19
4,601
2,931
3,582
579
968
612
97,578 38,021 12,113 14,513

7,063
3,548
1,989
1,830
1,340
1,216
30,919 2,012
CDS
notional
less
Gross
fair value Derivatives
m
m
2,330
9,192
3,913
390
416
19
1,464
823
422
613
38,557
(1,148) 16,260
3,322
32,677
24,660
24,018
4,504
3,480
4,198
(1,749) 39,275 8,704

(2,406) 41,132 17,598
(815) 20,986 3,573
(219) 3,374
932
(53)
701 2,628
(562) 4,818
302
34,516 132,094
(6,952) 126,546 37,059
1,633
2,886
1,336
1,673
639
1,160
3 3,043
243
62
415
132
39
203
167
44
5
2,358
243
106
118
331
7
26
114
844
531
639
167
450
130
7,907
4,079
2,628
1,997
1,790
1,346
(48)
(625)
(312)
(155)
(8)
SFT
m
(25) 10,129 10,005

(4)
244 4,770
(47)
180
(166)
202
106
600
29
(36)
40 1,209
2013
Eurozone
Ireland
Italy
Spain
Portugal
Greece
Cyprus
304
1,698
858
35
1
2
688
1,329
3,439
310
228
1
561
891
1,405
114
1
8,973 15,821
1,171
26
3,093
293
312
6
105
14
144
10
26,347 24,893
5,115 1,582
9,088 3,084
777
290
349
89
157
139
233
248
519 1,240
4,162
853
93
43
900
1,774
989
351
260
16
73
2,711
1,962
1,981
280
38
18
29,058
7,077
11,069
1,057
387
175
Eurozone
periphery
2,898
5,995
2,972 13,798 16,170
41,833 30,077
5,007 2,386
4,290
73
6,990
Germany
10,803
France
2,806
Netherlands 3,222
Belgium
106
Luxembourg
10
Other
1,097
5,044
6,714
4,604
1,995
524
654
4,265
1,832
5,786
267
659
160
23,722
13,858
15,936
2,801
1,583
2,712
5,168 2,524
1,692 1,678
4,661
819
443 (480)
75
98
510
331
7,416
5,660
5,697
2,123
581
918
601
631
107
2
88
74
7,189
9,807
9,763
1,170
1,043
1,202
Total
eurozone
3,520
2,427
2,303
431
386
783
90
79
21
2
4
18
8,013
4,197
4,652
713
741
879
20,942 25,530 15,941 23,648 16,384 102,445 49,272 17,556 7,356
Japan
1,471
China
545
India
606
Russia
189
South Korea
242
Turkey
232
2,240
2,794
949
754
755
169
830
244
91
6
133
126
687
1,518
2,050
949
576
1,064
34
33
36
53
2
24
5,262
5,134
3,732
1,951
1,708
1,615
2,795
4,584
2,909
1,781
1,125
1,404
72
166
571
149
179
50
(172)
13
160
2
154
67
26,685 1,576
2,365
370
92
19
250
94
202
1
2,476
7,183
4,128
418
455
16
2,329
527
2,126
614
48,823
(1,519) 14,676
5,596
30,911
23,665
25,699
3,971
2,626
3,914
(1,340) 35,529
(1,747) 30,644
(356) 15,388
(123) 2,966
(58) 1,373
(476) 3,554
1,128
7,536
835
594
253
622
37,164 139,609
352
1,689
813
364
681
324
5,614
6,823
4,545
2,315
2,389
1,939
(166)
(734)
(444)
(163)
(12)
(5,619) 104,130 16,564

4
(14)
(21)
(65)
176
(32)
9,057 16,445
372
830
190
45
33
27
541
50
119
998
326
2012
Sovereign
m
Net balance sheet exposure

Other
Banks
FI Corporate Personal
m
m
m
m
Total
m
Analysis of net balance sheet exposures

Net
Debt securities
Net
lending AFS/LAR HFT (net) Derivatives
m
m
m
m
SFT
m
Offbalance
sheet
m
Total
exposure
m
Eurozone
Ireland
Italy
Spain
Portugal
Greece
Cyprus
267
1,075
444
102
33
3
1,477
1,789
4,448
451
299
11
931 12,395 16,205

1,186 2,402
23
1,838 4,501
313
177
389
7
(4)
186
13
1
70
14
31,275 28,772
6,475
2,510
11,544
4,416
1,126
397
527
163
99
63
424
977
4,871
180
363
630
503
35
1
4
1,213
2,358
1,754
514
363
32
503
2,855
2,669
1,592
332
40
14
34,130
9,144
13,136
1,458
567
113
Eurozone
periphery
1,924
8,475
4,129 19,943 16,575
51,046 36,321
6,452
1,536
6,234
503
7,502
Germany
France
Netherlands
Belgium
Luxembourg
Other
32,119
4,419
3,174
1,489
13
1,776
6,865
8,969
7,994
2,784
721
1,111
4,138
2,718
8,996
514
977
202
48,266 25,765
19,616
5,580
23,489
5,660
5,429
891
2,073
972
4,256
1,269
9,263
2,242
7,800
844
59
576
3,500
3,581
647
564
192
666
9,474
7,515
9,047
3,130
709
1,737
264
7,689
698
9,675
335 10,775
1,041
141
1,285
8
1,380
Total
eurozone
44,914 36,919 21,674 33,891 16,777 154,175 76,458 27,236 10,686
Japan
7,129
China
1,069
India
820
Russia
310
South Korea
292
Turkey
459
2,650
1,076
1,259
982
857
97
884
67
144
125
196
95
5,059
3,439
3,299
640
358
1,153
567
998
2,725
807
390
1,061
85
71
26
2
4
14
37
32
106
53
3
11
11,267
3,242
5,054
2,277
1,738
1,723
1,752
2,063
3,906
1,748
1,184
1,449
1,548
201
683
160
144
56
4,890
61
391
249
163
125
CDS
notional
less
Gross
fair value Derivatives
m
m
3,244
9,653
5,694
618
609
33
4,915
3
610
26
58,548
(1,151) 19,851
5,554
55,955
29,291
34,264
6,470
3,358
5,636
(1,448) 57,285 8,209

(2,288) 45,154 16,636
(1,030) 23,679 4,602
(215) 4,902
476
(206) 2,018 3,858
(437) 5,975 1,432
37,846 1,949 39,347 193,522
(6,775) 158,864 40,767
2,878
916
74
120
221
93
199
1
26
577
851
930
518
704
481
11,844
4,093
5,984
2,795
2,442
2,204
(71)
(548)
(375)
(126)
(31)
SFT
m
(71) 13,266 15,047

36
221 1,818
(43)
177
108
(251)
124
15
(58)
617
94
(37)
111
449
Notes:
(1) Net lending - Comprises loans and advances, including cash balances and risk elements in lending - net of provisions.
(2) Debt securities - Comprise securities classified as available-for-sale (AFS), loans and receivables (LAR), held-for-trading (HFT) and designated as at fair value through profit or loss (DFV). All debt
securities other than LAR securities are carried at fair value. LAR debt securities are carried at amortised cost less impairment. HFT debt securities are presented as long positions (including DFV
securities) net of short positions per country. Impairment losses and exchange differences relating to AFS debt securities, together with interest, are recognised in the income statement. Other
changes in the fair value of AFS securities are reported in AFS reserves.
(3) Derivatives (net) - Comprise the mark-to-market (mtm) value of such contracts after the effect of legally enforceable netting agreements in line with the corresponding regulatory capital models, but
before the effect of collateral.
(4) Securities financing transactions (SFT) (net) - Comprise the mtm value of the cash and securities that are due to RBS at a future date under repurchase agreements, reverse repurchase agreements,
stock borrowing, stock lending and equity financing transactions, after the effect of collateral intrinsic to the transaction and legally enforceable netting agreements. Counterparty netting is applied as
per the corresponding regulatory capital approach. Additional collateral called to offset mtm positions (variation margin) is not included.
(5) Net balance sheet exposure - Comprises net lending, debt securities, derivatives (net) and SFT (net) exposures, as defined above.
(6) Off-balance sheet - Comprises letters of credit, guarantees, other contingent obligations and legally committed undrawn facilities.
(7) Total exposure - Comprises net balance sheet exposure and off-balance sheet exposure, as defined above.
(8) Credit default swaps (CDSs) - Under a CDS contract, the credit risk on the reference entity is transferred from the buyer to the seller. Fair value (or mtm value) represents the balance sheet
carrying value of the resulting exposure. The mtm value of CDSs is included in derivatives against the counterparty of the trade, as opposed to the reference entity. The notional is the par value of
the credit protection bought or sold and is included against the reference entity of the CDS contract. The column CDS notional less fair value represents the net effect on exposure should the CDS
contracts be triggered by a credit event, assuming a zero recovery rate on the reference exposure. This net effect would be the increase in exposure arising from sold positions netted against the
decrease arising from bought positions. For a sold position, the change in exposure equals the notional less the fair value amount; this represents the amount RBS would owe to its CDS
counterparties if the reference entity defaulted. Positive recovery rates would tend to reduce the gross components (increases and decreases) of those numbers. Exposures relating to credit
derivative product companies (CDPCs) and related hedges as well as Nth-to-default basket swaps have been excluded, as they cannot be meaningfully attributed to a particular reference entity or
country. Exposures to CDPCs are disclosed on page 287.
(9) Sovereign - Comprises central, regional and local government, and central banks.
(10) Eurozone periphery - Ireland, Italy, Spain, Portugal, Greece and Cyprus.
(11) Other eurozone - Austria, Estonia, Finland, Latvia, Malta, Slovakia and Slovenia.
327
Country risk continued

Key points*
The comments below relate to changes in country exposures in

2014 unless indicated otherwise.
Net balance sheet and off-balance sheet exposure to most countries

declined across most products. RBS maintained a cautious stance
and many clients continued to reduce debt levels. The euro
depreciated against sterling by 6.5% while the US dollar appreciated
by 5.9%.
Total eurozone net balance sheet exposure decreased by 4.9

billion or 5% to 97.6 billion. Reductions in eurozone periphery
countries and in net lending in other countries were partly offset by
increases in debt securities in Germany and France. The main
reductions were in lending to corporate clients (mostly in Ireland,
Germany, Spain and France) and to the Irish personal sector; in
cash deposits held with central banks in Germany and the
Netherlands; in available-for-sale (AFS) debt securities issued by
Spanish and Dutch financial institutions; and in net held-for-trading
(HFT) government bond positions in Italy and Spain. Net HFT debt
securities in Germany, France, the Netherlands, Belgium and a few
other countries increased, driven by trading activity and auctions.
Notional bought and sold CDS decreased significantly, primarily as a
result of novations. On balance, net bought CDS protection on
eurozone exposures increased by 1.3 billion. This largely related to
hedging of the credit valuation adjustment on uncollateralised or
under-collateralised positions, the fair value of which increased
driven by much lower interest rates and a stronger US dollar. Net
lending exposure in RCR fell to 4.1 billion for the eurozone as a
whole, including 2.0 billion in Ireland, 0.8 billion in Spain and 0.6
billion in Germany, with the commercial real estate sector (CRE)
accounting for broadly half of the total.
Eurozone periphery net balance sheet exposure decreased by 10.4
billion to 31.4 billion.
Ireland - net balance sheet exposure fell by 3.7 billion or 14%

to 22.6 billion, with exposure to corporates and households
decreasing by 3.3 billion and 1.2 billion respectively,
reflecting sales, repayments and write-offs (partly offset by
impairment write-backs) plus currency movements. Provisions
fell by 2.2 billion to 8.5 billion, reflecting improved collateral
values. Cash deposits with the Central Bank of Ireland
increased by 0.5 billion as part of Ulster Banks preparations
for the new Capital Requirements Regulation liquidity coverage
ratio requirements which come into effect in 2015.
Italy - exposure fell by 0.9 billion to 4.2 billion, largely
reflecting fluctuations in net HFT. Most AFS government bonds
were sold, and lending and derivatives exposure to non-bank
financial institutions fell by 0.5 billion. Net derivatives
exposure to banks increased by 1.2 billion, driven by the
acquisition of a fully cash-collateralised exposure from another
bank.
Spain - exposure decreased by 5.8 billion to 3.3 billion,

largely due to sales of 4.8 billion (mostly covered bonds) from
the RBS N.V. liquidity portfolio, under favourable market
conditions. These sales also reduced concentrations in
Spanish banks and CRE. Net HFT debt exposure and lending
to the construction, telecommunications and other sectors also
fell.
Portugal - exposure was stable at 0.8 billion. HFT debt

securities increased as trading returned but remained small.
Greece - exposure was essentially unchanged at 0.4 billion.

This comprised mostly collateralised derivatives exposure to
banks and corporate lending, including exposure to local
subsidiaries of international companies. Net of collateral held
under credit support annex and reflecting the effect of credit
agency cover and parental guarantees, total committed
exposure was approximately 120 million net of provisions,
mostly in RCR. Contingency planning, including any potential
operational and system changes, has been refreshed to ensure
readiness for any downside scenario.
Funding mismatches - material estimated funding mismatches

at risk of redenomination at 31 December 2014 were:
- Ireland 4.0 billion (down from 6.5 billion due to reduced
lending).
- Spain 0.5 billion (down from 6.5 billion, largely due to the
reduction in AFS securities).
- Italy 1.5 billion (up from 0.5 billion due to higher derivatives
exposure, lower euro deposits and as the central bank
funding line was no longer used).
- Portugal 0.5 billion (slightly up due to higher debt trading).
The net positions for Greece and Cyprus were minimal. With
the possible exception of Greece, risks of eurozone break-up
(redenomination events) have materially receded since 20112012, owing to major improvements in liquidity conditions,
driven by the availability of substantial new tools for the
European Central Bank, the establishment of the European
Stability Mechanism and member countries progress on
reducing imbalances.
Germany - net balance sheet exposure rose by 2.9 billion to 26.6

billion, as a result of increases in net HFT exposure, AFS debt
securities and derivatives exposure to non-bank financial
institutions. This was partially offset by decreases in corporate
lending (particularly in CRE) and to securitisation vehicles, and in
cash deposits with the Bundesbank. Off-balance sheet exposure
decreased by 1.1 billion, mostly in the insurance and corporate
sectors. Government bond holdings were 14.0 billion (AFS - 6.7
billion; HFT long positions - 7.3 billion) at the end of the year.
*unaudited
328
France - net balance sheet exposure rose by 2.2 billion to 16.1

billion, mainly reflecting debt trading fluctuations and increased
derivatives exposure to banks and SFT. Lending to the public, CRE
and telecommunications sectors decreased. RBS had 6.8 billion
government bond holdings at 31 December 2014 (AFS - 1.1 billion;
HFT long positions - 5.7 billion). Off-balance exposure fell by 1.2
billion to 8.6 billion, particularly in the corporate and government
sectors.
China - lending to banks and off-balance sheet exposure decreased

by 1.9 billion and 1.2 billion respectively to 0.7 billion and 0.5
billion, mostly in trade finance, driven by more stringent capital
requirements and an effort by RBS to improve average returns in a
highly competitive environment. Given concerns about economic
risks, RBS undertook stress testing across both financial institutions
and corporate portfolios and started setting early warning indicators
and action plans.
Netherlands - net balance sheet exposure fell by 1.2 billion to

14.7 billion, as a result of reductions in AFS debt securities in the
RBS N.V. liquidity portfolio and in cash deposits held with the central
bank, as RBS N.V.'s liquidity needs decreased in line with balance
sheet reductions. Net HFT exposure rose by 1.7 billion through
normal market fluctuations while derivatives exposure increased by
1.1 billion to 6.8 billion, largely driven by business with a few
major banks.
India - net balance sheet exposure fell by 1.7 billion to 2.0 billion,
with reductions in corporate lending, particularly in the oil and gas
and mining and metals sectors, and in lending to banks, largely
trade finance. The reductions in part reflected increasing capital
requirements and sales of low-yielding assets.
Russia - net balance sheet exposure was 1.8 billion and included
0.9 billion of corporate lending and 0.7 billion of bank lending,
around half of which was fully hedged. Internal ratings were
reviewed, additional credit restrictions placed on new business, and
limits adjusted downwards. Exposures were reviewed against all
international sanctions.
South Korea - net lending to banks and corporate clients decreased

by 0.4 billion, reflecting a greater focus on capital efficiency. Net
balance sheet exposure was 1.3 billion.
Turkey - net balance sheet exposure fell by 0.4 billion to 1.2

billion, mainly reflecting lower lending to corporates.
Shipping - exposures relating to ocean-going vessels are not

included in the country risk disclosures as they cannot be
meaningfully assigned to specific countries. RBSs shipping portfolio
of 10.4 billion (refer to the Credit risk section on page 247 for more
details) is predominantly US dollar-denominated and under English
law, and is not expected to be affected by specific country events.
Belgium - net balance sheet exposure increased by 0.8 billion to

3.6 billion, mostly in HFT government bonds and derivatives
exposure to banks.
Other eurozone - net HFT government bonds increased by 0.6

billion to 0.9 billion, reflecting increased long positions.
Japan - HFT government bond exposure increased by 3.2 billion to

3.0 billion, driven by market fluctuations. This rise was partly offset
by reductions in central bank deposits, in corporate and bank
lending, and in derivatives and SFT exposure to financial
institutions. In 2015, RBS will be closing its onshore trading
business and withdrawing from Japanese government primary
bonds dealership activity.
*unaudited
329
Other risks
331
332
333
Pension risk
Business risk
Strategic risk
330
Other risks*
Pension risk
Definition
Pension risk is the risk arising from contractual or other obligations to, or
with respect to, RBSs pension schemes, whether established for its
employees or for those of a related company. It is also the risk that RBS
may make payments or other contributions to, or with respect to, a
pension scheme because of a moral obligation, or for any other reason.
Sources of risk
RBS has exposure to pension risk through its defined benefit schemes
worldwide. The five largest schemes, which represent around 96% of the
banks pension liabilities, are the Royal Bank of Scotland Group Pension
Fund (Main scheme), the Ulster Bank Pension Scheme (Republic of
Ireland), the Ulster Bank Pension Scheme, the Royal Bank of Scotland
Americas Pension Plan and the Royal Bank of Scotland International
Pension Trust. The Main scheme is the principal source of pension risk.
Pension scheme liabilities vary with changes in long-term interest rates
and inflation as well as with pensionable salaries, the longevity of scheme
members, and legislation. Meanwhile, pension scheme assets vary with
changes in interest rates, inflation expectations, credit spreads, exchange
rates and equity and property prices. RBS is exposed to the risk that the
schemes assets together with future returns and any additional future
contributions are insufficient to meet liabilities as they fall due. In such
circumstances, it could be obliged (or might choose) to make additional
contributions to the schemes or be required to hold additional capital to
mitigate this risk.
The 31 March 2013 triennial funding valuation of the Main scheme was
agreed in May 2014. It showed the value of liabilities exceeded the value
of assets by 5.6 billion at the valuation date, a ratio of assets to liabilities
of 82%. RBS and the trustee agreed a plan to fund the Main scheme. To
eliminate this deficit, RBS agreed to pay additional contributions from
2014 until 2023. Contributions will start at 650 million in 2014 to 2016
and will fall to 450 million (indexed in line with inflation) for the period
2017 to 2023. These contributions are in addition to regular annual
contributions of around 270 million for ongoing accrual of benefits as
well as contributions to meet the expenses of running the scheme. The
agreed deficit payments supersede all previous schedules of
contributions.
Throughout 2014, various pension risk stress-testing initiatives were
undertaken, focused both on internally defined scenarios and on
scenarios to meet integrated Prudential Regulation Authority (PRA) and
European Banking Authority (EBA) stress testing requirements. For more
information on stress testing, refer to page 199.
Governance
The Main scheme operates under a trust deed. The corporate trustee,
RBS Pension Trustee Limited, is a wholly owned subsidiary of The Royal
Bank of Scotland plc. The trustee board currently comprises six directors
selected by RBS and four directors nominated by members. The trustee
is supported by RBS Investment Executive Ltd (RIEL), a team
specialising in pension investment and risk management.
The Pension Risk Committee (PRC), acting as a sub-committee of the

RBS Asset and Liability Committee, formulates RBSs view of pension
risk. The PRC considers mechanisms that could potentially be used for
managing risk within the funds as well as financial strategy and employee
welfare implications, and also reviews actuarial assumptions from a
sponsor perspective as appropriate. The PRC is a key component of
RBSs approach to pension risk where risk management, asset strategy
and financing issues are reviewed and monitored on behalf of RBS. The
PRC also serves as a formal link between RBS, RIEL and the trustee.
For further information on risk governance, refer to page 176.
Risk appetite and monitoring
Investment policy for the schemes is defined by the trustee with
quantitative and qualitative input from RIEL and other specialist advisers
employed by the trustee. While the trustee is responsible for the
management of the scheme assets, it consults with RBS on material
changes to risk appetite and investment policy.
As the sponsor of its defined benefit pension schemes, RBS manages
the risk it faces using a pension risk management framework. This
encompasses risk monitoring, modelling, stress testing and reporting. As
sponsor, RBS maintains an independent view of the risk inherent in its
pension funds. In addition to the scrutiny provided by the PRC, RBS also
achieves this through regular pension risk monitoring and reporting to the
Board, the Executive Committee and the Board Risk Committee on the
material pension schemes that RBS has an obligation to support. If
agreement is not reached between RBS and the trustee, the Pensions
Regulator can take action by appointing independent trustees, or by
serving a contribution notice on the employer requiring payment to the
scheme.
Risk mitigation
The trustee has taken measures to mitigate inflation and interest rate
risks both by investing in suitable physical assets and by entering into
inflation and interest rate swaps. The Main scheme also uses derivatives
to manage the allocation of the portfolio to different asset classes and to
manage risk within asset classes. The assets of the Main scheme, which
represented 88% of RBSs pension plan assets at 31 December 2014,
are invested in a diversified portfolio of quoted and private equity,
government and corporate fixed interest and index-linked bonds, property
and other alternative assets.
Risk is also mitigated in other ways. In October 2006, the Main scheme
was closed to new employees. In November 2009, RBS confirmed that it
was making changes to the Main scheme and a number of other defined
benefit schemes, including the introduction of a limit of 2% per annum (or
the annual change in the Consumer Price Index, if lower) to the amount
of any salary increase that will count for pensionable purposes.
In October 2012, RBS confirmed that it was offering employees in the
Main scheme the choice between an increase to the charge, made
through its flexible benefits programme, of 5% of salaries and an increase
in Normal Pension Age from 60 to 65 in respect of service from October
2012 with no additional charge.
*unaudited
331
Other risks* continued

Risk measurement
Pension risk reporting is submitted monthly to the Board in the RBS Risk
Monthly Management Report. The report includes a measurement of the
overall deficit or surplus position based on the latest data and estimated
capital requirements, and an assessment of the sensitivities of the
pension schemes to interest rates, inflation and credit spreads.
RBS also undertakes a number of stress tests and scenario analyses on
its material defined benefit pension schemes each year as part of its risk
measurement framework. These stress tests are also used to satisfy the
requests of regulatory bodies such as the EBA and the PRA. The stress
testing framework includes the production of the pension risk internal
capital adequacy assessment process as well as additional stress tests
for a number of internal management purposes.
Pension stress tests take the form of both stochastic (one that cannot be
predicted precisely) and deterministic stresses over time horizons from
one to five years in duration. They are designed to examine the
behaviour of the pension schemes assets and liabilities under a range of
financial and demographic shocks. The results of the stress tests and
their consequential impact on RBSs balance sheet, income statement
and capital position are incorporated into the overall enterprise-wide
stress test results.
The table below shows the sensitivity of the Main schemes assets and
liabilities (measured according to IAS 19 Employee Benefits) to changes
in interest rates and equity values at the year end, taking account of the
current asset allocation and hedging arrangements.
Change
in value
of assets
m
Change
in value of
liabilities
m
Change in net
pension
obligations
m
At 31 December 2014
Fall in nominal swap yields of 0.25% at all durations with no change in credit spreads or real swap yields
Fall in real swap yields of 0.25% at all durations with no change in credit spreads or nominal swap yields
Fall in credit spreads of 0.25% at all durations with no change in nominal or real swap yields
Fall in equity values of 10%
447
932
65
(771)
413
1,159
1,581
34
(227)
(1,516)
(771)
At 31 December 2013
217
595
60
(894)
333
895
1,245
(116)
(300)
(1,185)
(894)
At 31 December 2012
76
578
71
(862)
255
995
1,261
(179)
(417)
(1,190)
(862)
Business risk
Definition
Business risk is the risk that RBS suffers losses as a result of adverse
variances in its revenues, costs or both as a result of its business plan
and strategy. Such variances may be caused by a variety of specific
factors such as volatility in pricing, sales volumes, and input costs as well
as more general factors such as exposure to macroeconomic, regulatory
and industry risks.
Sources of risk
Business risk exists at all levels of the organisation and is generated at
the transaction level. It is affected by other risks RBS faces, which could
contribute to any adverse changes in revenues or costs. Refer to page
171 for a full list of risks.

RBS reduced its business risk profile as it curtailed riskier activities in
CIB, made disposals through RCR, and announced an intensified cost
management programme.
An increase in regulatory scrutiny of the industrys approach to stress
testing affected the management of business risk in 2014. Additional
stress testing was undertaken in response, and scenario modelling
capability was enhanced further. In the US, CFG strengthened its capital
planning capabilities following the Federal Reserves Comprehensive
Capital and Analysis and Review stress test.
*unaudited
332
Governance
The Board has ultimate responsibility for business risk. Refer to the Risk
governance section on page 176.
Responsibility for the day-to-day management of business risk lies
primarily with the franchises with oversight by the Finance function. The
franchises are responsible for delivery of their business plans and the
management of such factors as pricing, sales volumes, marketing
expenditure and other factors that can introduce volatility into earnings.
Risk appetite
RBS assesses volatility in revenues and costs in determining whether
RBS and its underlying businesses are within risk appetite. Each
franchise is responsible for the implementation of its business plan and
the management of associated risks within approved risk appetite targets.
Risk identification and monitoring
Business risk is identified and managed at the product and transaction
level. Estimated revenue and costs, including the potential range of
outcomes, are key considerations in the design of any new product or
investment decision. All policies that ultimately seek to manage and
control financial impact at the product and transaction level are therefore
relevant to business risk management, including policies on conduct,
funding and investment spending.
Business risk is reported, assessed and challenged at every governance
level within the organisation. Each franchise monitors its revenues and
costs relative to plans, reporting this on a regular basis to the finance
directors of each franchise and to bank-wide functions. The Finance
function challenges financial results and reports performance against
plan to the Board and executive committees, focusing on revenue
generation, cost management initiatives and risk mitigation.
Business risk is reviewed and assessed through RBSs planning cycles,
which are discussed with RBS Risk Management, and performance
management processes.
In the planning cycles, expected and potential scenarios for revenues and
costs are determined, on a bottom-up basis, through plans reflecting
expectations of the external environment and the banks strategic
priorities. These scenarios are tested against a range of sensitivities and
stresses to identify the key risk drivers behind any potential volatility,
together with management actions to address and manage them.
Risk mitigation
RBS operates a forecasting process to identify projected changes in, or
risks to, key financial metrics, and ensures appropriate actions are taken.
RBS responded to business risk challenges by designing cost
management programmes to deliver substantial savings in 2014 and
beyond. RBS Risk Management was also involved in these discussions.
Risk measurement
The stress test outcomes form a core part of the assessment of earnings
and capital adequacy risk appetite and are approved by the Board. The
measurement of change in profit and loss of the franchises under stress
thereby acts as a measure of business risk. Franchises also conduct their
own bottom-up stress testing exercises to assess the financial
performance of their businesses under stress.
Strategic risk
Definition
Strategic risk is the risk that RBS will make inappropriate strategic
choices, or that there will be changes in the external environment to
which RBS fails to adapt its strategies.
Sources of risk
Strategic risk arises from decisions that fail to reflect the operating
environment, or which do not take adequate account of execution
challenges. These include decisions related to RBS products and
services which have implications for profitability, risk, the customer base,
and for business growth.
Failure to manage this risk could have a wide-ranging impact. It could
lower revenues, profitability and returns to shareholders, and severely
impair RBSs ability to meet other financial and non-financial objectives.
RBS announced the results of a strategic review with a defined plan to
shift the business mix towards the UK and the retail and commercial
banking segments, with the aim of a lower risk profile for the bank.
The year saw good progress against this plan. Business results in
general exceeded targets and the run-down and sell-off of non-core
assets were ahead of schedule. RBSs capital ratios increased markedly,
a significant step towards targeted levels of financial strength which,
when attained, will provide RBS with more strategic options.
There were improvements in the monitoring processes with a focus on
the Top Risks that could prevent RBS achieving its strategic objectives.
Governance
RBSs strategic planning process is managed by the Strategy and
Corporate Development team. The Risk and Finance functions are key
contributors to strategic planning. As part of the process, each customer
business develops a strategic plan for its business within a framework set
by the banks senior management. The strategic plans are consolidated
at bank-wide level, and reviewed and assessed against risk appetite by
the CEO, the CFO and the banks Director of Strategy and Corporate
Finance before presentation to and approval by the Board.
The Board has ultimate responsibility for approving strategic plans,
initiatives and changes to strategic direction. In addition to the annual
cycle, each customer business presents a more detailed individual deep
dive review of key dimensions of its strategy at a Board meeting at
different points during the year.
*unaudited
333
Other risks* continued

Risk appetite and identification
Strategic plans are assessed against, and must comply with, RBSs
strategic risk objectives (refer to Risk appetite section, page 180). These
objectives are intended to ensure that RBSs chosen strategies do not
expose it to an inappropriate degree of financial and non-financial risk.
These therefore represent the appetite for strategic risk.
RBS employs robust strategy development processes which consider the
implications of economic, industrial, market, technological and customer
developments and trends. RBS Risk Management is involved in defining
risk appetite for the customer businesses, and in challenging and
reviewing strategic plans.
In addition, there are top risks and emerging risks processes in place
which aim to identify early, monitor closely and avoid or otherwise
manage effectively strategic risks that have the highest likelihood of
impacting strategic plans.
Risk monitoring
Top and emerging risks processes monitor the most material risks to
strategic objectives. Strategic progress is monitored through quarterly
performance review meetings between customer business CEOs and the
RBS CEO, CFO, and Director of Strategy and Corporate finance.
Individual customer businesses bear much of the responsibility for
managing strategic risks. The senior leadership of the customer
businesses track progress on the initiatives and action plans to deliver
the strategy through a range of key performance indicators such as
financial performance, risk metrics, market shares and numbers of
customers, and satisfaction scores.
Risk mitigation
A major part of the top risks process is to ensure that all appropriate
action is taken to mitigate the most material risks to strategic objectives.
Key strategies are reviewed and approved by the Board. These reviews
are intended to maximise the capture of market and customer insight
while providing independent scrutiny and challenge. Strategic plans
contain analysis of current and expected operating conditions, current
and targeted competitive and market positioning, key strategic initiatives,
financial and customer targets and milestones, and upside and downside
risks.
A full sensitivity analysis of the consolidated strategic plan is undertaken,
at the end of the strategic and financial planning process, to assess the
robustness of the plan, and compliance with strategic risk objectives,
under a variety of stressed conditions. In certain cases, following
consideration of an opportunity, RBS may decide not to pursue the
opportunity as a result of a perceived strategic risk.
RBS also undertakes strategic reviews to decide how to react to specific
developments. It is now considering, for instance, how best to react to the
Independent Commission on Bankings proposals for ring-fencing of retail
banking operations.
Risk measurement
A wide variety of financial, risk, customer and market metrics are used to
monitor business performance and thus, inter alia, the effectiveness of
chosen strategies. Any deviations from the expected values are analysed
to determine drivers which could be strategic, environmental or
management. Example metrics include: customer attrition; deposit
balances; revenues; impairments or loan losses; profitability; and riskweighted returns.
*unaudited
334
Financial statements
336
342
343
344
345
348
349
361
361
362
363
367
372
373
374
374
374
375
380
393
395
397
399
401
402
405
406
407
410
410
412
414
417
417
420
421
423
425
426
428
440
440
441
441
441
442
448
448
449
449
450
Independent auditors report

Consolidated income statement
Consolidated statement of comprehensive income
Consolidated statement of changes in equity
Consolidated cash flow statement
Accounting policies
Notes on the consolidated accounts
1
Net interest income
2
Non-interest income
3
Operating expenses
4
Pensions
5
Auditors remuneration
6
Tax
7
Profit attributable to preference shareholders and paid-in equity holders
8
Ordinary dividends
9
Earnings per ordinary and equivalent B share
10
Financial instruments - classification
11
Financial instruments - valuation
12
Financial instruments - maturity analysis
13
Financial assets - impairments
14
Derivatives
15
Debt securities
16
Equity shares
17
Intangible assets
18
19
20
Discontinued operations and assets and liabilities of disposal groups
21
Short positions
22
23
Deferred tax
24
25
26
Share capital
27
Other equity
28
Leases
29
Structured entities
30
Asset transfers
31
Capital resources
32
Memorandum items
33
Net cash flow from operating activities
34
Analysis of the net investment in business interests and intangible assets
35
Interest received and paid
36
Analysis of changes in financing during the year
37
Analysis of cash and cash equivalents
38
Segmental analysis
39
Directors and key management remuneration
40
Transactions with directors and key management
41
Related parties
42
Parent company financial statements and notes
335
Independent auditors report to the members of The Royal Bank of Scotland Group plc
Opinion on financial statements of The Royal Bank of Scotland Group plc

In our opinion:
the financial statements give a true and fair view of the state of the Groups and of the companys affairs as at 31 December 2014 and of the
Groups loss for the year then ended;
the consolidated financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as
adopted by the European Union;
the company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in
accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial
statements, Article 4 of the IAS Regulation.
What we have audited

The financial statements comprise the accounting policies, the consolidated and company balance sheets as at 31 December 2014, the consolidated
income statement, the consolidated statement of comprehensive income, the consolidated and company statements of changes in equity and the
consolidated and company cash flow statements for the year ended 31 December 2014, the related Notes 1 to 42 on the consolidated financial
statements, the related Notes 1 to 16 on the company financial statements and the information identified as audited in the Capital and risk
management section of the Business review. The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as
adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the
Companies Act 2006.
Separate opinion in relation to IFRSs as issued by the IASB
As explained in the accounting policies, in addition to complying with its legal obligation to apply IFRSs as adopted by the European Union, the Group
has applied IFRSs as issued by the International Accounting Standards Board (IASB).
In our opinion the Group financial statements comply with IFRSs as issued by the IASB.
Going concern
As required by the UK Listing Rules we have reviewed the directors statement on page 99 that the Group is a going concern.
We confirm that:
we have concluded that the directors use of the going concern basis of accounting in preparing the financial statements is appropriate; and
we have not identified any material uncertainties that may cast significant doubt on the Groups ability to continue as a going concern.
However, because not all future events and conditions can be predicted, this statement is not a guarantee as to the Groups ability to continue as a
going concern.
336
Our assessment of risks of material misstatement

The assessed risks of material misstatement described below are those that had the greatest effect on our audit strategy, the allocation of resources in
the audit and directing the efforts of the engagement team:
Risk
The directors exercise significant judgement when determining both when
and how much to record as loan impairment provisions. Because of the
significance of this judgement and the size of loans and advances, the
audit of loan impairment provisions is a key area of focus. At 31 December
2014 gross loans and advances were 439,473 million against which loan
impairment provisions of 17,500 million were recorded. The basis of the
provisions is summarised in the accounting policies and in Note 13 to the
consolidated financial statements.
As set out in the Accounting policies, the Group uses one of three methods
to assess the amount of impairment provisions required:
For larger, individually significant loans and advances, impairments

are assessed on an individual basis. These are largely in the
Corporate and Institutional Banking, Commercial Banking, Private
Banking, Ulster Bank and RBS Capital Resolution (RCR) segments.
How the scope of our audit responded to the risk

We tested the design and operating effectiveness of the key controls to
determine which loans and advances are impaired and provisions against
those assets. These included testing:
System-based and manual controls over the timely recognition of

impaired loans and advances;
Controls over the impairment calculation models; and
Governance controls, including attending key meetings that form

part of the approval process for loan impairment provisions.
We tested a sample of loans and advances to assess whether

impairment events had been identified in a timely manner.
For the collective and latent impairment models used by the Group, we
tested a sample of the data used in the models as well as testing the
Collective assessments are made on a portfolio, modelled basis
calculations within the models. We assessed whether the modelling
where the loans and advances are homogeneous in nature, for
assumptions used considered all relevant risks, and whether the
example the personal banking and smaller corporate portfolios.
additional overlays to reflect unmodelled risks, were reasonable in light of
historical experience, economic climate, current operational processes
Latent loss provisions are held against losses that have been incurred and the circumstances of the customers. We also tested the extraction
but have not been identified at the year end. Latent provisions are
from underlying systems of historical data used in the models.
held against loans and advances across all customer segments and
RCR and calculated using models based on probabilities of default
For individually assessed loans we selected a sample of loans and tested
and loss given default as well as emergence periods between the
the estimation of the future expected cash flows from customers and
impairment event occurring and an individual or collective impairment where applicable, from realisation of collateral held. This work involved
being recognised.
assessing the work performed by external experts used by the Group to
value the collateral or to assess the estimates of future cash flows. In
Where applicable, the impact of forbearance is assessed individually or on
some cases we used our own industry experts, particularly in respect of
a portfolio basis.
commercial real estate loans, to assess the appropriateness of valuations
and estimates used by the Group.
The most significant judgements arise on impairments recorded against
loans and advances in RCR (10,946 million) and Ulster Bank (2,711
million) at 31 December 2014. As a result of the strategy to exit RCR
assets, loan impairments in RCR are particularly sensitive to changes in
market conditions. During the year, 1,320 million was released from RCR
impairment provisions following improvements in economic and market
conditions, and realisation of collateral at greater than anticipated amounts
together with increases in collateral values.
337
Risk
Valuation of complex or illiquid financial instruments
The valuation of the Groups financial instruments was a key area of focus
of our audit given the degree of complexity involved in valuing some of the
financial instruments and the significance of the judgements and estimates
made by the directors. As set out in Note 11 of the consolidated financial
statements, financial instruments held at fair value comprised assets of
534 billion and liabilities of 497 billion. In the Groups accounting
policies, the directors have described the key sources of estimation
involved in determining the valuation of financial instruments and in
particular when the fair value is established using a valuation technique
due to the instruments complexity or due to the lack of availability of
market-based data.
Our audit has focused on testing the valuation adjustments including those
for credit risk, funding related and own credit. A particular area of focus of
our audit has been in testing the valuation of the more illiquid financial
instruments disclosed as level 3 instruments which comprised assets of 5
billion and liabilities of 5 billion.
Conduct and litigation provisions and claims
In Note 32 of the consolidated financial statements the directors have
summarised the most significant legal proceedings, investigations and
other regulatory and government actions involving the Group. The
recognition and measurement of provisions and the measurement and
disclosure of contingent liabilities in respect of litigation, customer
remediation and regulatory investigations requires significant judgement by
the directors and as a result is a key area of focus in our audit. As set out
in the accounting policies, judgement is needed to assess whether an
obligation exists at 31 December 2014 in order to determine if:
It is likely that an economic outflow (for example, a payment) is likely;

and
The amount of the payment (or other economic outflow) can be

estimated reliably.
At 31 December 2014 the Group held provisions for liabilities and charges
totalling 4,774 million, including conduct and litigation claims totalling
4,111 million. We focused our work on the most significant areas of
judgement including the:
Assessment of the provisions for payment protection insurance (799

million at 31 December 2014) and interest rate hedging product
redress (424 million at 31 December 2014); and
Recognition, measurement and disclosure of litigation and regulatory

actions in respect of foreign-exchange trading, mortgage-backed
securities litigation in US and other litigation.

We tested the design and operating effectiveness of the key controls in
the Groups financial instrument valuation processes including the
controls over data feeds and other inputs into valuation models and the
controls over testing and approval of new models or changes to existing
models.
Our audit work also included testing a sample of the underlying valuation
models and the assumptions used in those models using a variety of
techniques. This work included valuing a sample of financial instruments
using independent models and source data and comparing the results to
the Groups valuations and the investigation of any significant
differences.
For instruments with significant, unobservable valuation inputs, we used
our own internal valuation experts to assess and challenge the valuation
assumptions used, including considering alternative valuation
methodologies used by other market participants.
We tested the design and operating effectiveness of the Groups key
controls over the identification, recording and disclosure of exposures.
The controls tested included those over the timely identification of
exposures; the completeness and accuracy of data used in any models;
and the assessment of the provision and disclosure of exposures in
accordance with the relevant accounting standards.
We challenged the adequacy of provisions recognised by critically
assessing the key assumptions used in the provision models, comparing
the assumptions to available peer and historical data. This work also
included, amongst other things, reviewing regulatory correspondence and
the Groups complaint logs.
We assessed the legal advice and correspondence with regulators
received in connection with legal proceedings, investigations and
regulatory matters which the Group is party to. For the more material
matters, we also met with the Groups external legal counsel.
We also assessed the disclosures provided on conduct and litigation
exposures in order to determine whether the disclosures were sufficiently
clear about the uncertainties that existed in relation to the contingent
liabilities and provisions recognised, including the sensitivity of the
provisions to changes in the underlying assumptions.
338
Risk
Estimates of future profitability
Included on the Groups balance sheet at 31 December 2014 are deferred
tax assets of 1,540 million, goodwill of 6,264 million and other intangible
assets of 1,517 million that are supported by the Groups forecasts of
future profitability.
As the directors have described in the accounting policies, estimating
future profitability requires the application of significant judgement by the
directors particularly given the uncertainties that exist in the markets in
which the Group operates and the changes that are expected in the
foreseeable future as a result of changing regulation; for example, the ringfencing of retail banking operations. The key judgements made by the
directors include estimating taxable profits, growth rates and discount
rates. The sensitivity of these key judgements and their effect on the
carrying value of goodwill has been set out in Note 17 of the consolidated
financial statements and the bases of the deferred tax assets set out in
Note 23 of the consolidated financial statements.
IT access rights
The widespread reliance on information systems within the Group means
that the controls over access rights are critical. In 2014 and in previous
years the Group identified a number of deficiencies in the controls over the
provision of access to IT application systems and system databases which
increased the risk that individuals had inappropriate access. For the IT
application systems and databases that support financial reporting, the
existence of these deficiencies means there is an increased risk that the
data and reports from the affected systems and databases are not reliable.

We have tested the design and operating effectiveness of the key
controls over the preparation and review of the Groups budgets and
forecasts.
For each cash generating unit we critically assessed the forecasts of the
cash flows and the appropriateness of the key assumptions used;
including forecast taxable profits, growth rates and discount rates, in
order to challenge the calculation of the recoverable amount of deferred
taxation, goodwill and other intangible assets.
We compared the directors assumptions on growth rates and discount
rates to industry averages, those used by peer organisations and other
economic metrics, considering any reasonable alternative assumptions.
We tested the Groups forecasts of profits, comparing the forecasts to
historical experience and assessing whether the forecast is reflective of
the Groups committed plans.
We tested the design and operating effectiveness of the Groups controls
over the information systems that are critical to financial reporting and
identified weaknesses in the access controls.
Where these deficiencies affected applications and databases within the
scope of our audit we performed a combination of controls and
substantive testing in order to determine whether we could place reliance
on the completeness and accuracy of system generated information,
including:
Determined whether unauthorised or inappropriate changes had

been made to the affected databases and IT application systems;
and
Assessed the design and operating effectiveness of any controls

that mitigated the identified risks.
In addition and where appropriate we extended the scope of our

substantive audit procedures.
The description of the risks above should be read in conjunction with the significant issues considered by the Group Audit Committee discussed on
pages 57 to 61.
Our audit procedures relating to these matters were designed in the context of our audit of the financial statements as a whole, and not to express an
opinion on individual accounts or disclosures. Our opinion on the financial statements is not modified with respect to any of the risks described above,
and we do not express an opinion on these individual matters.
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably
knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of
our work.
We determined materiality for the Group to be 300 million (2013 - 350 million), which was calculated as 0.5% (2013 - 0.6%) of the total equity of the
Group. This represented 11% of the Groups loss for the year (2013 - 4% of the Groups loss). Our materiality in both 2014 and 2013 was based on the
equity of the Group given the significant volatility of the Groups profits and losses in recent years.
We agreed with the Group Audit Committee that we would report all audit differences in excess of 10 million, as well as differences below that
threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Group Audit Committee on disclosure matters that we
identified when assessing the overall presentation of the financial statements.
339
An overview of the scope of our audit

We determined the scope of our audit by first considering the internal organisation of the Group and then identifying the components of the audit that
have most significance to the financial statements. The significant components of our audit are consistent with the operating segments identified in the
financial statements comprising UK Personal & Business Banking, Ulster Bank, Commercial Banking, Private Banking, Corporate & Institutional
Banking, Citizens Financial Group, RCR and the central functions of the Group including Finance (both in the UK and overseas), Treasury and Services.
A number of these components consist of a number of different operations with audit work performed in different countries. Full scope audits were
performed of the Groups operations in ten countries, and a further 19 countries were subject to an audit of specified account balances or specified
audit procedures where the extent of our testing was based on our assessment of the risks of material misstatement and of the materiality of the
Groups operations at those locations. The audit work performed across the 29 countries accounted for 99% (2013 - 98%) of the Groups total assets
and 94% (2013 - 85%) of its total revenue.
The Group audit team sent component auditors detailed instructions on audit procedures to be undertaken and the information to be reported back to
the Group audit team. Regular contact was maintained throughout the course of the audit with key component auditors including holding Group
planning meetings, regular communications on the status of the audits and a programme of planned visits was followed that was designed so that the
Senior Statutory Auditor or another senior member of the Group audit team visited each significant component audit team a number of times during the
year.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
the part of the Directors Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and
the information given in the Strategic Report and the Directors Report for the financial year for which the financial statements are prepared is
consistent with the financial statements.
Matters on which we are required to report by exception
Adequacy of explanations
Under the Companies Act 2006 we are required to report to you if, in our opinion:
received and accounting
records
we have not received all the information and explanations we require for our audit; or
Directors remuneration
Corporate Governance
Statement
Our duty to read other

information in the Annual
Report
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have
not been received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.

Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors
remuneration have not been made or the part of the Directors Remuneration Report to be audited is not in agreement
with the accounting records and returns. Under the UK Listing Rules we are required to review certain elements of the
Directors Remuneration Report.
We have nothing to report arising from these matters or our review.
Under the UK Listing Rules we are also required to review the part of the Corporate Governance Statement relating to
the companys compliance with the ten provisions of the UK Corporate Governance Code.
We have nothing to report arising from our review.
Under the International Standards on Auditing (UK and Ireland), we are required to report to you if, in our opinion,
information in the annual report is:
materially inconsistent with the information in the audited financial statements; or
apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in
the course of performing our audit; or
otherwise misleading.
In particular, we are required to consider whether we have identified any inconsistencies between our knowledge
acquired during the audit and the directors statement that they consider the annual report is fair, balanced and
understandable and whether the annual report appropriately discloses those matters that we communicated to the
Group Audit Committee which we consider should have been disclosed.
We confirm that we have not identified any such inconsistencies or misleading statements.
340
Respective responsibilities of directors and auditor

As explained more fully in the Directors Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for
being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with
applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Boards
Ethical Standards for Auditors. We also comply with International Standard on Quality Control 1 (UK and Ireland). Our audit methodology and tools aim
to ensure that our quality control procedures are effective, understood and applied. Our quality controls and systems include our dedicated professional
standards review team and independent partner reviews.
This report is made solely to the companys members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work
has been undertaken so that we might state to the companys members those matters we are required to state to them in an auditors report and for no
other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the companys
members as a body, for our audit work, for this report, or for the opinions we have formed.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the
financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting
policies are appropriate to the Groups and the parent companys circumstances and have been consistently applied and adequately disclosed; the
reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements.
In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial
statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us
in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for
our report.
Michael Lloyd (Senior Statutory Auditor)

for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London, United Kingdom
25 February 2015
Neither an audit nor a review provides assurance on the maintenance and integrity of the website, including controls used to achieve this, and in particular on whether any changes may have occurred to
the financial information since first published. These matters are the responsibility of the directors but no control procedures can provide absolute assurance in this area.
Legislation in the United Kingdom governing the preparation and dissemination of financial statements differs from legislation in other jurisdictions.
341
Consolidated income statement for the year ended 31 December 2014
Note
Interest receivable
Interest payable
Net interest income
Non-interest income
Total income
Staff costs
Write down of goodwill and other intangible assets
Operating expenses
Tax charge
- Citizens
- Other
Loss for the year
Attributable to:
Preference shareholders
Paid-in equity holders
Dividend access share
Ordinary and B shareholders
3
13
6
20
7
7
9
2014
m
2013
m
2012
m
13,079
(3,821)
9,258
4,414
(875)
1,285
20
1,048
5,892
15,150
(5,757)
(2,081)
(4,568)
(930)
(523)
(13,859)
1,291
1,352
2,643
(1,909)
734
14,488
(5,471)
9,017
4,678
(923)
2,571
175
1,219
7,720
16,737
(6,086)
(2,038)
(6,692)
(1,247)
(1,403)
(17,466)
(729)
(8,120)
(8,849)
(186)
(9,035)
16,083
(6,727)
9,356
4,898
(818)
1,459
454
(634)
5,359
14,715
(7,150)
(1,951)
(4,929)
(1,603)
(124)
(15,757)
(1,042)
(5,010)
(6,052)
(156)
(6,208)
(3,486)
41
(3,445)
(2,711)
410
148
558
(8,477)
490
(172)
318
(5,890)
60
330
49
320
(3,470)
(2,711)
120
349
49
(8,995)
(8,477)
(136)
273
28
(6,055)
(5,890)
Per ordinary and equivalent B share (1)

Basic and diluted earnings/(loss) from continuing operations
0.5p
(85.0p)
(58.9p)
Basic and diluted loss from continuing and discontinued operations
(30.6p)
(80.3p)
(55.0p)
Note:
(1) Ten B shares rank pari-passu with one ordinary share (see Note 27).
The accompanying notes on pages 361 to 449 the accounting policies on pages 349 to 359 and the audited sections of the Business review: Capital
and risk management on pages 168 to 334 form an integral part of these financial statements.
342
Consolidated statement of comprehensive income for the year ended 31 December 2014
Note
Loss for the year

Items that do not qualify for reclassification
Actuarial (losses)/gains on defined benefit plans
Tax
Items that do qualify for reclassification
Available-for-sale financial assets
Cash flow hedges
Tax
Other comprehensive income/(loss) after tax
Total comprehensive loss for the year
Attributable to:
2014
m
2013
m
2012
m
(2,711)
(8,477)
(5,890)
(108)
(36)
(144)
446
(246)
200
(2,158)
352
(1,806)
807
1,413
307
(455)
2,072
1,928
(783)
(406)
(2,291)
(229)
1,014
(1,912)
(1,712)
(10,189)
645
1,006
(900)
(152)
599
(1,207)
(7,097)
246
330
49
320
(1,728)
(783)
137
349
49
(10,724)
(10,189)
(129)
273
28
(7,269)
(7,097)
343
Consolidated balance sheet as at 31 December 2014
Note
Assets
Debt securities subject to repurchase agreements
Other debt securities
Debt securities
Equity shares
Settlement balances
Derivatives
Intangible assets
Deferred tax
Total assets
10
10
10
30
15
16
14
17
18
23
19
20
Liabilities
Deposits by banks
Customer accounts
Settlement balances
Short positions
Derivatives
Deferred tax
Total liabilities
10
10
10
21
14
22
4
23
24
20
Owners equity
Total equity
25
26, 27
2014
m
2013
m
2012
m
74,872
43,735
378,238
23,048
63,601
86,649
5,635
4,667
353,590
7,781
6,167
1,540
5,878
82,011
1,050,763
82,659
54,071
440,722
55,554
58,045
113,599
8,811
5,591
288,039
12,368
7,909
3,478
7,614
3,017
1,027,878
79,290
63,951
500,135
91,173
66,265
157,438
15,232
5,741
441,903
13,545
9,784
3,443
7,820
14,013
1,312,295
60,665
391,639
50,280
4,503
23,029
349,805
13,346
2,579
500
22,905
71,320
990,571
63,979
470,880
67,819
5,313
28,022
285,526
16,017
3,210
507
24,012
3,378
968,663
101,405
521,279
94,592
5,878
27,591
434,333
14,801
3,884
1,141
26,773
10,170
1,241,847
2,946
57,246
60,192
473
58,742
59,215
1,770
68,678
70,448
1,050,763
1,027,878
1,312,295
The accounts were approved by the Board of directors on 25 February 2015 and signed on its behalf by:
Philip Hampton
Chairman
Ross McEwan
Chief Executive
Ewen Stevenson

Registered No. SC45551
344
Consolidated statement of changes in equity for the year ended 31 December 2014
2014
m
2013
m
2012
m
6,714
163
6,877
6,582
132
6,714
15,318
197
(8,933)
6,582
979
(195)
784
979
979
979
979
Share premium account

At 1 January
At 31 December
24,667
385
25,052
24,361
306
24,667
24,001
360
24,361
Merger reserve
At 1 January and 31 December
13,222
13,222
13,222
(308)
980
(333)
(67)
36
(9)
299
(346)
607
(891)
432
(110)
(308)
(957)
1,939
(1,319)
50
(59)
(346)
(84)
2,871
(1,458)
(334)
34
1,029
1,666
(967)
(1,324)
541
(84)
879
2,093
(1,087)
(219)
1,666
Called-up share capital

At 1 January
Share capital sub-division and consolidation
At 31 December
Paid-in equity
At 1 January
Reclassification (1)
At 31 December
Available-for-sale reserve
At 1 January
Unrealised gains
Realised gains
Tax
Recycled to profit or loss on disposal of businesses (2)
Transfer to retained earnings
At 31 December
At 1 January
Amount recognised in equity
Amount transferred from equity to earnings
Tax
At 31 December
345
2014
m
2013
m
2012
m
Foreign exchange reserve

At 1 January
Retranslation of net assets
Foreign currency gains on hedges of net assets
Tax
Recycled to profit or loss on disposal of businesses
At 31 December
3,691
113
108
(30)
(399)
3,483
3,908
(325)
105
6
(3)
3,691
4,775
(1,056)
177
17
(3)
(2)
3,908
Capital redemption reserve

At 1 January
At 31 December
9,131
9,131
9,131
9,131
198
8,933
9,131
(1,208)
1,208
(1,208)
(1,208)
867
10,596
18,929
(361)
756
(3,527)
(330)
(49)
(320)
(9,118)
521
(349)
(49)
(6,184)
430
(273)
(28)
9
(34)
399
(45)
(1,208)
320
59
(108)
(36)
(8)
(91)
446
(246)
(18)
(77)
(2,158)
352
(196)
(87)
29
3
(33)
(2,518)
48
1
867
117
(6)
10,596
(137)
1
23
(113)
(213)
75
1
(137)
(769)
441
115
(213)
57,246
58,742
68,678
Contingent capital reserve

At 1 January
At 31 December
Retained earnings
At 1 January
Transfer to non-controlling interests
Profit/(loss) attributable to ordinary and B shareholders and other equity owners
Equity preference dividends paid
Paid-in equity dividends paid, net of tax
Dividend access share dividend
Citizens Financial Group initial public offering:
- transfer from available-for-sale reserve
- transfer from cash flow hedging reserve
- transfer from foreign exchange reserve
Costs relating to Citizens Financial Group initial public offering
Transfer from contingent capital reserve
Termination of contingent capital agreement
Actuarial (losses)/gains recognised in retirement benefit schemes
- gross
- tax
Loss on disposal of own shares held
Shares issued under employee share schemes
Share-based payments
- gross
- tax
Reclassification of paid-in equity
At 31 December
Own shares held
At 1 January
Disposal of own shares
Shares issued under employee share schemes
At 31 December
Owners equity at 31 December
346
Non-controlling interests (see Note 25)

At 1 January
Currency translation adjustments and other movements
(Loss)/profit attributable to non-controlling interests
Dividends paid
Movements in available-for-sale securities
- unrealised gains
- realised losses
- tax
- recycled to profit or loss on disposal of businesses (3)
Movements in cash flow hedging reserve
- amount recognised in equity
- amount transferred from equity to earnings
- tax
Equity raised (4)
Equity withdrawn and disposals
Transfer from retained earnings
At 31 December
Total equity at 31 December
Total equity is attributable to:
2014
m
2013
m
2012
m
473
86
1,770
(6)
686
(18)
(22)
82
(4)
83
37
(5)
(24)
(112)
36
77
(13)
8
21
(1)
(5)
3
22
18
(18)
2,232
(1)
2,946
(1,429)
473
875
(23)
361
1,770
60,192
59,215
70,448
2,946
4,313
784
52,149
60,192
473
4,313
979
53,450
59,215
1,770
3,765
979
63,934
70,448
Notes:
(1) Paid-in equity reclassified to liabilities as a result of the call of RBS Capital Trust III on 23 December 2014 (see Note 27).
(2) Net of tax - 11 million charge (2013 - 35 million charge).
(3) 2013 - net of tax of 1 million.
(4) Includes 2,117 million relating to the initial public offering of Citizens Financial Group.
347
Consolidated cash flow statement for the year ended 31 December 2014
Note
Operating activities
Operating profit/(loss) before tax from continuing operations
(Loss)/profit before tax from discontinued operations
Adjustments for:
Interest on subordinated liabilities
Charge for defined benefit pension schemes
Pension scheme curtailment and settlement gains
Cash contribution to defined benefit pension schemes
Loss on reclassification to disposal groups
(Recoveries)/impairment losses
Loans and advances written-off net of recoveries
Elimination of foreign exchange differences
Other non-cash items
Net cash flows from trading activities
Changes in operating assets and liabilities
Net cash flows from operating activities before tax
Income taxes paid
Investing activities
Sale and maturity of securities
Purchase of securities
Sale of property, plant and equipment
Purchase of property, plant and equipment
Net (investment in)/divestment of business interests and intangible assets
33
34
Financing activities
Issue of ordinary shares
Issue of subordinated liabilities
Issue of exchangeable bonds
Proceeds of non-controlling interests issued
Redemption of non-controlling interests
Disposal of own shares
Repayment of subordinated liabilities
Dividends paid
Net decrease in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
37
2014
m
2013
m
2012
m
2,643
(3,207)
(8,849)
783
(6,052)
664
1,109
533
886
466
(1,065)
(20)
3,994
(1,155)
(5,073)
(724)
(412)
(2,025)
(17,948)
(19,973)
(414)
(20,387)
1,410
1,403
886
517
(7)
(821)
(175)
8,432
(4,090)
(47)
(947)
(1,505)
(28,780)
(30,285)
(346)
(30,631)
1,854
518
841
558
(41)
(977)
(454)
5,283
(3,925)
7,140
(1,491)
3,918
(48,736)
(44,818)
(295)
(45,113)
28,020
(20,276)
1,162
(816)
(1,481)
6,609
41,772
(22,561)
1,448
(626)
1,150
21,183
49,079
(22,987)
2,215
(1,484)
352
27,175
314
2,159
2,147
(1)
14
(3,480)
(383)
(320)
(854)
(404)
909
264
1,796
330
(301)
44
(3,500)
(403)
(958)
(2,728)
512
120
2,093
889
(23)
243
(258)
(301)
(746)
2,017
(3,893)
(13,273)
121,177
107,904
(11,664)
132,841
121,177
(19,814)
152,655
132,841
348
Accounting policies
1. Presentation of accounts
The accounts are prepared on a going concern basis (see the Report of
the directors, page 99) and in accordance with International Financial
Reporting Standards issued by the International Accounting Standards
Board (IASB) and interpretations issued by the IFRS Interpretations
Committee of the IASB as adopted by the European Union (EU) (together
IFRS). The EU has not adopted the complete text of IAS 39 Financial
Instruments: Recognition and Measurement; it has relaxed some of the
standard's hedging requirements. The Group has not taken advantage of
this relaxation: its financial statements are prepared in accordance with
IFRS as issued by the IASB.
The company is incorporated in the UK and registered in Scotland. Its
accounts are presented in accordance with the Companies Act 2006.
With the exception of investment property and certain financial
instruments as described in Accounting policies 9, 14, 16 and 18, the
accounts are presented on an historical cost basis.
Citizens was classified as a disposal group on 31 December 2014; its
assets and liabilities at that date have been aggregated and presented in
separate balance sheet captions. It has been treated as a discontinued
operation and prior periods re-presented.
The Group adopted a number of new and revised IFRSs effective 1
January 2014:
Offsetting Financial Assets and Financial Liabilities (Amendments to IAS
32) adds application guidance to IAS 32 to address inconsistencies
identified in the application of the standards criteria for offsetting financial
assets and financial liabilities.
Investment Entities (amendments to IFRS 10, IFRS 12 and IAS 27)
applies to investment entities; such entities should account for their
subsidiaries (other than those that provide services related to the entitys
investment activities) at fair value through profit or loss.
IFRIC 21 Levies provides guidance on accounting for levies payable to
public authorities if certain conditions are met on a particular date.
IAS 36 Recoverable Amount Disclosures for Non-Financial Assets
(Amendments to IAS 36) aligns IAS 36s disclosure requirement about
recoverable amount with IASBs original intentions.
IAS 39 Novation of Derivatives and Continuation of Hedge Accounting
(Amendments to IAS 39) provides relief from discontinuing hedge
accounting on novation of a derivative designated as a hedging
instrument.
The implementation of these requirements has not had a material effect
on the Groups accounts.
2. Basis of consolidation
The consolidated accounts incorporate the financial statements of the
company and entities (including certain structured entities) that are
controlled by the Group. The Group controls another entity (a subsidiary)
when it is exposed, or has rights, to variable returns from its involvement
with that entity and has the ability to affect those returns through its
power over the other entity; power generally arises from holding a
majority of voting rights. On acquisition of a subsidiary, its identifiable
assets, liabilities and contingent liabilities are included in the consolidated
accounts at their fair value. A subsidiary is included in the consolidated
financial statements from the date it is controlled by the Group until the
date the Group ceases to control it through a sale or a significant change
in circumstances. Changes in the Groups interest in a subsidiary that do
not result in the Group ceasing to control that subsidiary are accounted
for as equity transactions.
All intergroup balances, transactions, income and expenses are
eliminated on consolidation. The consolidated accounts are prepared
under uniform accounting policies.
3. Revenue recognition
Interest income on financial assets that are classified as loans and
receivables, available-for-sale or held-to-maturity and interest expense on
financial liabilities other than those measured at fair value are determined
using the effective interest method. The effective interest method is a
method of calculating the amortised cost of a financial asset or financial
liability (or group of financial assets or liabilities) and of allocating the
interest income or interest expense over the expected life of the asset or
liability. The effective interest rate is the rate that exactly discounts
estimated future cash flows to the instrument's initial carrying amount.
Calculation of the effective interest rate takes into account fees payable
or receivable that are an integral part of the instrument's yield, premiums
or discounts on acquisition or issue, early redemption fees and
transaction costs. All contractual terms of a financial instrument are
considered when estimating future cash flows.
Financial assets and financial liabilities held for trading or designated as
at fair value through profit or loss are recorded at fair value. Changes in
fair value are recognised in profit or loss.
Fees in respect of services are recognised as the right to consideration
accrues through the provision of the service to the customer. The
arrangements are generally contractual and the cost of providing the
service is incurred as the service is rendered. The price is usually fixed
and always determinable. The application of this policy to significant fee
types is outlined below.
Payment services - this comprises income received for payment services
including cheques cashed, direct debits, Clearing House Automated
Payments (the UK electronic settlement system) and BACS payments
(the automated clearing house that processes direct debits and direct
credits). These are generally charged on a per transaction basis. The
income is earned when the payment or transaction occurs. Charges for
payment services are usually debited to the customer's account monthly
or quarterly in arrears. Income is accrued at period end for services
provided but not yet charged.
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Accounting policies
Credit and debit card fees - fees from card business include:
Interchange received: as issuer, the Group receives a fee

(interchange) each time a cardholder purchases goods and
services. The Group also receives interchange fees from other card
issuers for providing cash advances through its branch and
automated teller machine networks. These fees are accrued once
the transaction has taken place.
Periodic fees payable by a credit card or debit card holder are

deferred and taken to profit or loss over the period of the service.
5. Employee benefits
Short-term employee benefits, such as salaries, paid absences, and
other benefits are accounted for on an accruals basis over the period in
which the employees provide the related services. Employees may
receive variable compensation satisfied by cash, by debt instruments
issued by the Group or by RBSG shares. The treatment of share-based
compensation is set out in Accounting policy 25. Variable compensation
that is settled in cash or debt instruments is charged to profit or loss over
the period from the start of the year to which the variable compensation
relates to the expected settlement date taking account of forfeiture and
clawback criteria.
Lending (credit facilities) - commitment and utilisation fees are

determined as a percentage of the outstanding facility. If it is unlikely that
a specific lending arrangement will be entered into, such fees are taken
to profit or loss over the life of the facility otherwise they are deferred and
included in the effective interest rate on the loan.
The Group provides post-retirement benefits in the form of pensions and

healthcare plans to eligible employees.
Brokerage fees - in respect of securities, foreign exchange, futures or

options transactions entered into on behalf of a customer are recognised
as income on execution of a significant act.
For defined benefit schemes, the defined benefit obligation is measured

on an actuarial basis using the projected unit credit method and
discounted at a rate determined by reference to market yields at the end
of the reporting period on high quality corporate bonds of equivalent term
and currency to the scheme liabilities. Scheme assets are measured at
their fair value. The difference between scheme assets and scheme
liabilities the net defined benefit asset or liability - is recognised in the
balance sheet. A defined benefit asset is limited to the present value of
any economic benefits available to the Group in the form of refunds from
the plan or reduced contributions to it.
Trade finance - income from the provision of trade finance is recognised

over the term of the finance unless specifically related to a significant act,
in which case income is recognised when the act is executed.
Investment management - fees charged for managing investments are
recognised as revenue as the services are provided. Incremental costs
that are directly attributable to securing an investment management
contract are deferred and charged as expense as the related revenue is
recognised.
4. Assets held for sale and discontinued operations
A non-current asset (or disposal group) is classified as held for sale if the
Group will recover its carrying amount principally through a sale
transaction rather than through continuing use. A non-current asset (or
disposal group) classified as held for sale is measured at the lower of its
carrying amount and fair value less costs to sell. If the asset (or disposal
group) is acquired as part of a business combination it is initially
measured at fair value less costs to sell. Assets and liabilities of disposal
groups classified as held for sale and non-current assets classified as
held for sale are shown separately on the face of the balance sheet.
The results of discontinued operations - comprising the post-tax profit or
loss of discontinued operations and the post-tax gain or loss recognised
either on measurement to fair value less costs to sell or on disposal of the
discontinued operation - are shown as a single amount on the face of the
income statement; an analysis of this amount is presented in Note 20 on
the accounts. A discontinued operation is a cash generating unit or a
group of cash generating units that either has been disposed of, or is
classified as held for sale, and (a) represents a separate major line of
business or geographical area of operations, (b) is part of a single coordinated plan to dispose of a separate major line of business or
geographical area of operations or (c) is a subsidiary acquired exclusively
with a view to resale.
Contributions to defined contribution pension schemes are recognised in

profit or loss when payable.
The charge to profit or loss for pension costs (recorded in operating

expenses) comprises:
the current service cost

interest, computed at the rate used to discount scheme liabilities, on
the net defined benefit liability or asset
past service cost resulting from a scheme amendment or curtailment
gains or losses on settlement.
A curtailment occurs when the Group significantly reduces the number of

employees covered by a plan. A plan amendment occurs when the Group
introduces, or withdraws, a defined benefit plan or changes the benefits
payable under an existing defined benefit plan. Past service cost may be
either positive (when benefits are introduced or changed so that the
present value of the defined benefit obligation increases) or negative
(when benefits are withdrawn or changed so that the present value of the
defined benefit obligation decreases). A settlement is a transaction that
eliminates all further obligation for part or all of the benefits.
Actuarial gains and losses (i.e. gains or and losses on re-measuring the
net defined benefit asset or liability) are recognised in other
comprehensive income in full in the period in which they arise.
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Accounting policies
6. Intangible assets and goodwill

Intangible assets acquired by the Group are stated at cost less
accumulated amortisation and impairment losses. Amortisation is
charged to profit or loss over the assets' estimated economic lives using
methods that best reflect the pattern of economic benefits and is included
in Depreciation and amortisation. These estimated useful economic lives
are:
Computer software
Other acquired intangibles
3 to 12 years
5 to 10 years
Expenditure on internally generated goodwill and brands is written-off as

incurred. Direct costs relating to the development of internal-use
computer software are capitalised once technical feasibility and economic
viability have been established. These costs include payroll, the costs of
materials and services, and directly attributable overheads. Capitalisation
of costs ceases when the software is capable of operating as intended.
During and after development, accumulated costs are reviewed for
impairment against the benefits that the software is expected to generate.
Costs incurred prior to the establishment of technical feasibility and
economic viability are expensed as incurred as are all training costs and
general overheads. The costs of licences to use computer software that
are expected to generate economic benefits beyond one year are also
capitalised.
Intangible assets include goodwill arising on the acquisition of
subsidiaries and joint ventures. Goodwill on the acquisition of a
subsidiary is the excess of the fair value of the consideration transferred,
the fair value of any existing interest in the subsidiary and the amount of
any non-controlling interest measured either at fair value or at its share of
the subsidiarys net assets over the Group's interest in the net fair value
of the subsidiarys identifiable assets, liabilities and contingent liabilities.
Goodwill arises on the acquisition of a joint venture when the cost of
investment exceeds the Groups share of the net fair value of the joint
ventures identifiable assets and liabilities. Goodwill is measured at initial
cost less any subsequent impairment losses. Goodwill arising on the
acquisition of associates is included within their carrying amounts. The
gain or loss on the disposal of a subsidiary, associate or joint venture
includes the carrying value of any related goodwill.
7. Property, plant and equipment
Items of property, plant and equipment (except investment property - see
Accounting policy 9) are stated at cost less accumulated depreciation and
impairment losses. Where an item of property, plant and equipment
comprises major components having different useful lives, these are
accounted for separately.
Depreciation is charged to profit or loss on a straight-line basis so as to
write-off the depreciable amount of property, plant and equipment
(including assets owned and let on operating leases) over their estimated
useful lives. The depreciable amount is the cost of an asset less its
residual value. Freehold land is not depreciated.
The estimated useful lives of the Groups property, plant and equipment
are:
Freehold buildings
Long leasehold property (leases
with more than 50 years to run)
Short leaseholds
Property adaptation costs
Computer equipment
Other equipment
50 years
50 years
unexpired period of the lease
10 to 15 years
up to 5 years
4 to 15 years
The residual value and useful life of property, plant and equipment are
reviewed at each balance sheet date and updated for any changes to
previous estimates.
8. Impairment of intangible assets and property, plant and
equipment
At each reporting date, the Group assesses whether there is any
indication that its intangible assets, or property, plant and equipment are
impaired. If any such indication exists, the Group estimates the
recoverable amount of the asset and the impairment loss if any. Goodwill
is tested for impairment annually or more frequently if events or changes
in circumstances indicate that it might be impaired.
If an asset does not generate cash flows that are independent from those
of other assets or groups of assets, the recoverable amount is
determined for the cash-generating unit to which the asset belongs. A
cash-generating unit is the smallest identifiable group of assets that
generates cash inflows that are largely independent of the cash inflows
from other assets or groups of assets. For the purposes of impairment
testing, goodwill acquired in a business combination is allocated to each
of the Groups cash-generating units or groups of cash-generating units
expected to benefit from the combination. The recoverable amount of an
asset or cash-generating unit is the higher of its fair value less cost to sell
and its value in use. Value in use is the present value of future cash flows
from the asset or cash-generating unit discounted at a rate that reflects
market interest rates adjusted for risks specific to the asset or cashgenerating unit that have not been taken into account in estimating future
cash flows. If the recoverable amount of an intangible or tangible asset is
less than its carrying value, an impairment loss is recognised immediately
in profit or loss and the carrying value of the asset reduced by the amount
of the loss. A reversal of an impairment loss on intangible assets
(excluding goodwill) or property, plant and equipment is recognised as it
arises provided the increased carrying value is not greater than it would
have been had no impairment loss been recognised. Impairment losses
on goodwill are not reversed.
9. Investment property
Investment property comprises freehold and leasehold properties that are
held to earn rentals or for capital appreciation or both. Investment
property is not depreciated but is stated at fair value. Fair value is based
on current prices for similar properties in the same location and condition.
Any gain or loss arising from a change in fair value is recognised in profit
or loss. Rental income from investment property is recognised on a
straight-line basis over the term of the lease in Other operating income.
Lease incentives granted are recognised as an integral part of the total
rental income.
351
Accounting policies
10. Foreign currencies

The Group's consolidated financial statements are presented in sterling
which is the functional currency of the company.
Group entities record transactions in foreign currencies in their functional
currency - the currency of the primary economic environment in which
they operate - at the foreign exchange rate ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign
currencies are translated into the relevant functional currency at the
foreign exchange rates ruling at the balance sheet date. Foreign
exchange differences arising on the settlement of foreign currency
transactions and from the translation of monetary assets and liabilities
are reported in income from trading activities except for differences
arising on cash flow hedges and hedges of net investments in foreign
operations (see Accounting policy 23).
Non-monetary items denominated in foreign currencies that are stated at
fair value are translated into the relevant functional currency at the
foreign exchange rates ruling at the dates the values are determined.
Translation differences arising on non-monetary items measured at fair
value are recognised in profit or loss except for differences arising on
available-for-sale non-monetary financial assets, for example equity
shares, which are recognised in other comprehensive income unless the
asset is the hedged item in a fair value hedge.
Assets and liabilities of foreign operations, including goodwill and fair
value adjustments arising on acquisition, are translated into sterling at
foreign exchange rates ruling at the balance sheet date. Income and
expenses of foreign operations are translated into sterling at average
exchange rates unless these do not approximate to the foreign exchange
rates ruling at the dates of the transactions. Foreign exchange
differences arising on the translation of a foreign operation are
recognised in other comprehensive income. The amount accumulated in
equity is reclassified from equity to profit or loss on disposal of a foreign
operation.
11. Leases
As lessor
Contracts with customers to lease assets are classified as finance leases
if they transfer substantially all the risks and rewards of ownership of the
asset to the customer; all other contracts with customers to lease assets
are classified as operating leases.
Finance lease receivables are included in the balance sheet, within
Loans and advances to customers, at the amount of the net investment in
the lease being the minimum lease payments and any unguaranteed
residual value discounted at the interest rate implicit in the lease. Finance
lease income is allocated to accounting periods so as to give a constant
periodic rate of return before tax on the net investment and included in
Interest receivable. Unguaranteed residual values are subject to regular
review; if there is a reduction in their value, income allocation is revised
and any reduction in respect of amounts accrued is recognised
immediately.
Rental income from operating leases is recognised in income on a

straight-line basis over the lease term unless another systematic basis
better represents the time pattern of the assets use. Operating lease
assets are included within Property, plant and equipment and depreciated
over their useful lives (see Accounting policy 7). Operating lease rentals
receivable are included in Other operating income.
As lessee
The Groups contracts to lease assets are principally operating leases.
Operating lease rental expense is included in Premises and equipment
costs and recognised as an expense on a straight-line basis over the
lease term unless another systematic basis better represents the benefit
to the Group.
12. Provisions
The Group recognises a provision for a present obligation resulting from
a past event when it is more likely than not that it will be required to
transfer economic benefits to settle the obligation and the amount of the
obligation can be estimated reliably.
Provision is made for restructuring costs, including the costs of
redundancy, when the Group has a constructive obligation to restructure.
An obligation exists when the Group has a detailed formal plan for the
restructuring and has raised a valid expectation in those affected by
starting to implement the plan or by announcing its main features.
If the Group has a contract that is onerous, it recognises the present
obligation under the contract as a provision. An onerous contract is one
where the unavoidable costs of meeting the Groups contractual
obligations exceed the expected economic benefits. When the Group
vacates a leasehold property, a provision is recognised for the costs
under the lease less any expected economic benefits (such as rental
income).
Contingent liabilities are possible obligations arising from past events,
whose existence will be confirmed only by uncertain future events, or
present obligations arising from past events that are not recognised
because either an outflow of economic benefits is not probable or the
amount of the obligation cannot be reliably measured. Contingent
liabilities are not recognised but information about them is disclosed
unless the possibility of any outflow of economic benefits in settlement is
remote.
13. Tax
Income tax expense or income, comprising current tax and deferred tax,
is recorded in the income statement except income tax on items
recognised outside profit or loss which is credited or charged to other
comprehensive income or to equity as appropriate.
Current tax is income tax payable or recoverable in respect of the taxable
profit or loss for the year arising in profit or loss, other comprehensive
income or equity. Provision is made for current tax at rates enacted or
substantively enacted at the balance sheet date.
352
Accounting policies
Deferred tax is the tax expected to be payable or recoverable in respect

of temporary differences between the carrying amount of an asset or
liability for accounting purposes and its carrying amount for tax purposes.
Deferred tax liabilities are generally recognised for all taxable temporary
differences and deferred tax assets are recognised to the extent that it is
probable that they will be recovered. Deferred tax is not recognised on
temporary differences that arise from initial recognition of an asset or a
liability in a transaction (other than a business combination) that at the
time of the transaction affects neither accounting nor taxable profit or
loss. Deferred tax is calculated using tax rates expected to apply in the
periods when the assets will be realised or the liabilities settled, based on
tax rates and laws enacted, or substantively enacted, at the balance
sheet date.
Deferred tax assets and liabilities are offset where the Group has a
legally enforceable right to offset and where they relate to income taxes
levied by the same taxation authority either on an individual Group
company or on Group companies in the same tax group that intend, in
future periods, to settle current tax liabilities and assets on a net basis or
on a gross basis simultaneously.
14. Financial assets
On initial recognition, financial assets are classified into held-to-maturity
investments; held-for-trading; designated as at fair value through profit or
loss; loans and receivables; or available-for-sale financial assets. Regular
way purchases of financial assets classified as loans and receivables are
recognised on settlement date; all other regular way transactions in
financial assets are recognised on trade date.
Held-to-maturity investments - a financial asset may be classified as a
held-to-maturity investment only if it has fixed or determinable payments,
a fixed maturity and the Group has the positive intention and ability to
hold to maturity. Held-to-maturity investments are initially recognised at
fair value plus directly related transaction costs. They are subsequently
measured at amortised cost using the effective interest method (see
Accounting policy 3) less any impairment losses.
Held-for-trading - a financial asset is classified as held-for-trading if it is
acquired principally for sale in the near term, or forms part of a portfolio of
financial instruments that are managed together and for which there is
evidence of short-term profit taking, or it is a derivative (not in a qualifying
hedge relationship). Held-for-trading financial assets are recognised at
fair value with transaction costs being recognised in profit or loss.
Subsequently they are measured at fair value. Gains and losses on heldfor-trading financial assets are recognised in profit or loss as they arise.
Designated as at fair value through profit or loss - financial assets may be
designated as at fair value through profit or loss only if such designation
(a) eliminates or significantly reduces a measurement or recognition
inconsistency; or (b) applies to a group of financial assets, financial
liabilities or both, that the Group manages and evaluates on a fair value
basis; or (c) relates to an instrument that contains an embedded
derivative which is not evidently closely related to the host contract.
Financial assets that the Group designates on initial recognition as being
at fair value through profit or loss are recognised at fair value, with
transaction costs being recognised in profit or loss, and are subsequently
measured at fair value. Gains and losses are recognised in profit or loss
as they arise.
Loans and receivables - non-derivative financial assets with fixed or

determinable repayments that are not quoted in an active market are
classified as loans and receivables, except those that are classified as
available-for-sale or as held-for-trading, or designated as at fair value
through profit or loss. Loans and receivables are initially recognised at
measured at amortised cost using the effective interest method (see
Accounting policy 3) less any impairment losses.
Available-for-sale financial assets - financial assets that are not classified
as held-to-maturity; held-for-trading; designated as at fair value through
profit or loss; or loans and receivables are classified as available-for-sale.
Financial assets can be designated as available-for-sale on initial
recognition. Available-for-sale financial assets are initially recognised at
measured at fair value. Unquoted equity investments whose fair value
cannot be measured reliably are carried at cost and classified as
available-for-sale financial assets. Impairment losses and exchange
differences resulting from retranslating the amortised cost of foreign
currency monetary available-for-sale financial assets are recognised in
profit or loss together with interest calculated using the effective interest
method (see Accounting policy 3) as are gains and losses attributable to
the hedged risk on available-for-sale financial assets that are hedged
items in fair value hedges (see Accounting policy 23). Other changes in
the fair value of available-for-sale financial assets and any related tax are
reported in other comprehensive income until disposal, when the
cumulative gain or loss is reclassified from equity to profit or loss.
Reclassifications - held-for-trading and available-for-sale financial assets
that meet the definition of loans and receivables (non-derivative financial
assets with fixed or determinable payments that are not quoted in an
active market) may be reclassified to loans and receivables if the Group
has the intention and ability to hold the financial asset for the foreseeable
future or until maturity. The Group typically regards the foreseeable future
for this purpose as twelve months from the date of reclassification.
Additionally, held-for-trading financial assets that do not meet the
definition of loans and receivables may, in rare circumstances, be
transferred to available-for-sale financial assets or to held-to-maturity
investments. Reclassifications are made at fair value. This fair value
becomes the asset's new cost or amortised cost as appropriate. Gains
and losses recognised up to the date of reclassification are not reversed.
Fair value - the Groups approach to determining the fair value of financial
instruments measured at fair value is set out in the section of Critical
accounting policies and key sources of estimation uncertainty entitled
Fair value - financial instruments; further details are given in Note 11.
15. Impairment of financial assets
The Group assesses at each balance sheet date whether there is any
objective evidence that a financial asset or group of financial assets
classified as held-to-maturity, as available-for-sale or as loans and
receivables is impaired. A financial asset or group of financial assets is
impaired and an impairment loss incurred if there is objective evidence
that an event or events since initial recognition of the asset have
adversely affected the amount or timing of future cash flows from the
asset.
353
Accounting policies
Financial assets carried at amortised cost - if there is objective evidence

that an impairment loss on a financial asset or group of financial assets
classified as loans and receivables or as held-to-maturity investments
has been incurred, the Group measures the amount of the loss as the
difference between the carrying amount of the asset or group of assets
and the present value of estimated future cash flows from the asset or
group of assets discounted at the effective interest rate of the instrument
at initial recognition. For collateralised loans and receivables, estimated
future cash flows include cash flows that may result from foreclosure less
the costs of obtaining and selling the collateral, whether or not
foreclosure is probable.
Except for US retail portfolios, where write off of the irrecoverable amount
takes place within 60 - 180 days, the typical time frames from initial
impairment to write off for the Groups collectively-assessed portfolios
are:
Where, in the course of the orderly realisation of a loan, it is exchanged

for equity shares or property, the exchange is accounted for as the sale
of the loan and the acquisition of equity securities or investment property.
Where the Groups interest in equity shares following the exchange is
such that the Group controls an entity, that entity is consolidated.
Impairment losses are assessed individually for financial assets that are
individually significant and individually or collectively for assets that are
not individually significant. In making collective impairment assessments,
financial assets are grouped into portfolios on the basis of similar risk
characteristics. Future cash flows from these portfolios are estimated on
the basis of the contractual cash flows and historical loss experience for
assets with similar credit risk characteristics. Historical loss experience is
adjusted, on the basis of observable data, to reflect current conditions not
affecting the period of historical experience. Impairment losses are
recognised in profit or loss and the carrying amount of the financial asset
or group of financial assets reduced by establishing an allowance for
impairment losses. If, in a subsequent period, the amount of the
impairment loss reduces and the reduction can be ascribed to an event
after the impairment was recognised, the previously recognised loss is
reversed by adjusting the allowance. Once an impairment loss has been
recognised on a financial asset or group of financial assets, interest
income is recognised on the carrying amount using the rate of interest at
which estimated future cash flows were discounted in measuring
impairment.
Impaired loans and receivables are written off, i.e. the impairment
provision is applied in writing down the loan's carrying value partially or in
full, when the Group concludes that there is no longer any realistic
prospect of recovery of part or all of the loan. For loans that are
individually assessed for impairment, the timing of write off is determined
on a case-by-case basis. Such loans are reviewed regularly and write off
will be prompted by bankruptcy, insolvency, renegotiation and similar
events.
Retail mortgages: write off usually occurs within five years, or when
an account is closed if earlier.
Credit cards: the irrecoverable amount is written off after 12 months;
three years later any remaining amounts outstanding are written off.
Overdrafts and other unsecured loans: write off occurs within six
years.
Business and commercial loans: write offs of commercial loans are
determined in the light of individual circumstances; the period does
not exceed five years. Business loans are generally written off within
five years.
Amounts recovered after a loan has been written off are credited to the
loan impairment charge for the period in which they are received.
Financial assets carried at fair value - when a decline in the fair value of a
financial asset classified as available-for-sale has been recognised
directly in other comprehensive income and there is objective evidence
that it is impaired, the cumulative loss is reclassified from equity to profit
or loss. The loss is measured as the difference between the amortised
cost (including any hedge accounting adjustments) of the financial asset
and its current fair value. Impairment losses on available-for-sale equity
instruments are not reversed through profit or loss, but those on
available-for-sale debt instruments are reversed, if there is an increase in
fair value that is objectively related to a subsequent event.
16. Financial liabilities
Financial liabilities are recognised initially at fair value and classified into
held-for-trading; designated as at fair value through profit or loss; or
amortised cost. Issues of financial liabilities measured at amortised cost
are recognised on settlement date; all other regular way transactions in
financial liabilities are recognised on trade date.
Held-for-trading - a financial liability is classified as held-for-trading if it is
incurred principally for repurchase in the near term, or forms part of a
portfolio of financial instruments that are managed together and for which
there is evidence of short-term profit taking, or it is a derivative (not in a
qualifying hedge relationship). Held-for-trading financial liabilities are
recognised at fair value with transaction costs being recognised in profit
or loss. Subsequently they are measured at fair value. Gains and losses
are recognised in profit or loss as they arise.
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Accounting policies
Designated as at fair value through profit or loss - financial liabilities may

be designated as at fair value through profit or loss only if such
designation (a) eliminates or significantly reduces a measurement or
recognition inconsistency; or (b) applies to a group of financial assets,
financial liabilities or both that the Group manages and evaluates on a fair
value basis; or (c) relates to an instrument that contains an embedded
derivative which is not evidently closely related to the host contract.
Financial liabilities that the Group designates on initial recognition as
being at fair value through profit or loss are recognised at fair value, with
transaction costs being recognised in profit or loss, and are subsequently
measured at fair value. Gains and losses are recognised in profit or loss
as they arise.
Financial liabilities designated as at fair value through profit or loss
principally comprise structured liabilities issued by the Group: designation
significantly reduces the measurement inconsistency between these
liabilities and the related derivatives carried at fair value.
Amortised cost - all other financial liabilities are measured at amortised
cost using the effective interest method (see Accounting policy 3).
Fair value - the Groups approach to determining the fair value of financial
instruments measured at fair value is set out in the section of Critical
17. Financial guarantee contracts
Under a financial guarantee contract, the Group, in return for a fee,
undertakes to meet a customers obligations under the terms of a debt
instrument if the customer fails to do so. A financial guarantee is
recognised as a liability; initially at fair value and, if not designated as at
fair value through profit or loss, subsequently at the higher of its initial
value less cumulative amortisation and any provision under the contract
measured in accordance with Accounting policy 12. Amortisation is
calculated so as to recognise fees receivable in profit or loss over the
period of the guarantee.
18. Loan commitments
Provision is made for loan commitments, other than those classified as
held-for-trading, if it is probable that the facility will be drawn and the
resulting loan will be recognised at an amount less than the cash
advanced. Syndicated loan commitments in excess of the level of lending
under the commitment approved for retention by the Group are classified
as held-for-trading and measured at fair value.
19. Derecognition
A financial asset is derecognised when the contractual right to receive
cash flows from the asset has expired or when it has been transferred
and the transfer qualifies for derecognition. A transfer requires that the
Group either (a) transfers the contractual rights to receive the asset's
cash flows; or (b) retains the right to the asset's cash flows but assumes
a contractual obligation to pay those cash flows to a third party. After a
transfer, the Group assesses the extent to which it has retained the risks
and rewards of ownership of the transferred asset. The asset remains on
the balance sheet if substantially all the risks and rewards have been
retained. It is derecognised if substantially all the risks and rewards have
been transferred. If substantially all the risks and rewards have been
neither retained nor transferred, the Group assesses whether or not it has
retained control of the asset. If the Group has retained control of the
asset, it continues to recognise the asset to the extent of its continuing
involvement; if the Group has not retained control of the asset, it is
derecognised.
A financial liability is removed from the balance sheet when the obligation
is discharged, or is cancelled, or expires. On the redemption or
settlement of debt securities (including subordinated liabilities) issued by
the Group, the Group derecognises the debt instrument and records a
gain or loss being the difference between the debt's carrying amount and
the cost of redemption or settlement. The same treatment applies where
the debt is exchanged for a new debt issue that has terms substantially
different from those of the existing debt. The assessment of whether the
terms of the new debt instrument are substantially different takes into
account qualitative and quantitative characteristics including a
comparison of the present value of the cash flows under the new terms
with the present value of the remaining cash flows of the original debt
issue discounted at the effective interest rate of the original debt issue.
20. Sale and repurchase transactions
Securities subject to a sale and repurchase agreement under which
substantially all the risks and rewards of ownership are retained by the
Group continue to be shown on the balance sheet and the sale proceeds
recorded as a financial liability. Securities acquired in a reverse sale and
repurchase transaction under which the Group is not exposed to
substantially all the risks and rewards of ownership are not recognised on
the balance sheet and the consideration paid is recorded as a financial
asset.
Securities borrowing and lending transactions are usually secured by
cash or securities advanced by the borrower. Borrowed securities are not
recognised on the balance sheet or lent securities derecognised. Cash
collateral given or received is treated as a loan or deposit; collateral in the
form of securities is not recognised. However, where securities borrowed
are transferred to third parties, a liability for the obligation to return the
securities to the stock lending counterparty is recorded.
355
Accounting policies
21. Netting
Financial assets and financial liabilities are offset and the net amount
presented in the balance sheet when, and only when, the Group currently
has a legally enforceable right to set off the recognised amounts and it
intends either to settle on a net basis or to realise the asset and settle the
liability simultaneously. The Group is party to a number of arrangements,
including master netting agreements, that give it the right to offset
financial assets and financial liabilities but where it does not intend to
settle the amounts net or simultaneously and therefore the assets and
liabilities concerned are presented gross.
22. Capital instruments
The Group classifies a financial instrument that it issues as a liability if it
is a contractual obligation to deliver cash or another financial asset, or to
exchange financial assets or financial liabilities on potentially
unfavourable terms and as equity if it evidences a residual interest in the
assets of the Group after the deduction of liabilities. The components of a
compound financial instrument issued by the Group are classified and
accounted for separately as financial assets, financial liabilities or equity
as appropriate.
Incremental costs and related tax that are directly attributable to an equity
transaction are deducted from equity.
The consideration for any ordinary shares of the company purchased by
the Group (treasury shares) is deducted from equity. On the cancellation
of treasury shares their nominal value is removed from equity and any
excess of consideration over nominal value is treated in accordance with
the capital maintenance provisions of the Companies Act. On the sale or
reissue of treasury shares the consideration received and related tax are
credited to equity, net of any directly attributable incremental costs.
23. Derivatives and hedging
Derivative financial instruments are initially recognised, and subsequently
measured, at fair value. The Groups approach to determining the fair
value of financial instruments is set out in the section of Critical
A derivative embedded in a contract is accounted for as a standalone
derivative if its economic characteristics are not closely related to the
economic characteristics of the host contract; unless the entire contract is
measured at fair value with changes in fair value recognised in profit or
loss.
Gains and losses arising from changes in the fair value of derivatives that
are not the hedging instrument in a qualifying hedge are recognised as
they arise in profit or loss. Gains and losses are recorded in Income from
trading activities except for gains and losses on those derivatives that are
managed together with financial instruments designated at fair value;
these gains and losses are included in Other operating income.
Hedge relationships are formally designated and documented at

inception. The documentation identifies the hedged item and the hedging
instrument and details the risk that is being hedged and the way in which
effectiveness will be assessed at inception and during the period of the
hedge. If the hedge is not highly effective in offsetting changes in fair
values or cash flows attributable to the hedged risk, consistent with the
documented risk management strategy, hedge accounting is
discontinued. Hedge accounting is also discontinued if the Group revokes
the designation of a hedge relationship.
Fair value hedge - in a fair value hedge, the gain or loss on the hedging
instrument is recognised in profit or loss. The gain or loss on the hedged
item attributable to the hedged risk is recognised in profit or loss and,
where the hedged item is measured at amortised cost, adjusts the
carrying amount of the hedged item. Hedge accounting is discontinued if
the hedge no longer meets the criteria for hedge accounting; or if the
hedging instrument expires or is sold, terminated or exercised; or if hedge
designation is revoked. If the hedged item is one for which the effective
interest rate method is used, any cumulative adjustment is amortised to
profit or loss over the life of the hedged item using a recalculated
effective interest rate.
Cash flow hedge - in a cash flow hedge, the effective portion of the gain
or loss on the hedging instrument is recognised in other comprehensive
income and the ineffective portion in profit or loss. When the forecast
transaction results in the recognition of a financial asset or financial
liability, the cumulative gain or loss is reclassified from equity to profit or
loss in the same periods in which the hedged forecast cash flows affect
profit or loss. Otherwise the cumulative gain or loss is removed from
equity and recognised in profit or loss at the same time as the hedged
transaction. Hedge accounting is discontinued if the hedge no longer
meets the criteria for hedge accounting; if the hedging instrument expires
or is sold, terminated or exercised; if the forecast transaction is no longer
expected to occur; or if hedge designation is revoked. On the
discontinuance of hedge accounting (except where a forecast transaction
is no longer expected to occur), the cumulative unrealised gain or loss is
reclassified from equity to profit or loss when the hedged cash flows
occur or, if the forecast transaction results in the recognition of a financial
asset or financial liability, when the hedged forecast cash flows affect
profit or loss. Where a forecast transaction is no longer expected to
occur, the cumulative unrealised gain or loss is reclassified from equity to
profit or loss immediately.
Hedge of net investment in a foreign operation - in the hedge of a net
investment in a foreign operation, the portion of foreign exchange
differences arising on the hedging instrument determined to be an
effective hedge is recognised in other comprehensive income. Any
ineffective portion is recognised in profit or loss. Non-derivative financial
liabilities as well as derivatives may be the hedging instrument in a net
investment hedge. On disposal or partial disposal of a foreign operation,
the amount accumulated in equity is reclassified from equity to profit or
loss.
The Group enters into three types of hedge relationship: hedges of

changes in the fair value of a recognised asset or liability or unrecognised
firm commitment (fair value hedges); hedges of the variability in cash
flows from a recognised asset or liability or a highly probable forecast
transaction (cash flow hedges); and hedges of the net investment in a
foreign operation.
356
Accounting policies
24. Associates and joint ventures

An associate is an entity over which the Group has significant influence.
A joint venture is one which it controls jointly with other parties.
Investments in associates and interests in joint ventures are recognised
using the equity method. They are stated initially at cost, including
attributable goodwill, and subsequently adjusted for post-acquisition
changes in the Groups share of net assets.
25. Share-based compensation
The Group operates a number of share-based compensation schemes
under which it awards RBSG shares and share options to its employees.
Such awards are generally subject to vesting conditions: conditions that
vary the amount of cash or shares to which an employee is entitled.
Vesting conditions include service conditions (requiring the employee to
complete a specified period of service) and performance conditions
(requiring the employee to complete a specified period of service and
specified performance targets to be met). Other conditions to which an
award is subject are non-vesting conditions (such as a requirement to
save throughout the vesting period).
The cost of employee services received in exchange for an award of
shares or share options granted is measured by reference to the fair
value of the shares or share options on the date the award is granted and
takes into account non-vesting conditions and market performance
conditions (conditions related to the market price of RBSG shares): an
award is treated as vesting irrespective of whether any market
performance condition or non-vesting condition is met. The fair value of
options granted is estimated using valuation techniques which
incorporate exercise price, term, risk-free interest rates, the current share
price and its expected volatility. The cost is expensed on a straight-line
basis over the vesting period (the period during which all the specified
vesting conditions must be satisfied) with a corresponding increase in
equity in an equity-settled award, or a corresponding liability in a cashsettled award. The cost is adjusted for vesting conditions (other than
market performance conditions) so as to reflect the number of shares or
share options that actually vest.
If an award is modified, the original cost continues to be recognised as if
there had been no modification. Where modification increases the fair
value of the award, this increase is recognised as an expense over the
modified vesting period. A new award of shares or share options is
treated as the modification of a cancelled award if, on the date the new
award is granted, the Group identifies them as replacing the cancelled
award. The cancellation of an award through failure to meet non-vesting
conditions triggers an immediate expense for any unrecognised element
of the cost of an award.
Critical accounting policies and key sources of estimation

uncertainty
The reported results of the Group are sensitive to the accounting policies,
assumptions and estimates that underlie the preparation of its financial
statements. UK company law and IFRS require the directors, in preparing
the Group's financial statements, to select suitable accounting policies,
apply them consistently and make judgements and estimates that are
reasonable and prudent. In the absence of an applicable standard or
interpretation, IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors, requires management to develop and apply an
accounting policy that results in relevant and reliable information in the
light of the requirements and guidance in IFRS dealing with similar and
related issues and the IASB's Conceptual Framework for Financial
Reporting. The judgements and assumptions involved in the Group's
accounting policies that are considered by the Board to be the most
important to the portrayal of its financial condition are discussed below.
The use of estimates, assumptions or models that differ from those
adopted by the Group would affect its reported results.
Pensions
The Group operates a number of defined benefit pension schemes as
described in Note 4 on the accounts. As described in Accounting policy 5,
the assets of the schemes are measured at their fair value at the balance
sheet date. Scheme liabilities are measured using the projected unit
credit method, which takes account of projected earnings increases,
using actuarial assumptions that give the best estimate of the future cash
flows that will arise under the scheme liabilities. These cash flows are
discounted at the interest rate applicable to high-quality corporate bonds
of the same currency and term as the liabilities. Any recognisable surplus
or deficit of scheme assets over liabilities is recorded in the balance sheet
as an asset (surplus) or liability (deficit).
In determining the value of scheme liabilities, financial and demographic
assumptions are made including price inflation, pension increases,
earnings growth and the longevity of scheme members. A range of
assumptions could be adopted in valuing the schemes' liabilities. Different
assumptions could significantly alter the amount of the surplus or deficit
recognised in the balance sheet and the pension cost charged to the
income statement. The assumptions adopted for the Group's pension
schemes are set out in Note 4 on the accounts, together with sensitivities
of the balance sheet and income statement to changes in those
assumptions.
A pension asset of 295 million and a liability of 2,579 million were
recognised on the balance sheet at 31 December 2014 (2013 - asset
214 million, liability 3,210 million; 2012 - asset 144 million, liability
3,884 million).
26. Cash and cash equivalents

In the cash flow statement, cash and cash equivalents comprises cash
and deposits with banks with an original maturity of less than three
months together with short-term highly liquid investments that are readily
convertible to known amounts of cash and subject to insignificant risk of
change in value.
357
Accounting policies
Goodwill
The Group capitalises goodwill arising on the acquisition of businesses,
as discussed in Accounting policy 6. The carrying value of goodwill as at
31 December 2014 was 6,264 million (2013 - 10,139 million; 2012 11,266 million).
Goodwill is the excess of the cost of an acquired business over the fair
value of its net assets. Goodwill is not amortised but is tested for
impairment annually or more frequently if events or changes in
circumstances indicate that it might be impaired.
Impairment testing in accordance with Accounting policy 8 above
inherently involves a number of judgmental areas: the preparation of cash
flow forecasts for periods that are beyond the normal requirements of
management reporting; the assessment of the discount rate appropriate
to the business; estimation of the fair value of cash-generating units; and
the valuation of their separable assets. The sensitivity of the assessment
to changes in assumptions is discussed in Note 17 on page 404.
Provisions for liabilities
As set out in Note 22, at 31 December 2014 the Group recognised
provisions for liabilities in respect of Payment Protection Insurance, 799
million (2013 - 926 million; 2012 - 895 million), Interest Rate Hedging
Products, 424 million (2013 - 1,077 million; 2012 - 676 million),
foreign exchange investigations, 320 million (2013 and 2012 - nil),
LIBOR investigations, nil (2013 - 416 million; 2012 - 381 million) and
other regulatory proceedings and litigation, 1,988 million (2013 - 2,168
million; 2012 - 368 million). Provisions are liabilities of uncertain timing
or amount, and are recognised when there is a present obligation as a
result of a past event, the outflow of economic benefit is probable and the
outflow can be estimated reliably. Judgement is involved in determining
whether an obligation exists, and in estimating the probability, timing and
amount of any outflows. Where the Group can look to another party such
as an insurer to pay some or all of the expenditure required to settle a
provision, any reimbursement is recognised when, and only when, it is
virtually certain that it will be received.
Payment Protection Insurance - the Group has established a provision for
redress payable in respect of the mis-selling of Payment Protection
Insurance policies. The provision is managements best estimate of the
anticipated costs of redress and related administration expenses. The
determination of appropriate assumptions to underpin the provision
requires significant judgement by management. The principal
assumptions underlying the provision together with sensitivities to
changes in those assumptions are given in Note 22.
Interest Rate Hedging Products - following an industry-wide review
conducted in 2012 in conjunction with the Financial Services Authority
(now being dealt with by the Financial Conduct Authority (FCA)), the
Group agreed to provide redress to customers in relation to certain
interest rate hedging products sold to small and medium-sized
businesses classified as retail clients under FSA rules. There remain
uncertainties over the eventual cost of redress, including any
consequential loss claims. Estimating the liability depends on a number
of assumptions. These are discussed in Note 22.
Provisions for litigation - the Group and members of the Group are party
to legal proceedings in the United Kingdom, the United States and other
jurisdictions, arising out of their normal business operations. The
measurement and recognition of liabilities in respect of litigation involves
a high degree of management judgement. Before the existence of a
present obligation as the result of a past event can be confirmed,
numerous facts may need to be established, involving extensive and
time-consuming discovery, and novel or unsettled legal questions
addressed. Once it is determined there is an obligation, assessing the
probability of economic outflows and estimating the amount of any liability
can be very difficult. In many proceedings, it is not possible to determine
whether any loss is probable or to estimate the amount of any loss.
Furthermore, for an individual matter, there can be a wide range of
possible outcomes and often it is not practicable to quantify a range of
such outcomes. The Groups outstanding litigation is periodically
assessed in consultation with external professional advisers, where
appropriate, to determine the likelihood of the Group incurring a liability. A
detailed description of the Groups material legal proceedings and a
discussion of the nature of the associated uncertainties are given in Note
32.
Tax contingencies - determining the Groups income tax charge and its
provisions for income taxes necessarily involves a significant degree of
estimation and judgement. The tax treatment of some transactions is
uncertain and tax computations are yet to be agreed with the tax
authorities in a number of jurisdictions. The Group recognises anticipated
tax liabilities based on all available evidence and, where appropriate, in
the light of external advice. Any difference between the final outcome and
the amounts provided will affect current and deferred income tax assets
and liabilities in the period when the matter is resolved.
Deferred tax
The Group makes provision for deferred tax on temporary differences
where tax recognition occurs at a different time from accounting
recognition. Deferred tax assets of 1,540 million were recognised as at
31 December 2014 (2013 - 3,478 million; 2012 - 3,443 million).
The Group has recognised deferred tax assets in respect of losses,
principally in the UK, and temporary differences. Deferred tax assets are
recognised in respect of unused tax losses and other temporary
differences to the extent that it is probable that there will be future UK
taxable profits against which the losses and other temporary differences
can be utilised. The Group has considered the carrying value of the
deferred tax asset as at 31 December 2014 and concluded that it is
recoverable based on future projections. Deferred tax assets of 5,738
million (2013 - 4,942 million; 2012 - 3,827 million) have not been
recognised in respect of tax losses and other temporary differences
where the availability of future taxable profits is uncertain. Further details
about the Groups deferred tax assets are given in Note 23.
358
Accounting policies

The Group's loan impairment provisions are established to recognise
incurred impairment losses in its portfolio of loans classified as loans and
receivables and carried at amortised cost in accordance with Accounting
policy 15. A loan is impaired when there is objective evidence that events
since the loan was granted have affected expected cash flows from the
loan. Such objective evidence, indicative that a borrowers financial
condition has deteriorated, can include for loans that are individually
assessed: the non-payment of interest or principal; debt renegotiation;
probable bankruptcy or liquidation; significant reduction in the value of
any security; breach of limits or covenants; and deteriorating trading
performance and, for collectively assessed portfolios: the borrowers
payment status and observable data about relevant macroeconomic
measures.
The impairment loss is the difference between the carrying value of the
loan and the present value of estimated future cash flows at the loan's
original effective interest rate.
At 31 December 2014, loans and advances to customers classified as
loans and receivables totalled 307,971 million (2013 - 364,772 million;
2012 - 397,846 million) and customer loan impairment provisions
amounted to 17,460 million (2013 - 25,153 million; 2012 - 21,136
million). Customer loan impairment releases in 2014 amounted to 1,354
million (2013 - 8,120 million losses; 2012 - 5,031 million losses). The
losses in 2013 include loan impairment provisions in respect of loans
transferred to RBS Capital Resolution Group. These loans are expected
to be exited within three years and impairment provisions in respect of
these loans have been reassessed in the light of this change in recovery
strategy.
There are two components to the Group's loan impairment provisions:
individual and collective.
Individual component - all impaired loans that exceed specific thresholds
are individually assessed for impairment. Individually assessed loans
principally comprise the Group's portfolio of commercial loans to medium
and large businesses. Impairment losses are recognised as the
difference between the carrying value of the loan and the discounted
value of management's best estimate of future cash repayments and
proceeds from any security held. These estimates take into account the
customer's debt capacity and financial flexibility; the level and quality of
its earnings; the amount and sources of cash flows; the industry in which
the counterparty operates; and the realisable value of any security held.
Estimating the quantum and timing of future recoveries involves
significant judgement. The size of receipts will depend on the future
performance of the borrower and the value of security, both of which will
be affected by future economic conditions; additionally, collateral may not
be readily marketable. The actual amount of future cash flows and the
date they are received may differ from these estimates and consequently
actual losses incurred may differ from those recognised in these financial
statements.
Collective component - this is made up of two elements: loan impairment

provisions for impaired loans that are below individual assessment
thresholds (collectively assessed provisions) and for loan losses that
have been incurred but have not been separately identified at the balance
sheet date (latent loss provisions). Collectively assessed provisions are
established on a portfolio basis using a present value methodology taking
into account the level of arrears, security, past loss experience, credit
scores and defaults based on portfolio trends. The most significant
factors in establishing these provisions are the expected loss rates and
the related average life. These portfolios include mortgages, credit card
receivables and other personal lending. The future credit quality of these
portfolios is subject to uncertainties that could cause actual credit losses
to differ materially from reported loan impairment provisions. These
uncertainties include the economic environment, notably interest rates
and their effect on customer spending, the unemployment level, payment
behaviour and bankruptcy trends. Latent loss provisions are held against
estimated impairment losses in the performing portfolio that have yet to
be identified as at the balance sheet date. To assess the latent loss
within its portfolios, the Group has developed methodologies to estimate
the time that an asset can remain impaired within a performing portfolio
before it is identified and reported as such.
Fair value - financial instruments
In accordance with Accounting policies 14, 16 and 23, financial
instruments classified as held-for-trading or designated as at fair value
through profit or loss and financial assets classified as available-for-sale
are recognised in the financial statements at fair value. All derivatives are
measured at fair value.
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. A fair value measurement takes into account the
characteristics of the asset or liability if market participants would take
those characteristics into account when pricing the asset or liability at the
measurement date. It also uses the assumptions that market participants
would use when pricing the asset or liability. In determining fair value the
Group maximises the use of relevant observable inputs and minimises
the use of unobservable inputs.
Where the Group manages a group of financial assets and financial
liabilities on the basis of its net exposure to either market risks or credit
risk, it measures the fair value of a group of financial assets and financial
liabilities on the basis of the price that it would receive to sell a net long
position (i.e. an asset) for a particular risk exposure or to transfer a net
short position (i.e. a liability) for a particular risk exposure in an orderly
transaction at the measurement date under current market conditions.
Credit valuation adjustments are made when valuing derivative financial
assets to incorporate counterparty credit risk. Adjustments are also made
when valuing financial liabilities measured at fair value to reflect the
Groups own credit standing.
Where the market for a financial instrument is not active, fair value is
established using a valuation technique. These valuation techniques
involve a degree of estimation, the extent of which depends on the
instruments complexity and the availability of market-based data. Further
details about the Groups valuation methodologies and the sensitivity to
reasonably possible alternative assumptions of the fair value of financial
instruments valued using techniques where at least one significant input
is unobservable are given in Note 11.
359
Accounting policies
Accounting developments
A number of IFRSs and amendments to IFRS were in issue at 31
December 2014 that would affect RBS from 1 January 2015 or later.
Effective for 2015
IAS 19 Defined Benefit Plans: Employee Contributions was issued in
November 2013. This amendment distinguishes the accounting for
employee contributions that are related to service from that for those that
are independent of service.
Annual Improvements to IFRS 2010 - 2012 and 2011 - 2013 cycles were
issued in December 2013 making a number of minor amendments to
IFRS.
Implementation of these changes is not expected to have a material
effect on the Groups financial statements.
Effective after 2015
In July 2014 the IASB published IFRS 9 Financial Instruments. IFRS 9
replaces the current financial instruments standard IAS 39, setting out
new accounting requirements in a number of areas. First, there are
revisions to the classification and measurement of financial instruments.
There are new restrictions on the ability to account for financial assets at
amortised cost and a prohibition on the bifurcation of embedded
derivatives from financial assets. Accounting for financial liabilities is
largely unchanged except for the treatment of changes in the fair value of
liabilities designated as at fair value through profit or loss attributable to
own credit risk; these are recognised in other comprehensive income.
Secondly, there are amended requirements for hedge accounting
designed to align the accounting more closely to the risk management
framework and remove or simplify some of the rule-based requirements
of IAS 39. The basic mechanics of hedge accounting: fair value, cash
flow and net investment hedges are retained. Finally, there is a new
approach to credit impairment provisions moving from IAS 39s incurred
loss model to an expected loss model. An expected loss model will result
in the recognition of credit impairment losses earlier than an incurred loss
model. Subject to EU endorsement, IFRS 9 is applicable for periods
beginning on or after 1 January 2018.
IFRS 9 makes major and fundamental changes to accounting for financial

instruments. The Group is continuing its assessment of its effect on the
Groups financial statements.
IFRS 15 Revenue from Contracts with Customers was issued in May
2014. It will replace IAS 11 Construction Contracts, IAS 18 Revenue
and several Interpretations. Contracts are bundled or unbundled into
distinct performance obligations with revenue recognised as the
obligations are met. It is effective from 1 January 2017.
Accounting for Acquisitions of interests in Joint Operations issued in
May 2014 amends IFRS 11 Joint Arrangements to clarify that the donor
of assets and liabilities to a joint operation should hold its continuing
interest in them at the lower of cost and recoverable amount. The
effective date is 1 January 2016.
Clarification of Acceptable Methods of Depreciation and Amortisation
issued in May 2014 amends IAS 16 Property, Plant and Equipment and
IAS 38 Intangible Assets requiring amortisation to be based on the
consumption of an asset, introducing a rebuttable presumption that this is
not achieved by an amortisation profile aligned to revenue. The effective
date is 1 January 2016.
Annual Improvements to IFRS 2012 - 2014 cycle was issued in
September 2014 making a number of minor amendments to IFRS. Its
effective date is 1 January 2016.
Amendments to IFRS 10 Consolidated Financial Statements, IFRS 12
Disclosure of Interests in Other Entities and IAS 28 Investments in
Associates and Joint Ventures were issued in September 2014 to clarify
the accounting for sales between an investor, its associate or joint
ventures, and in December 2014 to clarify the application of the
investment entity consolidation exception. The effective date of these
amendments is 1 January 2016.
An amendment to IAS 1 Presentation of Financial Statements was
issued in December 2014 to clarify the application of materiality to
financial statements. Its effective date is 1 January 2016.
The Group is assessing the effects of these new standards.
360
1 Net interest income

2014
m
2013
m
2012
m
12,339
367
373
13,079
13,165
433
890
14,488
14,120
496
1,467
16,083

Deposits by banks
Internal funding of trading businesses
Interest payable
598
731
440
75
1,010
876
91
3,821
664
1,299
719
277
1,306
877
329
5,471
828
1,523
934
413
2,023
807
199
6,727
Net interest income
9,258
9,017
9,356

Debt securities
Interest receivable
361
2 Non-interest income

Payment services
Credit and debit card fees
Lending (credit facilities)
Brokerage
Investment management
Trade finance
Other

Banking
Income from trading activities (1)
Foreign exchange
Interest rate
Credit
Changes in fair value of own debt and derivative liabilities attributable to own credit
- debt securities in issue
- derivative liabilities
Equities and other

Operating lease and other rental income
Changes in the fair value of own debt designated as at fair value through profit or loss attributable
to own credit risk (2)
- debt securities in issue
- subordinated liabilities
Other changes in the fair value of financial assets and liabilities designated as at fair value through profit
or loss and related derivatives
Changes in the fair value of investment properties
Profit on sale of securities
Profit on sale of property, plant and equipment
Profit on sale of subsidiaries and associates
Dividend income
Share of profits of associated entities
Other income (3)
2014
m
2013
m
2012
m
989
822
1,250
321
391
280
361
4,414
1,090
892
1,291
397
434
269
305
4,678
996
892
1,389
479
455
282
405
4,898
(875)
(923)
(818)
849
339
284
821
515
998
619
1,753
735
44
(84)
(147)
1,285
131
(96)
202
2,571
(1,473)
(340)
165
1,459
20
175
454
380
484
876
(89)
(17)
(49)
(106)
(2,531)
(305)
83
(25)
227
137
192
30
126
4
1,048
(26)
(281)
737
35
168
67
320
(130)
1,219
153
(153)
1,039
32
95
37
29
94
(634)
Notes:
(1) The analysis of income from trading activities is based on how the business is organised and the underlying risks managed. Income from trading activities comprises gains and losses on financial
instruments held for trading, both realised and unrealised, interest income and dividends and the related funding costs. The types of instruments include:
- Foreign exchange: spot foreign exchange contracts, currency swaps and options, emerging markets and related hedges and funding.
- Interest rate: interest rate swaps, forward foreign exchange contracts, forward rate agreements, interest rate options, interest rate futures and related hedges and funding.
- Credit: asset-backed securities, corporate bonds, credit derivatives and related hedges and funding.
- Equities: equities, equity derivatives and related hedges and funding.
- Commodities: commodities, commodity contracts and related hedges and funding.
(2) Measured as the change in fair value from movements in the year in the credit risk premium payable by RBS.
(3) Includes income from activities other than banking.
362
3 Operating expenses
2014
m
2013
m
2012
m
Salaries
Variable compensation
Temporary and contract costs
Social security costs
Share-based compensation
Pension costs
- defined benefit schemes (see Note 4)
- curtailment and settlement gains (see Note 4)
- defined contribution schemes
Severance
Other
Staff costs
3,503
408
526
379
43
3,661
548
650
422
49
4,008
670
699
500
126
462
87
196
153
5,757
508
(7)
76
69
110
6,086
514
(13)
29
426
191
7,150

2,081
4,568
2,038
6,692
1,951
4,929
671
259
930
759
488
1,247
987
616
1,603
523
13,859
1,403
17,466
124
15,757
Property, plant and equipment (see Note 18)

Intangible assets (see Note 17)
Write down of goodwill and other intangible assets (see Note 17)
Other administrative expenses include:

Payment Protection Insurance costs, Interest Rate Hedging
Products redress and related costs, and other litigation and conduct
costs. Further details are provided in Note 22.
The UK bank levy, which was charged at a rate of 0.156% on

chargeable liabilities in excess of 20 billion, and amounted to 250
million for 2014 (2013 - 0.13%, 200 million; 2012 - 0.088%, 175
million).
Integration, restructuring and divestment costs

Included in operating expenses are the following integration, restructuring and divestment costs.
Staff
m
Premises
m
Other
m
Depreciation
m
Continuing
operations
m
Discontinued
operations
m
Total
m
Restructuring
2014
2013
2012
261
191
699
266
112
148
268
164
256
3
6
142
798
473
1,245
103
24
49
901
497
1,294
Divestment
2014
2013
2012
120
86
111
3
2
(2)
233
77
62
356
165
171
85
356
165
256
Integration
2014
2013
2012
1
(2)
1
2
363
3 Operating expenses continued

The average number of persons employed, rounded to the nearest hundred, in continuing operations during the year, excluding temporary staff, was
92,800 (2013 - 97,900; 2012 - 103,600); on the same basis there were 18,200 people employed in discontinued operations (2013 - 22,900; 2012 34,800). The average number of temporary employees during 2014 was 8,100 (2013 - 9,800; 2012 - 10,100). The number of persons employed in
continuing operations at 31 December, excluding temporary staff, by reportable segment (see Note 38 for more details), were as follows:
2014
2013*
2012*

Ulster Bank
Commercial Banking
Private Banking
Centre
RCR
Non-Core
Services
Integration and restructuring
Total
26,700
4,400
31,100
6,100
3,500
9,600
3,600
10,500
600
n/a
34,200
100
89,700
28,500
4,700
33,200
7,000
3,600
10,600
4,500
11,200
n/a
1,000
35,200
200
95,900
30,500
4,400
34,900
6,700
3,600
10,300
4,900
11,700
n/a
2,700
34,800
500
99,800
UK
USA
Europe
Rest of the World
Total
63,400
2,000
7,400
16,900
89,700
68,700
2,400
8,400
16,400
95,900
71,200
2,900
9,200
16,500
99,800
*Restated
There were 17,400 people employed in discontinued operations at 31 December 2014 (2013 - 19,000; 2012 - 33,700).
As described in the Remuneration report on page 91, the Group grants share-based awards to employees principally on the following bases:
Award plan
Eligible employees
Sharesave
UK, Republic of Ireland, Channel Option to buy shares under employee

Islands, Gibraltar and Isle of Man savings plan
All
Awards of ordinary shares
Deferred performance
awards
Long-term incentives (3)
Senior employees
Nature of award (1)
Awards of conditional shares or share

options
Vesting conditions (2)
Settlement
Continuing employment or
leavers in certain circumstances
and/or achievement of
performance conditions
2015 to 2020
2015 to 2018
2019 to 2020
Notes:
(1) Awards are equity-settled unless international comparability is better served by cash-settled awards.
(2) All awards have vesting conditions and therefore some may not vest.
(3) Long-term incentives include the Executive Share Option Plan, the Long-Term Incentive Plan and the Medium-Term Performance Plan.
364
Sharesave
2014
Average
exercise price
At 1 January
Granted
Exercised
Cancelled
At 31 December
Shares
under option
(million)
2.90
3.43
2.34
3.61
2.85
2013
Average
exercise price
62
12
(6)
(17)
51
2012
Average
exercise price
Shares
under option
(million)
2.86
2.96
2.36
3.38
2.90
57
13
(8)
62
Shares
under option
(million)
3.36
2.49
2.37
3.76
2.86
64
14
(21)
57
The fair value of options granted in 2014 was determined using a pricing model that included: expected volatility of shares determined at the grant date
based on historical volatility over a period of up to seven years; expected option lives that equal the vesting period; no dividends on equity shares; and
risk-free interest rates determined from UK gilts with terms matching the expected lives of the options.
The strike price of options and the fair value on granting awards of fully paid shares is the average market price over the five trading days preceding
grant date.
Options are exercisable within six months of vesting; 1.9 million options were exercisable at 31 December 2014 (2013 - 1.3 million; 2012 - 0.2 million).
The weighted average share price at the date of exercise of options was 3.65 (2013 - 3.36; 2012 - 2.78). At 31 December 2014, exercise prices
ranged from 2.33 to 39.27 (2013 and 2012 - 2.33 to 39.27) and the average contractual life was 3.7 years (2013 - 3.5 years; 2012 - 3.9 years). The
fair value of options granted in 2014 was 18 million (2013 - 25 million; 2012 - 28 million).
Deferred performance awards
2014
Value at
grant
m
At 1 January
Granted
Forfeited
Vested
CFG awards
At 31 December
2013
Value at
grant
m
Shares
awarded
(million)
180
311
(28)
(170)
(21)
272
55
95
(7)
(51)
(7)
85
2012
Value at
grant
m
Shares
awarded
(million)
261
113
(48)
(146)
180
73
36
(14)
(40)
55
756
141
(98)
(538)
261
Shares
awarded
(million)
191
50
(25)
(143)
73
The awards granted in 2014 vest evenly over the following three anniversaries.
Long-term incentives
At 1 January
Granted
Exercised
Lapsed
CFG awards
At 31 December
Value
at grant
m
2014
Shares
awarded
(million)
Options
over shares
(million)
Value at
grant
m
2013
Shares
awarded
(million)
Options
over shares
(million)
Value at
grant
m
2012
Shares
awarded
(million)
Options
over shares
(million)
320
72
(61)
(85)
(32)
214
94
22
(14)
(22)
(11)
69
13
(5)
(1)
375
109
(51)
(113)
320
98
35
(11)
(28)
94
20
(3)
(4)
13
345
157
(15)
(112)
375
58
59
(4)
(15)
98
37
(1)
(16)
20
In conjunction with the Initial Public Offering of Citizens Financial Group,

Inc. (CFG), incentive awards of over 11 million RBSG shares and a
convertible bond were replaced with awards of over 3 million CFG shares
having the same market value.
At 31 December 2014, a provision of 1 million had been made in respect

of 0.1 million options over shares that may be cash-settled (2013 - 1
million in respect of 0.1 million share awards; 2012 - 1 million in respect
of 0.1 million share awards and 0.3 million options over shares).
The market value of awards exercised in 2014 was 44 million (2013 37 million; 2012 - 10 million). There are vested options over 7 million
shares exercisable up to 2019 (2013 - 13 million; 2012 - 18 million).
365
3 Operating expenses continued

Variable compensation awards
The following tables analyse Group and CIB variable compensation awards for 2014(1).
Group
CIB
2014
m
2013
m
Change
%
2014
m
2013
m
Change
%
Non-deferred cash awards (2)

Total non-deferred variable compensation
Deferred bond awards
Deferred share awards
Total deferred variable compensation
Total variable compensation (3)
66
66
168
187
355
421
62
62
168
306
474
536
6
6
(39)
(25)
(21)
5
5
30
79
109
114
7
7
47
191
238
245
(29)
(29)
(36)
(59)
(54)
(53)
Variable compensation as a % of operating profit (4)

Proportion of variable compensation that is deferred
Of which
- deferred bond awards
- deferred share awards
6%
84%
24%
88%
23%
96%
30%
97%
47%
53%
35%
65%
28%
72%
20%
80%
2014
m
2013
m
2012
m
Variable compensation awarded

Less: deferral of charge for amounts awarded for current year
Income statement charge for amounts awarded in current year
421
(150)
271
536
(230)
306
636
(252)
384
Add: current year charge for amounts deferred from prior years
Less: forfeiture of amounts deferred from prior years
Income statement charge for amounts deferred from prior years
201
(64)
137
279
(37)
242
342
(56)
286
Income statement charge for variable compensation (3)
408
548
670
Reconciliation of variable compensation awards to income statement charge
Actual
Year in which income statement charge is expected to be taken

for deferred variable compensation
Variable compensation deferred from 2012 and earlier
Variable compensation deferred from 2013
Less: clawback of variable compensation deferred from prior years
Less: forfeiture of amounts deferred from prior years
Variable compensation for 2014 deferred
Expected
2012
m
2013
m
2014
m
2015
m
401
(59)
(56)
286
289
(10)
(37)
242
42
162
(3)
(64)
137
20
44
123
187
2016
and beyond
m
2
21
28
51
Notes:
(1) The tables above relate to continuing businesses only; variable compensation relating to discontinued businesses in 2014 totalled 62 million (2013 - 40 million).
(2) Cash payments to all employees are limited to 2,000.
(3) Excludes other performance related compensation.
(4) Reported operating profit excluding Citizens Financial Group before variable compensation expense and one-off and other items. 2013 also excludes the impact of the creation of RCR.
366
4 Pensions
The Group sponsors a number of pension schemes in the UK and
overseas.
Similar governance principles apply to the Groups other pension

schemes, although different legislative frameworks apply to the Groups
overseas schemes.
The Royal Bank of Scotland Group Pension Fund (the Main scheme)
operates under UK trust law and is managed and administered on behalf
of its members in accordance with the terms of the trust deed, the
scheme rules and UK legislation (principally the Pension Schemes Act
1993, the Pensions Act 1995 and the Pensions Act 2004). Under UK
legislation a defined benefit pension scheme is required to meet the
statutory funding objective of having sufficient and appropriate assets to
cover its liabilities. Pension fund trustees are required to: prepare a
statement of funding principles; obtain regular actuarial valuations and
reports; put in place a recovery plan addressing any funding shortfall; and
send regular summary funding statements to members of the scheme.
The Main scheme, accounting for 87% (2013 - 86%; 2012 - 85%) of the
Groups retirement benefit obligations, was closed to new entrants in
2006. Since 2009, pensionable salary increases in the Main scheme and
certain other UK and Irish schemes have been limited to 2% per annum
or CPI inflation if lower. Also, with effect from 1 October 2012, the normal
pension age for future benefits was increased to 65 unless members
elected to make a contribution to maintain a normal pension age of 60.
The Main scheme corporate trustee is RBS Pension Trustee Limited

(RBSPT), a wholly owned subsidiary of National Westminster Bank Plc.
RBSPT is the legal owner of the Main scheme assets which are held
separately from the assets of the Group. The Board of RBSPT comprises
four trustee directors nominated by members selected from eligible active
staff and pensioner members who apply and six appointed by the Group.
The Board is responsible for operating the scheme in line with its formal
rules and pensions law. It has a duty to act in the best interests of all
scheme members, including pensioners and those who are no longer
employed by the Group, but who still have benefits in the scheme.
The Groups defined benefit schemes generally provide a pension of onesixtieth of final pensionable salary for each year of service prior to
retirement up to a maximum of 40 years. Employees making additional
contributions can secure additional benefits.
Since October 2006, new UK entrants may join The Royal Bank of
Scotland Retirement Savings Plan, a defined contribution pension
scheme.
The Group also provides post-retirement benefits other than pensions,
principally through subscriptions to private healthcare schemes in the UK
and the US and unfunded post-retirement benefit plans. Provision for the
costs of these benefits is charged to the income statement over the
average remaining future service lives of eligible employees. The
amounts are not material.
Interim valuations of the Groups schemes under IAS 19 Employee Benefits were prepared at 31 December with the support of independent actuaries,
using the following assumptions:
Principal actuarial assumptions (weighted average)
2014
%
Main scheme
2013
%
2012
%
2014
%
All schemes
2013
%
2012
%
Discount rate (1)

Expected return on plan assets (1)
Rate of increase in salaries
Rate of increase in pensions in payment
Inflation assumption
3.7
3.7
1.8
2.8
3.0
4.7
4.7
1.8
3.1
3.3
4.5
4.5
1.8
2.8
2.9
3.6
3.6
1.8
2.7
2.8
4.5
4.5
1.8
2.9
3.2
4.4
4.4
1.7
2.6
2.8
Note:
(1) The discount rate and the expected return on plan assets for the Main scheme as at 31 December 2013 was 4.65%.
367
4 Pensions continued
Discount rate
The Group discounts its defined benefit pension obligations at discount
rates determined by reference to the yield on high quality corporate
bonds.
The sterling yield curve (applied to 91% of the Groups defined benefit
obligations) is constructed by reference to yields on AA corporate bonds
from which a single discount rate is derived based on a cash flow profile
similar in structure and duration to the pension obligations. Significant
judgement is required when setting the criteria for bonds to be included in
the population from which the yield curve is derived. The criteria include
issue size, quality of pricing and the exclusion of outliers. Judgement is
also required in determining the shape of the yield curve at long
durations: a constant credit spread relative to gilts is assumed.
Major classes of plan assets as a percentage of total

plan assets
Quoted assets
Quoted equities
- Consumer industry
- Manufacturing industry
- Energy and utilities
- Financial institutions
- Technology and telecommunications
- Other
Private equity
Index-linked bonds
Government fixed interest bonds
Corporate fixed interest bonds
Unquoted assets
Corporate and other bonds
Hedge funds
Real estate
Derivatives
Cash and other assets
Equity exposure of equity futures
Cash exposure of equity futures
Discount rates for other currencies are derived using a variety of

methodologies. In the case of US dollar defined benefit obligations, a
matching portfolio of high-quality AA corporate bonds is used for the first
30 years cash flows; cash flows beyond 30 years are discounted using a
yield curve determined in a similar way to the UK. For euro defined
benefit obligations, a similar approach to the UK has been used at 31
December 2014. However, at longer durations, rates are derived by
extrapolating yields on A and AAA corporate bonds to derive equivalent
AA yields.
2014
%
Main scheme
2013
%
2012
%
2014
%
All schemes
2013
%
2012
%
4.3
3.2
2.9
3.9
4.2
2.8
4.3
28.1
3.6
15.3
4.2
4.0
3.6
3.9
4.7
3.5
4.9
29.0
2.1
19.5
4.2
5.6
4.1
4.1
4.9
0.5
5.4
30.7
1.9
19.5
5.5
2.8
2.7
3.5
3.8
4.6
3.8
26.6
5.0
15.6
4.3
4.1
3.6
3.9
4.7
3.7
4.4
28.3
2.2
19.6
4.4
6.0
4.4
4.4
5.3
0.5
4.7
28.7
2.9
19.5
2.3
1.6
5.8
10.6
7.1
1.3
(1.3)
100.0
2.1
5.2
4.0
3.0
6.0
8.0
(7.7)
100.0
1.6
2.2
4.3
2.2
8.7
9.0
(8.9)
100.0
2.0
1.5
5.5
9.8
7.3
1.6
(1.6)
100.0
1.9
5.1
4.0
2.8
7.1
8.0
(7.7)
100.0
1.5
2.5
4.2
2.0
9.0
8.4
(8.4)
100.0
368
The assets of the Main scheme, which represent 88% of plan assets at 31 December 2014 (2013 and 2012 - 85%), are invested in a diversified portfolio
of quoted and private equity, government and corporate fixed-interest and index-linked bonds, and other assets including property and hedge funds.
The Main scheme also employs derivative instruments, where appropriate, to achieve a desired asset class exposure or to match assets more closely to
liabilities. The value of assets shown reflects the actual physical assets held by the scheme, with any derivative holdings valued on a mark-to-market
basis.
The Main schemes holdings of derivative instruments are summarised in the table below:
2014
Notional
amounts
m
Inflation rate swaps

Interest rate swaps
Total return swaps
Currency swaps
Credit default swaps
Equity and bond futures
Currency forwards
Equity and bond call options
Equity and bond put options
8,467
23,858
181
782
875
599
8,562
7,382
7,409
Fair value
Assets
m
73
6,055
1
223
427
14
2
846
1
2013
Liabilities
m
Notional
amounts
m
415
3,305
191
435
2
48
61
6,273
22,108
187
2,196
900
1,904
9,182
4,102
4,071
The investment strategy of other schemes is similar to that of the Main

scheme, adjusted to take account of the nature of liabilities, risk appetite
of the trustees, size of the scheme and any local regulatory constraints.
The use of derivative instruments outside the Main scheme is not
material.
Swaps are part of the management of the inflation and interest rate
sensitivity of the Main scheme liabilities. They have been executed at
prevailing market rates and within standard market bid/offer spreads. The
majority of swaps are with The Royal Bank of Scotland plc and National
Westminster Bank Plc (the banks). At 31 December 2014, the gross
notional value of the swaps was 34,163 million (2013 - 31,664 million;
2012 - 28,541 million) and had a net positive fair value of 2,433 million
(2013 - 624 million; 2012 - 370 million).
Post-retirement mortality assumptions (Main scheme)
Fair value
Assets
m
258
3,283
1
813
13
71
66
108
11
2012
Liabilities
m
Notional
amounts
m
141
2,867
720
16
2
63
90
5,474
19,304
515
2,539
709
2,109
8,551
963
963
Fair value
Assets
m
20
3,424
6
326
11
16
41
94
13
Liabilities
m
335
2,811
259
12
17
31
Collateral is required on all swap transactions with those between the

banks and the Main scheme on terms that do not allow the banks to rehypothecate. The banks had delivered 2,908 million of collateral at 31
December 2014 (2013 - 633 million; 2012 - 521 million).
Ordinary shares of the company with a fair value of 2 million (2013 and
2012 - 4 million) and other financial instruments issued by the Group
with a value of 2,172 million (2013 - 416 million; 2012 - 610 million)
are held by the Main scheme.
2014
2013
2012
Longevity at age 60 for current pensioners (years)

Males
Females
28.0
30.0
27.6
29.5
27.3
29.2
Longevity at age 60 for future pensioners currently aged 40 (years)

Males
Females
29.3
31.6
28.6
30.8
29.4
31.0
369
Main scheme
Changes in value of net pension deficit

At 1 January 2013
Income statement
Current service cost
Past service cost
Gains on settlements
Statement of comprehensive income
Return on plan assets above recognised interest income
Experience gains and losses
Actuarial gains and losses due to changes in financial assumptions
Actuarial gains and losses due to changes in demographic assumptions
Contributions by employer
Contributions by plan participants and other scheme members
Benefits paid
At 1 January 2014
Income statement
Current service cost
Past service cost
Return on plan assets above recognised interest income
Experience gains and losses
Actuarial gains and losses due to changes in financial assumptions
Actuarial gains and losses due to changes in demographic assumptions
Contributions by employer
Contributions by plan participants and other scheme members
Benefits paid
Transfer to disposal groups
At 31 December 2014
Fair value
of plan
assets
m
Present value
of defined
benefit
obligation
m
All schemes
Net
pension
deficit
m
Fair value
of plan
assets
m
Present value
of defined
benefit
obligation
m
Net
pension
deficit
m
22,441
25,648
3,207
26,370
1
30,110
14
3,740
13
1,011
126
296
15
437
1,173
1,011
1,137
296
15
1,448
1,173
1,317
372
1
(7)
1,683
144
372
1
(7)
510
986
986
656
(822)
24,272
(102)
562
224
684
(822)
26,958
(986)
(102)
562
224
(302)
(656)
2,686
1,097
1,097
821
14
(988)
28,488
(60)
(176)
589
238
651
14
(988)
31,484
(85)
(1,097)
(176)
589
238
(446)
(821)
2,996
(25)
1,137
97
278
18
393
1,314
1,137
1,234
278
18
1,530
1,314
1,421
357
2
1,780
107
357
2
466
4,629
4,629
906
(867)
30,077
(3)
3,757
401
4,155
(867)
31,776
(4,629)
(3)
3,757
401
(474)
(906)
1,699
5,171
5,171
1,065
5
(1,030)
(594)
34,359
(18)
4,806
491
5,279
5
(1,030)
(790)
36,643
(5,171)
(18)
4,806
491
108
(1,065)
(196)
2,284
Net pension deficit comprises

Net assets of schemes in surplus (included in Prepayments, accrued income and other assets, Note 19)
Net liabilities of schemes in deficit
2014
m
2013
m
2012
m
(295)
2,579
2,284
(214)
3,210
2,996
(144)
3,884
3,740
2014
m
2013
m
2012
m
462
4
466
501
9
510
501
16
517
The income statement charge comprises:

Continuing operations
370
The weighted average duration of the Main schemes defined benefit obligation at 31 December 2014 is 20.0 years (2013 - 18.0 years; 2012 - 19.2
years).
The defined benefit obligation is attributable to the different classes of scheme members in the following proportions (Main scheme):
Active
Deferred
Pensioner
2014
%
2013
%
2012
%
18.8
41.0
40.2
100.0
19.5
38.4
42.1
100.0
23.8
32.4
43.8
100.0
Following the legal separation of ABN AMRO Bank N.V. on 1 April 2010, ABN AMROs principal pension scheme in the Netherlands was transferred to
the State of the Netherlands. At 31 December 2009, this scheme had fair value of plan assets of 8.3 billion and present value of defined benefit
obligations of 8.3 billion. The principal actuarial assumptions at 31 December 2009 were: discount rate 5.25%; expected return on plan assets
(weighted average) 5.25%; rate of increase in salaries 2.5%; rate of increase in pensions in payment 2.0%; and inflation assumption 2.0%.
History of defined benefit schemes

Fair value of plan assets
Present value of defined benefit obligations
Net deficit
Experience gains/(losses) on plan liabilities
Experience gains on plan assets
Actual return on pension schemes assets
Actual return on pension schemes assets - %
2014
m
2013
m
30,077
31,776
1,699
24,272
26,958
2,686
3
4,629
5,766
23.8%
102
986
1,997
8.9%
Main scheme
2012
m
2011
m
2010
m
2014
m
2013
m
All schemes
2012
m
2011
m
2010
m
22,441
25,648
3,207
21,111
22,955
1,844
19,110
21,092
1,982
34,359
36,643
2,284
28,488
31,484
2,996
26,370
30,110
3,740
25,086
27,137
2,051
22,816
24,999
2,183
(232)
301
1,329
6.3%
(208)
935
1,966
10.3%
(858)
1,830
2,779
16.7%
18
5,171
6,485
22.8%
176
1,097
2,270
8.6%
(207)
485
1,696
6.8%
(200)
842
2,065
9.1%
(882)
1,941
3,170
11.4%
Triennial funding valuation

In May 2014, the triennial funding valuation of The Royal Bank of Scotland Group Pension Fund was agreed which showed that the value of the
liabilities exceeded the value of assets by 5.6 billion at 31 March 2013, a ratio of 82%. To eliminate this deficit, RBS will pay annual contributions of
650 million from 2014 to 2016 and 450 million (indexed in line with inflation) from 2017 to 2023. These contributions are in addition to regular annual
contributions of approximately 270 million in respect of the ongoing accrual of benefits as well as contributions to meet the expenses of running the
scheme.
371
The table below sets out the sensitivities of the pension cost for the year and the present value of defined benefit obligations at 31 December to a
change in the principal actuarial assumptions:
Main scheme
(Decrease)/increase
0.25% increase in the discount rate

0.25% increase in inflation
0.25% additional rate of increase in
pensions in payment
deferred pensions
salaries
Longevity increase of one year
All schemes
(Decrease)/increase
in pension cost
for year
2014
2013
m
m
in obligation
at 31 December
2014
2013
m
m
in pension cost
for year
2014
2013
m
m
2012
m
2012
m
(67)
55
(66)
52
(66)
60
(79)
63
(80)
58
(80)
66
43
42
39
982
758
690
49
48
45
1,107
844
782
21
18
20
394
329
297
24
21
23
476
383
342
9
39
9
35
6
33
100
988
83
728
95
647
12
42
12
39
9
38
131
1,053
110
801
125
727
2012
m
(1,466) (1,187) (1,199)

1,159
895
995
in obligation
at 31 December
2014
2013
m
m
2012
m
(1,695) (1,379) (1,392)

1,334 1,000 1,129
Pension costs and liabilities are calculated on the central assumptions and under the relevant sensitivity scenarios. The sensitivity to pension
costs/liabilities is the difference between these calculations.
The sensitivity analysis presented above may not be representative of the actual change in the pension cost or defined benefit obligation as it is unlikely
that the changes in assumptions would occur in isolation of one another as some of the assumptions may be correlated.
5 Auditors remuneration
Amounts paid to the Group's auditors for statutory audit and other services are set out below. All audit-related and other services are approved by the
Group Audit Committee and are subject to strict controls to ensure the external auditors independence is unaffected by the provision of other services.
The Group Audit Committee recognise that for certain assignments the auditors are best placed to perform the work economically; for other work the
Group selects the supplier best placed to meet its requirements. The Groups auditors are permitted to tender for such work in competition with other
firms where the work is permissible under audit independence rules.
The analysis of auditors remuneration is as follows:
Fees payable for the audit of the Groups annual accounts
Fees payable to the auditor and its associates for other services to the Group
- the audit of the companys subsidiaries
- audit-related assurance services (1)
Total audit and audit-related assurance services fees
Taxation compliance services
Taxation advisory services
Other assurance services
Corporate finance services (2)
Consulting services
Total other services
Fees payable to the auditor and its associates in respect of audits of associated pension schemes
Total
2014
m
2013
m
4.0
4.0
24.2
4.8
33.0
22.1
3.8
29.9
0.3
0.1
1.2
1.7
0.1
3.4
0.2
0.1
2.3
0.8
0.2
3.6
0.4
36.8
0.5
34.0
Notes:
(1) Comprises fees of 0.9 million (2013 - 0.9 million) in relation to reviews of interim financial information, 2.5 million (2013 - 2.3 million) in respect of reports to the Groups regulators in the UK and
overseas, 0.3 million (2013 - 0.3 million) in respect of internal controls assurance and 1.1 million (2013 - 0.3 million) in relation to non-statutory audit opinions.
(2) Comprises fees of 0.9 million (2013 - 0.8 million) in respect of work performed by the auditors as reporting accountants on debt and equity issuances undertaken by the Group, including
securitisations and 0.8 million (2013 - nil) in respect of reporting accountant services in connection with disposals by the Group.
372
6 Tax
Current tax
Charge for the year
Over/(under) provision in respect of prior years
Deferred tax
(Charge)/credit for the year
Reduction in the carrying value of deferred tax assets
(Under)/over provision in respect of prior year
Tax charge for the year
2014
m
2013
m
2012
m
(423)
247
(176)
(315)
120
(195)
(487)
(62)
(549)
(259)
(1,472)
(2)
(1,909)
586
(701)
124
(186)
745
(394)
42
(156)
The actual tax charge differs from the expected tax (charge)/credit computed by applying the standard rate of UK corporation tax of 21.5% (2013 23.25%; 2012 - 24.5%) as follows:
Expected tax (charge)/credit

Losses in year where no deferred tax asset recognised
Foreign profits taxed at other rates
UK tax rate change impact (1)
Unrecognised timing differences
Non-deductible goodwill impairment
Items not allowed for tax
- losses on disposals and write-downs
- UK bank levy
- regulatory and legal actions
- other disallowable items
Non-taxable items
- gain on sale of Direct Line Insurance Group
- gain on sale of WorldPay (Global Merchant Services)
- gain on sale of RBS Aviation Capital
- other non-taxable items
Taxable foreign exchange movements
Losses brought forward and utilised
(Reduction)/increase in carrying value of deferred tax asset in respect of:
- UK losses
- US losses and temporary differences
- Australia losses
- Ireland losses
Adjustments in respect of prior years (2)
Actual tax charge
2014
m
2013
m
2012
m
(568)
(86)
76
(3)
(28)
2,057
(879)
(117)
(313)
(8)
(247)
1,483
(511)
(295)
(149)
59
(12)
(54)
(182)
(191)
(20)
(47)
(144)
(212)
(49)
(43)
(93)
(255)
41
79
21
225
37
153
(25)
36
26
84
(1)
2
(850)
(775)
153
245
(1,909)
(701)
244
(186)
(191)
(203)
(20)
(156)
Notes:
(1) In recent years the UK Government has steadily reduced the rate of UK corporation tax, with the latest enacted rates standing at 21% with effect from 1 April 2014 and 20% with effect from 1 April
2015. The closing deferred tax assets and liabilities have been calculated in accordance with the rates enacted at the balance sheet date.
(2) Prior year tax adjustments include releases of tax provisions in respect of structured transactions and adjustments to reflect submitted tax computations in the UK and overseas. In addition, a prior
year tax credit of 151 million has been recognised in 2014 in respect of tax losses arising in the Belfast Branch of Ulster Bank Ireland Limited reflecting UK tax law changes and European Court of
Justice decisions on the surrender of tax losses.
373
7 Profit attributable to preference shareholders and paid-in equity holders

Non-cumulative preference shares of US$0.01
Non-cumulative preference shares of 0.01
Non-cumulative preference shares of 1
Interest on securities classified as equity, net of tax
Total (1)
2014
m
2013
m
2012
m
213
115
2
330
226
121
2
349
153
115
5
273
49
379
49
398
28
301
Notes:
(1) Discretionary dividends on certain non-cumulative preference shares and discretionary distributions on certain innovative securities recommenced in May 2012.
(2) Between 1 January 2015 and the date of approval of these accounts, dividends amounting to US$107 million and 0.4 million have been declared in respect of equity preference shares for payment
on 31 March 2015.
8 Ordinary dividends
The company did not pay an ordinary dividend in 2014, 2013 or 2012.
9 Earnings per ordinary and equivalent B share
Earnings per ordinary and equivalent B share have been calculated based on the following:
2014
m
2013
m
2012
m
Earnings
Loss/(profit) from discontinued operations attributable to ordinary and B shareholders
Profit/(loss) from continuing operations attributable to ordinary and B shareholders
(3,470)
3,527
57
(8,995)
(521)
(9,516)
(6,055)
(430)
(6,485)
Weighted average number of shares (millions)

Ordinary shares outstanding during the year
Equivalent B shares in issue during the year
Weighted average number of ordinary shares and equivalent B shares outstanding during the year
Effect of dilutive share options and convertible securities
Diluted weighted average number of ordinary shares and equivalent B shares outstanding during the year
6,256
5,100
11,356
91
11,447
6,096
5,100
11,196
115
11,311
5,902
5,100
11,002
105
11,107
Basic (loss)/earnings per ordinary and equivalent B share from

discontinued operations was (31.1p) (2013 - 4.7p; 2012 - 3.9p). Diluted
earnings per ordinary and equivalent B share from discontinued
operations was 4.6p in 2013. There was no dilutive impact in 2014 or
2012.
At a General Meeting on 25 June 2014, the companys independent
shareholders approved an agreement between RBS and HM Treasury for
the retirement of the Dividend Access Share (the DAS retirement
agreement).
Prior to the DAS retirement agreement, the DAS was entitled to a
dividend amounting to the greater of 7% of the aggregate issue price of B
shares and 250% of the ordinary dividend rate multiplied by the number
of B shares issued, less any dividends paid on the B shares and on
ordinary shares issued on their conversion. When calculating earnings
per share, IFRS requires profit or loss to be allocated to participating
equity instruments as if all of the profit or loss for the period had been
distributed.
Under the DAS retirement agreement, once RBS has paid dividends on
the DAS totalling 1.5 billion, it will lose its preferential dividend rights and
become a single B share. The dividends are payable at the discretion of
the directors. The first DAS dividend of 320 million was paid in August
2014. Unpaid DAS dividends will be subject to an increase of 5% per
annum from 1 January 2016 and an increase of 10% per annum from 1
January 2021.
These changes to the DAS agreement have re-characterised the DAS
such that it is no longer a participating share; it is only entitled to total
dividends of 1.5 billion, subject to increases after 1 January 2016.
Consequently earnings per share for periods ended after 25 June 2014
only reflect DAS dividends recognised before the end of a reporting
period; this amounted to 320 million in respect of the year ended 31
December 2014. Dividends can be paid on ordinary and B shares only
once the remaining 1,180 million of retirement dividend, subject to
increases as above, has been paid.
374
10 Financial instruments - classification

The following tables analyse financial assets and liabilities in accordance with the categories of financial instruments in IAS 39. Assets and liabilities
outside the scope of IAS 39 are shown separately.
2014
Assets
- reverse repos
- other (1)
- reverse repos
- other
Debt securities
Equity shares
Settlement balances
Derivatives
Intangible assets
Deferred tax
other assets
Liabilities
Deposits by banks
- repos
- other (2)
Customer accounts
- repos
- other (3)
Debt securities in issue (4)
Settlement balances
Short positions
Derivatives
Accruals, deferred income and
other liabilities
Deferred tax
Designated
as at fair value
Held-forthrough profit
trading
or loss
m
m
Hedging
derivatives
m
Availablefor-sale
m
Loans and
receivables
m
Held-tomaturity
m
Amortised cost
m
Finance
leases
m
Other
assets/
liabilities
m
Total
m
74,872
74,872
18,129
11,773
2,579
11,254
20,708
23,027
43,018
23,038
49,226
4,821
348,149
61
117
301
29,673
513
969
307,002
3,096
4,667
4,537
4,150
5,441
7,781
6,167
1,540
498,154
479
23,990
26,118
869
9,688
24,859
35,806
35,985
15,308
6,490
23,029
346,184
4,731
10,216
1,366
334,249
33,574
4,503
37,351
354,288
50,280
4,503
23,029
349,805
1,801
863
22,042
477,104
15,810
Equity
5,441
30,186
404,439
4,537
43,987
334,251
86,649
5,635
4,667
353,590
7,781
6,167
1,540
4,150
5,878
5,878
82,011
82,011
103,377 1,050,763
3,621
3,621
408,092
11,545
2,579
500
71,320
85,944
13,346
2,579
500
22,905
71,320
990,571
60,192
1,050,763
375
10 Financial instruments - classification continued
Designated
as at fair value
trading
or loss
m
m
2013
Assets
- reverse repos
- other (1)
- reverse repos
- other
Debt securities
Equity shares
Settlement balances
Derivatives
Intangible assets
Deferred tax
other assets
Liabilities
Deposits by banks
- repos
- other (2)
Customer accounts
- repos
- other (3)
Settlement balances
Short positions
Derivatives
Accruals, deferred income and other
liabilities
Deferred tax
Hedging
derivatives
m
Availablefor-sale
m
Loans and
receivables Amortised cost
m
m
Finance
leases
m
Other
assets/
liabilities
m
Total
m
82,659
82,659
25,795
9,952
721
17,603
26,516
27,555
49,897
19,170
56,582
7,199
283,508
49
122
400
53,107
1,212
364,772
3,788
5,591
6,834
4,531
12,368
7,909
3,478
452,103
571
23,127
19,764
5,523
15,565
28,650
35,329
52,300
10,236
8,560
28,022
281,299
5,862
15,848
4,184
398,298
43,411
5,313
56,484
414,396
67,819
5,313
28,022
285,526
1,764
868
23,144
423,308
22,578
Equity
4,531
54,319
475,134
49,897
390,825
113,599
8,811
5,591
288,039
12,368
7,909
3,478
6,834
7,614
7,614
3,017
3,017
34,386 1,027,878
4,227
4,227
497,202
19
19
14,234
3,210
507
3,378
21,329
16,017
3,210
507
24,012
3,378
968,663
59,215
1,027,878
376
2012
Assets
- reverse repos
- other (1)
- reverse repos
- other
Debt securities
Equity shares
Settlement balances
Derivatives
Intangible assets
Deferred tax
other assets
Liabilities
Deposits by banks
- repos
- other (2)
Customer accounts
- repos
- other (3)
Settlement balances
Short positions
Derivatives
Accruals, deferred income and other
liabilities
Deferred tax
Designated
as at fair value
trading
or loss
m
m
Hedging
derivatives
m
Availablefor-sale
m
Loans and
receivables Amortised cost
m
m
Finance
leases
m
Other
assets/
liabilities
m
Total
m
79,290
79,290
33,394
13,265
1,389
15,903
34,783
29,168
70,025
24,841
78,340
13,329
433,264
189
873
533
73,737
1,370
22
397,824
4,488
7,234
5,741
8,639
13,545
9,784
3,443
666,458
1,595
36,370
30,571
7,962
26,502
44,332
57,073
82,224
12,077
10,879
27,591
428,537
6,323
23,614
5,816
414,839
60,099
5,878
88,040
433,239
94,592
5,878
27,591
434,333
1,684
1,128
25,645
628,249
31,065
8,639
75,107
504,657
70,047
430,088
157,438
15,232
5,741
441,903
13,545
9,784
3,443
7,234
7,820
7,820
14,013
14,013
48,605 1,312,295
5,796
5,796
12
548,425
12
Equity
13,105
3,884
1,141
14,801
3,884
1,141
26,773
10,170
10,170
28,300 1,241,847
70,448
1,312,295
Amounts included in the consolidated income statement:

Gains/(losses) on financial assets/liabilities designated as at fair value through profit or loss
(Losses)/gains on disposal or settlement of loans and receivables
2014
m
2013
m
2012
m
55
(113)
(2,612)
(232)
(48)
(179)
(69)
1
(77)
Notes:
(1) Includes items in the course of collection from other banks of 980 million (2013 - 1,454 million; 2012 - 1,531 million).
(2) Includes items in the course of transmission to other banks of 513 million (2013 - 828 million; 2012 - 521 million).
(3) The carrying amount of other customer accounts designated as at fair value through profit or loss is 432 million (2013 - 412 million; 2012 - 305 million) higher than the principal amount. No
amounts have been recognised in profit or loss for changes in credit risk associated with these liabilities as the changes are immaterial, measured as the change in fair value from movements in the
period in the credit risk premium payable.
(4) Comprises bonds and medium term notes of 48,476 million (2013 - 63,959 million; 2012 - 88,723 million) and certificates of deposit and other commercial paper of 1,804 million (2013 - 3,860
million; 2012 - 5,869 million).
377
10 Financial instruments - classification continued

The tables below present information on financial assets and liabilities that are offset in the balance sheet under IFRS or subject to enforceable master
netting agreement together with financial collateral received or given.
2014
Assets
Derivatives
Reverse repos
Loans to customers
Settlement balances
Liabilities
Derivatives
Repos
Customer accounts
Settlement balances
Gross
m
IFRS offset
m
Effect of master
netting and
Balance sheet similar agreements
m
m
Cash
collateral
m
Other financial
collateral
m
Net amount after the effect

of netting arrangements
and related collateral
m
588,525
95,393
3,781
2,084
689,793
(245,418)
(30,823)
(3,781)
(1,997)
(282,019)
343,107
64,570
97
407,774
(295,315)
(5,016)
(300,331)
(33,272)
(33,272)
(7,014)
(59,505)
(66,519)
7,506
49
97
7,652
583,363
91,888
7,964
1,998
685,213
(241,235)
(30,823)
(7,964)
(1,997)
(282,019)
342,128
61,065
1
403,194
(295,315)
(5,016)
(300,331)
(30,203)
(30,203)
(14,437)
(56,049)
(70,486)
2,173
1
2,174
545,867
115,715
3,438
2,950
667,970
(265,709)
(40,658)
(3,438)
(2,672)
(312,477)
280,158
75,057
278
355,493
(241,265)
(11,379)
(262)
(252,906)
(24,423)
(24,423)
(5,990)
(63,589)
(69,579)
8,480
89
16
8,585
540,622
120,639
6,491
3,682
671,434
(262,656)
(40,658)
(6,491)
(2,672)
(312,477)
277,966
79,981
1,010
358,957
(241,265)
(11,379)
(262)
(252,906)
(25,302)
(25,302)
(8,257)
(68,602)
(76,859)
3,142
748
3,890
801,606
139,120
1,748
3,680
946,154
(373,476)
(38,377)
(1,460)
(2,456)
(415,769)
428,130
100,743
288
1,224
530,385
(374,887)
(17,439)
(345)
(392,671)
(34,291)
(34,291)
(5,644)
(83,304)
(88,948)
13,308
288
879
14,475
796,991
163,500
1,897
4,270
966,658
(373,476)
(38,377)
(1,460)
(2,456)
(415,769)
423,515
125,123
437
1,814
550,889
(374,887)
(17,439)
(345)
(392,671)
(31,863)
(31,863)
(11,702)
(107,684)
(119,386)
5,063
437
1,469
6,969
2013
Assets
Derivatives
Reverse repos
Loans to customers
Settlement balances
Liabilities
Derivatives
Repos
Customer accounts
Settlement balances
2012
Assets
Derivatives
Reverse repos
Loans to customers
Settlement balances
Liabilities
Derivatives
Repos
Customer accounts
Settlement balances
378
Reclassification of financial instruments

In 2014, UK Government bonds with a fair value of 3.6 billion were reclassified from available-for-sale (AFS) to held-to-maturity (HTM). In 2008 and
2009, RBS reclassified financial assets from held-for-trading (HFT) and AFS categories into loans and receivables (LAR) and from HFT into AFS. The
tables below show the carrying value, fair value and the effect on profit or loss of these reclassifications.
2014
Reclassified from HFT to LAR

Loans
Debt securities
Reclassified from HFT to AFS (1)

Debt securities
Reclassified from AFS to HTM (2)
Debt securities
Amount recognised in
the income statement
Impairment
(losses)/
Income
releases
m
m
Amount that
would have been
recognised had
reclassification
not occurred
m
Reduction/
(increase) in
profit or loss
as a result of
reclassification
m
Carrying
value
m
Fair
value
m
671
835
1,506
561
787
1,348
33
(22)
11
(76)
(76)
65
128
193
108
150
258
251
251
29
27
(2)
3,625
5,382
3,766
5,365
68
108
(76)
67
287
(1)
255
1,417
1,293
2,710
1,160
901
2,061
(28)
(29)
(57)
(13)
3
(10)
42
(74)
(32)
83
(48)
35
311
311
56
111
55
3,021
2,372
4
3
7
(3)
79
(11)
79
2,892
1,671
4,563
2,546
1,333
3,879
42
(120)
(78)
15
(6)
9
517
251
768
460
377
837
1,548
1,548
(158)
(20)
25
203
167
6,278
90
5,517
7
(229)
(11)
7
800
1,040
2013

Loans
Debt securities

Debt securities
Reclassified from AFS to LAR (3)
Debt securities
2012

Loans
Debt securities

Debt securities
Reclassified from AFS to LAR (3)
Debt securities
Notes:
(1) 12 million (2013 - 113 million; 2012 - 171 million) was taken to AFS reserves.
(2) 155 million would have been taken to AFS reserves if reclassification had not occurred.
(3) 1 million in 2013 and 2012 would have been taken to AFS reserves if reclassification had not occurred.
379
11 Financial instruments - valuation

Valuation of financial instruments carried at fair value
Control environment
RBS's control environment for the determination of the fair value of
financial instruments includes formalised protocols for the review and
validation of fair values independent of the businesses entering into the
transactions. There are specific controls to ensure consistent pricing
policies and procedures, incorporating disciplined price verification. RBS
ensures that appropriate attention is given to bespoke transactions,
structured products, illiquid products and other instruments which are
difficult to price.
A key element of the control environment is the independent price
verification (IPV) process. Valuations are first performed by the business
which entered into the transaction. Such valuations may be directly from
available prices, or may be derived using a model and variable model
inputs. These valuations are reviewed, and if necessary amended, by a
team independent of those trading the financial instruments, in the light of
available pricing evidence.
IPV differences are classified according to the quality of independent
market observables into IPV quality bands linked to the fair value
hierarchy principles, as laid out in IFRS 13 Fair Value Measurement.
These differences are classified into fair value levels 1, 2 and 3 (with the
valuation uncertainty risk increasing as the levels rise from 1 to 3) and
then further classified into high, medium, low and indicative depending on
the quality of the independent data available to validate the prices.
Valuations are revised if they are outside agreed thresholds.
IPV takes place at least monthly, at month end date, for exposures in the
regulatory trading book and at least quarterly for exposures in the
regulatory banking book. Monthly meetings are held between the
business and the support functions to discuss the results of the IPV and
pricing reserves. The IPV control includes formalised reporting and
escalation of any valuation differences in breach of established
thresholds. The Pricing Unit determines IPV policy, monitors adherence
to that policy and performs additional independent reviews of highly
subjective valuation issues.
Valuation models are subject to a review process which requires different
levels of model documentation, testing and review, depending on the
complexity of the model and the size of RBS's exposure. A key element
of the control environment for model use is a Modelled Product Review
Committee, made up of valuations experts from several functions within
RBS. This committee sets the policy for model documentation, testing
and review, and prioritises models with significant exposure for review by
the RBS Pricing Model Risk team. Potential valuation uncertainty is a key
input in determining model review priorities at these meetings. The
Pricing Model Risk team within Risk Management, which is independent
of the trading businesses, assesses the appropriateness of the
application of the model to the product, the mathematical robustness of
the model, and where appropriate, considers alternative modelling
approaches.
The CIB and RCR Valuation Control Committees meet formally on a

monthly basis to discuss independent pricing, reserving and valuation
issues. All material methodology changes require review and ratification
by these committees. The committees, which include valuation specialists
representing several independent review functions, comprise Market
Risk, Pricing Model Risk, Finance and senior business representatives.
The Executive Valuation Committee discusses the issues escalated by
CIB and RCR Valuations Committees, and other relevant issues including
prudential valuation. This committee covers key material and subjective
valuation issues within the trading businesses and provides a ratification
to the appropriateness of areas with high levels of residual valuation
uncertainty. Committee members include the Chief Financial Officer, the
Financial Controller, the Chief Accountant, and other senior members
within finance and risk.
The CIB Valuation Committee operates under delegated authority of the
CIB Risk Committee. The CIB Valuation Committee submits a quarterly
paper covering the key areas that are governed by them to the CIB Risk
Committee. Additionally, the CIB Valuation Committee may escalate
items to the CIB Risk Committee on a more frequent basis as
appropriate.
Market risk metrics such as value-at-risk (VaR), Incremental Risk Charge
and stressed value-at-risk (SVaR) cover financial instruments in CIB and
RCR. RBS has a framework to quantify those market risks not adequately
captured by standard market risk framework such as VaR and SVaR refer to pages 304 to 310 for details.
Valuation hierarchy
There is a process to review and control the classification of financial
instruments into the three level hierarchy established by IFRS 13. Some
instruments may not easily fall into a level of the fair value hierarchy and
judgment may be required as to which level the instrument is classified.
Initial classification of a financial instrument is carried out by the Product
Control team following the principles in IFRS 13. They base their
judgment on information gathered during the IPV process for instruments
which include the sourcing of independent prices and model inputs. The
quality and completeness of the information gathered in the IPV process
gives an indication as to the liquidity and valuation uncertainty of an
instrument.
These initial classifications are reviewed and challenged by the Pricing
Unit and are also subject to senior management review. Particular
attention is paid to instruments crossing from one level to another, new
instrument classes or products, instruments that are generating
significant profit and loss and instruments where valuation uncertainty is
high.
Valuation techniques
RBS derives fair value of its instruments differently depending on whether
the instrument is a non-modelled or a modelled product.
Non-modelled products
Non-modelled products are valued directly from a price input typically on
a position by position basis and include cash, equities and most debt
securities.
380
Modelled products
Modelled products valued using a pricing model range in complexity from
comparatively vanilla products such as interest rate swaps and options
(e.g. interest rate caps and floors) through to more complex derivatives.
The valuation of modelled products requires an appropriate model and
inputs into this model. Sometimes models are also used to derive inputs
(e.g. to construct volatility surfaces). RBS uses a number of modelling
methodologies.
Inputs to valuation models
Values between and beyond available data points are obtained by
interpolation and extrapolation. When utilising valuation techniques, the
fair value can be significantly affected by the choice of valuation model
and by underlying assumptions concerning factors such as the amounts
and timing of cash flows, discount rates and credit risk. The principal
inputs to these valuation techniques are as follows:
Prepayment rates - the fair value of a financial instrument that can

be prepaid by the issuer or borrower differs from that of an
instrument that cannot be prepaid. In valuing prepayable
instruments that are not quoted in active markets, RBS considers
the value of the prepayment option.
Counterparty credit spreads - adjustments are made to market

prices (or parameters) when the creditworthiness of the counterparty
differs from that of the assumed counterparty in the market price (or
parameters).
Recovery rates/loss given default - these are used as an input to

valuation models and reserves for asset-backed securities and other
credit products as an indicator of severity of losses on default.
Recovery rates are primarily sourced from market data providers or
inferred from observable credit spreads.
Bond prices - quoted prices are generally available for government

bonds, certain corporate securities and some mortgage-related
products.
RBS uses consensus prices for the IPV of some instruments. The
consensus service encompasses the equity, interest rate, currency,
commodity, credit, property, fund and bond markets, providing
comprehensive matrices of vanilla prices and a wide selection of exotic
products. CIB and RCR contribute to consensus pricing services where
there is a significant interest either from a positional point of view or to
test models for future business use. Data sourced from consensus pricing
services is used for a combination of control processes including direct
price testing, evidence of observability and model testing. In practice this
means that RBS submits prices for all material positions for which a
service is available. Data from consensus services are subject to the
same level of quality review as other inputs used for IPV process.
Credit spreads - where available, these are derived from prices of

credit default swaps or other credit based instruments, such as debt
securities. For others, credit spreads are obtained from pricing
services.
Interest rates - these are principally benchmark interest rates such

as the London Interbank Offered Rate (LIBOR), Overnight Index
Swaps rate (OIS) and other quoted interest rates in the swap, bond
and futures markets.
Foreign currency exchange rates - there are observable markets

both for spot and forward contracts and futures in the world's major
currencies.
Equity and equity index prices - quoted prices are generally readily
available for equity shares listed on the world's major stock
exchanges and for major indices on such shares.
Commodity prices - many commodities are actively traded in spot

and forward contracts and futures on exchanges in London, New
York and other commercial centres.
Furthermore, on an ongoing basis, RBS assesses the appropriateness of

any model used. To the extent that the price determined by internal
models does not represent the fair value of the instrument, for instance in
highly stressed market conditions, RBS makes adjustments to the model
valuation to calibrate to other available pricing sources.
Price volatilities and correlations - volatility is a measure of the

tendency of a price to change with time. Correlation measures the
degree which two or more prices or other variables are observed to
move together. If they move in the same direction there is positive
correlation; if they move in opposite directions there is negative
correlation. Volatility is a key input in valuing options and in the
valuation of certain products such as derivatives with multiple
underlying variables that are correlation-dependent. Volatility and
correlation values are obtained from broker quotations, pricing
services or derived from option prices.
Where unobservable inputs are used, RBS may determine a range of

possible valuations derived from differing stress scenarios to determine
the sensitivity associated with the valuation. When establishing the fair
value of a financial instrument using a valuation technique, RBS
considers adjustments to the modelled price which market participants
would make when pricing that instrument. Such adjustments include the
credit quality of the counterparty and adjustments to compensate for
model limitations.
In order to determine a reliable fair value, where appropriate,

management applies valuation adjustments to the pricing information
gathered from the above sources. The sources of independent data are
reviewed for quality and are applied in the IPV processes using a
formalised input quality hierarchy. These adjustments reflect RBS's
assessment of factors that market participants would consider in setting a
price.
381
11 Financial instruments - valuation continued

Valuation reserves
When valuing financial instruments in the trading book, adjustments are made to mid-market valuations to cover bid-offer spread, liquidity and credit
risk. The following table shows credit valuation adjustments (CVA) and other valuation reserves. CVA represents an estimate of the adjustment to fair
value that a market participant would make to incorporate the risk inherent in derivative exposures.
Credit valuation adjustments (CVA)

- of which: monoline insurers and credit derivative product companies (CDPC)
Other valuation reserves
- bid-offer
- funding valuation adjustment
- product and deal specific
Valuation reserves
2014
m
2013
m
2012
m
1,414
47
1,766
99
2,814
506
398
718
657
1,773
3,187
513
424
753
1,690
3,456
625
475
897
1,997
4,811
2014
m
2013
m
82
35
78
401
771
1,367
104
13
168
446
936
1,667
32
203
938
194
1,367
89
199
1,126
253
1,667
The table below analyses CVA relating to counterparties other than monoline insurers and CDPCs by rating and sector.
Ratings
AAA
AA to AA+
A to AABBB- to ANon-investment grade and unrated
Counterparty
Banks
Corporate
Government
382
Credit valuation adjustments

Credit valuation adjustments represent an estimate of the adjustment to
fair value that a market participant would make to incorporate the
counterparty credit risk inherent in derivative exposures. CVA is actively
managed by a credit and market risk hedging process, and therefore
movements in CVA are partially offset by trading revenue on the hedges.
The CVA is calculated on a portfolio basis reflecting an estimate of the
amount a third party would charge to assume the credit risk.
Where a positive exposure exists to a counterparty that is considered to
be close to default, the CVA is calculated by applying expected losses to
the current level of exposure. Otherwise, expected losses are applied to
estimated potential future positive exposures which are modelled to
reflect the volatility of the market factors which drive the exposures and
the correlation between those factors.
Potential future positive exposures arising from vanilla products (including
interest rate and foreign exchange derivatives, as well as some inflation
derivatives) are modelled using RBS's core counterparty risk systems.
The majority of CVA arises on these vanilla products together with
exposures to counterparties which are considered to be close to default.
The exposures arising from all other product types are modelled and
assessed separately. The potential future positive exposure to each
counterparty is the aggregate of the exposures arising on the underlying
product types.
Expected losses are determined from market implied probabilities of
default and internally assessed recovery levels. The probability of default
is calculated with reference to observable credit spreads and observable
recovery levels. For counterparties where observable data do not exist,
the probability of default is determined from the credit spreads and
recovery levels of similarly rated entities.
The correlation between exposure and counterparty risk is also
incorporated within the CVA calculation where this risk is considered
significant. The risk primarily arises on credit derivative trades where the
default risk of the referenced entity is correlated with the counterparty
risk. The risk also arises on trades with emerging market counterparties
where the gross mark-to-market value of the trade, and
therefore the counterparty exposure can increase based on weakening of
the local currency.
Collateral held under a credit support agreement is factored into the CVA
calculation. In such cases where RBS holds collateral against
counterparty exposures, CVA is held to the extent that residual risk
remains.
Bid-offer, liquidity and other reserves
Fair value positions are adjusted to bid (long positions) or offer (short
positions) levels, by marking individual cash positions directly to bid or
offer or by taking bid-offer reserves calculated on a portfolio basis for
derivatives exposures. The bid-offer approach is based on current market
spreads and standard market bucketing of risk.
Risk data are used as the primary sources of information within bid-offer
calculations and are aggregated when they are more granular than
market standard buckets. Bid-offer adjustments for each risk factor
(including delta (the degree to which the price of an instrument changes
in response to a change in the price of the underlying), vega (the degree
to which the price of an instrument changes in response to the volatility in
the price of the underlying), correlation (the degree to which prices of
different instruments move together)) are determined by aggregating
similar risk exposures arising on different products. Additional basis bidoffer reserves are taken where these are charged in the market. Risk
associated with non-identical underlying exposures is not netted down
unless there is evidence that the cost of closing the combined risk
exposure is less than the cost of closing individual exposures.
Bid-offer spreads vary by maturity and risk type to reflect different
spreads in the market. For positions where there is no observable quote,
the bid-offer spreads are widened in comparison to proxies to reflect
reduced liquidity or observability. Bid-offer methodologies may also
incorporate liquidity triggers whereby wider spreads are applied to risks
above pre-defined thresholds.
As permitted by IFRS 13, netting is applied on a portfolio basis to reflect
the value at which RBS believes it could exit the portfolio, rather than the
sum of exit costs for each of the portfolios individual trades. This is
applied where the asset and liability positions are managed as a portfolio
for risk and reporting purposes. For example, netting is applied where
long and short risk in two different maturity buckets can be closed out in a
single market transaction at lower cost than two separate transactions
(calendar netting). This reflects the fact that to close down the portfolio,
the net risk can be settled rather than each long and short trade
individually.
Vanilla risk on exotic products is typically reserved as part of the overall
portfolio based calculation e.g. delta and vega risk on exotic products are
included within the delta and vega bid-offer calculations. Aggregation of
risk arising from different models is in line with RBSs risk management
practices; the model review control process considers the
appropriateness of model selection in this respect.
Product related risks such as correlation risk, attract specific bid-offer
reserves. Additional reserves are provided for exotic products to ensure
overall reserves match market close-out costs. These market close-out
costs inherently incorporate risk decay and cross-effects (taking into
account how changes in one risk factor may affect other inputs rather
than treating all risk factors independently) that are unlikely to be
adequately reflected in a static hedge based on vanilla instruments.
Where there is limited bid-offer information for a product, the pricing
approach and risk management strategy are taken into account when
assessing the reserve.
The discount rates applied to derivative cash-flows in determining fair
value reflect any underlying collateral agreements. Collateralised
derivatives are generally discounted at the relevant OIS rates at an
individual trade level. Uncollateralised derivatives are discounted with
reference to funding levels by applying a funding spread over benchmark
interest rates on a portfolio basis (funding valuation adjustment).
383

Funding valuation adjustment (FVA)
Funding valuation adjustments represent an estimate of the adjustment to
fair value that a market participant would make to incorporate funding
costs and benefits that arise in relation to uncollateralised derivative
exposures.
Funding levels are applied to estimated potential future exposures, the
modelling of which is consistent with the approach used in the calculation
of CVA relating to other counterparties. The counterparty contingent
nature of the exposures is reflected in the calculation.
Amounts deferred on initial recognition
On initial recognition of financial assets and liabilities valued using
valuation techniques incorporating information other than observable
market data, any difference between the transaction price and that
derived from the valuation technique is deferred. Such amounts are
recognised in profit or loss over the life of the transaction; when market
data becomes observable; or when the transaction matures or is closed
out as appropriate. At 31 December 2014, net gains of 119 million (2013
- 205 million; 2012 - 153 million) were carried forward. During the year,
net gains of 53 million (2013 - 134 million; 2012 - 39 million) were
deferred and 139 million (2013 - 82 million; 2012 - 47 million) were
recognised in the income statement.
Own credit
RBS takes into account the effect of its own credit standing when valuing
financial liabilities recorded at fair value in accordance with IFRS. Own
credit spread adjustments are made when valuing issued debt held at fair
value, including issued structured notes, and derivatives. An own credit
adjustment is applied to positions where it is believed that counterparties
would consider RBS's creditworthiness when pricing trades.
For issued debt and structured notes this adjustment is based on debt
issuance spreads above average inter-bank rates (at a range of tenors).
Secondary senior debt issuance spreads are used in the calculation of
the own credit adjustment applied to senior debt.
The fair value of RBS's derivative financial liabilities is also adjusted to
reflect RBS's own credit risk (DVA). Expected gains are applied to
estimated potential future negative exposures, the modelling of which is
consistent with the approach used in calculation of CVA relating to other
counterparties. Expected gains are determined from market implied
probabilities of default and recovery levels. FVA is considered the primary
adjustment applied to derivative liabilities. The extent to which DVA and
FVA overlap is eliminated from DVA.
The own credit adjustment for fair value does not alter cash flows, is not
used for performance management, is disregarded for regulatory capital
reporting processes and will reverse over time as the liabilities mature.
The reserve movement between periods will not equate to the reported
profit or loss for own credit. The balance sheet reserves are stated by
conversion of underlying currency balances at spot rates for each period
whereas the income statement includes intra-period foreign exchange
sell-offs.
The effect of change in credit spreads could reverse in future periods
provided the liability is not repaid at a premium or a discount.
The cumulative own credit adjustment (OCA) recorded on held-for-trading
(HFT) and designated as at fair value through profit or loss (DFV) debt
securities in issue, subordinated liabilities and derivative liabilities are set
out below.
Cumulative own credit adjustment

(increase)/decrease in liability (1)
2014
2013
2012
Carrying values of underlying liabilities

2014
2013
2012
Subordinated
liabilities
HFT
DFV
Total
DFV
Total
Derivatives (3)
(397)
(467)
(648)
(123)
(33)
56
(520)
(500)
(592)
221
256
362
(299)
(244)
(230)
12
96
259
(287)
(148)
29
bn
bn
bn
bn
bn
6.5
8.6
10.9
10.4
15.8
23.6
16.9
24.4
34.5
0.9
0.9
1.1
17.8
25.3
35.6
Total
Notes:
(1) The OCA does not alter cash flows and is not used for performance management.
(2) Includes wholesale and retail note issuances.
(3) The reserve movement between periods will not equate to the reported profit or loss for own credit. The balance sheet reserve is stated by conversion of underlying currency balances at spot rates
for each period, whereas the income statement includes intra-period foreign exchange sell-offs.
384
Financial instruments carried at fair value - valuation hierarchy

The following tables show financial instruments carried at fair value on the balance sheet by valuation hierarchy - level 1, level 2 and level 3.
Level 1
bn
Assets
Loans and advances
Debt securities
Government
Other
2014
Level 2
bn
Level 3
bn
Total
bn
Level 1
bn
2013
Level 2
bn
Level 3
bn
Total
bn
Level 1
bn
2012
Level 2
bn
Level 3
bn
Total
bn
95.4
0.6
96.0
104.4
0.5
104.9
140.7
1.0
141.7
53.5
2.0
55.5
6.0
16.3
22.3
1.2
1.2
59.5
19.5
79.0
56.6
1.4
58.0
13.5
36.2
49.7
0.1
2.0
2.1
70.2
39.6
109.8
81.0
2.6
83.6
14.4
50.2
64.6
4.8
4.8
95.4
57.6
153.0
Of which ABS
6.4
0.8
7.2
33.2
1.7
34.9
45.1
4.2
49.3
Equity shares
Derivatives
Credit
Other
4.6
0.5
0.5
5.6
7.0
1.1
0.7
8.8
13.1
1.3
0.8
15.2
60.1
1.9
348.8
350.7
468.9
0.4
2.6
3.0
5.3
2.3
351.4
353.7
534.3
0.1
0.1
65.1
4.5
279.9
284.4
439.6
0.8
2.7
3.5
6.8
5.3
282.7
288.0
511.5
0.1
0.1
96.8
9.3
428.7
438.0
644.6
1.7
2.1
3.8
10.4
11.0
430.9
441.9
751.8
11.2%
87.8%
1.0% 100.0%
12.7%
86.0%
1.3% 100.0%
12.9%
85.7%
1.4% 100.0%
19.9
105.9
15.5
3.1
0.2
1.2
106.1
16.7
23.0
23.9
111.0
23.1
4.1
0.3
1.3
111.3
24.4
28.0
23.6
167.4
33.1
4.0
0.2
1.4
167.6
34.5
27.6
0.1
0.1
20.0
2.1
344.4
346.5
0.9
471.9
0.6
2.6
3.2
4.6
2.7
347.1
349.8
0.9
496.5
0.1
0.1
24.0
4.5
277.9
282.4
0.9
421.5
0.9
2.1
3.0
4.6
5.4
280.1
285.5
0.9
450.1
0.1
0.1
23.7
9.6
421.3
430.9
1.1
636.5
0.8
2.5
3.3
4.9
10.4
423.9
434.3
1.1
665.1
4.1%
95.0%
0.9% 100.0%
5.3%
93.7%
1.0% 100.0%
3.6%
95.7%
Proportion
Liabilities
Deposits
Short positions
Derivatives
Credit
Other
Proportion
0.7% 100.0%
Notes:
(1) Level 1: valued using unadjusted quoted prices in active markets, for identical financial instruments. Examples include G10 government securities, listed equity shares, certain exchange-traded
derivatives and certain US agency securities.
Level 2: valued using techniques based significantly on observable market data. Instruments in this category are valued using:
(a) quoted prices for similar instruments or identical instruments in markets which are not considered to be active; or
(b) valuation techniques where all the inputs that have a significant effect on the valuations are directly or indirectly based on observable market data.
Level 2 instruments included non-G10 government securities, most government agency securities, investment-grade corporate bonds, certain mortgage products, including CLOs, most bank loans,
repos and reverse repos, less liquid listed equities, state and municipal obligations, most notes issued, and certain money market securities and loan commitments and most OTC derivatives.
Level 3: instruments in this category have been valued using a valuation technique where at least one input which could have a significant effect on the instruments valuation, is not based on
observable market data. Level 3 instruments primarily include cash instruments which trade infrequently, certain syndicated and commercial mortgage loans, certain emerging markets instruments,
unlisted equity shares, certain residual interests in securitisations, CDOs, other mortgage-backed products and less liquid debt securities, certain structured debt securities in issue, and OTC
derivatives where valuation depends upon unobservable inputs such as certain credit and exotic derivatives. No gain or loss is recognised on the initial recognition of a financial instrument valued
using a technique incorporating significant unobservable data.
(2) Transfers between levels are deemed to have occurred at the beginning of the quarter in which the instruments were transferred. There were no significant transfers between level 1 and level 2.
(3) For an analysis of derivatives by type of contract see Capital and risk management Balance Sheet analysis - derivatives, which includes balances relating to disposal groups.
385

The following table analyses level 3 balances and related valuation sensitivities.
Balance
bn
Assets
Loans and advances
Debt securities
Government
Other
Equity shares
Derivatives
Credit
Other
Of which ABS
Liabilities
Deposits
Derivatives
Credit
Other
2014
Sensitivity (1)
Favourable
Unfavourable
m
m
Balance
bn
2013
Sensitivity (1)
Favourable
Unfavourable
m
m
Balance
bn
2012
Sensitivity (1)
Favourable
Unfavourable
m
m
0.6
30
(30)
0.5
50
(40)
1.0
140
(70)
1.2
1.2
0.5
50
50
90
(40)
(40)
(80)
0.1
2.0
2.1
0.7
160
160
120
(100)
(100)
(110)
4.8
4.8
0.8
370
370
60
(190)
(190)
(100)
0.4
2.6
3.0
5.3
40
250
290
460
(40)
(250)
(290)
(440)
0.8
2.7
3.5
6.8
70
320
390
720
(110)
(140)
(250)
(500)
1.7
2.1
3.8
10.4
230
200
430
1,000
(230)
(120)
(350)
(710)
0.8
30
(30)
1.7
120
(90)
4.2
290
(120)
0.2
1.2
40
(10)
(40)
0.3
1.3
10
50
(10)
(70)
0.2
1.4
30
60
(50)
(70)
0.6
2.6
3.2
4.6
60
160
220
260
(60)
(180)
(240)
(290)
0.9
2.1
3.0
4.6
40
90
130
190
(60)
(60)
(120)
(200)
0.8
2.5
3.3
4.9
40
100
140
230
(90)
(60)
(150)
(270)
Note:
(1) Sensitivity represents the favourable and unfavourable effect on the income statement or the statement of comprehensive income due to reasonably possible changes to valuations using reasonably
possible alternative inputs in RBSs valuation techniques or models. Level 3 sensitivities are calculated at a sub-portfolio level and hence these aggregated figures do not reflect the correlation
between some of the sensitivities. In particular, for some portfolios, the sensitivities may be negatively correlated where a downward movement in one asset would produce an upward movement in
another, but due to the additive presentation above, this correlation cannot be shown.
386
Valuation techniques
The table below shows a breakdown of valuation techniques and the ranges for those unobservable inputs used in valuation models and techniques that
have a material impact on the valuation of Level 3 financial instruments. The table excludes unobservable inputs where the impact on valuation is less
significant. Movements in the underlying input may have a favourable or unfavourable impact on the valuation depending on the particular terms of the
contract and the exposure. For example an increase in the credit spread of a bond would be favourable for the issuer and unfavourable for the note
holder. Whilst RBS indicates where it considers that there are significant relationships between the inputs, these inter-relationships will be affected by
macro economic factors including interest rates, foreign exchange rates or equity index levels.
Level 3 (bn)
Financial instruments
Assets
Debt securities
1.2
Liabilities
Range
Valuation technique
Unobservable inputs
Low
High
Price based
DCF
Price (2)
Yield (2)
0%
10%
100%
30%
Recovery rates (3)

Credit spreads (4)
0%
80bps
100%
700bps
Correlation (5)
Volatility (6)
(40%)
15%
85%
83%
Derivatives
Credit
0.4
0.6
DCF based on recoveries
Other
2.6
2.6
Option pricing model
Notes:
(1) Level 3 structured issued debt securities of 1.2 billion are not included in the table above as valuation is consistent with the valuation of the embedded derivative component.
(2) Price and yield: There may be a range of price based information used to value an instrument. This may be a direct comparison of one instrument or portfolio with another or movements in a more
liquid instrument may be used to indicate the movement in the value of less liquid instrument. The comparison may also be indirect in that adjustments are made to the price to reflect differences
between the pricing source and the instrument being valued, for example different maturity, credit quality, seniority or expected payouts. Similarly to price, an instruments yield may be compared to
other instruments either directly or indirectly. Prices move inversely to yields.
(3) Recovery rate: Reflects market expectations about the return of principal for a debt instrument or other obligations after a credit event or on liquidation. Recovery rates tend to move conversely to
credit spreads.
(4) Credit spreads and discount margins: Credit spreads and margins express the return required over a benchmark rate or index to compensate for the credit risk associated with a cash instrument. A
higher credit spread would indicate that the underlying instrument has more credit risk associated with it. Consequently, investors require a higher yield to compensate for the higher risk. The
discount rate comprises credit spread or margin plus the benchmark rate; it is used to value future cash flows.
(5) Correlation: Measures the degree by which two prices or other variables are observed to move together. If they move in the same direction there is positive correlation; if they move in opposite
directions there is negative correlation. Correlations typically include relationships between: default probabilities of assets in a basket (a group of separate assets), exchange rates, interest rates and
other financial variables.
(6) Volatility: A measure of the tendency of a price to change with time.
(7) RBS does not have any material liabilities measured at fair value that are issued with an inseparable third party credit enhancement.
The Level 3 sensitivities above are calculated at a trade or low level

portfolio basis. They are not calculated on an overall portfolio basis and
therefore do not reflect the likely potential uncertainty on the portfolio as a
whole. The figures are aggregated and do not reflect the correlated
nature of some of the sensitivities. In particular, for some of the portfolios
the sensitivities may be negatively correlated where a downwards
movement in one asset would produce an upwards movement in another,
but due to the additive presentation of the above figures this correlation
cannot be displayed. The actual potential downside sensitivity of the total
portfolio may be less than the non-correlated sum of the additive figures
as shown in the above table.
Judgemental issues
The diverse range of products traded by RBS results in a wide range of
instruments that are classified into Level 3 of the hierarchy. Whilst the
majority of these instruments naturally fall into a particular level, for some
products an element of judgment is required. The majority of RBSs
financial instruments carried at fair value are classified as Level 2: inputs
are observable either directly (i.e. as a price) or indirectly (i.e. derived
from prices).
Active and inactive markets
A key input in the decision making process for the allocation of assets to
a particular level is liquidity. In general, the degree of valuation
uncertainty depends on the degree of liquidity of an input.
Where markets are liquid or very liquid, little judgment is required.

However, when the information regarding the liquidity in a particular
market is not clear, a judgment may need to be made. This can be more
difficult as assessing the liquidity of a market is not always
straightforward. For an equity traded on an exchange, daily volumes of
trading can be seen, but for an over-the counter (OTC) derivative
assessing the liquidity of the market with no central exchange is more
difficult.
A key related issue is where a market moves from liquid to illiquid or vice
versa. Where this change is considered to be temporary, the
classification is not changed. For example, if there is little market trading
in a product on a reporting date but at the previous reporting date and
during the intervening period the market has been considered to be
liquid, the instrument will continue to be classified in the same level in the
hierarchy. This is to provide consistency so that transfers between levels
are driven by genuine changes in market liquidity and do not reflect short
term or seasonal effects.
Interaction with the IPV process
The determination of an instruments level cannot be made at a global
product level as a single product type can be in more than one level. For
example, a single name corporate credit default swap could be in Level 2
or Level 3 depending on whether the reference counterpartys obligations
are liquid or illiquid.
As part of RBSs IPV process, data are gathered at a trade level from
market trading activity, trading systems, pricing services, consensus
pricing providers, brokers and research material amongst other sources.
387

The breadth and depth of the IPV data allows for a rules based quality
assessment to be made of market activity, liquidity and pricing
uncertainty, which assists with the process of allocation to an appropriate
level. Where suitable independent pricing information is not readily
available, the quality assessment will result in the instrument being
assessed as Level 3.
Modelled products
For modelled products the market convention is to quote these trades
through the model inputs or parameters as opposed to a cash price
equivalent. A mark-to-market is derived from the use of the independent
market inputs calculated using RBSs model.
The decision to classify a modelled asset as Level 2 or 3 will be
dependent upon the product/model combination, the currency, the
maturity, the observability and quality of input parameters and other
factors. All these must be assessed to classify the asset.
An assessment is made of each input into a model. There may be
multiple inputs into a model and each is assessed in turn for observability
and quality. As part of the process of classifying the quality of IPV results
the IPV quality classifications have been designed to follow the
accounting level classifications, although with a further level of
granularity. For example there are a number of different IPV quality levels
that equate to a Level 2 classification and so on.
If an input fails the observability or quality tests then the instrument is
considered to be in Level 3 unless the input can be shown to have an
insignificant effect on the overall valuation of the product.
The majority of derivative instruments for example vanilla interest rate
swaps, foreign exchange swaps and liquid single name credit derivatives
are classified as Level 2 as they are vanilla products valued using
observable inputs. The valuation uncertainty on these is considered to be
low and both input and output testing may be available.
Non-modelled products
Non-modelled products are generally quoted on a price basis and can
therefore be considered for each of the three levels. This is determined
by the market activity, liquidity and valuation uncertainty of the
instruments which is in turn measured from the availability of independent
data used by the IPV process to allocate positions to IPV quality levels.
The availability and quality of independent pricing information is
considered during the classification process. An assessment is made
regarding the quality of the independent information. For example, where
consensus prices are used for non-modelled products, a key assessment
of the quality of a price is the depth of the number of prices used to
provide the consensus price. If the depth of contributors falls below a set
hurdle rate, the instrument is considered to be Level 3. This hurdle rate is
that used in the IPV process to determine the IPV quality rating.
However, where an instrument is generally considered to be illiquid, but
regular quotes from market participants exist, these instruments may be
classified as Level 2 depending on frequency of quotes, other available
pricing and whether the quotes are used as part of the IPV process or
not.
For some instruments with a wide number of available price sources,

there may be differing quality of available information and there may be a
wide range of prices from different sources. In these situations the
highest quality source is used to determine the classification of the asset.
For example, a tradable quote would be considered a better source than
a consensus price.
Level 3 portfolios and sensitively methodologies
Reasonably possible alternative assumptions of unobservable inputs are
determined based on a 90% confidence interval. The assessments
recognise different favourable and unfavourable valuation movements
where appropriate. Each unobservable input within a product is
considered separately and sensitivity is reported on an additive basis.
Alternative assumptions are determined with reference to all available
evidence including consideration of the following: quality of independent
pricing information taking into account consistency between different
sources, variation over time, perceived tradability or otherwise of
available quotes; consensus service dispersion ranges; volume of trading
activity and market bias (e.g. one-way inventory); day 1 profit or loss
arising on new trades; number and nature of market participants; market
conditions; modelling consistency in the market; size and nature of risk;
length of holding of position; and market intelligence.
Other considerations
Valuation adjustments
CVA applied to derivative exposures to other counterparties and own
credit adjustments applied to derivative liabilities (DVA) are calculated on
a portfolio basis. Whilst the methodology used to calculate each of these
adjustments references certain inputs which are not based on observable
market data, these inputs are not considered to have a significant effect
on the net valuation of the related portfolios. The classification of the
derivative portfolios which the valuation adjustments are applied to is not
determined by the observability of the valuation adjustments, and any
related sensitivity does not form part of the Level 3 sensitivities
presented.
Funding related adjustments
The discount rates applied to derivative cash-flows in determining fair
value reflect any underlying collateral agreements. Collateralised
derivative exposures are generally discounted at the relevant OIS rates
whilst funding valuation adjustments are applied to uncollateralised
derivative exposures. Whilst these adjustments reference certain inputs
which are not based on observable market data, these inputs are not
considered to have a significant effect on the valuation of the individual
trades. The classification of derivatives is not determined by the
observability of these adjustments, and any related sensitivity does not
form part of the Level 3 sensitivities presented.
Own credit - issued debt
For structured notes issued the own credit adjustment is based on debt
issuance spreads above average inter-bank rates at the reporting date (at
a range of tenors). Whilst certain debt issuance spreads are not based on
observable market data, these inputs are not considered to have a
significant effect on the valuation of individual trades. Neither the
classification of structured notes issued nor any related valuation
sensitivities are determined by the observability of the debt issuance
spreads.
388
Movement in level 3
2014
Assets
FVTPL assets (3)
AFS assets
Liabilities
Amount recorded in the

At
Income
1 January statement (1)
SOCI (2)
m
m
m
5,167
1,594
6,761
107
(1)
106
(45)
(45)
4,631
105
(45)
Net gains/(losses)
Level 3 transfers
In
m
Out Issuances (3) Purchases Settlements

m
m
m
m
1,142
(967)
6
(158)
1,148 (1,125)
1,770
(690)
861
8
869
109
59
Sales
m
(998) (622)
(367) (428)
(1,365) (1,050)
(1,253)
(51)
Foreign
exchange
At
and other 31 December
m
m
Amounts recorded in the

income statement
in respect of
balances held at year end
Unrealised
Realised
m
m
(17)
25
8
4,673
634
5,307
151
(4)
147
(83)
3
(80)
19
4,595
(171)
105
318
(185)
2013
Assets
FVTPL assets (3)
AFS assets
Liabilities
7,067
3,338
10,405
(570)
70
(500)
159
159
1,207
183
1,390
(387)
(14)
(401)
1,054
122
1,176
4,850
32
922
(482)
436
343
(532)
159
Net (losses)/gains
(850) (2,328)
(725) (1,493)
(1,575) (3,821)
(30)
(46)
(76)
5,167
1,594
6,761
(838)
4
(834)
156
41
197
(1,240)
(18)
4,631
(150)
67
(684)
130
(212)
2012
Assets
FVTPL assets (3)
AFS assets
Liabilities
Net (losses)/gains
10,308
6,092
16,400
(1,960)
174
(1,786)
77
77
6,323
(399)
(1,387)
77
1,124
(653)
465
(472)
1,589 (1,125)
936
(514)
2,306
52
2,358
542
171
(1,638) (2,312)
(1,005) (2,026)
(2,643) (4,338)
(2,157)
(108)
(19)
(127)
7,067
3,338
10,405
(1,843)
(51)
(1,894)
113
51
164
(53)
4,850
(346)
(2)
(1,548)
166
Notes:
(1) Net losses on HFT instruments of 100 million (2013 - 543 million; 2012 - 1,528 million) were recorded in income from trading activities in continuing operations. Net gains on other instruments of
205 million (2013 - 11 million; 2012 - 141 million) were recorded in other operating income and interest income as appropriate in continuing operations. There were no losses (2013 - nil; 2012 19 million) in discontinued operations.
(2) Consolidated statement of comprehensive income.
(3) Fair value through profit or loss comprises held-for-trading predominantly and designated at fair value through profit and loss.
389

Fair value of financial instruments not carried at fair value
The following table shows the carrying value and fair value of financial instruments carried at amortised cost on the balance sheet.
2014
Financial assets
- items in the course of collection from other banks
- other
Items where fair value

approximates carrying value
bn
Fair value of hierarchy level

Level 1
Level 2
bn
bn
Level 3
bn
1.0
Of which:
Performing
Non-performing
Financial liabilities
Deposits by banks
- demand deposits
- items in the course of transmission to other banks
- other
Customer accounts
- demand deposits
- other
Settlement balances
Notes in circulation
Fair value
bn
74.9

UK PBB
- mortgages
- other
Ulster Bank
- mortgages
- other
Commercial Banking
- other
Private Banking
CIB
Central items
RCR
- other
Total loans and advances to customers
Debt securities
Settlement balances
Carrying
value
bn
12.8
12.8
6.6
6.2
103.0
24.2
102.7
23.8
102.7
23.8
16.1
5.9
13.7
5.7
13.7
5.7
17.5
67.5
16.5
50.0
1.1
16.5
65.1
16.5
48.6
1.1
0.9
1.1
16.5
65.1
16.5
47.7
4.5
5.8
312.1
4.3
5.5
303.5
2.0
4.3
5.5
301.5
300.5
11.6
292.5
11.0
2.0
290.5
11.0
7.6
7.5
4.7
1.9
0.9
6.4
6.4
1.4
5.0
100.7
33.6
100.7
35.0
54.8
32.0
45.9
3.0
22.0
22.5
22.4
0.1
4.7
3.7
0.5
234.9
4.5
1.8
390
The fair value is the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants
at the measurement date. Quoted market values are used where
available; otherwise, fair values have been estimated based on
discounted expected future cash flows and other valuation techniques.
These techniques involve uncertainties and require assumptions and
judgments covering prepayments, credit risk and discount rates.
Furthermore there is a wide range of potential valuation techniques.
Changes in these assumptions would significantly affect estimated fair
values. The fair values reported would not necessarily be realised in an
immediate sale or settlement.
The assumptions and methodologies underlying the calculation of fair
values of financial instruments at the balance sheet date are as follows:
Short-term financial instruments
For certain short-term financial instruments: cash and balances at central
banks, items in the course of collection from other banks, settlement
balances, items in the course of transmission to other banks, demand
deposits and notes in circulation, fair value approximates to carrying
value.
Loans and advances to banks and customers
In estimating the fair value of loans and advances to banks and
customers measured at amortised cost, RBSs loans are segregated into
appropriate portfolios reflecting the characteristics of the constituent
loans. Two principal methods are used to estimate fair value:
(b) Expected cash flows (unadjusted for credit losses) are discounted at
the current offer rate for the same or similar products. This approach
is adopted for lending portfolios in UK PBB, Commercial Banking
(SME loans), Ulster Bank and Private Banking in order to reflect the
homogeneous nature of these portfolios.
For certain portfolios where there are very few or no recent transactions,
such as Ulster Banks portfolio of lifetime tracker mortgages, a bespoke
approach is used based on available market data.
Debt securities
The majority of debt securities are valued using quoted prices in active
markets, or using quoted prices for similar assets in active markets.
Fair values of the rest are determined using discounted cash flow
valuation techniques.
Deposits by banks and customer accounts
Fair values of deposits are estimated using discounted cash flow
valuation techniques.
Debt securities in issue and subordinated liabilities
Fair values are determined using quoted prices for similar liabilities where
available or by reference to valuation techniques, adjusting for own credit
spreads where appropriate.
(a) Contractual cash flows are discounted using a market discount rate
that incorporates the current spread for the borrower or where this is
not observable, the spread for borrowers of a similar credit standing.
This method is used for portfolios where counterparties have external
ratings: large corporate loans in Commercial Banking and institutional
and corporate lending in CIB.
391
2013
Financial assets
- items in the course of collection from other banks
- other
Items where fair value

approximates carrying value
bn
Carrying
value
bn
Fair value
bn

Level 2
Level 3
bn
bn
82.7
1.5
16.8
16.8
6.0
10.8

UK PBB
Ulster Bank
Commercial Banking
Private Banking
CIB
Central items
RCR
Total loans and advances to customers
124.8
26.1
83.4
16.6
49.1
0.6
49.3
21.7
371.6
123.7
20.5
80.1
16.6
48.5
0.5
49.5
20.6
360.0
13.5
346.5
Of which:
Performing
Non-performing
354.6
17.0
343.9
16.1
3.8
3.2
1.9
1.3
20.3
20.3
6.9
13.4
133.8
43.4
134.0
44.7
89.4
40.5
44.6
4.2
23.1
22.5
22.3
0.2
Debt securities
Settlement balances
Deposits by banks
- items in the course of transmission to other banks
- other
Customer accounts
- demand deposits
- other
Settlement balances
5.6
0.8
268.7
5.3
1.8
2012
Carrying value
bn
2012
Fair value
bn
Financial assets
Debt securities
Settlement balances
79.3
17.3
405.1
4.5
5.7
79.3
17.3
385.4
4.0
5.7
Deposits by banks
Customer accounts
Settlement balances
34.5
420.7
60.1
5.9
1.7
25.6
34.5
421.0
59.8
5.9
1.7
24.3
392
12 Financial instruments - maturity analysis

Remaining maturity
The following table shows the residual maturity of financial instruments, based on contractual date of maturity.
Less than
12 months
m
Assets
Debt securities
Equity shares
Settlement balances
Derivatives
Liabilities
Deposits by banks
Customer accounts
Settlement balances and short
positions
Derivatives
2014
More than
12 months
m
Total
m
Less than
12 months
m
2013
More than
12 months
m
Total
m
Less than
12 months
m
2012
More than
12 months
m
Total
m
74,872
43,175
149,118
24,756
4,667
67,022
560
229,120
61,893
5,635
286,568
74,872
43,735
378,238
86,649
5,635
4,667
353,590
82,659
53,206
169,314
19,542
5,591
45,067
865
271,408
94,057
8,811
242,972
82,659
54,071
440,722
113,599
8,811
5,591
288,039
79,290
63,143
197,855
26,363
5,741
51,021
808
302,280
131,075
15,232
390,882
79,290
63,951
500,135
157,438
15,232
5,741
441,903
59,034
384,079
10,690
1,631
7,560
39,590
60,665
391,639
50,280
61,108
455,620
16,547
2,871
15,260
51,272
63,979
470,880
67,819
90,704
494,405
20,296
10,701
26,874
74,296
101,405
521,279
94,592
6,426
69,103
3,272
21,106
280,702
19,633
27,532
349,805
22,905
10,490
45,385
1,350
22,845
240,141
22,662
33,335
285,526
24,012
8,573
51,503
2,351
24,896
382,830
24,422
33,469
434,333
26,773
Assets and liabilities by contractual cash flow maturity

The tables below show the contractual undiscounted cash flows
receivable and payable, up to a period of 20 years, including future
receipts and payments of interest of financial assets and liabilities by
contractual maturity. The balances in the following tables do not agree
directly with the consolidated balance sheet, as the tables include all
cash flows relating to principal and future coupon payments, presented
on an undiscounted basis. The tables have been prepared on the
following basis:
Financial assets have been reflected in the time band of the latest date
on which they could be repaid, unless earlier repayment can be
demanded by RBS. Financial liabilities are included at the earliest date
on which the counterparty can require repayment, regardless of whether
or not such early repayment results in a penalty. If the repayment of a
financial instrument is triggered by, or is subject to, specific criteria such
as market price hurdles being reached, the asset is included in the time
band that contains the latest date on which it can be repaid, regardless of
early repayment.
The liability is included in the time band that contains the earliest possible
date on which the conditions could be fulfilled, without considering the
probability of the conditions being met.
For example, if a structured note is automatically prepaid when an equity
index exceeds a certain level, the cash outflow will be included in the less
than three months period, whatever the level of the index at the year end.
The settlement date of debt securities in issue, issued by certain
securitisation vehicles consolidated by RBS, depends on when cash
flows are received from the securitised assets. Where these assets are
prepayable, the timing of the cash outflow relating to securities assumes
that each asset will be prepaid at the earliest possible date. As the
repayments of assets and liabilities are linked, the repayment of assets in
securitisations is shown on the earliest date that the asset can be
prepaid, as this is the basis used for liabilities.
The principal amounts of financial assets and liabilities that are repayable
after 20 years or where the counterparty has no right to repayment of the
principal are excluded from the table, as are interest payments after 20
years.
Held-for-trading assets of 498.2 billion (2013 - 452.1 billion; 2012 666.5 billion) and liabilities of 477.1 billion (2013 - 423.3 billion; 2012 628.2 billion) have been excluded from the following tables in view of
their short-term nature.
393
12 Financial instruments - maturity analysis continued

2014
Assets by contractual maturity

Debt securities
Settlement balances
Total maturing assets
Derivatives held for hedging
Liabilities by contractual maturity

Deposits by banks
Settlement balances and other liabilities
Total maturing liabilities
Customer accounts
Maturity gap
Cumulative maturity gap
Guarantees and commitments notional amount
Guarantees (1)
Commitments (2)
0-3 months
m
3-12 months
m
1-3 years
m
3-5 years
m
5-10 years
m
10-20 years
m
74,872
15,110
5,889
4,667
100,538
56,664
611
157,813
975
5,328
6,303
37,249
1,483
45,035
219
5,014
5,233
64,266
2,281
71,780
46
4,684
4,730
56,726
711
62,167
15
6,103
6,118
64,051
380
70,549
2,602
2,602
71,492
63
74,157
8,287
2,591
1,243
6,295
18,416
328,158
140
346,714
754
7,585
2,731
5
11,075
7,884
348
19,307
793
12,952
3,045
4
16,794
3,170
789
20,753
8
8,536
4,365
12,909
1,082
543
14,534
575
8,897
13,394
22,866
114
949
23,929
140
1,926
3,698
5,764
23
1,010
6,797
82,122
82,122
(4,772)
77,350
(11,561)
65,789
(8,179)
57,610
(16,748)
40,862
(3,162)
37,700
16,721
212,777
229,498
82,659
16,096
3,078
5,591
107,424
70,511
545
178,480
1,876
5,044
6,920
48,027
1,282
56,229
279
10,667
10,946
84,836
2,148
97,930
4
11,310
11,314
65,542
427
77,283
74
14,189
14,263
74,296
115
88,674
5
7,238
7,243
69,242
93
76,578
16,867
11,457
324
7,074
35,722
388,322
130
424,174
1,550
7,601
1,982
4
11,137
9,524
271
20,932
1,306
16,375
6,473
9
24,163
5,889
933
30,985
158
7,356
6,140
4
13,658
2,356
1,190
17,204
944
9,879
11,376
22,199
698
1,732
24,629
426
4,840
3,345
1
8,612
35
330
8,977
71,702
71,702
(4,217)
67,485
(13,217)
54,268
(2,344)
51,924
(7,936)
43,988
(1,369)
42,619
20,179
213,046
233,225
2013

Debt securities
Settlement balances

Deposits by banks
Customer accounts
Maturity gap
Guarantees (1)
Commitments (2)
For the notes relating to this table refer to the following page.
394
2012

Debt securities
Settlement balances

Deposits by banks
Customer accounts
Maturity gap
Guarantees (1)
Commitments (2)
0-3 months
m
3-12 months
m
1-3 years
m
3-5 years
m
5-10 years
m
10-20 years
m
79,290
15,592
6,320
5,741
106,943
73,590
571
181,104
1,393
4,505
5,898
57,403
1,878
65,179
272
13,330
13,602
93,445
3,909
110,956
27
19,369
19,396
65,569
1,879
86,844
20
25,772
25,792
76,682
429
102,903
62
10,644
10,706
87,450
67
98,223
23,363
15,072
318
7,560
46,313
386,504
310
433,127
973
14,555
2,979
4
18,511
24,123
752
43,386
8,336
23,733
7,045
9
39,123
11,791
1,790
52,704
388
13,118
3,182
1
16,689
2,186
1,262
20,137
1,091
20,154
11,134
32,379
1,246
1,244
34,869
594
4,975
3,603
1
9,173
63
684
9,920
60,630
60,630
(12,613)
48,017
(25,521)
22,496
2,707
25,203
(6,587)
18,616
1,533
20,149
19,025
215,808
234,833
Notes:
(1) RBS is only called upon to satisfy a guarantee when the guaranteed party fails to meet its obligations. RBS expects most guarantees it provides to expire unused.
(2) RBS has given commitments to provide funds to customers under undrawn formal facilities, credit lines and other commitments to lend subject to certain conditions being met by the counterparty.
RBS does not expect all facilities to be drawn, and some may lapse before drawdown.
13 Financial assets - impairments

The following table shows the movement in the provision for impairment losses on loans and advances.
At 1 January
Transfers (to)/from disposal groups
Disposals
Amounts written-off
Recoveries of amounts previously written-off
At 31 December (1)
Individually
assessed
m
Collectively
assessed
m
Latent
m
2014
m
2013
m
2012
m
16,909
(100)
(630)
(6)
(4,004)
72
6,304
(158)
(21)
(1,274)
133
2,003
(295)
(16)
25,216
(553)
(667)
(6)
(5,278)
205
21,250
(9)
121
(77)
(4,346)
256
19,883
764
(310)
(5)
(4,266)
341
(845)
36
(138)
11,294
173
142
(109)
5,190
(692)
16
1,016
(1,364)
194
(247)
17,500
8,105
307
(391)
25,216
5,054
265
(476)
21,250
Notes:
(1) Includes 40 million relating to loans and advances to banks (2013 - 63 million; 2012 - 114 million).
(2) The table above excludes impairments relating to securities.
395
13 Financial assets - impairments continued
2014
Impairment (releases)/losses charged to the income statement

Debt securities
Equity shares
2013
2012
(1,354)
(10)
(1,364)
12
12
(1,352)
8,120
(15)
8,105
15
15
8,120
5,031
23
5,054
(75)
31
(44)
5,010
The following tables analyse impaired financial assets.

2014

Loans and advances to banks (1)
Loans and advances to customers (2)
2013
Cost
m
Provision
m
Carrying
value
m
42
25,201
25,243
40
16,444
16,484
2
8,757
8,759
Cost
m
70
37,101
37,171
2012
Provision
m
Carrying
value
m
Cost
m
Provision
m
Carrying
value
m
63
23,150
23,213
7
13,951
13,958
134
38,352
38,486
114
19,176
19,290
20
19,176
19,196
Notes:
(1) Impairment provisions individually assessed.
(2) Impairment provisions individually assessed on balances of 17,655 million (2013 - 26,939 million; 2012 - 26,797 million).
Available-for-sale securities
Debt securities
Equity shares
Debt securities
Carrying
value
2014
m
Carrying
value
2013
m
Carrying
value
2012
m
143
22
145
30
225
31
29
194
585
760
1,008
1,264
The following table shows financial and non-financial assets, recognised on RBS's balance sheet, obtained during the year by taking possession of
collateral or calling on other credit enhancements.
Residential property
Other property
Cash
Other assets
2014
m
2013
m
2012
m
3
40
43
18
13
44
2
77
67
46
49
1
163
In general, RBS seeks to dispose of property and other assets not readily convertible into cash, obtained by taking possession of collateral, as rapidly as
the market for the individual asset permits.
396
14 Derivatives
Companies within RBS transact derivatives as principal either as a
trading activity or to manage balance sheet foreign exchange, interest
rate and credit risk.
RBS enters into fair value hedges, cash flow hedges and hedges of net
investments in foreign operations. The majority of RBSs interest rate
hedges relate to the management of RBSs non-trading interest rate risk.
RBS manages this risk within approved limits. Residual risk positions are
hedged with derivatives principally interest rate swaps. Suitable larger
financial instruments are fair value hedged; the remaining exposure,
where possible, is hedged by derivatives documented as cash flow
hedges and qualifying for hedge accounting. The majority of RBSs fair
value hedges involve interest rate swaps hedging the interest rate risk in
recognised financial assets and financial liabilities. Cash flow hedges
relate to exposures to the variability in future interest payments and
receipts on forecast transactions and on recognised financial assets and
financial liabilities. RBS hedges its net investments in foreign operations
with currency borrowings and forward foreign exchange contracts.
For cash flow hedge relationships of interest rate risk, the hedged items
are actual and forecast variable interest rate cash flows arising from
financial assets and financial liabilities with interest rates linked to LIBOR,
EURIBOR or the Bank of England official Bank Rate. The financial assets
are customer loans and the financial liabilities are customer deposits and
LIBOR linked medium-term notes and other issued securities. At 31
December 2014, variable rate financial assets of 80 billion (2013 - 74
billion; 2012 - 61 billion) and variable rate financial liabilities of
14 billion (2013 - 10 billion; 2012 - 9 billion) were hedged in such cash
flow hedge relationships.
For cash flow hedging relationships, the initial and ongoing prospective
effectiveness is assessed by comparing movements in the fair value of
the expected highly probable forecast interest cash flows with
movements in the fair value of the expected changes in cash flows from
the hedging interest rate swap. Prospective effectiveness is measured on
a cumulative basis i.e. over the entire life of the hedge relationship. The
method of calculating hedge ineffectiveness is the hypothetical derivative
method. Retrospective effectiveness is assessed by comparing the actual
movements in the fair value of the cash flows and actual movements in
the fair value of the hedged cash flows from the interest rate swap over
the life to date of the hedging relationship.
For fair value hedge relationships of interest rate risk, the hedged items
are typically large corporate fixed-rate loans, fixed rate finance leases,
fixed rate medium-term notes or preference shares classified as debt. At
31 December 2014, fixed rate financial assets of 18 billion (2013 - 23
billion; 2012 - 25 billion) and fixed rate financial liabilities of 32 billion
(2013 - 34 billion; 2012 - 39 billion) were hedged by interest rate swaps
in fair value hedge relationships.
The initial and ongoing prospective effectiveness of fair value hedge
relationships is assessed on a cumulative basis by comparing
movements in the fair value of the hedged item attributable to the hedged
risk with changes in the fair value of the hedging interest rate swap.
Retrospective effectiveness is assessed by comparing the actual
movements in the fair value of the hedged items attributable to the
hedged risk with actual movements in the fair value of the hedging
derivative over the life to date of the hedging relationship.
The following table shows the notional amounts and fair values of RBS's
derivatives.
2014
Exchange rate contracts

Spot, forwards and futures
Currency swaps
Options purchased
Options written
Interest rate contracts
Interest rate swaps
Options purchased
Options written
Futures and forwards
Credit derivatives
Equity and commodity contracts
Notional
amount
bn
Assets
m
2,025
870
896
881
2013
Liabilities
m
Notional
amount
bn
Assets
m
32,960
22,254
23,458
33,419
26,844
23,457
2,041
956
792
766
20,161
1,471
1,552
4,133
219,411
49,248
886
211,287
47,866
739
125
2,254
78
3,119
353,590
2012
Liabilities
m
Notional
amount
bn
Assets
m
Liabilities
m
24,495
18,576
18,852
24,136
22,846
18,767
2,259
1,071
683
684
23,237
22,238
17,580
22,721
30,223
17,536
27,483
1,568
1,513
5,025
179,891
37,437
712
172,618
35,410
669
25,474
1,934
1,884
4,191
300,907
61,798
749
286,620
58,289
653
2,611
253
5,306
5,388
553
11,005
10,353
3,582
349,805
81
2,770
288,039
5,692
285,526
111
4,389
441,903
7,938
434,333
397
14 Derivatives continued
Included in the table above are derivatives held for hedging purposes as follows:
2014
Assets
m
2013
Assets
m
Liabilities
m
2012
Assets
m
Liabilities
m
Liabilities
m
Fair value hedging

2,122
2,319
2,086
2,587
3,779
4,488
Cash flow hedging

Exchange rate contacts
3,240
1,291
5
2,390
1,602
4,854
1,276
78
55
38
32
2014
m
2013
m
2012
m
809
(840)
(31)
(33)
(64)
(165)
154
(11)
(64)
(75)
178
(132)
46
25
71
Net investment hedging

Hedge ineffectiveness recognised in other operating income in continuing operations comprised:
Fair value hedging

Gains/(losses) on the hedged items attributable to the hedged risk
(Losses)/gains on the hedging instruments
Fair value hedging ineffectiveness
Cash flow hedging ineffectiveness
Hedge ineffectivness recognised in other operating income in discontinued operations was 1 million in 2012.
The following table shows when hedged cash flows are expected to occur and when they will affect income for designated cash flow hedges.
0-1 years
m
1-5 years
m
5-10 years
m
10-20 years
m
Over
20 years
m
Total
m
Hedged forecast cash flows expected to occur

Forecast receivable cash flows
Forecast payable cash flows
278
(49)
844
(100)
227
(61)
(92)
(12)
1,349
(314)
Hedged forecast cash flows affect on profit or loss

303
(52)
826
(97)
218
(62)
(92)
(12)
1,347
(315)

303
(33)
877
(69)
271
(64)
(101)
(19)
1,451
(286)

302
(32)
859
(69)
261
(64)
(101)
(19)
1,422
(285)

285
(56)
806
(152)
190
(172)
(259)
(39)
1,281
(678)

277
(55)
785
(150)
180
(173)
(257)
(37)
1,242
(672)
2014
2013
2012
398
15 Debt securities
2014
Held-for-trading
Designated as at fair value through profit or loss
Available-for-sale
Held to maturity
Available-for-sale

UK
US
m
m
Other
m
Banks
m
Other
financial
institutions
m
Corporate
m
Total
m
Of which
ABS (1)
m
6,218
4,747
4,537
15,502
7,709
5,230
12,939
24,451
111
11,058
35,620
1,499
2
3,404
185
5,090
7,372
4
5,073
2,774
15,223
1,977
161
137
2,275
49,226
117
29,673
3,096
4,537
86,649
3,559
3,608
2,734
9,901
451
(1)
144
(5)
541
(3)
8
(1)
166
(133)
6
(2)
1,316
(145)
128
(120)
6,764
6,436
10
13,210
10,951
12,880
1
23,832
22,794
104
10,303
33,201
1,720
5,974
175
7,869
12,406
17
17,330
3,466
33,219
1,947
1
184
136
2,268
56,582
122
53,107
3,788
113,599
10,674
15
24,174
3,423
38,286
201
(69)
428
(86)
445
(32)
70
(205)
386
(493)
11
(2)
1,541
(887)
458
(753)
7,692
7,950
5
15,647
17,349
19,040
36,389
27,165
123
15,995
43,283
2,243
86
7,227
365
9,921
21,876
610
23,294
3,728
49,508
2,015
54
231
390
2,690
78,340
873
73,737
4,488
157,438
18,619
516
30,184
3,707
53,026
944
1,092
(1)
1,185
(14)
56
(498)
650
(1,319)
19
3,946
(1,832)
748
(1,816)
2013
Held-for-trading
Available-for-sale
Available-for-sale
2012
Held-for-trading
Available-for-sale
Available-for-sale
Note:
(1) Includes asset-backed securities issued by US federal agencies and government sponsored entities, and covered bonds.
Gross gains of 502 million (2013 - 1,018 million; 2012 - 1,824 million) and gross losses of 386 million (2013 - 352 million; 2012 - 901 million)
were realised on the sale of available-for-sale securities in continuing operations.
Gross gains of 20 million (2013 - 96 million; 2012 - 137 million) and gross losses of 3 million (2013 - 1 million; 2012 - 12 million) were realised on
the sale of available-for-sale securities in discontinued operations.
399
15 Debt securities continued

The following table analyses available-for-sale debt securities and the related yield (based on weighted averages) by remaining maturity and issuer.
2014
Central and local governments

- UK
- US
- other
Banks
Corporate
Of which ABS (1)
Within 1 year
Amount
m
Yield
%
After 1 but within 5 years

Amount
Yield
m
%
After 5 but within 10 years

Amount
Yield
m
%
After 10 years
Amount
m
Yield
%
124
241
4,838
1,610
1,237
127
8,177
1.0
0.3
1.1
0.8
0.5
0.2
0.9
1,473
3,126
2,784
571
1,062
34
9,050
1.1
2.4
3.1
1.1
0.5
0.7
2.1
1,253
1,863
2,023
960
1,599
7,698
403
0.2
866
0.3
251
896
2,347
2,071
1,013
1
6,579
4.4
1.7
1.3
1.1
1.7
0.1
1.5
1,792
6,011
4,417
3,284
3,416
69
18,989
920
2.1
139
3,346
1,764
741
25
6,015
1,385
Total
Amount
m
2.8
2.0
1.8
1.3
1.3
1.8
1,897
1,413
263
1,175
4,748
3.8
3.0
1.6
0.6
2.7
4,747
5,230
11,058
3,404
5,073
161
29,673
2.6
2.2
2.0
1.0
0.8
0.3
1.8
1,515
0.2
824
0.5
3,608
0.3
2.3
2.7
2.7
1.2
2.4
1.3
2.3
3,167
2,892
1,745
438
3,950
114
12,306
3.0
2.7
2.5
3.7
2.8
6.9
2.9
1,226
3,081
1,794
181
8,951
15,233
3.4
2.4
3.7
1.9
1.8
2.3
6,436
12,880
10,303
5,974
17,330
184
53,107
2.9
2.6
2.5
1.4
2.1
4.8
2.3
5,781
2.1
5,346
3.0
12,127
2.0
24,174
2.3
2.4
0.6
1.6
3.0
2.5
1.2
1,559
10,633
5,849
3,294
5,289
140
26,764
2.0
2.3
3.0
2.8
2.5
2.4
2.5
4,105
6,022
5,273
1,685
4,378
66
21,529
3.3
2.4
3.0
1.2
3.0
1.2
2.7
2,286
2,246
1,527
484
12,886
19,429
3.5
2.5
3.4
1.6
1.4
2.0
7,950
19,040
15,995
7,227
23,294
231
73,737
3.1
2.3
2.6
2.1
2.0
2.0
2.3
1.8
6,413
2.9
6,773
2.4
15,613
1.4
30,184
2.0
Yield
%
2013

- UK
- US
- other
Banks
Corporate
Of which ABS (1)

2012

- UK
- US
- other
Banks
Corporate
Of which ABS (1)
Note:
(1) Includes asset-backed securities issued by US federal agencies and government sponsored entities, and covered bonds.
400
16 Equity shares
Held-for-trading
through profit or loss
Available-for-sale
Available-for-sale
Listed
m
2014
Unlisted
m
Total
m
Listed
m
2013
Unlisted
m
Total
m
Listed
m
2012
Unlisted
m
Total
m
4,709
112
4,821
7,121
78
7,199
13,261
68
13,329
11
145
4,865
290
368
770
301
513
5,635
172
196
7,489
228
1,016
1,322
400
1,212
8,811
251
221
13,733
282
1,149
1,499
533
1,370
15,232
26
(4)
183
(8)
209
(12)
73
(9)
177
(10)
250
(19)
58
(54)
172
(13)
230
(67)
Gross gains of 175 million (2013 - 76 million; 2012 - 118 million) and gross losses of 64 million (2013 - 4 million; 2012 - 2 million) were realised
on the sale of available-for-sale equity shares in continuing operations. Gross gains of 71 million in 2012 were realised on the sale of available-for-sale
equity shares in discontinued operations.
Dividend income from available-for-sale equity shares was 30 million (2013 - 67 million; 2012 - 37 million) in continuing operations and 22 million
(2013 - 21 million; 2012 - 22 million) in discontinued operations.
Unquoted equity investments whose fair value cannot be reliably measured are carried at cost and classified as available-for-sale financial assets. They
include capital stock (redeemable at cost) in the Federal Home Loan Bank and the Federal Reserve Bank of nil (2013 - 0.6 billion; 2012 - 0.7 billion)
that RBSs banking subsidiaries in the US are required to hold; and a number of individually small shareholdings in unlisted companies. Unquoted equity
shares generated no material gains or losses in 2014, 2013 or 2012.
401
17 Intangible assets
2014
Cost
At 1 January
Transfers to disposal groups
Additions
Disposals and write-off of fully amortised assets
At 31 December
Accumulated amortisation and impairment
At 1 January
Charge for the year
At 31 December
Net book value at 31 December
Goodwill
m
Purchased
intangibles
m
Internally
generated
software
m
Total
m
25,282
(8,055)
(86)
(20)
17,121
1,035
(394)
7
10
(608)
50
4,558
(730)
13
621
(1,464)
2,998
30,875
(9,179)
(66)
631
(2,092)
20,169
15,143
(4,098)
(298)
(20)
917
(284)
(3)
(608)
2,447
(248)
(2)
(1,450)
18,507
(4,630)
(303)
(2,078)
2
21
257
79
259
100
130
10,857
47
391
10
1,484
523
10
12,388
6,264
1,514
7,781
25,288
(5)
(1)
25,282
1,008
(43)
5
84
(19)
1,035
5,010
(24)
(14)
907
(1,321)
4,558
31,306
(67)
(14)
991
(1,341)
30,875
14,022
62
679
(9)
(24)
(11)
3,060
(1)
(10)
(1,221)
17,761
(10)
28
(1,232)
147
6
341
63
488
69
1,059
15,143
129
917
215
2,447
1,403
18,507
10,139
118
2,111
12,368
2013
Cost
At 1 January
Additions
At 31 December
At 1 January
Charge for the year
At 31 December
402
2012
Cost
At 1 January
Acquisition of subsidiaries
Additions
At 31 December
At 1 January
Charge for the year
At 31 December
The Group's goodwill acquired in business combinations is reviewed
annually at 30 September for impairment by comparing the recoverable
amount of each cash-generating unit (CGU) to which goodwill has been
allocated with its carrying value.
Impairment testing involves the comparison of the carrying value of a
CGU or group of CGUs with its recoverable amount. Recoverable amount
is the higher of fair value and value in use. Value in use is the present
value of expected future cash flows from the CGU or group of CGUs. Fair
value is the price that would be received to sell an asset in an orderly
transaction between market participants.
Impairment testing inherently involves a number of judgmental areas: the
preparation of cash flow forecasts for periods that are beyond the normal
requirements of management reporting; the assessment of the discount
rate appropriate to the business; estimation of the fair value of CGUs;
and the valuation of the separable assets of each business whose
goodwill is being reviewed. Sensitivity to the more significant variables in
each assessment are presented in the tables on the following page.
Goodwill
m
Purchased
intangibles
m
Internally
generated
software
m
Total
m
26,843
(984)
(486)
(85)
25,288
3,052
(15)
(90)
39
(1,978)
1,008
5,448
(341)
(368)
5
909
(643)
5,010
35,343
(1,340)
(944)
5
948
(2,706)
31,306
14,419
(444)
(289)
(76)
2,446
(10)
(68)
(1,968)
3,620
(136)
(356)
(638)
20,485
(590)
(713)
(2,682)
137
41
479
86
616
127
18
394
14,022
101
679
3,060
124
394
17,761
11,266
329
1,950
13,545
The recoverable amounts for all CGUs at 30 September 2014 were

based on the value in use test, using management's latest five-year
forecasts. The long-term growth rates have been based on respective
country nominal GDP growth rates. The risk discount rates are based on
observable market long-term government bond yields and average
industry betas adjusted for an appropriate risk premium.
The results of the annual impairment test for 2013 and 2012 are
presented using the reportable segments for those years which differ as a
result of the changes to RBSs structure implemented in 2014.
Following the change in reportable segments in 2014, the 2.8 billion
goodwill attributed to UK Corporate was allocated to Commercial Banking
(2.1 billion), UK Personal & Business Banking (0.6 billion) and
Corporate & Institutional Banking (0.1 billion). All UK Retail, Wealth and
US Retail & Commercial goodwill was allocated to UK Personal &
Business Banking, Private Banking and Citizens Financial Group
respectively. The goodwill allocated to Corporate & Institutional Banking
was written off immediately following re-segmentation. The change in
reportable segments in 2014 did not impact the impairment tests
performed in 2013 and 2012.
The analysis of goodwill by reportable segment is shown in Note 38.
403
17 Intangible assets continued

The carrying value of goodwill and amount by which it is exceeded by the recoverable amount is set out below by reportable segment along with the key
assumptions applied in calculating the recoverable amount and sensitivities to changes in those assumptions.
September 2014

Commercial Banking
Private Banking
Goodwill
bn
Assumptions
Terminal
Pre-tax
growth rate
discount rate
%
%
Recoverable
amount exceeded
carrying value
bn
Consequential impact of 1%
adverse movement in
Discount
Terminal
rate
growth rate
bn
bn
Consequential
impact of 5%
adverse movement
in forecast
pre-tax earnings
bn
3.4
2.1
0.8
3.8
4.5
4.5
4.5
5.0
11.5
11.7
11.4
14.4
17.6
3.0
0.7
0.3
(3.6)
(1.9)
(0.5)
(1.1)
(2.5)
(0.9)
(0.3)
(0.7)
(1.6)
(1.0)
(0.2)
(0.7)
2.8
2.8
0.8
3.8
4.4
4.4
4.4
4.8
10.4
10.5
12.0
12.8
20.4
7.3
0.7
4.1
(4.2)
(3.3)
(0.4)
(1.5)
(3.3)
(2.1)
(0.3)
(0.8)
(1.7)
(1.6)
(0.2)
(0.8)
2.8
2.8
0.8
1.0
3.8
4.7
4.7
4.7
4.7
5.3
13.5
13.5
14.8
12.2
16.9
13.8
6.3
1.9
0.3
2.0
(2.5)
(2.3)
(0.5)
(1.1)
(1.2)
(2.4)
(1.8)
(0.4)
(1.2)
(0.8)
(1.3)
(1.4)
(0.3)
(0.6)
(0.7)
September 2013
UK Retail
UK Corporate
Wealth
US Retail & Commercial
September 2012
UK Retail
UK Corporate
Wealth
International Banking
US Retail & Commercial
Other intangible assets are reviewed for indicators of impairment. In 2014, 401 million (2013 - 215 million; 2012 - 5 million) of previously capitalised
software was written off.
404
18 Property, plant and equipment
2014
Cost or valuation
At 1 January
Reclassifications
Additions
Expenditure on investment properties
Change in fair value of investment properties
Disposals and write-off of fully depreciated assets
At 31 December
Accumulated impairment, depreciation and amortisation
At 1 January
Reclassifications
Write down of property, plant and equipment
Charge for the year
At 31 December
Investment
properties
m
Freehold
premises
m
Long
leasehold
premises
m
Short
leasehold
premises
m
Computers
and other
equipment
m
Operating
lease
assets
m
Total
m
2,633
(175)
117
13
2,978
(131)
17
(8)
52
286
(2)
1,732
(275)
11
60
4,244
(1,034)
59
8
319
1,899
(210)
23
230
13,772
(1,650)
(67)
780
13
(25)
(630)
1,933
(48)
2,860
(46)
240
(194)
1,334
(614)
2,982
(391)
1,551
(25)
(1,923)
10,900
963
(41)
1
4
(20)
169
(6)
(42)
980
(205)
7
1
2
(103)
2,981
(800)
50
(1)
4
(449)
770
(55)
7
(234)
5,863
(1,101)
59
10
(848)
95
4
1,006
130
97
19
798
305
47
2,137
165
9
662
671
79
4,733
1,933
1,854
110
536
845
889
6,167
3,111
(26)
34
121
13
2,998
(30)
(10)
5
49
289
(2)
1,732
(12)
(15)
4
102
4,606
(45)
(42)
(9)
411
3,325
(1)
60
16,061
(113)
(36)
752
13
(281)
(339)
2,633
(34)
2,978
(10)
286
(79)
1,732
(677)
4,244
(1,485)
1,899
(281)
(2,624)
13,772
852
(6)
4
15
(12)
151
5
3
(1)
924
(9)
(7)
(65)
3,228
(35)
(35)
(561)
1,122
(4)
(559)
6,277
(50)
(37)
18
(1,198)
104
6
963
11
169
115
22
980
324
60
2,981
205
6
770
759
94
5,863
2,633
2,015
117
752
1,263
1,129
7,909
2013
Cost or valuation
At 1 January
Reclassifications
Additions
At 31 December
At 1 January
Charge for the year
At 31 December
405
18 Property, plant and equipment continued
2012
Cost or valuation
At 1 January
Transfers (to)/from disposal groups
Reclassifications
Additions
At 31 December
At 1 January
Transfers from/(to) disposal groups
Reclassifications
Charge for the year
At 31 December
Short
leasehold
premises
m
Computers
and other
equipment
m
Operating
lease
assets
m
Total
m
273
11
13
21
8
1,823
95
(124)
(6)
121
4,479
(135)
(182)
8
519
3,892
(53)
402
17,790
(57)
(376)
1,575
10
(85)
2,998
(37)
289
(177)
1,732
(83)
4,606
(916)
3,325
(153)
(5)
(2,723)
16,061
736
43
(9)
(7)
9
(15)
114
6
11
7
7
(4)
850
66
(114)
1
(16)
3,035
(65)
(157)
(36)
1,187
(21)
(462)
5,922
50
(290)
17
(533)
88
7
852
10
151
114
23
924
365
86
3,228
410
8
1,122
987
124
6,277
3,111
2,146
138
808
1,378
2,203
9,784
Investment
properties
m
Freehold
premises
m
4,468
(129)
(51)
24
372
10
2,855
101
21
(47)
153
(153)
(5)
(1,425)
3,111
Investment property valuations principally employ present value

techniques that discount expected cash flows. Expected cash flows
reflect rental income, occupancy and residual market values; valuations
are sensitive to changes in these factors. The fair value measurement of
non-specialised properties in locations where the market for such
properties is active and transparent are categorised as level 2 - 78%
(2013 - 46%); otherwise investment property fair value measurements
are categorised as level 3 - 22% (2013 - 54%).
Valuations were carried out by qualified surveyors who are members of
the Royal Institution of Chartered Surveyors, or an equivalent overseas
body; property with a fair value of 932 million (2013 - 985 million) was
valued by independent valuers.
Long
leasehold
premises
m
The fair value of investment properties includes 235 million of

depreciation since purchase (2013 - 271 million; 2012 - 186 million).
Rental income from investment properties in continuing operations was
217 million (2013 - 244 million; 2012 - 267 million). Direct operating
expenses of investment properties in continuing operations were 81
million (2013 - 91 million; 2012 - 125 million).
Property, plant and equipment, excluding investment properties, include
2 million (2013 - 42 million; 2012 - 35 million) assets in the course of
construction.
19 Prepayments, accrued income and other assets
Prepayments
Accrued income
Tax recoverable
Pension schemes in net surplus (see Note 4)
Interests in associates
Other assets
2014
m
2013
m
2012
m
623
486
342
295
1,054
3,078
5,878
612
530
337
214
902
5,019
7,614
904
526
231
144
776
5,239
7,820
406
20 Discontinued operations and assets and liabilities of disposal groups

In accordance with a commitment to the EC to sell Citizens Financial Group, Inc. (Citizens) by 31 December 2016, RBS disposed of 29.5% of its interest
in Citizens during the second half of 2014 primarily through an initial public offering in the USA. RBS plans to cede control by the end of 2015 and
therefore Citizens is classified as a disposal group and its results presented as discontinued operations, with comparatives re-presented.
On reclassification to disposal groups at 31 December 2014, the carrying value of Citizens exceeded its fair value less costs to sell (Fair Value
Hierarchy level 2: based on the quoted price of shares in Citizens Financial Group, Inc.) by 3,994 million and the carrying value of the assets and
liabilities of the disposal group has been adjusted by this amount. This loss has been attributed to the intangible assets of the disposal group.
(a) Loss/(profit) from discontinued operations, net of tax
2014
m
2013
m
2012
m
2,204
(191)
2,013
1,043
3,056
(2,123)
933
(197)
736
(228)
508
(3,994)
(3,486)
2,252
(288)
1,964
1,056
3,020
(2,102)
918
(312)
606
(196)
410
410
2,447
(401)
2,046
1,180
3,226
(2,182)
1,044
(269)
775
(285)
490
490
Other
Net premium income
Other income from insurance business
Insurance income
Other income
Total income
Operating expenses
Profit before insurance net claims and impairment losses
Insurance net claims
Impairment losses
Tax charge
Profit/(loss) after tax
24
24
(2)
22
22
(10)
12
699
62
761
26
787
(172)
615
(445)
170
(29)
141
3,718
(16)
3,702
29
3,731
(1,409)
2,322
(2,427)
(4)
(109)
(61)
(170)
Businesses acquired exclusively with a view to disposal

Profit/(loss) after tax
Profit from other discontinued operations, net of tax
29
41
7
148
(2)
(172)
Citizens
Interest income
Interest expense
Net interest income
Other income
Total income
Operating expenses
Impairment losses
Tax charge
Profit after tax
(Loss)/profit from Citizens discontinued operations, net of tax
Other discontinued operations reflect the results of Direct Line Insurance Group plc (DLG) presented as a discontinued operation until 12 March 2013
and as an associate thereafter and the results of RFS Holdings attributable to the State of the Netherlands and Santander following the legal separation
of ABN AMRO Bank N.V. on 1 April 2010. The profit from discontinued operations includes a gain of 82 million (2013 - 37 million gain; 2012 - 112
million loss) attributable to non-controlling interests.
407
20 Discontinued operations and assets and liabilities of disposal groups continued

(b) Cash flows attributable to discontinued operations
Included within RBSs cash flows are the following amounts attributable to discontinued operations:

Net increase/(decrease) in cash and cash equivalents
2014
m
2013
m
2012
m
3,997
(4,194)
596
129
359
(1,172)
(355)
(218)
(2,410)
3,910
(827)
1
Total
m
2013
m
2012
m
(c) Assets and liabilities of disposal groups

2014
Citizens
m

Debt securities and equity shares
Derivatives
Intangible assets
Interests in associates
Other assets
Discontinued operations and other disposal groups
Assets acquired exclusively with a view to disposal

Deposits by banks
Customer accounts
Derivatives
Insurance liabilities
Other liabilities
Discontinued operations and other disposal groups
Liabilities acquired exclusively with a view to disposal
Other
m
622
1,728
59,606
15,865
402
555
503
1,686
80,967
80,967
17
944
28
46
9
1,044
1,044
622
1,745
60,550
15,865
402
583
549
1,695
82,011
82,011
2
63
1,765
24
1
30
32
879
58
2,854
163
3,017
18
2,112
1,863
7,191
15
750
223
1,666
13,838
175
14,013
6,794
61,256
1,625
144
226
1,223
71,268
71,268
33
19
52
52
6,794
61,289
1,625
144
226
1,242
71,320
71,320
3,273
102
3,376
2
3,378
1
753
7
6,193
529
2,679
10,162
8
10,170
Citizens is included in disposal groups at 31 December 2014.

DLG is included in disposal groups at 31 December 2013 and 2012. In addition, disposal groups at 31 December 2013 include the Chicago area retail
branches, small business operations and select middle market relationships in the Chicago market which form part of CFG. No adjustment was required
to the carrying value of these assets and liabilities on reclassification.
408
(d) Financial instruments: Classification and valuation hierarchy
Citizens
Assets
Cash and balances at central banks - loans and receivables
Loans and advances
- held-for-trading
- loans and receivables
- finance leases
Debt securities - available-for-sale
Equity shares - available-for-sale
Derivatives
Liabilities
Deposits by banks - held-for-trading
Deposits by banks - amortised cost
- demand deposits
- other
Customer accounts - amortised cost
- demand deposits
- other
Debt securities in issue - amortised cost
Derivatives
Subordinated liabilities - amortised cost
Carrying
value
bn
Fair
value
bn
2014
Fair value
approximates
carrying value
bn
Level 2
bn
0.6
0.6
0.2
58.4
2.7
61.1
15.3
0.6
0.4
0.2
0.2
61.1
15.3
0.6
0.4
1.7
15.3
0.6
0.4
1.7
1.7
1.7
0.1
5.0
0.1
5.0
0.1
28.9
32.4
1.6
0.1
0.2
28.9
32.4
1.6
0.1
0.2
28.9
Level 3
bn
0.6
59.4
5.0
32.4
1.6
0.1
0.2
Fair values have been established in accordance with Accounting policy 14 (page 353) and 16 (page 354), and Note 11.
409
21 Short positions
Debt securities
- Government
- Other issuers
Equity shares
2014
m
2013
m
2012
m
20,856
1,962
211
23,029
24,661
3,102
259
28,022
23,551
3,429
611
27,591
2014
m
2013
m
2012
m
1,803
586
2,833
502
4,774
2,848
13,346
1,759
516
3,116
589
5,489
4,548
16,017
1,684
527
3,579
875
3,147
4,989
14,801
Note:
(1) All short positions are classified as held-for-trading.
22 Accruals, deferred income and other liabilities
Current tax
Accruals
Deferred income
Provisions for liabilities and charges (see table below)
Other liabilities (1)
Note:
(1) Other liabilities include 28 million (2013 - 25 million; 2012 - 24 million) in respect of share-based compensation.
Regulatory and legal actions
Provisions for liabilities and charges

At 1 January 2014
Transfer from accruals and other liabilities
Currency translation and other movements
Releases to income statement
Provisions utilised
At 31 December 2014
Payment
protection
insurance (1)
m
Interest rate
hedging
products (2)
m
Other
customer
redress (3)
m
Other
FX
regulatory
LIBOR (4) investigations (5) provisions (5)
m
m
m
Property
Litigation (6) and other (7)
m
m
Total
m
926
1,077
337
52
(53)
(7)
416
(2)
150
2,018
(4)
107
565
10
(7)
5,489
62
(57)
97
650
208
444
720
100
236
4
528
2,886
4
(777)
799
(23)
(838)
424
(18)
(175)
580
(414)
(402)
320
(71)
183
(33)
(30)
(493)
1,805
(75)
(358)
663
(149)
(30)
(3,528)
4,774
Notes:
(1) To reflect current experience of PPI complaints received, the Group increased its provision for PPI by 650 million in 2014 (2013 - 900 million; 2012
- 1,110 million), bringing the cumulative charge to 3.7 billion, of which 2.9 billion (79%) in redress had been paid by 31 December 2014. Of the
3.7 billion cumulative charge, 3.4 billion relates to redress and 0.3 billion to administrative expenses.
The principal assumptions underlying the Groups provision in respect of PPI sales are: assessment of the total number of complaints that the Group
will receive; the proportion of these that will result in redress; and the average cost of such redress. The number of complaints has been estimated
from an analysis of the Groups portfolio of PPI policies sold by vintage and by product. Estimates of the percentage of policyholders that will lodge
complaints (the take up rate) and of the number of these that will be upheld (the uphold rate) have been established based on recent experience,
guidance in FSA policy statements and the expected rate of responses from proactive customer contact. The average redress assumption is based
on recent experience and FSA calculation rules. The table below shows the sensitivity of the provision to changes in the principal assumptions (all
other assumptions remaining the same).
410
Assumption
Single premium book past business review take up rate

Uphold rate (1)
Average redress
Actual
to date
Current
assumptions
49%
90%
1,700
52%
89%
1,660
Sensitivity
Change in
Consequential
assumption change in provision
%
m
+/-5
+/-5
+/-5
+/-56
+/-25
+/-26
Note:
(1) Uphold rates exclude claims where no PPI policy was held.
Interest that will be payable on successful complaints has been included in the provision as has the estimated cost to the Group of administering the
redress process. The Group expects the majority of the cash outflows associated with the remaining provision to have occurred by Q2 2016. There
are uncertainties as to the eventual cost of redress which will depend on actual complaint volumes, take up and uphold rates and average redress
costs.
Background information in relation to PPI claims is given in Note 32.
(2) The Group has estimated 1,435 million for its liability in respect of the sale of Interest Rate Hedging Products based on experience, having now
agreed all outcomes with the independent skilled person appointed to review all decisions. The provision includes redress that will be paid to
customers, consequential loss (including interest) on customer redress, the cost to the Group of exiting the hedging positions and the cost of
undertaking the review.
In 2014, the Group increased its provision by 185 million (2013 - 550 million; 2012 - 700 million), principally reflecting a marginal increase in
redress experience compared to expectations and the cost of a small number of consequential loss claims over and above interest offered as part of
basic redress payments. The outcomes of all cases have now been agreed with the independent skilled person appointed to review all decisions.
The cumulative charge for IRHP is 1.4 billion, of which 1.1 billion relates to redress and 0.3 billion to administrative expenses.
The principal assumptions underlying the Groups provision are:
the proportion of relevant customers with interest rate caps that will ask to be included in the review
the type of consequential loss claims that will be received
movements in market rates that will impact the cost of closing out legacy hedging positions
the cost of the review
Uncertainties remain over the number of transactions that will qualify for redress and the nature and cost of that redress, including the cost of
consequential loss claims.
Background information in relation to Interest Rate Hedging Products claims is given in Note 32.
(3) The Group has provided for other customer redress, primarily in relation to investment advice in retail and private banking (190 million) and
packaged accounts (150 million).
(4) On 6 February 2013, the Group reached agreement with the FSA, the US Department of Justice and the Commodity Futures Trading Commission in
relation to the setting of LIBOR and other trading rates, including financial penalties of 381 million. In December 2013, the Group agreed to pay
settlement penalties of approximately 260 million and 131 million to resolve investigations by the European Commission into Yen LIBOR
competition infringements and EURIBOR competition infringements respectively. For further details see Note 32.
(5) The Group is party to certain legal proceedings and regulatory investigations and continues to co-operate with a number of regulators. All such
matters are periodically reassessed with the assistance of external professional advisers, where appropriate, to determine the likelihood of the
Group incurring a liability and to evaluate the extent to which a reliable estimate of any liability can be made. An additional charge of 820 million
was booked in 2014 (2013 - 124 million; 2012 - 75 million), primarily relating to investigations into the foreign exchange market, regulatory fines in
connection with the June 2012 technology incident and other conduct and regulatory matters. Details of these investigations and a discussion of the
nature of the associated uncertainties are given in Note 32.
(6) Arising out of its normal business operations, the Group is party to legal proceedings in the United Kingdom, the United States and other
jurisdictions. An additional charge of 2,050 million was recorded in 2013 as a result of greater levels of certainty on expected outcomes, primarily in
respect of mortgage-backed securities and securities-related litigation following third party settlements and regulatory decisions. Detailed
descriptions of the Groups legal proceedings and discussion of the associated uncertainties are given in Note 32.
(7) The property provisions principally comprise provisions for onerous lease contracts. Provision is made for future rentals payable in respect of vacant
leasehold property and for any shortfall where leased property is sub-let at a rental lower than the lease rentals payable by the Group.
411
23 Deferred tax
Deferred tax liability
Deferred tax asset
Net deferred tax asset
2014
m
2013
m
2012
m
500
(1,540)
(1,040)
507
(3,478)
(2,971)
1,141
(3,443)
(2,302)
Net deferred tax asset comprised:

Accelerated
capital
Pension allowances Provisions
m
m
m
At 1 January 2013
(Disposal)/acquisition of subsidiaries
Charge/(credit) to income statement
Charge/(credit) to other
comprehensive income
Currency translation and other
adjustments
At 1 January 2014
Charge/(credit) to income statement
Charge/(credit) to other
comprehensive income
Currency translation and other
adjustments
At 31 December 2014
Deferred
gains
m
Fair
value of
IFRS
financial
transition instruments
m
m
Availablefor-sale
Cash
financial
flow
Share
assets Intangibles hedging schemes
m
m
m
m
Tax
losses
carried
forward
m
(12) (3,231)
Other
m
Total
m
(803)
1,744
(21)
(1,071)
5
385
(160)
(8)
135
227
577
60
(493)
48
(472)
33
(60)
68
16
(37)
(23)
(35)
39
3
51
1,086
(146)
57
(9)
205
245
(3)
(93)
(633)
(1)
(348)
(3)
(836)
(498)
28
(20)
1,258
(579)
25
(1,483)
423
2
327
1
(91)
(5)
3
3
(15)
60
(5)
226
(276)
3
1
48
(3)
(12) (2,496)
47
(6)
(181)
33
878
(38)
(4)
50
(18)
(5)
(2)
51
(62)
6
(13) 1,019
80
34
281
2
(347)
10
541
(33)
(253)
323
(6)
(47)
(13)
(28)
(6)
66
4
5
6
280
(3)
(12)
(2)
10
(30) (1,479)
(85) (2,302)
(16)
(14)
(13)
(191) (2,971)
33
(263)
22
38
1,733
82
380
27
(1)
(71) (1,040)
Deferred tax assets in respect of unused tax losses are recognised if the losses can be used to offset probable future taxable profits after taking into
account the expected reversal of other temporary differences. Recognised deferred tax assets in respect of tax losses are analysed further below.
UK tax losses carried forward

- The Royal Bank of Scotland plc
- UK branch of RBS N.V.
- National Westminster Bank Plc
- RBS Management Services (UK) Ltd
Overseas tax losses carried forward
- Ulster Bank Ireland
- Citizens Financial Group
2014
m
2013
m
2012
m
489
768
1,257
1,693
718
2,411
2,654
322
66
30
3,072
222
222
1,479
74
11
85
2,496
72
87
159
3,231
412
UK tax losses
Under UK tax rules, tax losses do not expire and can be carried forward
indefinitely. In his 2014 Autumn Statement, the UK Chancellor of the
Exchequer announced proposals to restrict the use of losses carried
forward by UK banks to a maximum of 50% of profits in periods from April
2015 onwards. A longer recovery period of the DTA associated with UK
tax losses will therefore arise, assuming that these proposals are enacted
by Parliament in 2015. International Accounting Standards require the
recoverability of DTAs to be considered by reference to legislation in
force at the balance sheet reporting date.
The Royal Bank of Scotland plc - the deferred tax asset in respect of
taxable losses brought forward at 1 January 2014 related mainly to
trading losses that arose in the UK branch of RBS N.V. These were
transferred following the transfer of activities of the UK Branch of RBS
N.V. to The Royal Bank of Scotland plc. The UK Branch tax losses
attributable to credit market write-downs during the financial crisis were
principally incurred between 2007 and 2009.
The Royal Bank of Scotland plc reported a taxable profit in 2011 and tax
losses in 2012 and 2013. The taxable loss for 2012 reflected the reversal
of previous own credit gains offset by core banking profitability. In 2013
UK tax losses were largely attributable to loan impairment charges arising
from the RCR accelerated recovery strategy recorded in the final quarter
of the period. In 2014, core profitability remained strong and a taxable
profit arises. A reduction in the carrying value of deferred tax assets of
701 million was recorded in 2013. In addition, deferred tax of 150
million was not recognised in respect of excess 2013 UK taxable losses.
CIB restructuring will constrain the utilisation of carried forward tax losses
in the near-term. Consequently, a further reduction in the carrying value
of deferred tax assets of 850 million has been recorded in 2014. The
bank expects that the recognised deferred tax asset of 489 million in
respect of tax losses amounting to 2,445 million will be recovered by the
end of 2019. The proposed UK tax law change referred to above, if
enacted, is expected to extend the recovery period by approximately one
year.
Overseas tax losses

Ulster Bank Ireland - a deferred tax asset of 222 million has been
recognised in respect of losses of 1,776 million (2013 - 592 million;
2012 - 575 million) of total tax losses of 8,599 million (2013 - 11,575
million; 2012 - 7,627 million) carried forward at 31 December 2013.
These losses arose principally as a result of significant impairment
charges that arose between 2008 and 2013 reflecting the challenging
economic conditions in the Republic of Ireland during that period.
Impairment charges have reduced and Ulster Bank Ireland returned to
profitability during 2014. Based on the Groups strategic plan, the losses
on which a deferred tax asset has been recognised will be utilised against
future taxable profits of the company by the end of 2021.
Unrecognised deferred tax
Deferred tax assets of 5,738 million (2013 - 4,942 million; 2012 3,827 million) have not been recognised in respect of tax losses and
other temporary differences carried forward of 26,742 million (2013 28,099 million; 2012 - 20,432 million) in jurisdictions where doubt
exists over the availability of future taxable profits. Of these losses and
other temporary differences, 4,378 million expire within five years and
5,311 million thereafter. The balance of tax losses and other temporary
differences carried forward has no time limit.
Deferred tax liabilities of 186 million (2013 - 186 million; 2012 - 214
million) have not been recognised in respect of retained earnings of
overseas subsidiaries and held-over gains on the incorporation of
overseas branches. Retained earnings of overseas subsidiaries are
expected to be reinvested indefinitely or remitted to the UK free from
further taxation. No taxation is expected to arise in the foreseeable future
in respect of held-over gains. Changes to UK tax legislation largely
exempts from UK tax overseas dividends received on or after 1 July
2009.
National Westminster Bank Plc - the deferred tax asset in respect of tax
losses at 31 December 2014 relates to residual unrelieved trading losses
that arose between 2009 and 2014. 60% of the losses that arose were
relieved against taxable profits arising in other UK Group companies.
Based on the Groups strategic plan, the bank expects that the
recognised deferred tax asset of 768 million in respect of tax losses
amounting to 3,838 million will be recovered by the end of 2018. The
proposed UK tax law change referred to above, if enacted, is expected to
extend the recovery period by approximately two years.
413
24 Subordinated liabilities
Dated loan capital

Undated loan capital
Preference shares
2014
m
2013
m
2012
m
17,028
4,771
1,106
22,905
17,597
5,376
1,039
24,012
20,210
5,488
1,075
26,773
The following tables analyse the remaining contractual maturity of subordinated liabilities by the final redemption date and by the next call date.
2014 - final redemption

Sterling
US dollar
Euro
Other
2014 - call date

Sterling
US dollar
Euro
Other
2017-2019
2020-2024
Thereafter
Perpetual
27
27
Currently
2015
2016
2017-2019
15
2,871
8
2,894
793
2,672
77
3,542
212
2,020
3,893
796
6,921
381
6,371
2,420
796
9,968
2,766
267
3,033
640
1,948
195
280
3,063
2020-2024
Thereafter
Perpetual
700
1,962
1,284
602
4,548
57
861
273
1,191
2014
2015
2016-2018
2019-2023
Thereafter
Perpetual
2014
2015
2016-2018
2019-2023
Thereafter
Perpetual
695
426
657
292
2,070
2013
2014
2015-2017
2018-2022
Thereafter
Perpetual
664
425
1,089
Currently
2013
2014
2015-2017
2018-2022
Thereafter
Perpetual
429
3,546
3,509
1,192
8,676
60
664
289
1,013
826
1,767
2,863
1,214
6,670
715
2,408
2,427
564
6,114
177
397
574
198
10
51
259
214
611
1,478
48
2,351
24
2,577
2,601
464
3,722
3,814
1,381
9,381
59
848
166
1,073
785
4,486
823
298
6,392
103
2,701
1,267
1,230
5,301
630
2,388
3,035
790
6,843
518
3,447
560
4,525
91
166
257
197
49
246
Currently
290
1,849
4,098
375
6,612
366
4,735
1,946
813
7,860
45
944
267
1,256
608
961
1,005
617
3,191
1
3,084
326
761
4,172
60
1,386
2,985
531
4,962
495
5,007
347
5,849
45
706
200
399
1,350

Sterling
US dollar
Euro
Other
2012 - call date

Sterling
US dollar
Euro
Other
2016
700
926
1,120
526
3,272

Sterling
US dollar
Euro
Other
2013 - call date

Sterling
US dollar
Euro
Other
2015
36
1,009
397
1,442
994
4,409
806
326
6,535
212
45
257
Total
m
1,721
12,804
6,701
1,679
22,905
Total
m
1,721
12,804
6,701
1,679
22,905
Total
m
1,864
12,365
7,125
2,658
24,012
Total
m
1,864
12,365
7,125
2,658
24,012
Total
m
2,302
11,971
9,530
2,970
26,773
Total
m
2,302
11,971
9,530
2,970
26,773
414
Issuances and redemptions during the year (values as at date of transaction).

Capital
treatment
2014
m
2013
m
2012
m
New issues
1,000 million 3.625% subordinated notes 2024
US$2,250 million 5.125% subordinated notes 2024
US$2,000 million 6% subordinated notes 2023
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
828
1,331
1,193
603
1,385

AUD883 million 13.125% subordinated notes 2022
CAD420 million 10.5% subordinated notes 2022
CHF124 million 9.375% subordinated notes 2022
564 million 10.5% subordinated notes 2022
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
590
268
86
469
1,346
Charter One Financial, Inc

US$350 million 4.150% subordinated notes 2022 (1)
Ineligible
214
2,159
1,796
4,358
Redemptions
US$750 million 5% subordinated notes
391 million floating rate undated notes
US$318 million floating rate undated notes
Tier 2
Tier 2
Tier 1
Tier 1
Tier 2
453
151
310
188
464

AUD397 million floating rate subordinated notes
AUD265 million floating rate subordinated notes
CAD217 million floating rate subordinated notes
US$322 million floating rate subordinated notes
227 million floating rate subordinated notes
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
217
145
94
177
144
431
179
Note:
(1)
Transferred to disposal groups at 31 December 2014.
415
24 Subordinated liabilities continued

Capital
treatment
2014
m
2013
m
2012
m
Redemptions continued
The Royal Bank of Scotland plc continued
CHF34 million floating rate subordinated notes
56 million 6% undated notes
AUD32 million floating rate subordinated notes 2017 (partial redemption)
AUD53.7 million floating rate subordinated notes 2017 (partial redemption)
79.75 million floating rate notes 2017 (partial redemption)
US$211.9 million floating rate subordinated notes 2017 (partial redemption)
1,000 million 6% subordinated notes
500 million 6% subordinated notes
150 million 10.5% subordinated bonds
AUD193 million 6% subordinated notes 2014 (partial redemption)
AUD145 million floating rate subordinated notes (partial redemption)
CAD483 million 4.25% subordinated notes (partial redemption)
US$428 million floating rate subordinated notes (partial redemption)
273 million 4.5% subordinated (partial redemption)
CHF166 million floating subordinated notes (partial redemption)
398 million floating rate subordinated notes (partial redemption)
AUD400 million 6.5% subordinated notes (partial redemption)
AUD360 million floating rate subordinated notes (partial redemption)
US$1,050 million floating rate subordinated notes (partial redemption)
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
23
56
138
133
1
17
29
65
129
808
31
415
150
129
97
308
270
171
514
227
114
331
267
241
663
Charter One Financial Inc

US$400 million 6.375% subordinated notes
Ineligible
258
Ulster Banking Group

60 million floating rate subordinated notes
Tier 2
60
RBS N.V. and subsidiaries

AUD451.8 million 6.50% subordinated notes 2018 (partial redemption)
AUD149.2 million 7.461% subordinated notes 2018 (partial redemption)
US$72.8 million 6.14% subordinated notes 2019 (partial redemption)
100 million 5.13% flip flop subordinated notes
13 million zero coupon subordinated notes
1,085 million floating rate subordinated notes (partial redemption)
US$9 million 6.14% subordinated notes (partial redemption)
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
240
79
45
81
11
904
5
566
The Royal Bank of Scotland Berhad

MYR200 million 4.15% subordinated notes
Ineligible
36
3,540
3,435
3,590
RBS has now resumed payments on all discretionary non-equity capital

instruments following the end of the European Commission ban in 2012
for RBSG and 2013 for RBS N.V. Future coupons and dividends on
hybrid capital instruments will only be paid subject to, and in accordance
with, the terms of the relevant instruments.
Certain preference shares issued by the company are classified as

liabilities; these securities remain subject to the capital maintenance rules
of the Companies Act 2006.
416
25 Non-controlling interests
Citizens
Financial
Group
m
At 1 January 2013
Profit/(loss) attributable to non-controlling interests
Dividends paid
Gains on available-for-sale financial assets, net of tax
At 1 January 2014
(Loss)/profit attributable to non-controlling interests
Dividends paid
Gains on available-for-sale financial assets, net of tax
Equity raised
At 31 December 2014
Direct Line
Insurance
Group plc
m
ABN
AMRO
m
1,109
266
(8)
395
2
1,770
(6)
114
19
(1,128)
95
18
23
394
(24)
(12)
(5)
(301)
79
(4)
83
37
(5)
23
(1,429)
473
86
52
24
2,117
2,307
(27)
30
76
115
564
(4)
(1)
75
(22)
82
(4)
100
2,232
(1)
2,946
Other
interests
m
Total
m
26 Share capital
Number of shares
Allotted, called up and fully paid

Ordinary shares of 1
B shares of 0.01
Dividend access share of 0.01 (1)
Non-cumulative convertible preference shares of US$0.01
Non-cumulative convertible preference shares of 0.01
Cumulative preference shares of 1
2014
2013
2012
2014
2013
000s
000s
2012
000s
6,366
510
6,203
510
6,071
510
6,365,896
51,000,000
209,609
65
2,044
15
54
900
6,203,022
51,000,000
209,609
65
2,044
15
54
900
6,070,765
51,000,000
209,609
65
2,044
15
54
900
Note:
(1) One dividend access share in issue.
Number of
Movement in allotted, called up and fully paid ordinary shares

At 1 January 2013
Shares issued
At 1 January 2014
Shares issued
At 31 December 2014
6,071
132
6,203
163
6,366
shares - thousands
6,070,765
132,257
6,203,022
162,874
6,365,896
417
26 Share capital continued

Ordinary shares
There is no authorised share capital under the companys constitution.
The directors have the authority to issue 17.7 billion nominal of ordinary
shares in connection with a conversion of B shares. At 31 December
2014 they had a remaining authority granted at the 2014 Annual General
Meeting to issue up to 256 million nominal of ordinary shares other than
by pre-emption to existing shareholders.
During 2014, the company allotted and issued the following new ordinary
shares of 1 each:
Month
Number
of shares
Subscription
price per share
Gross
proceeds
May
July
October
December
32.8m
15.5m
23.9m
16.8m
305.329p
328.910p
355.890p
381.398p
100 million
51 million
85 million
64 million
In addition, the company issued 73.9 million ordinary shares of 1 each in

connection with employee share plans.
B shares and dividend access share
In December 2009, the company entered into an acquisition and
contingent capital agreement with HM Treasury. HM Treasury agreed to
acquire at 50p per share 51 billion B shares with a nominal value of 0.01
each and a dividend access share with a nominal value of 0.01; these
shares were issued to HM Treasury on 22 December 2009. Net proceeds
were 25.1 billion.
The B shares do not generally carry voting rights at general meetings of
ordinary shareholders. Following the subdivision and consolidation of
ordinary shares in 2012 and subject to anti-dilution adjustments, each B
share is entitled to one tenth of the cash dividend of an ordinary share
and may be converted at any time at the option of the holder into ordinary
shares at the rate of ten B shares for each ordinary share.
HM Treasury has agreed not to convert its B shares into ordinary shares
to the extent that its holding of ordinary shares following the conversion
would represent more than 75% of the company's issued ordinary share
capital.
On 25 June 2014, the companys independent shareholders approved
the DAS Retirement Agreement between RBS and HM Treasury to
provide for the future retirement of the Dividend Access Share (DAS).
The DAS Retirement Agreement sets out terms for the removal of the
DAS. Under the DAS Retirement Agreement once RBS has paid
dividends on the DAS totalling 1.5 billion, it will lose its preferential rights
and become a single B share.
Preference shares
Under IFRS certain of the Group's preference shares are classified as
debt and are included in subordinated liabilities on the balance sheet.
Other securities
Certain of the Group's subordinated securities in the legal form of debt
are classified as equity under IFRS.
These securities entitle the holders to interest which may be deferred at
the sole discretion of the company. Repayment of the securities is at the
sole discretion of the company on giving between 30 and 60 days notice.
Non-cumulative preference shares
Non-cumulative preference shares entitle the holders thereof (subject to
the terms of issue) to receive periodic non-cumulative cash dividends at
specified fixed rates for each Series payable out of distributable profits of
the company.
The non-cumulative preference shares are redeemable at the option of
the company, in whole or in part from time to time at the rates detailed in
the table below plus dividends otherwise payable for the then current
dividend period accrued to the date of redemption.
418
Class of preference share
Number of
shares in issue
Interest rate

Series F
Series H
Series L
Series M
Series N
Series P
Series Q
Series R
Series S
Series T
Series U
6.3 million
9.7 million
30.0 million
23.1 million
22.1 million
9.9 million
20.6 million
10.2 million
26.4 million
51.2 million
10,130
7.65%
7.25%
5.75%
6.40%
6.35%
6.25%
6.75%
6.125%
6.60%
7.25%
7.64%
64,772
9.118%
31 March 2010
US$1,000
Debt
1.25 million
784,989
9,429
5.50%
5.25%
7.0916%
31 December 2009
30 June 2010
29 September 2017
1,000
1,000
50,000
Equity
Equity
Equity
14,866
7.387%
31 December 2010
1,000
Debt
54,442
3 month
LIBOR + 2.33%
5 October 2012
1,000
Equity

Series 1
Series 1
Series 2
Series 3
Series 1
Redemption
date on or after
Redemption
price per share
Debt/equity (1)
31 March 2007
US$25
31 March 2004
US$25
30 September 2009
US$25
30 September 2009
US$25
30 June 2010
US$25
31 December 2010
US$25
30 June 2011
US$25
30 December 2011
US$25
30 June 2012
US$25
31 December 2012
US$25
29 September 2017 US$100,000
Debt
Debt
Debt
Equity
Equity
Equity
Equity
Equity
Equity
Equity
Equity

Series 1
Note:
(1) Those preference shares where the Group has an obligation to pay dividends are classified as debt; those where distributions are discretionary are classified as equity. The conversion rights
attaching to the convertible preference shares may result in the Group delivering a variable number of equity shares to preference shareholders; these convertible preference shares are treated as
debt.
In the event that the non-cumulative convertible preference shares are

not redeemed on or before the redemption date, the holder may convert
them into ordinary shares in the company at the prevailing market price.
Under existing arrangements, no redemption or purchase of any noncumulative preference shares may be made by the company without the
prior consent of the Prudential Regulation Authority.
On a winding-up or liquidation of the company, the holders of the noncumulative preference shares are entitled to receive, out of any surplus
assets available for distribution to the company's shareholders (after
payment of arrears of dividends on the cumulative preference shares up
to the date of repayment) pari passu with the cumulative preference
shares and all other shares of the company ranking pari passu with the
non-cumulative preference shares as regards participation in the surplus
assets of the company, a liquidation distribution per share equal to the
applicable redemption price detailed in the table above, together with an
amount equal to dividends for the then current dividend period accrued to
the date of payment, before any distribution or payment may be made to
holders of the ordinary shares as regards participation in the surplus
assets of the company.
Except as described above, the holders of the non-cumulative preference

shares have no right to participate in the surplus assets of the company.
Holders of the non-cumulative preference shares are not entitled to
receive notice of or attend general meetings of the company except if any
resolution is proposed for adoption by the shareholders of the company
to vary or abrogate any of the rights attaching to the non-cumulative
preference shares or proposing the winding-up or liquidation of the
company. In any such case, they are entitled to receive notice of and to
attend the general meeting of shareholders at which such resolution is to
be proposed and are entitled to speak and vote on such resolution (but
not on any other resolution). In addition, in the event that, prior to any
general meeting of shareholders, the company has failed to pay in full the
three most recent quarterly dividend payments due on the noncumulative dollar preference shares (other than Series U), the two most
recent semi-annual dividend payments due on the non-cumulative
convertible dollar preference shares and the most recent dividend
payments due on the non-cumulative euro preference shares, the noncumulative sterling preference shares, the Series U non-cumulative dollar
preference shares and the non-cumulative convertible sterling preference
shares, the holders shall be entitled to receive notice of, attend, speak
and vote at such meeting on all matters together with the holders of the
ordinary shares. In these circumstances only, the rights of the holders of
the non-cumulative preference shares so to vote shall continue until the
company shall have resumed the payment in full of the dividends in
arrears.
419
26 Share capital continued

The Group has now resumed payments on all discretionary non-equity
capital instruments following the end of the European Commission ban in
2012 for RBSG and 2013 for RBS N.V. Future coupons and dividends on
hybrid capital instruments will only be paid subject to, and in accordance
with, the terms of the relevant instruments.
27 Other equity
Paid-in equity - comprises equity instruments issued by the company
other than those legally constituted as shares.
EMTN notes
US$564 million 6.99% capital securities
(callable October 2017)
CAD321 million 6.666% notes
(callable October 2017)
Trust preferred issues: subordinated notes (1)
US$357 million 5.512% 2044
(callable September 2014) (2)
US$276 million 3 month US$ LIBOR plus 0.80%
2044 (callable September 2014) (3)
166 million 4.243% 2046 (callable January 2016) (4)
93 million 5.6457% 2047 (callable June 2017) (5)
2014
m
2013
m
275
275
156
156
195
150
110
93
784
150
110
93
979
Notes:
(1) Subordinated notes issued to limited partnerships that have in turn issued partnership
preferred securities to trusts that have issued trust preferred securities to investors. The trust
preferred securities are redeemable only at the issuers option and dividends are payable at
the Groups discretion. On maturity of the subordinated notes, the partnerships are required
to reinvest in eligible capital instruments issued by the Group. Prior to the implementation of
IFRS 10 in 2013, the limited partnerships and the trusts were consolidated and the trust
preferred securities recorded as non-controlling interests.
(2) Preferred securities in issue - US$357 million RBS Capital Trust III, fixed/floating noncumulative trust preferred securities. Notice of redemption issued in December 2014. As a
result, the related subordinated notes have been reclassified to liabilities.
(3) Preferred securities in issue - US$276 million RBS Capital Trust IV, floating rate noncumulative trust preferred securities. Notice of redemption issued in January 2015.
(4) Preferred securities in issue - 166 million RBS Capital Trust C, fixed/floating rate noncumulative trust preferred securities.
(5) Preferred securities in issue - 93 million RBS Capital Trust D, fixed/floating rate noncumulative trust preferred securities.
Merger reserve - the merger reserve comprises the premium on shares

issued to acquire NatWest, less goodwill amortisation charged under
previous GAAP, and the premium arising on shares issued to acquire
Aonach Mor Limited, less amounts realised through subsequent share
redemptions by Aonach Mor Limited. No share premium was recorded in
the company financial statements through the operation of the merger
relief provisions of the Companies Act.
Capital redemption reserve - under UK companies legislation, when
shares are redeemed or purchased wholly or partly out of the company's
profits, the amount by which the company's issued share capital is
diminished must be transferred to the capital redemption reserve. The
capital maintenance provisions of UK companies legislation apply to the
capital redemption reserve as if it were part of the companys paid up
share capital.
Contingent capital reserve - in December 2009, HM Treasury agreed to
subscribe for up to 16 billion B shares of 0.01 each at 50p per share
subject to certain conditions including the Group's Core Tier 1 capital
ratio falling below 5%. The fair value of the consideration payable by the
company on entering into this agreement amounted to 1,458 million to
be settled in instalments; of this 1,208 million was debited to the
contingent capital reserve. The reserve and 320 million in respect of the
final instalment were transferred to Retained earnings on cancellation of
the contingent capital arrangements on 16 December 2013.
Own shares held - at 31 December 2014, 28 million ordinary shares of 1
each of the company (2013 - 34 million; 2012 - 51 million) were held by
employee share trusts in respect of share awards and options granted to
employees. During the year the employee share trusts awarded 6.5
million ordinary shares in satisfaction of the exercise of options and the
vesting of share awards under the employee share plans.
The Group optimises capital efficiency by maintaining reserves in
subsidiaries, including regulated entities. Certain preference shares and
subordinated debt are also included within regulatory capital. The
remittance of reserves to the company or the redemption of shares or
subordinated capital by regulated entities may be subject to maintaining
the capital resources required by the relevant regulator.
UK law prescribes that only the reserves of the company are taken into
account for the purpose of making distributions and in determining
permissible applications of the share premium account.
420
28 Leases
Year in which receipt will occur
Finance lease contracts and hire purchase agreements

Gross
Present value
Other
amounts
adjustments
movements
m
m
m
Present
value
m
Operating lease
assets:
future minimum
lease rentals
m
2014
Within 1 year
After 1 year but within 5 years
After 5 years
Total
3,046
4,924
2,998
10,968
(227)
(445)
(1,239)
(1,911)
(20)
(85)
(37)
(142)
2,799
4,394
1,722
8,915
175
297
86
558
3,513
6,014
4,244
13,771
(300)
(534)
(1,481)
(2,315)
(44)
(251)
(428)
(723)
3,169
5,229
2,335
10,733
186
341
141
668
3,605
5,963
4,984
14,552
(330)
(600)
(1,709)
(2,639)
(40)
(197)
(315)
(552)
3,235
5,166
2,960
11,361
293
512
291
1,096
2014
m
2013
m
2012
m
570
49
270
889
822
64
243
1,129
1,501
435
267
2,203
Amounts recognised as income and expense in continuing operations

Finance leases - contingent rental income
Operating leases - minimum rentals payable
(85)
249
(94)
255
(110)
259
Finance lease contracts and hire purchase agreements

Accumulated allowance for uncollectable minimum receivables
104
197
278
2013
Within 1 year
After 5 years
Total
2012
Within 1 year
After 5 years
Total
Nature of operating lease assets on the balance sheet

Transportation
Cars and light commercial vehicles
Other
Amounts recognised as income and expense in discontinued operations are 124 million (2013 - 134 million; 2012 - 133 million) in relation to
operating leases - minimum rentals payable.
421
28 Leases continued
Residual value exposures
The table below gives details of the unguaranteed residual values included in the carrying value of finance lease receivables (see pages 375 to 377)
and operating lease assets (see pages 405 and 406).
2014
Operating leases
- transportation
- cars and light commercial vehicles
- other
Finance lease contracts
Hire purchase agreements
Within 1
year
m
Year in which residual value will be recovered

After 1 year
After 2 years
but within
but within
After 5
2 years
5 years
years
m
m
m
Total
m
24
10
24
20
78
122
4
26
24
1
177
92
6
38
59
2
197
99
6
37
142
337
20
94
140
3
594
197
18
24
41
280
34
8
25
53
1
121
217
7
32
198
454
134
1
429
1
565
582
33
82
721
2
1,420
284
317
30
38
1
670
182
44
19
47
292
207
49
39
148
1
444
333
1
3
318
655
1,006
411
91
551
2
2,061
2013
Operating leases
- transportation
- other
2012
Operating leases
- transportation
- other
RBS provides asset finance to its customers through acting as a lessor. It purchases plant, equipment and intellectual property, renting them to
customers under lease arrangements that, depending on their terms, qualify as either operating or finance leases.
422
29 Structured entities
A structured entity (SE) is an entity that has been designed such that
voting or similar rights are not the dominant factor in deciding who
controls the entity, for example, when any voting rights relate to
administrative tasks only and the relevant activities are directed by
means of contractual arrangements. SEs are usually established for a
specific, limited purpose. They do not carry out a business or trade and
typically have no employees. They take a variety of legal forms - trusts,
partnerships and companies - and fulfil many different functions. As well
as being a key element of securitisations, SEs are also used in fund
management activities in order to segregate custodial duties from the
provision of fund management advice.
Consolidated structured entities

Securitisations
In a securitisation, assets, or interests in a pool of assets, are transferred
generally to an SE which then issues liabilities to third party investors.
The majority of securitisations are supported through liquidity facilities or
other credit enhancements. RBS arranges securitisations to facilitate
client transactions and undertakes own asset securitisations to sell or to
fund portfolios of financial assets. RBS also acts as an underwriter and
depositor in securitisation transactions in both client and proprietary
transactions.
RBSs involvement in client securitisations takes a number of forms. It
may: sponsor or administer a securitisation programme; provide liquidity
facilities or programme-wide credit enhancement; and purchase
securities issued by the vehicle.
Own asset securitisations
In own-asset securitisations, the pool of assets held by the SE is either
originated by RBS, or (in the case of whole loan programmes) purchased
from third parties.
The table below analyses the asset categories for those own-asset
securitisations where the transferred assets continue to be recorded on
RBSs balance sheet.
2014
Asset type
Mortgages
- UK
- Irish
UK credit cards
UK personal loans
Other loans (2)
Cash deposits
Assets
m
11,992
8,593
2,717
5,373
28,675
4,616
33,291
Held by third
parties
m
3,543
1,697
334
5,574
Held by
RBS (1)
m
9,877
7,846
1,567
5,245
24,535
2013
Total
m
Assets
m
13,420
9,543
1,567
5,579
30,109
14,434
9,300
3,261
3,382
12,326
42,703
6,245
48,948
Held by third
parties
m
4,876
1,890
500
488
7,754
Held by
RBS (1)
m
10,978
8,751
1,625
3,677
12,078
37,109
2012
Total
m
Assets
m
15,854
10,641
2,125
3,677
12,566
44,863
16,448
10,587
3,019
4,658
18,008
52,720
5,366
58,086
Held by third
parties
m
6,462
3,217
1,243
1,059
11,981
Held by
RBS (1)
m
11,963
7,634
1,736
4,283
18,064
43,680
Total
m
18,425
10,851
2,979
4,283
19,123
55,661
Notes:
(1) Debt securities retained by RBS may be pledged with central banks.
(2) Corporate, social housing and student loans.
Commercial paper conduits

RBS consolidates a number of asset-backed commercial paper (ABCP)
conduits. A conduit is an SE that issues commercial paper and uses the
proceeds to purchase or fund a pool of assets. The commercial paper is
secured on the assets and is redeemed by further commercial paper
issuance, repayment of assets or funding from liquidity facilities.
Commercial paper is typically short-dated, usually up to three months. At
31 December 2014 assets held by the conduits totalled 0.6 billion (2013
- 1.6 billion; 2012 - 3.6 billion). At 31 December 2014, 2013 and 2012
the conduits were funded entirely by RBS.
Covered bond programme

Certain loans and advances to customers have been assigned to
bankruptcy remote limited liability partnerships to provide security for
issues of debt securities by RBS. RBS retains all of the risks and rewards
of these loans, the partnerships are consolidated, the loans retained on
RBSs balance sheet and the related covered bonds included within debt
securities in issue. At 31 December 2014, 13,401 million of mortgages
provided security for debt securities in issue of 7,114 million (2013:
mortgages - 16,177 million, bonds - 9,041 million; 2012: mortgages 15,990 million, bonds - 10,139 million).
423
29 Structured entities continued

Unconsolidated structured entities
RBSs interests in unconsolidated structured entities are analysed below.
Asset backed
securitisation
vehicles sponsored
m
Asset backed
securitisation
vehicles not sponsored
m
Investment
funds
and other
m
Total
m
Held-for-trading
Debt securities
Equity shares
Derivative assets
Derivative liabilities
Total
167
(1)
166
449
3,687
1,670
(850)
4,956
22
2
327
10
(28)
333
471
3,856
327
1,680
(879)
5,455
Other than held-for-trading

Debt securities
Total
202
476
678
5,347
5,168
10,515
23
147
170
5,572
5,791
11,363
2,759
71
2,759
71
844
18,301
503
19,648
Held-for-trading
Debt securities
Equity shares
Derivatives assets
Derivatives liabilities
Total
8
358
263
(113)
516
140
9,476
1
1,163
(329)
10,451
143
109
622
333
(234)
973
291
9,943
623
1,759
(676)
11,940
Other than held-for-trading

Debt securities
Total
26
481
507
3,967
19,926
23,893
30
51
81
4,023
20,458
24,481
2,830
83
34
9
2,868
92
1,027
37,257
1,097
39,381
2014
Liquidity facilities/loan commitments

Guarantees
Maximum exposure
2013
Liquidity facilities/loan commitments

Guarantees
Maximum exposure
Notes:
(1) Income from interests in unconsolidated structured entities includes interest receivable, changes in fair value and other income less impairments.
(2) A sponsored entity is a structured entity established by RBS where RBS provides liquidity and/or credit enhancements or provides ongoing services to the entity. RBS can act as sponsor for its own
or for customers transactions.
(3) In 2014 RBS transferred 1,756 million (2013 - 2,119 million) of assets into sponsored structured entities which are not consolidated by RBS and for which RBS held no interest at 31 December
2014. Income arising from these entities was 172 million (2013 - 192 million).
(4) The 2013 interests in unconsolidated structured entities have been revised.
424
30 Asset transfers
Transfers that do not qualify for derecognition
Securities repurchase agreements and lending transactions
The Group enters into securities repurchase agreements and securities
lending transactions under which it transfers securities in accordance with
normal market practice.
Securities sold under repurchase transactions are not derecognised if the

Group retains substantially all the risks and rewards of ownership. The
fair value (and carrying value) of securities transferred under such
repurchase transactions included on the balance sheet, are set out
below. All of these securities could be sold or repledged by the holder.
Generally, the agreements require additional collateral to be provided if

the value of the securities falls below a predetermined level. Under
standard terms for repurchase transactions in the UK and US markets,
the recipient of collateral has an unrestricted right to sell or repledge it,
subject to returning equivalent securities on settlement of the transaction.
Assets subject to securities repurchase agreements or security lending transactions

Debt securities
Equity shares
2014
m
2013
m
2012
m
23,048
2,557
55,554
5,310
91,173
6,772
2014
m
2013
m
2012
m
11,973
23,245
9,595
44,813
10,342
23,594
8,673
42,609
12,784
25,186
24,236
62,206
770
130
39,289
40,189
3,254
2,766
42,691
48,711
12,309
3,000
60,434
75,743
Assets pledged as collateral

The Group pledges collateral with its counterparties in respect of derivative liabilities and bank and other borrowings.
Assets pledged against liabilities
Securities
Liabilities secured by assets

Deposits by banks
Customer accounts
Derivatives
425
31 Capital resources
RBS's regulatory capital resources in accordance with PRA definitions were as follows:
PRA
transitional basis
2014
m
Shareholders equity (excluding non-controlling interests)

Shareholders equity
Other equity instruments
Regulatory adjustments and deductions
Own credit
Defined benefit pension fund adjustment
Net unrealised AFS losses
Deferred tax assets
Goodwill and other intangible assets
CET1 capital
Additional Tier 1 capital
Preference shares - debt
Innovative/hybrid Tier 1 securities
Qualifying instruments and related share premium subject to phase out
Tier 1 deductions
Tax on expected losses less impairments
Tier 1 capital
Basel 2.5 basis

2013
m
2012
m
57,246
(4,313)
(784)
52,149
58,742
(4,313)
(979)
53,450
68,678
(4,313)
(979)
63,386
473
403
500
(238)
(1,029)
(1,222)
(384)
(7,781)
(1,491)
(855)
(12,500)
39,649
726
362
308
84
(12,368)
(19)
(748)
(103)
(11,758)
42,165
691
913
346
(1,666)
(13,545)
(1,904)
(1,107)
(197)
(16,469)
47,320
5,820
1,648
7,468
4,313
911
4,207
9,431
4,313
1,054
4,125
9,492
47,117
(976)
6
(970)
50,626
(295)
618
323
57,135
426
PRA
transitional basis
2014
m
Qualifying Tier 2 capital

Undated subordinated debt
Dated subordinated debt - net of amortisation
Qualifying instruments and related share premium
Unrealised gains on AFS equity shares
Collectively assessed impairment provisions
Tier 2 deductions
Tier 2 capital
Supervisory deductions
Unconsolidated investments
Other deductions
It is RBSs policy to maintain a strong capital base, to expand it as

appropriate and to utilise it efficiently throughout its activities to optimise
the return to shareholders while maintaining a prudent relationship
between the capital base and the underlying risks of the business. In
carrying out this policy, RBS has regard to the supervisory requirements
of the PRA. The PRA uses risk asset ratio (RAR) as a measure of capital
adequacy in the UK banking sector, comparing a bank's capital resources
with its risk-weighted assets (the assets and off-balance sheet exposures
are weighted to reflect the inherent credit and other risks); by
international agreement, the RAR should be not less than 8% with a Tier
1 component of not less than 4%. RBS has complied with the PRAs
capital requirements throughout the year.
Basel 2.5 basis

2013
m
2012
m
6,136
7,490
13,626
2,109
12,436
114
395
15,054
2,194
13,420
63
399
16,076
13,626
(748)
(25)
(976)
(1,749)
13,305
(1,107)
(2,522)
(295)
(3,924)
12,152
60,743
(36)
(236)
(272)
63,659
(2,243)
(244)
(2,487)
66,800
A number of subsidiaries and sub-groups within RBS, principally banking

entities, are subject to various individual regulatory capital requirements
in the UK and overseas. Furthermore, the payment of dividends by
subsidiaries and the ability of members of RBS to lend money to other
members of RBS may be subject to restrictions such as local regulatory
or legal requirements, the availability of reserves and financial and
operating performance.
427
32 Memorandum items
Contingent liabilities and commitments
The amounts shown in the table below are intended only to provide an indication of the volume of business outstanding at 31 December 2014. Although
the Group is exposed to credit risk in the event of a customers failure to meet its obligations, the amounts shown do not, and are not intended to,
provide any indication of the Group's expectation of future losses.
Contingent liabilities
Guarantees and assets pledged as collateral security
Other contingent liabilities
Commitments (1)
Undrawn formal standby facilities, credit lines and other
commitments to lend
- less than one year
- one year and over
Other commitments
Less than
1 year
m
More than
1 year but
less than
3 years
m
More than
3 years but
less than
5 years
m
Over
5 years
m
2014
m
2013
m
2012
m
7,437
4,958
12,395
2,102
2,013
4,115
2,992
1,104
4,096
4,190
1,506
5,696
16,721
9,581
26,302
20,179
5,991
26,170
19,164
10,697
29,861
74,868
10,082
1,993
86,943
36,285
53
36,338
77,575
21
77,596
13,967
40
14,007
74,868
137,909
2,107
214,884
77,592
135,454
2,793
215,839
83,461
132,347
1,976
217,784
99,338
40,453
81,692
19,703
241,186
242,009
247,645
Note:
(1) Includes liquidity facilities provided to Group sponsored conduits.
Banking commitments and contingent obligations, which have been

entered into on behalf of customers and for which there are
corresponding obligations from customers, are not included in assets and
liabilities. The Group's maximum exposure to credit loss, in the event of
its obligation crystallising and all counterclaims, collateral or security
proving valueless, is represented by the contractual nominal amount of
these instruments included in the table above. These commitments and
contingent obligations are subject to the Group's normal credit approval
processes.
Contingent liabilities
Guarantees - the Group gives guarantees on behalf of customers. A
financial guarantee represents an irrevocable undertaking that the Group
will meet a customer's specified obligations to a third party if the customer
fails to do so. The maximum amount that the Group could be required to
pay under a guarantee is its principal amount as in the table above. The
Group expects most guarantees to expire unused.
Other contingent liabilities - these include standby letters of credit,

supporting customer debt issues and contingent liabilities relating to
customer trading activities such as those arising from performance and
customs bonds, warranties and indemnities.
Commitments
Commitments to lend - under a loan commitment the Group agrees to
make funds available to a customer in the future. Loan commitments,
which are usually for a specified term may be unconditionally cancellable
or may persist, provided all conditions in the loan facility are satisfied or
waived. Commitments to lend include commercial standby facilities and
credit lines, liquidity facilities to commercial paper conduits and unutilised
overdraft facilities.
Other commitments - these include documentary credits, which are
commercial letters of credit providing for payment by the Group to a
named beneficiary against presentation of specified documents, forward
asset purchases, forward deposits placed and undrawn note issuance
and revolving underwriting facilities, and other short-term trade related
transactions.
428
Contractual obligations for future expenditure not provided for in the accounts
The following table shows contractual obligations for future expenditure not provided for in the accounts at the year end.
Operating leases
Minimum rentals payable under non-cancellable leases (1)
- within 1 year
- after 1 year but within 5 years
- after 5 years
Capital expenditure on property, plant and equipment
Contracts to purchase goods or services (2)
2014
m
2013
m
2012
m
237
784
2,110
3,131
35
1,827
4,993
348
1,143
2,144
3,635
38
1,162
4,835
399
1,253
2,286
3,938
37
959
4,934
Notes:
(1) Predominantly property leases.
(2) Of which due within 1 year: 389 million (2013 - 373 million; 2012 - 444 million).
Trustee and other fiduciary activities

In its capacity as trustee or other fiduciary role, the Group may hold or
place assets on behalf of individuals, trusts, companies, pension
schemes and others. The assets and their income are not included in the
Group's financial statements. The Group earned fee income of 425
million (2013 - 462 million; 2012 - 476 million) from these activities.
The Financial Services Compensation Scheme
The Financial Services Compensation Scheme (FSCS), the UK's
statutory fund of last resort for customers of authorised financial services
firms, pays compensation if a firm is unable to meet its obligations. The
FSCS funds compensation for customers by raising management
expenses levies and compensation levies on the industry. In relation to
protected deposits, each deposit-taking institution contributes towards
these levies in proportion to their share of total protected deposits on 31
December of the year preceding the scheme year (which runs from 1
April to 31 March), subject to annual maxima set by the Prudential
Regulation Authority. In addition, the FSCS has the power to raise levies
on a firm that has ceased to participate in the scheme and is in the
process of ceasing to be authorised for the costs that it would have been
liable to pay had the FSCS made a levy in the financial year it ceased to
be a participant in the scheme.
The FSCS has borrowed from HM Treasury to fund compensation costs

associated with the failure of Bradford & Bingley, Heritable Bank,
Kaupthing Singer & Friedlander, Landsbanki Icesave and London
Scottish Bank plc. The interest rate on these borrowings is subject to a
floor being the higher of 12 month LIBOR plus 100 basis points or the
relevant gilt rate for the equivalent cost of borrowing from HMT. The
FSCS and HM Treasury have agreed that the period of these loans will
reflect the expected timetable for recoveries from the estates of Bradford
& Bingley and the other failed banks. The FSCS will levy the deposittaking sector for its share of the balance of the principal outstanding for
the non-Bradford & Bingley loan prior to the FSCS loan facility with HMT
expiring in March 2015. In addition, the FSCS levied an interim payment
relating to resolution costs for Dunfermline Building Society of 100
million. The total capital element levied on the industry in the 2014/15
scheme year was 399 million (363 million in the 2013/14 scheme year).
The Group has accrued 110 million for its share of estimated FSCS
levies.
429
32 Memorandum items continued

Litigation, investigations and reviews
The company and certain members of the Group are party to legal
proceedings and the subject of investigation and other regulatory and
governmental action in the United Kingdom, the European Union, the
United States and other jurisdictions.
RBS recognises a provision for a liability in relation to these matters when
it is probable that an outflow of economic benefits will be required to
settle an obligation resulting from past events, and a reliable estimate can
be made of the amount of the obligation. While the outcome of the legal
proceedings, investigations and regulatory and governmental matters in
which RBS is involved is inherently uncertain, the directors believe that,
based on the information available to them, appropriate provisions have
been made in respect of legal proceedings, investigations and regulatory
and governmental matters as at 31 December 2014 (see Note 22). The
aggregate provisions for litigation and regulatory proceedings of 1,500
million recognised in 2014, included a provision of 720 million related to
the foreign exchange related investigations, of which 320 million was
taken in the last quarter of 2014. The future outflow of resources in
respect of any matter may ultimately prove to be substantially greater
than or less than the aggregate provision that RBS has recognised.
In many proceedings, it is not possible to determine whether any loss is
probable or to estimate the amount of any loss. Numerous legal and
factual issues may need to be resolved, including through potentially
lengthy discovery and document production exercises and determination
of important factual matters, and by addressing novel or unsettled legal
questions relevant to the proceedings in question, before a liability can be
reasonably estimated for any claim. RBS cannot predict if, how, or when
such claims will be resolved or what the eventual settlement, damages,
fine, penalty or other relief, if any, may be, particularly for claims that are
at an early stage in their development or where claimants seek
substantial or indeterminate damages.
There are also situations where RBS may enter into a settlement
agreement. This may occur in order to avoid the expense, management
distraction or reputational implications of continuing to contest liability, or
in order to take account of the risks inherent in defending claims or
investigations even for those matters for which RBS believes it has
credible defences and should prevail on the merits. The uncertainties
inherent in all such matters affect the amount and timing of any potential
outflows for both matters with respect to which provisions have been
established and other contingent liabilities. The future outflow of
resources in respect of any matter may ultimately prove to be
substantially greater than or less than the aggregate provision that RBS
has recognised for that matter.
Other than those discussed below, no member of the Group is or has
been involved in governmental, legal or regulatory proceedings (including
those which are pending or threatened) that are expected to be material
individually or in aggregate.
Litigation
Shareholder litigation (US)
RBS and certain of its subsidiaries, together with certain current and
former officers and directors were named as defendants in a purported
class action filed in the United States District Court for the Southern
District of New York involving holders of American Depositary Receipts
(the ADR claims).
A consolidated amended complaint asserting claims under Sections 10
and 20 of the US Securities Exchange Act of 1934 and Sections 11, 12
and 15 of the Securities Act was filed in November 2011 on behalf of all
persons who purchased or otherwise acquired the Group's American
Depositary Receipts (ADRs) from issuance through 20 January 2009. In
September 2012, the Court dismissed the ADR claims with prejudice. In
August 2013, the Court denied the plaintiffs motions for reconsideration
and for leave to re-plead their case. The plaintiffs appealed the dismissal
of this case to the Second Circuit Court of Appeals and that appeal was
heard on 19 June 2014. A decision in respect of the appeal has not yet
been issued.
Shareholder litigation (UK)
Between March and July 2013, claims were issued in the High Court of
Justice of England and Wales by sets of current and former shareholders,
against RBS (and in one of those claims, also against certain former
individual officers and directors) alleging that untrue and misleading
statements and/or improper omissions were made in connection with the
rights issue announced by RBS on 22 April 2008 in breach of the
Financial Services and Markets Act 2000. In July 2013 these and other
similar threatened claims were consolidated by the Court via a Group
Litigation Order. RBSs defence to the claims was filed on 13 December
2013. Since then, further High Court claims have been issued against
RBS under the Group Litigation Order. At a case management
conference in December 2014 the judge ordered that trial commence in
December 2016.
Other securitisation and securities related litigation in the United States
RBS companies have been named as defendants in their various roles as
issuer, depositor and/or underwriter in a number of claims in the United
States that relate to the securitisation and securities underwriting
businesses. These cases include actions by individual purchasers of
securities and purported class action suits. Together, the pending
individual and class action cases involve the issuance of more than
US$46 billion of mortgage-backed securities (MBS) issued primarily from
2005 to 2007. In general, plaintiffs in these actions claim that certain
disclosures made in connection with the relevant offerings contained
materially false or misleading statements and/or omissions regarding the
underwriting standards pursuant to which the mortgage loans underlying
the securities were issued. RBS companies remain as defendants in
more than 30 lawsuits brought by purchasers of MBS, including the
purported class action identified below.
430
Among these MBS lawsuits are two cases filed in September 2011 by the
US Federal Housing Finance Agency (FHFA) as conservator for the
Federal National Mortgage Association (Fannie Mae) and the Federal
Home Loan Mortgage Corporation (Freddie Mac). The primary FHFA
lawsuit remains pending in the United States District Court for the District
of Connecticut, and it relates to approximately US$32 billion of MBS for
which RBS entities acted as sponsor/depositor and/or lead underwriter or
co-lead underwriter. Of these approximately US$9.5 billion were
outstanding at 31 December 2014 with cumulative write downs to date of
approximately US$1.09 billion (being the recognised loss of principal
value suffered by security holders). In September 2013, the Court denied
the defendants motion to dismiss FHFAs amended complaint in this
case. Discovery is ongoing and is scheduled to be substantially
completed by the end of 2015.
Certain other claims on behalf of public and private institutional investors

have been threatened against RBS in connection with various mortgagerelated offerings. RBS cannot predict whether any of these threatened
claims will be pursued, but expects that several may. If such claims are
asserted and were successful, the amounts involved may be material.
The other remaining FHFA lawsuit that involves RBS (in which the
primary defendant is Nomura Holding America Inc. and subsidiaries)
names RBS Securities Inc. as a defendant by virtue of the fact that it was
an underwriter of some of the securities at issue. Trial in this matter is
scheduled to commence in March 2015 in the United States District Court
for the Southern District of New York. Three other FHFA lawsuits (against
JP Morgan, Morgan Stanley and Countrywide) in which RBS Securities
Inc. was an underwriter defendant were settled without any contribution
from RBS Securities Inc. On 19 June 2014, another FHFA lawsuit in
which RBS Securities Inc. was an underwriter defendant (against Ally
Financial Group) was settled by RBS Securities Inc. by payment of
US$99.5 million.
London Interbank Offered Rate (LIBOR)

Certain members of the Group have been named as defendants in a
number of class actions and individual claims filed in the US with respect
to the setting of LIBOR and certain other benchmark interest rates. The
complaints are substantially similar and allege that certain members of
the Group and other panel banks individually and collectively violated
various federal laws, including the US commodities and antitrust laws,
and state statutory and common law, as well as contracts, by
manipulating LIBOR and prices of LIBOR-based derivatives in various
markets through various means.
Other MBS lawsuits against RBS companies include three cases filed by
the National Credit Union Administration Board (on behalf of US Central
Federal Credit Union, Western Corporate Federal Credit Union,
Southwest Corporate Federal Credit Union, and Members United
Corporate Federal Credit Union), five cases filed by the Federal Home
Loan Banks of Boston, Chicago, Seattle and San Francisco, and a case
filed by the Commonwealth of Virginia on behalf of the Virginia
Retirement System.
RBS companies are also defendants in a purported MBS class action
entitled New Jersey Carpenters Health Fund v. Novastar Mortgage Inc. et
al; which remains pending in the United States District Court for the
Southern District of New York.
The status of the previously disclosed settlements in the other MBS class
actions in which RBS companies were defendants is as follows: In re
IndyMac Mortgage-Backed Securities Litigation (the court indicated its
intention to approve settlement at the final settlement hearing held on 3
February 2015), New Jersey Carpenters Vacation Fund et al. v. The
Royal Bank of Scotland plc et al. (final court approval of the settlement
granted in November 2014), and Luther v. Countrywide Financial Corp. et
al. and related class action cases (final court approval of the settlement
granted in December 2013). In the latter matter, several members of the
settlement class are appealing the court-approved settlement to the
United States Court of Appeals for the Ninth Circuit.
In many of the securitisation and securities related cases in the US, RBS
has or will have contractual claims to indemnification from the issuers of
the securities (where an RBS company is underwriter) and/or the
underlying mortgage originator (where an RBS company is issuer). The
amount and extent of any recovery on an indemnification claim, however,
is uncertain and subject to a number of factors, including the ongoing
creditworthiness of the indemnifying party a number of whom are or may
be insolvent.
Most of the USD LIBOR-related actions in which RBS companies are

defendants, including all purported class actions relating to USD LIBOR,
have been transferred to a coordinated proceeding in the United States
District Court for the Southern District of New York. In the coordinated
proceeding, consolidated class action complaints were filed on behalf of
(1) exchange-based purchaser plaintiffs, (2) over-the-counter purchaser
plaintiffs, and (3) corporate debt purchaser plaintiffs. In orders dated 29
March 2013 and 23 June 2014, the Court dismissed plaintiffs' antitrust
claims and claims under RICO (Racketeer Influenced and Corrupt
Organizations Act), but declined to dismiss (a) certain Commodities
Exchange Act claims on behalf of persons who transacted in Eurodollar
futures contracts and options on futures contracts on the Chicago
Mercantile Exchange (on the theory that defendants' alleged persistent
suppression of USD LIBOR caused loss to plaintiffs), and (b) certain
contract and unjust enrichment claims on behalf of over-the-counter
purchaser plaintiffs who transacted directly with a defendant. Over 35
other USD LIBOR-related actions involving RBS, including purported
class actions on behalf of lenders and mortgage borrowers, are subject to
motions to dismiss that are being litigated. Discovery has been stayed in
all cases in the coordinated proceeding pending further order from the
Court. On 21 January 2015, the U.S. Supreme Court held in Gelboim v.
Bank of America Corp. that plaintiffs in the class action on behalf of
corporate debt purchasers do not need to wait until there is a final
judgment in the coordinated proceeding before they can appeal the
dismissal of their antitrust claims to the United States Court of Appeals
for the Second Circuit.
431

Certain members of the Group have also been named as defendants in
class actions relating to (i) JPY LIBOR and Euroyen TIBOR (the "Yen
action"), (ii) Euribor, and (iii) Swiss Franc LIBOR, all three of which are
pending in the United States District Court for the Southern District of
New York. On 28 March 2014, the Court in the Yen action dismissed the
plaintiffs antitrust claims, but refused to dismiss their claims under the
Commodity Exchange Act for price manipulation.
Details of LIBOR investigations and their outcomes affecting RBS are set
out under Investigations and reviews on the next page.
ISDAFIX antitrust litigation
Beginning in September 2014, RBS plc and a number of other financial
institutions were named as defendants in several purported class action
complaints (now consolidated into one complaint) alleging manipulation
of USD ISDAFIX rates, to the detriment of persons who entered into
transactions that referenced those rates. The complaints were filed in the
United States District Court for the Southern District of New York and
contain claims for unjust enrichment and violations of the U.S. antitrust
laws and the Commodities Exchange Act. This matter is subject to prediscovery motions to dismiss some or all of the claims against the
defendants.
Credit default swap antitrust litigation
Certain members of the Group, as well as a number of other financial
institutions, are defendants in a consolidated antitrust class action
pending in the United States District Court for the Southern District of
New York. The plaintiffs generally allege that defendants violated the
U.S. antitrust laws by restraining competition in the market for credit
default swaps through various means and thereby causing inflated bidask spreads for credit default swaps. On 4 September 2014, the Court
largely denied the defendants' motion to dismiss this matter.
FX antitrust litigation
Certain members of the Group, as well as a number of other financial
institutions, are defendants in a consolidated antitrust class action on
behalf of U.S. based plaintiffs that is pending in the United States District
Court for the Southern District of New York. The plaintiffs in this action
allege that the defendants violated the U.S. antitrust laws by conspiring to
manipulate the foreign exchange market by manipulating benchmark
foreign exchange rates. On 28 January 2015, the court denied the
defendants motion to dismiss this action. On the same day, the court
dismissed two similar class action complaints that had been filed on
behalf of non-U.S. plaintiffs in Norway and South Korea on the principal
ground that such claims are barred by the Foreign Trade Antitrust
Improvements Act. On 23 February 2015, an additional class action
complaint was filed in the United States District Court for the Southern
District of New York on behalf of investors that transacted in exchangetraded foreign exchange futures contracts and/or options on foreign
exchange futures contracts. The complaint contains allegations that are
substantially similar to those contained in the consolidated antitrust class
action, and it asserts both antitrust claims and claims under the
Commodities Exchange Act.
Madoff
In December 2010, Irving Picard, as trustee for the bankruptcy estates of
Bernard L. Madoff and Bernard L. Madoff Investment Securities LLC.,
filed a clawback claim against The Royal Bank of Scotland N.V. (RBS
N.V.) in the New York bankruptcy court. The trustee seeks to recover
US$75.8 million in redemptions that RBS N.V. allegedly received from
certain Madoff feeder funds and US$162.1 million that RBS N.V.
allegedly received from its swap counterparties at a time when RBS N.V.
allegedly knew or should have known of Madoffs possible fraud. The
Trustee alleges that those transfers were preferences or fraudulent
conveyances under the US bankruptcy code and New York law and he
asserts the purported right to claw them back for the benefit of Madoffs
estate. A further claim, for US$21.8 million, was filed in October
2011.This matter is subject to pre-discovery motions to dismiss the
claims against RBS N.V..
Thornburg adversary proceeding
RBS Securities Inc. and certain other RBS companies, as well as several
other financial institutions, are defendants in an adversary proceeding
filed in the U.S. bankruptcy court in Maryland by the trustee for TMST,
Inc. (formerly known as Thornburg Mortgage, Inc.).
The trustee seeks recovery of transfers made under certain restructuring
agreements as, among other things, avoidable fraudulent and preferential
conveyances and transfers. On 25 September 2014, the Court largely
denied the defendants' motion to dismiss this matter and as a result,
discovery has commenced.
CPDO Litigation
CPDO claims have been served on RBS N.V. in England, the
Netherlands and Australia relating to the sale of a type of structured
financial product known as a constant proportion debt obligation (CPDO).
In November 2012, the Federal Court of Australia issued a judgment
against RBS N.V. and others in one such case holding that RBS N.V. and
others committed certain wrongful acts in connection with the rating and
sale of the CPDO. In March 2013, RBS N.V. was ordered to pay A$19.7
million. RBS N.V. appealed this decision and the appeal court found
against RBS N.V. in May 2014. The decision is not being further
appealed. RBS N.V. made the required payments totalling A$19.7 million
in March and April 2013. The judgment may potentially have significance
to the other claims served and to any future similar claims.
Interest rate hedging products
RBS is dealing with a large number of active litigation claims in the UK in
relation to the sale of interest rate hedging products. In general claimants
allege that the relevant interest rate hedge products were mis-sold to
them, with some also alleging RBS made misrepresentations in relation
to LIBOR. Claims have been brought by customers who are being
considered under the UK Financial Conduct Authority (FCA) redress
programme, as well as customers who are outside of the scope of that
programme. RBS is encouraging those customers that are eligible to
seek redress under the FCA redress programme to participate in that
programme. RBS remains exposed to potential claims from customers
who were either ineligible to be considered for redress or who are
dissatisfied with their redress offers.
432
Weiss v. National Westminster Bank PLC

NatWest is defending a lawsuit filed by a number of United States
nationals (or their estates, survivors, or heirs) who were victims of
terrorist attacks in Israel. The plaintiffs allege that NatWest is liable for
damages arising from those attacks pursuant to the U.S. Antiterrorism
Act because NatWest previously maintained bank accounts and
transferred funds for the Palestine Relief & Development Fund, an
organisation which plaintiffs allege solicited funds for Hamas, the alleged
perpetrator of the attacks. On 28 March 2013, the trial court (the United
States District Court for the Eastern District of New York) granted
summary judgment in favour of NatWest on the issue of scienter, but on
22 September 2014, that summary judgment ruling was vacated by the
United States Court of Appeals for the Second Circuit. The appeals court
returned the case to the trial court for consideration of NatWest's other
asserted grounds for summary judgment and, if necessary, for trial.
Freeman v. HSBC Holdings PLC
On 10 November 2014, RBS N.V. and certain other financial institutions
(HSBC, Barclays, Standard Chartered, Credit Suisse, and Bank Saderat)
were named as defendants in a complaint filed by a number of United
States nationals (or their estates, survivors, or heirs), most of whom are
or were United States military personnel, who were killed or injured in
more than 70 attacks in Iraq between 2004 and 2011. The attacks were
allegedly perpetrated by Hezbollah and certain Iraqi terror cells allegedly
funded by the Islamic Republic of Iran. According to the complaint, RBS
N.V. and the other defendants are liable for damages arising from the
attacks because they allegedly conspired with Iran and certain Iranian
banks to assist Iran in transferring money to Hezbollah and the Iraqi
terror cells, in violation of the U.S. Antiterrorism Act, by agreeing to
engage in "stripping" of transactions initiated by the Iranian banks so that
the Iranian nexus to the transactions would not be detected. The
defendants will move to dismiss the complaint.
Investigations and reviews
RBSs businesses and financial condition can be affected by the fiscal or
other policies and actions of various governmental and regulatory
authorities in the United Kingdom, the European Union (EU), the United
States and elsewhere. RBS has engaged, and will continue to engage, in
discussions with relevant governmental and regulatory authorities,
including in the United Kingdom, the EU, the United States and
elsewhere, on an ongoing and regular basis regarding operational,
systems and control evaluations and issues including those related to
compliance with applicable laws and regulations, including consumer
protection, competition, anti-bribery, anti-money laundering and sanctions
regimes. It is possible that any matters discussed or identified may result
in investigatory or other action being taken by governmental and
regulatory authorities, increased costs being incurred by RBS,
remediation of systems and controls, public or private censure, restriction
of RBSs business activities or fines. Any of the events or circumstances
mentioned below could have a material adverse effect on RBS, its
business, authorisations and licences, reputation, results of operations or
the price of securities issued by it.
RBS is co-operating fully with the investigations and reviews described

below.
LIBOR and other trading rates
In February 2013, RBS announced settlements with the Financial
Services Authority (FSA) in the United Kingdom, the United States
Commodity Futures Trading Commission and the United States
Department of Justice (DOJ) in relation to investigations into
submissions, communications and procedures around the setting of
LIBOR. RBS agreed to pay penalties of 87.5 million, US$325 million and
US$150 million to these authorities respectively to resolve the
investigations. As part of the agreement with the DOJ, RBS plc entered
into a Deferred Prosecution Agreement in relation to one count of wire
fraud relating to Swiss Franc LIBOR and one count for an antitrust
violation relating to Yen LIBOR. In addition, on 12 April 2013, RBS
Securities Japan Limited entered a plea of guilty to one count of wire
fraud relating to Yen LIBOR and on 6 January 2014, the US District Court
for the District of Connecticut entered a final judgment in relation to the
conviction of RBS Securities Japan Limited pursuant to the plea
agreement.
In February 2014, RBS paid settlement penalties of approximately 260
million and 131 million to resolve investigations by the European
Commission (EC) into Yen LIBOR competition infringements and
EURIBOR competition infringements respectively.
In July 2014, RBS entered into an Enforceable Undertaking with the
Australian Securities and Investments Commission (ASIC) in relation to
potential misconduct involving the Australian Bank Bill Swap Rate. RBS
undertakes in the Enforceable Undertaking to (a) comply with its existing
undertakings arising out of the February 2013 settlement with the United
States Commodity Futures Trading Commission as they relate to
Australian Benchmark Interest Rates, (b) implement remedial measures
with respect to its trading in Australian reference bank bills and (c)
appoint an independent compliance expert to review and report on RBSs
implementation of such remedial measures. The remediation measures
include ensuring appropriate records retention, training, communications
surveillance and trading reviews are in place. As part of the Enforceable
Undertaking, RBS also agreed to make a voluntary contribution of A$1.6
million to fund independent financial literacy projects in Australia.
On 21 October 2014, the EC announced its findings that RBS and one
other financial institution had participated in a bilateral cartel aimed at
influencing the Swiss franc LIBOR benchmark interest rate between
March 2008 and July 2009. RBS agreed to settle the case with the EC
and received full immunity from fines for revealing the existence of the
cartel to the EC and co-operating closely with the ECs ongoing
investigation. Also on 21 October 2014, the EC announced its findings
that RBS and three other financial institutions had participated in a
related cartel on bid-ask spreads of Swiss franc interest rate derivatives
in the European Economic Area (EEA). Again, RBS received full
immunity from fines for revealing the existence of the cartel to the EC and
co-operating closely with the ECs ongoing investigation.
433

RBS is co-operating with investigations and new and ongoing requests
for information by various other governmental and regulatory authorities,
including in the UK, US and Asia, into its submissions, communications
and procedures relating to a number of trading rates, including LIBOR
and other interest rate settings, and non-deliverable forwards. RBS is
providing information and documents to the CFTC and the DOJ as part of
an investigation into the setting of USD, EUR and GBP ISDAFIX and
related trading activities. RBS is also under investigation by competition
authorities in a number of jurisdictions stemming from the actions of
certain individuals in the setting of LIBOR and other trading rates, as well
as interest rate-related trading. At this stage, RBS cannot estimate
reliably what effect, if any, the outcome of these investigations may have
on RBS.
Foreign exchange related investigations
In November 2014, RBS plc reached a settlement with the FCA in the
United Kingdom and the United States Commodity Futures Trading
Commission (CFTC) in relation to investigations into failings in the banks
Foreign Exchange businesses within its Corporate & Institutional Banking
(CIB) segment. RBS plc agreed to pay penalties of 217 million to the
FCA and $290 million to the CFTC to resolve the investigations. Payment
of the fines was made on 19 November 2014.
As previously disclosed, RBS remains in discussions with other
governmental and regulatory authorities on similar issues relating to
failings in the Banks Foreign Exchange business within its CIB segment,
including settlement discussions regarding the criminal investigation
being conducted by the DOJ and certain other financial regulatory
authorities. The timing and amounts of any further settlements and
related litigation risks and consequences remain uncertain and could be
material.
On 21 July 2014, the Serious Fraud Office announced that it was
launching a criminal investigation into allegations of fraudulent conduct in
the foreign exchange market, apparently involving multiple financial
institutions.
Technology incident in June 2012
In June 2012, RBS was affected by a technology incident, as a result of
which the processing of certain customer accounts and payments were
subject to considerable delay. RBS agreed to reimburse customers for
any loss suffered as a result of the incident and RBS made a provision of
175 million in 2012.
Interest rate hedging products

In June 2012, following an industry wide review, the FSA announced that
RBS and other UK banks had agreed to a redress exercise and past
business review in relation to the sale of interest rate hedging products to
some small and medium sized businesses who were classified as retail
clients or private customers under FSA rules. In January 2013, the FSA
issued a report outlining the principles to which it wished RBS and other
UK banks to adhere in conducting the review and redress exercise. This
exercise is being scrutinised by an independent reviewer, who is
reviewing and approving all redress outcomes, and the FCA is
overseeing this. RBS has reached agreement with the independent
reviewer in relation to redress outcomes for in scope customers. RBS
and the independent reviewer are now focussing on customer responses
to review outcomes, securing acceptance of offers and assessing
ancillary issues such as consequential loss claims. The FCA has
announced that the review and redress exercise will be closed to new
entrants on 31 March 2015.
The Central Bank of Ireland also requested UBIL, along with a number of
Irish banks, to undertake a similar exercise and past business review in
relation to the sale of interest rate hedging products to retail designated
small and medium sized businesses in the Republic of Ireland. RBS also
agreed to undertake a similar exercise and past business review in
respect of relevant customers of RBS International. The review of the
sale of interest rate hedging products to eligible RBS International
customers is complete, and the review of the sale of interest rate hedging
products to eligible Republic of Ireland customers is expected to be
completed during Q1 2015.
RBS has made provisions in relation to the above redress exercises
totalling 1.4 billion to date for these matters, including 0.2 billion in
2014, of which 1 billion had been utilised at 31 December 2014.
FSA mystery shopping review
In February 2013, the FSA announced the results of a mystery shopping
review it undertook into the investment advice offered by banks and
building societies to retail clients. As a result of that review the FSA
announced that firms involved were cooperative and agreed to take
immediate action. RBS was one of the firms involved.
The action required included a review of the training provided to advisers,
considering whether changes are necessary to advice processes and
controls for new business, and undertaking a past business review to
identify any historic poor advice (and where breaches of regulatory
requirements are identified, to put this right for customers).
In April 2013, the FCA announced that it had commenced an

enforcement investigation into the incident. This was a joint investigation
conducted by the FCA together with the UK Prudential Regulation
Authority (PRA). Enforcement proceedings were then commenced. On 20
November 2014, RBS announced that it had reached agreement with the
FCA and the PRA over failings in relation to the incident. RBS agreed a
penalty of 42 million with the FCA and 14 million with the PRA.
Separately the Central Bank of Ireland initiated an investigation and
issued enforcement proceedings against Ulster Bank Ireland Limited
(UBIL), an RBS company. On 12 November 2014, the Central Bank of
Ireland announced that it had fined UBIL 3.5 million in relation to its
investigation.
434
Subsequent to the FSA announcing the results of its mystery shopping

review, the FCA has required RBS to carry out a past business review
and customer contact exercise on a sample of historic customers that
received investment advice on certain lump sum products through the UK
Financial Planning channel of the Personal & Business Banking (PBB)
segment of RBS, which includes RBS plc and NatWest, during the period
from March 2012 until December 2012. This review is being conducted
under section 166 of the Financial Services and Markets Act, under which
a skilled person has been appointed to carry out the exercise. Redress is
currently being offered to certain customers in this sample group. In
addition, RBS has agreed with the FCA that it will carry out a remediation
exercise, for a specific customer segment who were sold a particular
structured product, in response to concerns raised by the FCA with
regard to (a) the target market for the product and (b) how the product
may have been described to customers by certain advisers. A pilot
customer communications exercise to certain cohorts of customers was
undertaken between November 2014 and January 2015 with a further
communication exercise to the remaining cohorts due to be completed by
mid 2015.
Card Protection Plan Limited
In August 2013, the FCA announced that Card Protection Plan Limited
and 13 banks and credit card issuers, including RBS, had agreed to a
compensation scheme in relation to the sale of card and/or identity
protection insurance to certain retail customers. The closing date before
which any claims under the compensation scheme must have been
submitted has now passed and only exceptional cases will be dealt with
prior to a final closure date for the scheme of 28 February 2015. RBS has
made appropriate provision based on its estimate of ultimate exposure.
Packaged accounts
As a result of an uplift in packaged account complaints, RBS has
proactively put in place dedicated resource to investigate and resolve
complaints on an individual basis.
FCA review of GRG treatment of SMEs
In November 2013, a report by Lawrence Tomlinson, entrepreneur in
residence at the UK Governments Department for Business Innovation
and Skills, was published (Tomlinson Report). The Tomlinson Report was
critical of RBSs Global Restructuring Groups treatment of SMEs. The
Tomlinson Report was passed to the PRA and FCA. Shortly thereafter,
the FCA announced that an independent skilled person would be
appointed under Section 166 of the Financial Services and Markets Act to
review the allegations in the Tomlinson Report. On 17 January 2014,
Promontory Financial Group and Mazars were appointed as the skilled
person. RBS is fully cooperating with the FCA in its investigation.
Separately, in November 2013 RBS instructed the law firm Clifford
Chance to conduct an independent review of the principal allegation
made in the Tomlinson Report: RBSs Global Restructuring Group was
alleged to be culpable of systematic and institutional behaviour in
artificially distressing otherwise viable businesses and through that
putting businesses into insolvency. Clifford Chance published its report
on 17 April 2014 and concluded that there was no evidence to support
the principal allegation.
A separate independent review of the principal allegation, led by Mason

Hayes & Curran, Solicitors, was conducted in the Republic of Ireland. The
report was published in December 2014 and found no evidence to
support the principal allegation.
Multilateral interchange fees
On 11 September 2014, the Court of Justice upheld earlier decisions by
the EU Commission and the General Court that MasterCards multilateral
interchange fee (MIF) arrangements for cross border payment card
transactions with MasterCard and Maestro branded consumer credit and
debit cards in the EEA are in breach of competition law.
In April 2013, the EC announced it was opening a new investigation into
interchange fees payable in respect of payments made in the EEA by
MasterCard cardholders from non-EEA countries.
In May 2013, the EC announced it had reached an agreement with Visa
regarding immediate cross border credit card MIF rates. This agreement
has now been market tested and was made legally binding on 26
February 2014. The agreement is to last for four years.
In addition, the EC has proposed a draft regulation on interchange fees
for card payments. The draft regulation is subject to a consultation
process, prior to being finalised and enacted. It is currently expected that
the regulation will be enacted during the first half of 2015. The current
draft regulation proposes the capping of both cross-border and domestic
MIF rates for debit and credit consumer cards. The draft regulation also
sets out other proposals for reform including to the Honour All Cards Rule
so merchants will be required to accept all cards with the same level of
MIF but not cards with different MIF levels.
In the UK, the Office of Fair Trading (OFT) had previously opened
investigations into domestic interchange fees applicable in respect of
Visa and MasterCard consumer and commercial credit and debit card
transactions. On 4 November 2014, the successor body to the OFT, the
Competition & Markets Authority (CMA), announced that it would not
proceed with its investigations. The CMA took this decision primarily
based on the expected implementation of the draft EC regulation on
interchange fees for card payments, coupled with some commitments
made by Visa and MasterCard around its implementation in the UK.
Whilst not currently proceeding, the CMAs investigations do formally
remain open and CMA has noted that, if the EC regulation on interchange
fees did not address its concerns, it would then look again at continuing
with its investigations.
The outcomes of these ongoing investigations, proceedings and
proposed regulation are not yet known, but they may have a material
adverse effect on the structure and operation of four party card payment
schemes in general and, therefore, on RBSs business in this sector.
Payment Protection Insurance
Since 2011, RBS has been implementing a policy statement agreed with
the FCA for the handling of complaints about the mis-selling of Payment
Protection Insurance (PPI). RBS has made provisions totalling 3.7 billion
to date for this matter, including 0.7 billion in 2014, of which 2.9 billion
has been utilised at 31 December 2014.
435

Retail banking - EC
Since initiating an inquiry into retail banking in the EU in 2005, the EC
continues to keep retail banking under review. In late 2010 the EC
launched an initiative pressing for greater transparency of bank fees and
is currently proposing to legislate for increased harmonisation of
terminology across Member States. RBS cannot predict the outcome of
these actions at this stage.
UK personal current accounts/retail banking
Following the OFTs publication of a market study report into the Personal
Current Account (PCA) market in July 2008, the OFT launched a follow
up review of the PCA market in July 2012. This review was intended to
consider whether certain initiatives agreed by the OFT with banks in light
of the July 2008 report, primarily around transparency, unarranged
overdrafts and customers in financial difficulty, had been successful and
whether the market should be referred to the Competition Commission
(CC) for a fuller market investigation.
The OFTs PCA report following this July 2012 launch was published in
January 2013. The OFT acknowledged some specific improvements in
the market since its last review but concluded that further changes were
required to tackle ongoing concerns, including a lack of switching, the
ability of consumers to compare products and the complexity of overdraft
charges. The OFT decided not to refer the market to the CC but said that
it expected to return to the question of a referral to the CC in 2015, or
earlier. The OFT also announced that it would be carrying out
behavioural economic research on the way consumers make decisions
and engage with retail banking service, and would study the operation of
payment systems as well as the SME banking market.
On 11 March 2014, the successor body to the OFT and CC, the CMA,
announced that in addition to its pending SME review (see below), it
would be undertaking an update of the OFTs 2013 PCA review. On 18
July 2014 the CMA published its preliminary findings in respect of both
the PCA and SME market studies. The CMA provisionally decided to
make a market investigation reference (MIR) for both the PCA and SME
market studies. The provisional decision on both PCAs and SMEs was
then subject to a consultation period until 17 September 2014. Following
this period of consultation, on 6 November 2014, the CMA made its final
decision to proceed with a MIR. The MIR will be a wide-ranging 18-24
month Phase 2 inquiry but at this stage it is not possible to estimate
potential impacts on RBS.
SME banking market study
The OFT announced its market study on competition in banking for SMEs
in England and Wales, Scotland and Northern Ireland on 19 June 2013.
Following a consultation on the scope of the market study, the OFT
published an update paper on 27 September 2013 setting out its
proposed scope. On 11 March 2014, the OFT set out some competition
concerns on SME banking and also announced that its successor body,
the CMA, would continue the review. As discussed above, the CMA has
decided to make a MIR for the SME market study in addition to the PCA
study. As regards SMEs, the CMA concluded that it would be more
appropriate to make a MIR than accept a set of undertakings in lieu put
forward by RBS, Barclays, HSBC and Lloyds. Alongside the MIR, the
CMA will also be reviewing the previous undertakings given following the
CCs investigation into SME banking in 2002 and whether these
undertakings need to be varied. At this stage it is not possible to estimate

potential impacts on RBS.
FCA Wholesale Sector Competition Review
On 9 July 2014, the FCA launched a review of competition in the
wholesale sector to identify any areas which may merit further
investigation through an in-depth market study.
The initial review was an exploratory exercise and focused primarily on
competition in wholesale securities and investment markets, and related
activities such as corporate banking. It commenced with a three month
consultation exercise, including a call for inputs from stakeholders.
Following this consultation period, the FCA published its feedback
statement on 19 February 2015. The FCA now intends to undertake a
market study into investment and corporate banking (to launch in Spring
2015) and potentially into asset management (to launch late 2015 if
undertaken).
Credit default swaps (CDS) investigation
RBS is a party to the ECs antitrust investigation into the CDS information
market. RBS has received and responded to a Statement of Objections
from the EC and continues to co-operate fully with the EC's ongoing
investigation. In general terms, the EC has raised concerns that a
number of banks, Markit and ISDA may have jointly prevented exchanges
from entering the CDS market. At this stage, RBS cannot estimate
reliably what effect the outcome of the investigation may have on RBS,
which may be material.
Securitisation and collateralised debt obligation business
In the United States, RBS is involved in reviews, investigations and
proceedings (both formal and informal) by federal and state governmental
law enforcement and other agencies and self-regulatory organisations,
including the DOJ and various other members of the RMBS Working
Group of the Financial Fraud Enforcement Task Force relating to, among
other things, issuance, underwriting and trading in mortgage-backed
securities, collateralised debt obligations (CDOs), and synthetic products.
In connection with these inquiries, Group companies have received
requests for information and subpoenas seeking information about,
among other things, the structuring of CDOs, financing to loan
originators, purchase of whole loans, sponsorship and underwriting of
securitisations, due diligence, representations and warranties,
communications with ratings agencies, disclosure to investors, document
deficiencies, trading activities and practices and repurchase requests.
In November 2013, RBS announced that it had settled with the US
Securities and Exchange Commission (SEC) over its investigation of
RBS Securities Inc. relating to due diligence conducted in connection with
a 2007 offering of residential mortgage-backed securities and
corresponding disclosures.
Pursuant to the settlement, RBS Securities Inc., without admitting or
denying the SEC's allegations, consented to the entry of a final judgment
ordering certain relief, including an injunction and the payment of
approximately US$153 million in disgorgement, penalties, and interest.
The settlement was subsequently approved by the United States District
Court for the District of Connecticut. RBS co-operated fully with the SEC
throughout the investigation.
436
In 2007, the New York State Attorney General issued subpoenas to a

wide array of participants in the securitisation and securities industry,
focusing on the information underwriters obtained from the independent
firms hired to perform due diligence on mortgages. RBS completed its
production of documents requested by the New York State Attorney
General in 2008, principally producing documents related to loans that
were pooled into one securitisation transaction. In May 2011, the New
York State Attorney General requested additional information about
RBSs mortgage securitisation business and, following the formation of
the RMBS Working Group, has focused on the same or similar issues as
the other state and federal RMBS Working Group investigations
described above. The investigation is ongoing and RBS continues to
respond to requests for information.
Although there has in recent times been disruption in the ability of certain
financial institutions operating in the United States to complete
foreclosure proceedings in respect of US mortgage loans in a timely
manner or at all (including as a result of interventions by certain states
and local governments), to date, Citizens has not been materially
impacted by such disruptions and RBS has not ceased making
foreclosures.
US mortgages - loan repurchase matters

RBSs CIB business in North America has been a purchaser of nonagency US residential mortgages in the secondary market, and an issuer
and underwriter of non-agency residential mortgage-backed securities
(RMBS). CIB did not originate or service any US residential mortgages
and it was not a significant seller of mortgage loans to government
sponsored enterprises (GSEs) (e.g. the Federal National Mortgage
Association and the Federal Home Loan Mortgage Association).
Citizens consent orders

The activities of Citizens' two US bank subsidiaries - Citizens Bank, N.A.
and Citizens Bank of Pennsylvania - are subject to extensive US laws
and regulations concerning unfair or deceptive acts or practices in
connection with customer products. Certain of the bank subsidiaries
practices with respect to overdraft protection and other consumer
products have not met applicable standards. The bank subsidiaries have
implemented and are continuing to implement changes to improve and
bring their practices into compliance with regulatory guidance. In April
2013, the bank subsidiaries consented to the issuance of orders by their
respective primary federal banking regulators, the Office of the
Comptroller of the Currency (OCC) and the Federal Deposit Insurance
Corporation (FDIC) (Consent Orders). In the Consent Orders (which are
publicly available and will remain in effect until terminated by the
regulators), the bank subsidiaries neither admitted nor denied the
regulators findings that they had engaged in deceptive marketing and
implementation of the bank's overdraft protection programme, checking
rewards programmes, and stop-payment process for pre-authorised
recurring electronic fund transfers.
In issuing RMBS, CIB generally assigned certain representations and

warranties regarding the characteristics of the underlying loans made by
the originator of the residential mortgages; however, in some
circumstances, CIB made such representations and warranties itself.
Where CIB has given those or other representations and warranties
(whether relating to underlying loans or otherwise), CIB may be
contractually required to repurchase such loans or indemnify certain
parties against losses for certain breaches of such representations and
warranties. In certain instances where it is required to repurchase loans
or related securities, CIB may be able to assert claims against third
parties who provided representations or warranties to CIB when selling
loans to it, although the ability to recover against such parties is
uncertain. Between the start of 2009 and 31 December 2014, CIB
received approximately US$741 million in repurchase demands in
respect of loans made primarily from 2005 to 2008 and related securities
sold where obligations in respect of contractual representations or
warranties were undertaken by CIB. However, repurchase demands
presented to CIB are subject to challenge and rebuttal by CIB.
Citizens Financial Group, Inc (Citizens) has not been an issuer or
underwriter of non-agency RMBS. However, Citizens is an originator and
servicer of residential mortgages, and it routinely sells such mortgage
loans in the secondary market and to GSEs. In the context of such sales,
Citizens makes certain representations and warranties regarding the
characteristics of the underlying loans and, as a result, may be
contractually required to repurchase such loans or indemnify certain
parties against losses for certain breaches of the representations and
warranties concerning the underlying loans. Between the start of 2009
and 31 December 2014, Citizens received US$257 million in repurchase
demands and indemnification payment requests in respect of loans
originated primarily since 2003. However, repurchase demands
presented to Citizens are subject to challenge and rebuttal by Citizens.
RBS cannot currently estimate what the ultimate exposure may be with
respect to repurchase demands. Furthermore, RBS is unable to estimate
the extent to which the matters described above will impact it, and future
developments may have an adverse impact on RBSs net assets,
operating results or cash flows in any particular period.
In connection with the Consent Orders, the bank subsidiaries paid a total
of US$10 million in civil monetary penalties. The Consent Orders also
require the bank subsidiaries to develop plans to provide restitution to
affected customers (the amount of which is anticipated to be
approximately US$8 million), to cease and desist any operations in
violation of Section 5 of the Federal Trade Commission Act, and to
submit to the regulators periodic written progress reports regarding
compliance with the Consent Orders.
In addition, Citizens Bank, N.A. agreed to take certain remedial actions to
improve its compliance risk management systems and to create a
comprehensive action plan designed to achieve compliance with the
relevant Consent Order. Restitution plans have been prepared and
submitted for approval, and Citizens Bank, N.A. has submitted for
approval and is in the process of implementing its action plan for
compliance with the Consent Order, as well as updated policies,
procedures and programmes related to its compliance risk management
systems.
437

In addition to the above, the bank subsidiaries could face further formal
administrative enforcement actions from their federal supervisory
agencies, including the assessment of civil monetary penalties and
restitution, relating to issues identified by Citizens arising from other
consumer products and related practices and policies, and they could
face potential civil litigation.
Governance and risk management consent order
In July 2011, RBS agreed with the Board of Governors of the Federal
Reserve System, the New York State Banking Department, the
Connecticut Department of Banking, and the Illinois Department of
Financial and Professional Regulation to enter into a consent Cease and
Desist Order (Governance Order) to address deficiencies related to
governance, risk management and compliance systems and controls in
RBS plc and RBS N.V. branches. In the Governance Order, RBS agreed
to create the following written plans or programmes:
a plan to strengthen board and senior management oversight of the

corporate governance, management, risk management, and
operations of RBSs U.S. operations on an enterprise-wide and
business line basis,
an enterprise-wide risk management programme for RBSs U.S.

operations,
a plan to oversee compliance by RBSs U.S. operations with all

applicable U.S. laws, rules, regulations, and supervisory guidance,
a Bank Secrecy Act/anti-money laundering compliance programme

for the RBS plc and RBS N.V. branches in the U.S. (the U.S.
Branches) on a consolidated basis,
a plan to improve the U.S. Branches compliance with all applicable

provisions of the Bank Secrecy Act and its rules and regulations as
well as the requirements of Regulation K of the Federal Reserve,
a customer due diligence programme designed to reasonably

ensure the identification and timely, accurate, and complete
reporting by the U.S. Branches of all known or suspected violations
of law or suspicious transactions to law enforcement and
supervisory authorities, as required by applicable suspicious activity
reporting laws and regulations, and
a plan designed to enhance the U.S. Branches compliance with

OFAC requirements.
The Governance Order (which is publicly available) identified specific

items to be addressed, considered, and included in each proposed plan
or programme. RBS also agreed in the Governance Order to adopt and
implement the plans and programmes after approval by the regulators, to
fully comply with the plans and programmes thereafter, and to submit to
the regulators periodic written progress reports regarding compliance with
the Governance Order. RBS has created, submitted, and adopted plans
and/or programmes to address each of the areas identified above. In
connection with RBSs efforts to implement these plans and programmes,
it has, among other things, made investments in technology, hired and
trained additional personnel, and revised compliance, risk management,
and other policies and procedures for RBSs U.S. operations. RBS
continues to test the effectiveness of the remediation efforts undertaken
by RBS to ensure they are sustainable and meet regulators' expectations.
Furthermore, RBS continues to work closely with the regulators in its
efforts to fulfil its obligations under the Governance Order, which will
remain in effect until terminated by the regulators.
RBS may be subject to formal and informal supervisory actions and may
be required by its US banking supervisors to take further actions and
implement additional remedial measures with respect to these and
additional matters. RBS's activities in the United States may be subject to
significant limitations and/or conditions.
US dollar processing consent order
In December 2013 RBS and The Royal Bank of Scotland plc agreed a
settlement with the Board of Governors of the Federal Reserve System
(Fed), the New York State Department of Financial Services (DFS), and
the Office of Foreign Assets Control (OFAC) with respect to The Royal
Bank of Scotland plcs historical compliance with US economic sanction
regulations outside the US. As part of the settlement, RBS and The
Royal Bank of Scotland plc entered into a consent Cease and Desist
Order with the Fed (US Dollar Processing Order), which remains in effect
until terminated by the Fed. The US Dollar Processing Order (which is
publicly available) indicated, among other things, that RBS and The
Royal Bank of Scotland plc lacked adequate risk management and legal
review policies and procedures to ensure that activities conducted
outside the United States comply with applicable OFAC regulations. RBS
agreed to create an OFAC compliance programme to ensure compliance
with OFAC regulations by RBSs global business lines outside of the
United States, and to adopt, implement, and comply with the programme.
Prior to and in connection with the US Dollar Processing Order, RBS has
made investments in technology, hired and trained personnel, and
revised compliance, risk management, and other policies and
procedures. RBS also agreed in the US Dollar Processing Order (as part
of the OFAC compliance programme) to hire an independent consultant
to conduct an annual OFAC compliance review of compliance policies
and their implementation and an appropriate risk-focused sampling of
U.S. dollar payments.
US/Swiss tax programme
In August 2013, the DOJ announced a programme for Swiss banks (the
Programme), to settle the long-running dispute between the US tax
authorities and Switzerland regarding the role of Swiss banks in
concealing the assets of US tax payers in offshore accounts. The
Programme provides Swiss banks with an opportunity to obtain
resolution, through non-prosecution agreements or non-target letters,
concerning their status in connection with the DOJs investigations.
438
Coutts & Co Ltd, a member of the Group incorporated in Switzerland,

notified the DOJ that it intended to participate in the Programme based
on the possibility that some of its clients may not have declared their
assets in compliance with US tax laws. The Programme required a
detailed review of all US related accounts. The results of Coutts & Co
Ltds review were presented to the DOJ in June 2014. Coutts & Co Ltd
has now completed the collection of evidence of the tax status of all US
related account holders, including those US account holders participating
in an offshore voluntary disclosure programme. The results of the review
were presented by Coutts to the DOJ on 5 November 2014. Coutts
continues to cooperate with the DOJ pursuant to the terms of the
Programme. Coutts expects to reach resolution with the DOJ in 2015,
under the terms of the Programme. Provision has been made for the
estimated liability arising from this programme/review.
German prosecutor investigation into Coutts & Co Ltd
A prosecuting authority in Germany is undertaking an investigation into
Coutts & Co Ltd in Switzerland, and current and former employees, for
alleged aiding and abetting of tax evasion by certain Coutts & Co Ltd
clients. Coutts & Co Ltd is cooperating with the authority.
Review of suitability of advice provided by Coutts & Co

In 2013 the FCA conducted a thematic review of the advice processes
across the UK wealth management industry. As a result of this review,
Coutts & Co, a member of the Group incorporated in England and Wales,
decided to undertake a past business review into the suitability of
investment advice provided to its clients. This review is ongoing. Coutts &
Co is in the process of contacting clients and redress is being offered in
appropriate cases. Provision has been made for the estimated liability
arising from this programme/review.
Enterprise Finance Guarantee Scheme
The Enterprise Finance Guarantee (EFG) is a government lending
initiative for small businesses with viable business proposals that lack
security for conventional lending. RBS has identified a number of
instances where it has not properly explained to customers how borrower
and guarantor liabilities work under the EFG scheme and will now
undertake a review of affected and potentially affected customers to
determine whether affected customers should be offered redress. From
2009 to the end of 2014, RBS provided over 940 million of lending under
the EFG scheme.
439
33 Net cash flow from operating activities
Operating profit/(loss) before tax - continuing operations

(Loss)/profit before tax - discontinued operations
Decrease in prepayments and accrued income
Decrease in accruals and deferred income
(Recoveries)/impairment losses
Loans and advances written-off net of recoveries
Unwind of discount on impairment losses
Profit on sale of property, plant and equipment
Profit on sale of subsidiaries and associates
Profit on sale of securities
Charge for defined benefit pension schemes
Pension schemes curtailment and settlement gains
Cash contribution to defined benefit pension schemes
Other provisions charged net of releases
Other provisions utilised
Net cash (outflow)/inflow from trading activities
Decrease in loans and advances to banks and customers
Decrease in securities
Decrease/(increase) in other assets
(Increase)/decrease in derivative assets
Changes in operating assets
Decrease in deposits by banks and customers
Decrease in debt securities in issue
Decrease in other liabilities
Increase/(decrease) in derivative liabilities
(Decrease)/increase in settlement balances and short positions
Changes in operating liabilities
Income taxes paid
Net cash outflow from operating activities
2014
m
2013
m
2012
m
2,643
(3,207)
5
886
(313)
(1,155)
(5,073)
(247)
(137)
(363)
(244)
466
(1,065)
2,711
(3,528)
1,109
(20)
3,994
533
(724)
1,704
(2,025)
11,245
8,399
375
(65,958)
(45,939)
(11,508)
(15,894)
(4,150)
64,424
(4,881)
27,991
(414)
(20,387)
(8,849)
783
300
886
(889)
8,432
(4,090)
(391)
(44)
(240)
(830)
517
(7)
(821)
4,422
(2,066)
1,410
(175)
1,403
(47)
(1,209)
(1,505)
49,314
29,140
(190)
153,864
232,128
(84,364)
(26,868)
(885)
(148,807)
16
(260,908)
(346)
(30,631)
(6,052)
664
787
841
(3,653)
5,283
(3,925)
(476)
(20)
(95)
(1,235)
558
(41)
(977)
2,899
(1,507)
1,854
(454)
518
7,140
1,809
3,918
30,719
13,537
1,672
88,134
134,062
(7,848)
(68,029)
(4,141)
(89,763)
(13,017)
(182,798)
(295)
(45,113)
2014
2013
2012
(54)
(1,180)
363
11
(806)
10
(631)
(1,481)
1,435
3
240
210
1,888
134
(872)
1,150
(68)
1,317
(90)
95
1,322
22
(924)
352
34 Analysis of the net investment in business interests and intangible assets

Acquisitions and disposals
Fair value given for businesses acquired
Net (liabilities)/assets sold
Non-cash consideration
Profit on disposal
Net cash and cash equivalents disposed
Net (outflow)/inflow of cash in respect of disposals
Dividends received from associates
Cash expenditure on intangible assets
Net (outflow)/inflow
Note:
(1) Includes cash proceeds of 578 million in 2013 relating to the disposal of the controlling interest in Direct Line Group.
440
35 Interest received and paid

Interest received
Interest paid
2014
m
2013
m
2012
m
13,453
(4,194)
9,259
17,948
(6,450)
11,498
19,238
(7,044)
12,194
36 Analysis of changes in financing during the year

Share capital, share premium,
paid-in equity and merger reserve
2014
2013
m
m
At 1 January
Net proceeds from issue of subordinated liabilities
Repayment of subordinated liabilities
Net cash inflow/(outflow) from financing
Ordinary shares issued in respect of employee share schemes
Reclassification of paid-in equity
Other adjustments including foreign exchange
At 31 December
45,582
314
26,773
26,319
2,159
(3,480)
(1,321)
1,796
(3,500)
(1,704)
2,093
(258)
1,835
214
22,905
(1,057)
24,012
(1,381)
26,773
2014
m
2013
m
2012
m
Net cash outflow

At 31 December
101,172
20,005
121,177
(13,273)
107,904
91,658
41,183
132,841
(11,664)
121,177
109,888
42,767
152,655
(19,814)
132,841
Comprising:
Treasury bills and debt securities
Cash and cash equivalents
74,872
1,899
31,133
107,904
82,659
702
37,816
121,177
79,290
772
52,779
132,841
264
174
45,582
53,520
120
2012
m
24,012
314
234
(195)
45,935
45,144
264
2014
2013
m
m
2012
m
120
(8,933)
437
45,144
37 Analysis of cash and cash equivalents

At 1 January
- cash
- cash equivalents
Note:
(1) Includes cash collateral posted with bank counterparties in respect of derivative liabilities of 11,508 million (2013 - 10,342 million; 2012 - 12,784 million).
Certain members of the Group are required by law or regulation to maintain balances with the central banks in the jurisdictions in which they operate.
These balances are set out below.
Bank of England
US Federal Reserve
De Nederlandsche Bank
2014
2013
2012
0.6bn
US$1.3bn
0.2bn
0.6bn
US$1.2bn
0.2bn
0.4bn
US$1.2bn
0.4bn
441
38 Segmental analysis
(a) Reportable segments
The directors manage the Group primarily by class of business and
present the segmental analysis on that basis. This includes the review of
net interest income for each class of business - interest receivable and
payable for all reportable segments is therefore presented net. Segments
charge market prices for services rendered between each other; funding
charges between segments are determined by RBS Treasury, having
regard to commercial demands. The segment performance measure is
operating profit/(loss).
Central Functions comprises Group and corporate functions, such as

treasury, finance, risk management, compliance, legal, communications
and human resources. The Centre manages the Group's capital
resources and Group-wide regulatory projects and provides services to
the operating segments.
Organisational structure
On 27 February 2014, RBS announced a revised organisational structure
comprising the following reportable segments.
Although CFG has been reclassified as a discontinued operation, it

continues to be presented as a reportable segment.
UK Personal & Business Banking offers a comprehensive range of

banking products and related financial services to the UK personal and
small business markets. It serves customers through a number of
channels including: the RBS and NatWest network of branches and
ATMs in the United Kingdom, telephony, online and mobile. Small
businesses include accounts having less than 2 million annual turnover
and no currency transactions.
Ulster Bank is a retail and commercial bank in Northern Ireland and the
Republic of Ireland. It provides a comprehensive range of financial
services through both its Retail Banking division, which provides loan and
deposit products through a network of branches and direct channels, and
its Corporate Banking division, which provides services to businesses
and corporate customers.
Commercial Banking provides banking, finance and risk management
services to the commercial, mid-corporate and corporate sector in the
UK. It offers a full range of banking products and related financial
services through a nationwide network of relationship managers,
telephone and internet channels. The product range includes invoice
finance through the RBSIF brand and asset finance through the Lombard
brand.
Private Banking provides banking and wealth management services in
the UK through Coutts & Co and Adam & Company, offshore through
RBS International and Isle of Man Bank and internationally through
Coutts & Co Ltd.
Corporate & Institutional Banking serves corporate and institutional
clients primarily in the UK and Western Europe, as well as those US and
Asian multinationals with substantial trade and investment links in the
region. Products include debt financing, risk management and trade
services, focusing on core product capabilities that are of most relevance
to clients.
Citizens Financial Group (CFG) provides financial services primarily

through the Citizens and Charter One brands. CFG is engaged in retail
and corporate banking activities through its branch network in 11 states in
the United States and through non-branch offices in other states.
RBS Capital Resolution (RCR) became fully operational on 1 January

2014 with a pool of c.29 billion of assets with particularly high long-term
capital intensity, credit risk and/or potentially volatile outcomes in
stressed environments. RCR brings assets under common management
and increases focus on managing these assets so as to release capital.
No business lines were moved to RCR so comparative data has not been
restated.
Non-Core Division was dissolved on 31 December 2013. It managed
separately assets that RBS intended to run off or dispose of. The division
contained a range of businesses and asset portfolios primarily from the
legacy GBM businesses, higher risk profile asset portfolios including
excess risk concentrations, and other illiquid portfolios. It also included a
number of other portfolios and businesses including those in regional
markets that were no longer strategic to RBS.
Reporting changes
purchased intangible assets, write down of other intangible assets and
bank levy) have now been allocated to the reportable segments.
Consistent with the manner in which RBS is managed, operating profit on
a non-statutory basis excludes:

RFS Holdings minority interest (RFS MI),
and includes the results of Citizens that are included in discontinued

In addition, during 2014 RBS also made changes to the method of
allocating costs relating to Services and Functions and the basis of
allocation of RBS Treasury costs. For further information on these
changes, see page 126.
Comparatives have been restated accordingly for the changes outlined
above.
442
2014
Net
interest
income
m
Non-interest
income
m
Total
income
m
Operating
expenses
m
Depreciation
and
amortisation
m
Impairment
(losses)/
releases
m
Operating
profit/(loss)
m

Ulster Bank
4,683
636
1,354
194
6,037
830
(4,319)
(589)
(268)
365
1,450
606
5,319
1,548
6,867
(4,908)
97
2,056
Commercial Banking
Private Banking
2,041
691
1,169
391
3,210
1,082
(1,703)
(936)
(141)
(76)
4
1,290
150
2,732
1,560
4,292
(2,639)
(141)
(72)
1,440

Central items
RCR
Non-statutory basis
817
440
2,013
(47)
11,274
3,132
(477)
1,068
92
6,923
3,949
(37)
3,081
45
18,197
(4,830)
(68)
(1,942)
(352)
(14,739)
(20)
(757)
(181)
(11)
(1,110)
9
12
(197)
1,306
1,155
(892)
(850)
761
988
3,503
Reconciling items
Strategic disposals
Statutory basis
(2,013)
(3)
9,258
(146)
20
191
(1,078)
(18)
5,892
(146)
20
191
(3,091)
(21)
15,150
(130)
1,943
(3)
(12,929)
180
(930)
197
1,352
(146)
20
(130)
191
(771)
(24)
2,643

Ulster Bank
4,490
619
1,323
240
5,813
859
(4,492)
(693)
(1)
(1)
(501)
(1,774)
819
(1,609)
5,109
1,563
6,672
(5,185)
(2)
(2,275)
(790)
Commercial Banking
Private Banking
1,962
658
1,195
419
3,157
1,077
(1,839)
(1,109)
(136)
(652)
(29)
530
(61)
2,620
1,614
4,234
(2,948)
(136)
(681)
469

Central items
Non-Core
Non-statutory basis
684
783
1,892
(96)
10,992
4,324
126
1,073
(250)
8,450
5,008
909
2,965
(346)
19,442
(7,095)
718
(2,042)
(548)
(17,100)
(115)
(916)
(162)
(79)
(1,410)
(680)
(64)
(156)
(4,576)
(8,432)
(2,882)
647
605
(5,549)
(7,500)
Reconciling items
Write-down of goodwill
Strategic disposals
Statutory basis
(1,964)
(11)
9,017
(120)
175
161
(1,056)
110
7,720
(120)
175
161
(3,020)
99
16,737
(1,059)
1,939
1
(16,219)
163
(1,247)
312
(8,120)
(120)
175
(1,059)
161
(606)
100
(8,849)
2013*
*Restated
443
38 Segmental analysis continued

Net
interest
income
m
2012*
Non-interest
income
m
Total
income
m
Operating
expenses
m
Depreciation
and
amortisation
m
Impairment
losses
m
Operating
profit/(loss)
m
(741)
(1,364)
671
(1,133)

Ulster Bank
4,532
635
1,352
196
5,884
831
(4,472)
(600)
5,167
1,548
6,715
(5,072)
(2,105)
(462)
Commercial Banking
Private Banking
1,969
676
1,351
450
3,320
1,126
(1,859)
(945)
(168)
6
(545)
(46)
748
141
2,645
1,801
4,446
(2,804)
(162)
(591)
889

Central items
Non-Core
Non-statutory basis
816
620
1,938
231
11,417
5,595
508
1,159
57
10,668
6,411
1,128
3,097
288
22,085
(6,279)
790
(2,046)
(706)
(16,117)
(150)
(1,033)
(200)
(257)
(1,802)
(229)
(40)
(91)
(2,223)
(5,279)
(247)
845
760
(2,898)
(1,113)
Reconciling items
Strategic disposals
Statutory basis
(2,046)
(15)
9,356
(4,649)
454
(44)
113
(1,180)
(3)
5,359
(4,649)
454
(44)
113
(3,226)
(18)
14,715
(18)
1,983
(2)
(14,154)
199
(1,603)
269
(5,010)
(4,649)
454
(18)
(44)
113
(775)
(20)
(6,052)
2014
2013*
2012*
Total income
External
m
Inter
segment
m

Ulster Bank
6,051
688
(14)
142
6,037
830
5,820
736
(7)
123
5,813
859
6,007
754
(123)
77
5,884
831
6,739
128
6,867
6,556
116
6,672
6,761
(46)
6,715
Commercial Banking
Private Banking
3,525
697
(315)
385
3,210
1,082
3,472
585
(315)
492
3,157
1,077
3,742
448
(422)
678
3,320
1,126
4,222
70
4,292
4,057
177
4,234
4,190
256
4,446

Central items
RCR
Non-Core
Non-statutory basis
3,890
(49)
3,110
275
n/a
18,187
59
12
(29)
(230)
n/a
10
3,949
(37)
3,081
45
n/a
18,197
4,736
1,164
2,883
n/a
44
19,440
272
(255)
82
n/a
(390)
2
5,008
909
2,965
n/a
(346)
19,442
6,057
998
2,973
n/a
1,104
22,083
354
130
124
n/a
(816)
2
6,411
1,128
3,097
n/a
288
22,085
Reconciling items
Strategic disposals
Statutory basis
(146)
20
191
(3,081)
(21)
15,150
(10)
(146)
20
191
(3,091)
(21)
15,150
(120)
175
161
(3,020)
101
16,737
(2)
(120)
175
161
(3,020)
99
16,737
(4,649)
454
(44)
113
(3,226)
(16)
14,715
(2)
(4,649)
454
(44)
113
(3,226)
(18)
14,715
Total
m
External
m
Inter
segment
m
Total
m
External
m
Inter
segment
m
Total
m
*Restated
444
2014
2013*
Total revenue
External
m
Inter
segment
m
Total
m

Ulster Bank
7,205
822
13
76
8,027
Commercial Banking
Private Banking
3,500
933
2012*
External
m
Inter
segment
m
Total
m
External
m
Inter
segment
m
Total
m
7,218
898
7,306
1,022
17
67
7,323
1,089
7,491
1,076
870
8,361
1,076
89
8,116
8,328
84
8,412
8,567
870
9,437
26
515
3,526
1,448
3,545
984
31
635
3,576
1,619
3,778
1,043
47
839
3,825
1,882
4,433
541
4,974
4,529
666
5,195
4,821
886
5,707

Central items
RCR
Non-Core
Non-statutory basis
5,025
1,652
3,336
632
n/a
23,105
3,996
2,627
10
319
n/a
7,582
9,021
4,279
3,346
951
n/a
30,687
6,419
2,700
3,208
n/a
948
26,132
4,925
8,675
94
n/a
523
14,967
11,344
11,375
3,302
n/a
1,471
41,099
8,130
2,936
3,413
n/a
2,164
30,031
6,130
14,248
132
n/a
815
23,081
14,260
17,184
3,545
n/a
2,979
53,112
Reconciling items
Strategic disposals
Eliminations
Statutory basis
(146)
20
191
(3,307)
(18)
19,845
(7,582)
(146)
20
191
(3,307)
(18)
(7,582)
19,845
(120)
175
161
(3,327)
110
23,131
(14,967)
(120)
175
161
(3,327)
110
(14,967)
23,131
(4,649)
454
(44)
113
(3,643)
(2)
22,260
(23,081)
(4,649)
454
(44)
113
(3,643)
(2)
(23,081)
22,260
2014
Assets
m
Cost to
acquire fixed
assets and
intangible
Liabilities
assets
m
m

Ulster Bank
134,257
27,596
150,481
24,657
161,853
89,382
20,480
Commercial Banking
Private Banking
Central items
RCR
Non-Core
Direct Line Group
2013*
Assets
m
2012*
Cost to
acquire fixed
assets and
intangible
Liabilities
assets
m
m
Assets
m
Cost to
acquire fixed
assets and
intangible
Liabilities
assets
m
m
132,154
28,183
146,256
27,047
11
133,004
30,727
136,686
28,745
175,138
160,337
173,303
11
163,731
165,431
88,987
36,793
218
21
87,899
21,148
93,200
37,564
83
27
88,322
21,494
94,378
39,431
345
51
109,862
125,780
239
109,047
130,764
110
109,816
133,809
396
577,230
86,947
29,030
n/a
84,932
909
1,050,763
536,243
69,394
12,683
n/a
71,258
75
990,571
28
832
111
n/a
215
1,425
551,200
103,470
n/a
31,177
71,738
909
1,027,878
512,691
84,279
n/a
6,100
61,289
237
968,663
508
842
n/a
18
267
1,756
775,549 754,953
113,380 105,180
n/a
n/a
63,380
9,858
72,904
63,116
12,697
9,267
838
233
1,312,295 1,241,847
390
991
n/a
169
308
275
2,533
*Restated
445
38 Segmental analysis continued

Segmental analysis of assets and liabilities included in disposal groups:
2014
Assets
m
Private Banking
Central items
RCR
Non-Core
Direct Line Group
2
18
80,967
569
n/a
455
82,011
Liabilities
m
14
71,268
2
n/a
36
71,320
2013*
Assets
m
Liabilities
m
3
78
882
679
n/a
773
602
3,017
48
1
3,190
n/a
21
118
3,378
2012*
Assets
m
235
(74)
n/a
576
12,697
579
14,013
Liabilities
m
53
1
n/a
808
9,267
41
10,170
*Restated
Segmental analysis of goodwill is as follows:

UK Personal
& Business
Banking
m
At 1 January 2012*
Disposals
At 1 January 2013*
Disposals
Write down of goodwill - continuing operations
At 1 January 2014*
Write down of goodwill - continuing operations
At 31 December 2014
Commercial
Banking
m
Private
Banking
m
Corporate &
Institutional
Banking
m
Citizens
Financial
Group
m
Direct Line
Group
m
Total
m
3,351
2,121
812
(9)
(3)
1,214
(25)
3,992
(169)
934
(540)
12,424
(540)
(9)
(197)
3,351
3,351
3,351
2,121
2,121
2,121
800
(1)
2
801
(9)
792
(18)
1,171
18
(1,059)
130
(130)
3,823
(87)
3,736
(3,957)
221
(394)
(18)
(394)
11,266
(1)
(67)
(1,059)
10,139
(3,957)
212
(130)
6,264
*Restated
446
(b) Geographical segments

The geographical analysis in the tables below has been compiled on the basis of location of office where the transactions are recorded.
UK
m
USA
m
Europe
m
RoW
m
Total
m
Total revenue
15,913
1,261
1,817
854
19,845
Net interest income

Other operating income/(loss)
Total income
7,976
2,483
530
941
11,930
223
285
538
89
1,135
637
595
238
(83)
1,387
422
176
(21)
121
698
9,258
3,539
1,285
1,068
15,150
828
779,885
48
744,604
2
35,281
103,576
1,025
375
182,471
80,985
166,489
71,282
15,982
89,002
244
1,354
51,227
45,417
5,810
41,399
133
86
37,180
978
34,061
36
3,119
7,209
23
2,643
1,050,763
82,011
990,571
71,320
60,192
241,186
1,425
Total revenue
16,015
2,188
2,913
2,015
23,131
Net interest income

Total income
7,794
2,544
1,474
644
12,456
236
336
899
203
1,674
746
663
106
242
1,757
241
212
92
305
850
9,017
3,755
2,571
1,394
16,737
(2,444)
747,347
915
692,861
54,486
107,500
1,086
(1,221)
197,789
750
183,549
3,210
14,240
83,048
428
(5,262)
40,113
198
50,107
81
(9,994)
41,368
232
78
42,629
1,154
42,146
87
483
10,093
10
(8,849)
1,027,878
3,017
968,663
3,378
59,215
242,009
1,756
Total revenue
12,396
3,181
3,790
2,893
22,260
Net interest income

Other operating (loss)/income
Total income
8,212
2,834
(314)
(710)
10,022
111
425
1,323
113
1,972
770
564
193
356
1,883
263
257
257
61
838
9,356
4,080
1,459
(180)
14,715
(4,671)
899,604
11,638
835,268
8,405
64,336
105,018
1,953
1,046
305,588
291
288,005
129
17,583
84,788
325
(2,034)
47,966
1,001
61,801
871
(13,835)
49,341
186
(393)
59,137
1,083
56,773
765
2,364
8,498
69
(6,052)
1,312,295
14,013
1,241,847
10,170
70,448
247,645
2,533
2014
Operating profit before tax

Total assets
Of which total assets held for sale
Total liabilities
Of which total liabilities held for sale
Net assets attributable to equity owners and non-controlling interests
Cost to acquire property, plant and equipment and intangible assets
2013
Operating (loss)/profit before tax

Total assets
Total liabilities
2012
Operating (loss)/profit before tax

Total assets
Total liabilities
447
39 Directors' and key management remuneration

2014
Directors' remuneration
Non-executive directors - emoluments
Chairman and executive directors
- emoluments
- contributions and allowances in respect of money purchase schemes
- amounts receivable under long-term incentive plans and share option plans
2013
000
000
1,367
1,208
4,211
5,578
1,469
7,047
3,632
348
5,188
5,188
No directors accrued benefits under defined benefit schemes during 2014 and 2013. No directors are accruing benefits under a money purchase
scheme (2013 - one).
The executive directors may participate in the company's long-term incentive plans, executive share option and sharesave schemes and details of their
interests in the company's shares arising from their participation are given in the Directors' remuneration report. Details of the remuneration received by
each director is also given in the Directors' remuneration report.
Compensation of key management
The aggregate remuneration of directors and other members of key management during the year was as follows:
Short-term benefits
Post-employment benefits
Termination benefits
2014
000
2013
000
20,917
1,964
3,481
4,889
31,251
30,590
238
2,033
13,003
45,864
In 2014, key management includes only members of the Executive Committee; in 2013 key management also included members of the Management
Committee.
40 Transactions with directors and key management
(a) At 31 December 2014, amounts outstanding in relation to transactions, arrangements and agreements entered into by authorised institutions in the
Group, as defined in UK legislation, were 654,534 in respect of loans to six persons who were directors of the company at any time during the financial
period.
(b) For the purposes of IAS 24 Related Party Disclosures, key management comprise directors of the company and members of the Executive
Committee. The captions in the Group's primary financial statements include the following amounts attributable, in aggregate, to key management:

Customer accounts
2014
000
2013
000
4,089
22,037
10,750
33,279
Key management have banking relationships with Group entities which are entered into in the normal course of business and on substantially the same
terms, including interest rates and security, as for comparable transactions with other persons of a similar standing or, where applicable, with other
employees. These transactions did not involve more than the normal risk of repayment or present other unfavourable features.
448
41 Related parties
UK Government
On 1 December 2008, the UK Government through HM Treasury became
the ultimate controlling party of The Royal Bank of Scotland Group plc.
The UK Government's shareholding is managed by UK Financial
Investments Limited, a company wholly owned by the UK Government.
As a result, the UK Government and UK Government controlled bodies
became related parties of the Group.
National Loan Guarantee Scheme

The Group participated in the National Loan Guarantee Scheme (NLGS),
providing loans and facilities to eligible customers at a discount of one
percent. It did not issue any guaranteed debt under the scheme and
consequently, it was not committed to providing a particular volume of
reduced rate facilities. At 31 December 2014, the Group had no amounts
outstanding under the scheme (2013 - nil; 2012 - 898 million). The
NLGS was superseded by the Funding for Lending Scheme.
The Group enters into transactions with many of these bodies on an

arms length basis. The principal transactions during 2014, 2013 and
2012 included: Bank of England facilities and the issue of debt
guaranteed by the UK Government discussed below and the Asset
Protection Scheme which the Group exited on 18 October 2012 having
paid total premiums of 2.5 billion. In addition, the redemption of noncumulative sterling preference shares and the placing and open offer in
April 2009 was underwritten by HM Treasury and, in December 2009, B
shares were issued to HM Treasury and a contingent capital agreement
concluded with HM Treasury (see Note 27). Other transactions include
the payment of: taxes principally UK corporation tax (page 373) and value
added tax; national insurance contributions; local authority rates; and
regulatory fees and levies (including the bank levy (page 363) and FSCS
levies (page 429)) together with banking transactions such as loans and
deposits undertaken in the normal course of banker-customer
relationships.
The Funding for Lending Scheme

The Funding for Lending Scheme was launched in July 2012. Under the
scheme UK banks and building societies are able to borrow UK treasury
bills from the Bank of England at a price that depends on the participants
net lending to the UK non-financial sector. As at 31 December 2014, the
Group had no amounts outstanding under the scheme (2013 - nil; 2012 749 million).
Bank of England facilities

The Group may participate in a number of schemes operated by the Bank
of England in the normal course of business.
Members of the Group that are UK authorised institutions are required to
maintain non-interest bearing (cash ratio) deposits with the Bank of
England amounting to 0.18% of their eligible liabilities in excess of 600
million. They also have access to Bank of England reserve accounts:
sterling current accounts that earn interest at the Bank of England Rate.
Other related parties

(a) In their roles as providers of finance, Group companies provide
development and other types of capital support to businesses. These
investments are made in the normal course of business and on arm's
length terms. In some instances, the investment may extend to
ownership or control over 20% or more of the voting rights of the
investee company. However, these investments are not considered
to give rise to transactions of a materiality requiring disclosure under
IAS 24.
(b) The Group recharges The Royal Bank of Scotland Group Pension
Fund with the cost of administration services incurred by it. The
amounts involved are not material to the Group.
(c) In accordance with IAS 24, transactions or balances between Group
entities that have been eliminated on consolidation are not reported.
(d) The captions in the primary financial statements of the parent
company include amounts attributable to subsidiaries. These
amounts have been disclosed in aggregate in the relevant notes to
the financial statements.
42 Post balance sheet events
There have been no significant events between 31 December 2014 and
the date of approval of these accounts which would require a change to
or additional disclosure in the accounts.
449
Balance sheet as at 31 December 2014

2014
m
2013
m
2012
m
3
3
7
8
6
24,490
299
911
54,858
179
193
80,930
24,574
153
1,517
54,813
164
36
842
82,099
24,066
1,266
1,522
54,995
511
20
82,380
3
3
3
6
9
10
1,202
7,510
30
165
10,708
19,615
61,315
80,930
1,490
740
7,015
62
49
12,426
21,782
60,317
82,099
1,455
838
9,310
7
491
11,305
23,406
58,974
82,380
Note
Assets
Debt securities
Investments in Group undertakings
Derivatives
Total assets
Liabilities
Deposits by banks
Customer accounts
Derivatives
Total liabilities
Owners equity
The accompanying notes on pages 453 to 458 form an integral part of these financial statements.
The accounts were approved by the Board of directors on 25 February 2015 and signed on its behalf by:
Philip Hampton
Chairman
Ross McEwan
Chief Executive
Ewen Stevenson

Registered No. SC45551
450
Statement of changes in equity for the year ended 31 December 2014

2014
m
2013
m
2012
m
6,714
163
6,877
6,582
132
6,714
15,318
197
(8,933)
6,582
431
431
431
24,667
385
25,052
24,361
306
24,667
24,001
360
24,361
Merger reserve
2,341
2,341
2,341
Capital redemption reserve

At 1 January
At 31 December
9,131
9,131
9,131
9,131
198
8,933
9,131
(1,208)
1,208
(1,208)
(1,208)
Retained earnings
At 1 January
Profit/(loss) attributable to ordinary and B shareholders and other equity owners
Equity preference dividends paid
Paid-in equity dividends paid, net of tax
Dividend access share dividend
Transfer from contingent capital reserve
Termination of contingent capital agreement
At 31 December
17,033
1,128
(330)
(28)
(320)
17,483
17,336
964
(349)
(30)
(1,208)
320
17,033
18,308
(684)
(273)
(15)
17,336
Owners equity at 31 December
61,315
60,317
58,974
Called-up share capital

At 1 January
At 31 December
Paid-in equity
Share premium account
At 1 January
At 31 December
Contingent capital reserve

At 1 January
At 31 December
451
Cash flow statement for the year ended 31 December 2014

2014
m
2013
m
2012
m
1,101
998
(529)
16
641
(15)
334
218
2,295
(5,286)
(2,991)
(168)
(3,159)
(676)
619
(44)
(118)
(723)
56
(2,735)
(2,679)
(186)
(2,865)
(157)
1,785
486
1,409
(194)
(1)
2,799
(3,725)
(926)
(58)
(984)
Investing activities
Sale and maturity of securities
Investment in subsidiaries
Disposal of subsidiaries and associates
599
1,183
1,782
1,206
1,206
(2,900)
892
(2,008)
Financing activities
Issue of exchangeable bonds
Dividends paid
314
2,159
(358)
(320)
(655)
1,140
(3)
264
2,216
600
(379)
(708)
1,993
14
120
2,747
(288)
(423)
2,156
(50)
Net (decrease)/increase in cash and cash equivalents

Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
(240)
1,345
1,105
348
997
1,345
(886)
1,883
997
Note
Operating activities
Adjustments for:
Profit on disposal of investments in subsidiaries
Write-down of investment in subsidiaries
(Recoveries)/impairment of loans to Group entities
Net cash flows from trading activities
Changes in operating assets and liabilities
Net cash flows from operating activities before tax
Income taxes paid
12
15
452
1 Presentation of accounts
The accounts are prepared on a going concern basis (see the Report of the directors, page 99) and in accordance with International Financial Reporting
Standards issued by the International Accounting Standards Board (IASB) and interpretations issued by the IFRS Interpretations Committee of the IASB
as adopted by the European Union (EU) (together IFRS). The company's financial statements are prepared in accordance with IFRS as issued by the
IASB and are presented in accordance with the Companies Act 2006.
The company is incorporated in the UK and registered in Scotland. The accounts are prepared on the historical cost basis except that derivative
financial instruments are stated at fair value. Recognised financial assets and financial liabilities in fair value hedges are adjusted for changes in fair
value in respect of the risk that is hedged.
The accounting policies that are applicable to the company are included in the Group accounting polices which are set out on pages 349 to 359 of the
consolidated financial statements, except that it has no policy regarding Basis of consolidation and that the companys investments in its subsidiaries
are stated at cost less any impairment.
2 Profit dealt with in the accounts of the company
As permitted by section 408(3) of the Companies Act 2006, the primary financial statements of the company do not include an income statement or a
statement of comprehensive income. Condensed information is set out below.
Income statement
Dividends received from banking subsidiary
Dividends received from other subsidiaries
Profit on disposal of investment in subsidiaries
Interest receivable from subsidiaries
Interest payable to subsidiaries
Other net interest payable, non-interest income and operating expenses
Write-down of investments in subsidiaries
Recoveries/(impairment) of loans to Group entities
Tax credit/(charge)
Profit/(loss) and total comprehensive income for the year
Attributable to:
2014
m
2013
m
2012
m
61
235
296
1,067
(167)
(94)
(16)
15
1,101
27
1,128
58
19
676
753
1,005
(232)
(572)
44
998
(34)
964
58
1,978
157
2,193
1,097
(378)
(247)
(1,785)
(1,409)
(529)
(155)
(684)
330
28
320
450
1,128
349
30
585
964
273
15
(972)
(684)
The company did not pay an ordinary dividend in 2014, 2013 or 2012.
453
3 Financial instruments - classification

The following table shows the company's financial assets and liabilities in accordance with the categories of financial instruments in IAS 39.
Assets
Loans and advances to banks (1) - loans and receivables
Loans and advances to customers (1) - loans and receivables
Debt securities - loans and receivables
Investment in Group undertakings
Derivatives (1)
- held-for-trading
- hedging
Prepayments, accrued income and other assets - non-financial assets
Liabilities
Deposits by banks (2) - amortised cost
Customer accounts (2) - amortised cost
- amortised cost
- designated as at fair value through profit or loss
Derivatives (2)
- held-for-trading
- hedging
Accruals, deferred income and other liabilities - non-financial liabilities
Subordinated liabilities - amortised cost
Owners equity
2014
m
2013
m
2012
m
24,490
299
911
54,858
24,574
153
1,517
54,813
24,066
1,266
1,522
54,995
6
173
179
193
80,930
60
104
164
36
842
82,099
220
291
511
20
82,380
1,202
1,490
740
1,455
838
7,365
145
7,510
6,862
153
7,015
9,157
153
9,310
19
11
30
165
10,708
19,615
61,315
80,930
25
37
62
49
12,426
21,782
60,317
82,099
7
491
11,305
23,406
58,974
82,380
Notes:
(1) Due from subsidiaries.
(2) Due to subsidiaries.
4 Financial instruments - valuation

Fair value of financial instruments not carried at fair value
The following table shows the carrying value and fair value of financial instruments carried at amortised cost on the balance sheet.
2014
Carrying
value
bn
Fair value
bn
2013

Level 2
Level 3
bn
bn
Carrying
value
bn
2012
Fair value of
hierarchy level
Fair value
Level 2
bn
bn
Carrying
value
bn
Fair value
bn
Financial assets
Debt securities
24.5
0.3
0.9
26.0
0.3
1.8
13.4
0.3
1.8
12.6
24.6
0.2
1.5
24.9
0.2
2.5
24.9
0.2
2.5
24.1
1.3
1.5
24.8
1.3
2.0
Deposits by banks
Customer accounts
1.2
7.4
10.7
1.2
7.5
11.3
1.2
7.5
11.3
1.5
0.7
6.9
12.4
1.6
0.7
6.9
12.5
1.6
0.7
6.9
12.5
1.5
0.8
9.2
11.3
1.5
0.8
8.9
10.3
454
5 Financial instruments - maturity analysis

Remaining maturity
The following table shows the residual maturity of financial instruments, based on contractual date of maturity.
Less than
12 months
m
2014
More than
12 months
m
Total
m
Less than
12 months
m
2013
More than
12 months
m
Assets
Debt securities
Derivatives
5,400
296
227
23
Liabilities
Deposits by banks
Customer accounts
Derivatives
331
2,448
3
1,135
Total
m
Less than
12 months
m
2012
More than
12 months
m
Total
m
19,090
3
684
156
24,490
299
911
179
4,730
150
26
33
19,844
3
1,491
131
24,574
153
1,517
164
6,382
26
296
17,684
1,266
1,496
215
24,066
1,266
1,522
511
871
5,062
27
9,573
1,202
7,510
30
10,708
14
1,643
10
699
1,490
726
5,372
52
11,727
1,490
740
7,015
62
12,426
320
838
5,506
647
1,135
3,804
7
10,658
1,455
838
9,310
7
11,305
On balance sheet liabilities

The following table shows by contractual maturity, the undiscounted cash flows payable up to a period of 20 years from the balance sheet date,
including future payments of interest.
2014
Deposits by banks
0-3 months
m
3-12 months
m
1-3 years
m
3-5 years
m
5-10 years
m
10-20 years
m
19
671
1,134
1,824
349
2,021
311
2,681
927
2,838
963
4,728
2,676
1,172
3,848
19
7,680
7,699
2
2,321
2,323
2
18
736
123
879
327
1
1,056
1,149
2,533
324
742
3,649
1,804
6,519
988
1,230
1,567
3,785
1,145
5,151
6,296
2,114
2,114
6
18
1,975
85
2,084
338
97
3,663
826
4,924
325
742
2,406
1,796
5,269
958
567
680
2,205
1,194
3,158
4,352
2,314
2,314
2013
Deposits by banks
Customer accounts
2012
Deposits by banks
Customer accounts
For further information on the timing of cash flows to settle financial liabilities, see Note 12 on the consolidated accounts.
455
6 Derivatives
The following table shows the notional amount and fair value of the company's derivatives.
2014
Notional
amount
bn

Interest rate contracts*
Equity and commodity contracts
*Held for fair value hedging purposes
2013
Assets
m
Liabilities
m
1
178
179
15
15
30
173
11
Notional
amount
bn
1
5
1
2012
Assets
m
Notional
amount
bn
Liabilities
m
43
117
4
164
12
50
62
104
37
3
6
Assets
m
Liabilities
m
214
297
511
2
5
291
7 Debt securities
Debt securities comprise the partial repurchase of preferred securities issued by the trusts referred to in Note 27 on the consolidated accounts.
8 Investments in Group undertakings
Investments in Group undertakings are carried at cost less impairment. Movements during the year were as follows:
At 1 January
Additional investments in Group undertakings
Redemption of investments in Group undertakings
Disposals
Impairment of investments
At 31 December
2014
m
2013
m
2012
m
54,813
49
12
(16)
54,858
54,995
(23)
1,222
(1,381)
54,813
53,871
(37)
3,710
(29)
(735)
(1,785)
54,995
The principal subsidiary undertakings of the company are shown below. Their capital consists of ordinary and preference shares which are unlisted with
the exception of the common stock of Citizens Financial Group and certain preference shares issued by NatWest and RBS Holdings N.V..
The Royal Bank of Scotland plc and RFS Holdings B.V. are directly owned by the company, and all of the other subsidiary undertakings are owned
directly, or indirectly through intermediate holding companies, by these companies. All of these subsidiaries are included in the Group's consolidated
financial statements and have an accounting reference date of 31 December.
Nature of business Country of incorporation and
principal area of operation

National Westminster Bank Plc (1)
Citizens Financial Group, Inc. (2)
Coutts & Company (3)
RBS Securities Inc.
Ulster Bank Limited (4)
RBS Holdings N.V. (5)
Banking
Banking
Banking
Private banking
Broker dealer
Banking
Banking
Great Britain
Great Britain
US
Great Britain
US
Northern Ireland
The Netherlands
Group interest
100%
100%
70.5%
100%
100%
100%
98%
Notes:
(1) The company does not hold any of the NatWest preference shares in issue.
(2) RBS disposed of 29.5% of its interest in Citizens Financial Group, Inc. during the second half of 2014 primarily through an initial public offering in the USA.
(3) Coutts & Company is incorporated with unlimited liability. Its registered office is 440 Strand, London WC2R 0QS.
(4) Ulster Bank Limited and its subsidiaries also operate in the Republic of Ireland.
(5) RFS Holdings B.V. (RFS) owns 100% of the outstanding shares of RBS Holdings N.V. (ABN AMRO Holding N.V. prior to 1 April 2010). RBS Holdings N.V. has one direct subsidiary, The Royal Bank
of Scotland N.V. (RBS N.V.), a fully operational bank within the Group. RBS N.V. is independently rated and regulated by the Dutch Central Bank. On the division of an entity by demerger, Dutch law
establishes a cross liability between surviving entities in respect of the creditors at the time of the demerger. RBS N.V.s cross liability is limited by law to the lower of its equity and the debts of ABN
AMRO Bank N.V. on 1 April 2010. The likelihood of any cross liability crystallising is considered remote.
The above information is provided in relation to the principal related undertakings only as permitted by Section 410(2) of the Companies Act 2006. Full
information on all related undertakings is included in the Annual Return delivered to the Registrar of Companies for Scotland.
456
9 Accruals, deferred income and other liabilities
2014
m
2013
m
2012
m
Current tax
Accruals
Other liabilities
7
158
165
22
3
24
49
183
1
307
491
2014
m
2013
m
2012
m
9,255
659
794
10,708
8,797
2,878
751
12,426
7,590
2,946
769
11,305
10 Subordinated liabilities
Dated loan capital

Undated loan capital
Preference shares
Certain preference shares issued by the company are classified as liabilities; these securities remain subject to the capital maintenance rules of the
Companies Act 2006.
2014
- final redemption
- call date
2013
- final redemption
- call date
2012
- final redemption
- call date
Currently
m
959
Currently
m
2,743
Currently
m
767
2015
m
1,135
2,252
2014
m
700
1,941
2013
m
647
2,257
2016
m
389
2015
m
408
408
2014
m
618
1,822
2017-2019
m
224
1,397
2016-2018
m
211
1,027
2015-2017
m
417
1,225
2020-2024
m
5,585
4,812
2019-2023
m
3,112
3,194
2018-2022
m
1,601
1,601
Thereafter
m
Perpetual
m
Total
m
2,324
897
1,440
2
10,708
10,708
Thereafter
m
Perpetual
m
Total
m
4,393
861
3,602
2,252
12,426
12,426
Thereafter
m
Perpetual
m
4,420
1,514
3,602
2,119
Total
m
11,305
11,305
11 Share capital
Details of the companys share capital are set out in Note 26 on the consolidated accounts.
12 Net cash flow from operating activities
Increase in accruals and deferred income
(Recoveries)/impairments of loans to Group entities
Profit on disposal of investments in subsidiaries
Write-down of investment in subsidiaries
Net cash inflow from trading activities
Increase in loans and advances to banks and customers
(Increase)/decrease in securities in issue
(Increase)/decrease in other assets
(Increase)/decrease in derivative assets
Changes in operating assets
Decrease in deposits by banks and customers
Increase/(decrease) in debt securities in issue
Increase/(decrease) in other liabilities
(Decrease)/increase in derivative liabilities
Changes in operating liabilities
Income taxes paid
Net cash outflow from operating activities
2014
m
2013
m
2012
m
1,101
641
143
(15)
16
334
75
2,295
(4,641)
(1)
(233)
(15)
(4,890)
(1,028)
495
169
(32)
(396)
(168)
(3,159)
998
619
22
(44)
(676)
(118)
(745)
56
(225)
31
9
347
162
(63)
(2,895)
6
55
(2,897)
(186)
(2,865)
(529)
486
1,409
(157)
1,785
(194)
(1)
2,799
(4,737)
46
4
991
(3,696)
(585)
937
(309)
(72)
(29)
(58)
(984)
457
13 Interest received and paid

Interest received
Interest paid
2014
m
2013
m
2012
m
1,159
(879)
280
1,139
(884)
255
1,143
(723)
420
14 Analysis of changes in financing during the year

Share capital,
share premium, paid-in
equity and merger reserve
2014
2013
m
m
At 1 January
Net cash inflow from financing
Ordinary shares issued in respect of employee share schemes
Other adjustments including foreign exchange movements
At 31 December
34,153
314
314
234
34,701
33,715
264
264
174
34,153
2012
m
42,091
120
120
(8,933)
437
33,715
2014
2013
m
m
12,426
2,159
2,159
(3,877)
10,708
11,305
2,216
2,216
(1,095)
12,426
2012
m
8,777
2,747
2,747
(219)
11,305
15 Analysis of cash and cash equivalents

At 1 January - cash equivalents
Net cash (outflow)/inflow
At 31 December*
2014
m
2013
m
2012
m
1,345
(240)
1,105
997
348
1,345
1,883
(886)
997
*Comprises loans and advances to banks

16 Directors and key management remuneration
Directors remuneration is disclosed in Note 39 on the consolidated accounts. The directors had no other reportable related party transactions or
balances with the company.
458
460
469
470
470
471
471
474
Financial summary
Exchange rates
Supervision
Description of property and equipment
Major shareholders
Material contracts
Risk factors
459
Financial summary
RBS's financial statements are prepared in accordance with IFRS. Selected data under IFRS for each of the last five years are presented below.
Summary consolidated income statement
Net interest income
Non-interest income (1,2,3)
Total income
Operating expenses (4)
Profit/(loss) before insurance net claims and impairment losses
Insurance net claims
Impairment releases/(losses) (5)
Tax charge
(Loss)/profit from discontinued operations, net of tax (6)
Loss for the year
Attributable to:
2014
m
2013
m
2012
m
2011
m
2010
m
9,258
5,892
15,150
(13,859)
1,291
1,352
2,643
(1,909)
734
(3,445)
(2,711)
9,017
7,720
16,737
(17,466)
(729)
(8,120)
(8,849)
(186)
(9,035)
558
(8,477)
9,356
5,359
14,715
(15,757)
(1,042)
(5,010)
(6,052)
(156)
(6,208)
318
(5,890)
10,226
11,159
21,385
(15,167)
6,218
(8,078)
(1,860)
(914)
(2,774)
651
(2,123)
11,637
11,599
23,236
(15,279)
7,957
(85)
(8,135)
(263)
(700)
(963)
(808)
(1,771)
60
330
49
320
(3,470)
120
349
49
(8,995)
(136)
273
28
(6,055)
28
(2,151)
(675)
105
29
(1,230)
Notes:
(1) Includes profit on strategic disposals of 191 million (2013 - 161 million profit; 2012 - 111 million profit; 2011 - 25 million loss; 2010 - 171 million profit).
(2) Includes gain on redemption of own debt of 20 million (2013 - 175 million; 2012 - 454 million; 2011 - 255 million; 2010 - 553 million).
(3) Includes own credit adjustments of 146 million loss (2013 - 120 million loss; 2012 - 4,649 million loss; 2011 - 1,914 million gain; 2010 - 242 million gain).
(4) Includes write down of goodwill of 130 million (2013 - 1,059 million; 2012 - 18 million; 2011 - 80 million; 2010 - 1 million).
(5) Includes sovereign debt impairment of 1,099 million and related interest rate hedge adjustments of 169 million in 2011.
(6) Includes 3,994 million loss provision in 2014 relating to the transfer of Citizens to disposal groups.
2014
m
2013
m
2012
m
2011
m
2010
m
Loans and advances

Debt securities and equity shares
Derivatives and settlement balances
Other assets
Total assets
421,973
92,284
358,257
178,249
1,050,763
494,793
122,410
293,630
117,045
1,027,878
564,086
172,670
447,644
127,895
1,312,295
598,916
224,263
537,389
146,299
1,506,867
655,778
239,678
438,682
119,438
1,453,576
Owners' equity
Deposits
Derivatives, settlement balances and short positions
Other liabilities
57,246
2,946
22,905
452,304
377,337
138,025
1,050,763
58,742
473
24,012
534,859
318,861
90,931
1,027,878
68,678
1,770
26,773
622,684
467,802
124,588
1,312,295
75,367
686
26,319
611,759
572,499
220,237
1,506,867
75,680
1,171
27,053
609,483
478,076
262,113
1,453,576
Summary consolidated balance sheet
460
Other financial data

Basic and diluted earnings/(loss) per ordinary and equivalent B share from
continuing operations - pence (1)
Share price per ordinary share at year end -
Market capitalisation at year end - bn
Net asset value per ordinary and equivalent B share -
Return on average total assets (2)
Return on average owners' equity (3)
Return on average ordinary and B shareholders' equity (4)
Average owners' equity as a percentage of average total assets
Risk asset ratio - Tier 1
Risk asset ratio - Total
Ratio of earnings to combined fixed charges and preference share dividends (5)
- including interest on deposits
- excluding interest on deposits
Ratio of earnings to fixed charges only (5)
- including interest on deposits
- excluding interest on deposits
2014
2013
2012
2011
2010
0.5
3.94
45.2
5.25
(0.3%)
(4.6%)
(6.3%)
5.9%
13.2%
17.1%
(85.0)
3.38
38.2
5.24
(0.7%)
(12.6%)
(14.5%)
5.6%
13.1%
16.5%
(58.9)
3.25
36.3
6.31
(0.4%)
(7.8%)
(8.9%)
5.2%
12.4%
14.5%
(19.8)
2.02
22.3
6.90
(0.1%)
(2.8%)
(3.1%)
4.9%
13.0%
13.8%
(7.7)
3.91
42.8
7.02
(0.1%)
(1.5%)
(0.9%)
4.6%
12.9%
14.0%
1.52
2.61
(0.51)
(5.12)
0.13
(3.73)
0.78
(0.86)
0.95
0.52
1.67
3.58
(0.55)
(6.95)
0.13
(4.80)
0.78
(0.86)
0.97
0.61
Notes:
(1) None of the convertible securities had a dilutive effect in the years 2010 to 2014.
(2) Return on average total assets represents loss attributable to ordinary and B shareholders as a percentage of average total assets.
(3) Return on average owners equity represents loss attributable to equity owners expressed as a percentage of average shareholder funds.
(4) Return on average ordinary and B shareholders' equity represents loss attributable to ordinary and B shareholders expressed as a percentage of average ordinary and B shareholders' equity.
(5) For this purpose, earnings consist of income before tax and non-controlling interests, plus fixed charges less the unremitted income of associated undertakings (share of profits less dividends
received). Fixed charges consist of total interest expense, including or excluding interest on deposits and debt securities in issue, as appropriate, and the proportion of rental expense deemed
representative of the interest factor (one third of total rental expenses).
461
Financial summary continued

Analysis of loans and advances to customers
The following table analyses gross loans and advances to customers by remaining maturity, geographical area (location of office) and type of customer.
Within
1 year
m
After 1 year
but within
5 years
m
After
5 years
m
2014
Total
m
2013
m
2012
m
2011
m
2010
m
UK
Finance
Residential mortgages
Personal lending
Property
Construction
Manufacturing
Service industries and business activities
Agriculture, forestry and fishing
Accrued interest
Total UK
5,853
24,028
9,788
7,280
12,212
2,586
5,884
21,851
1,130
4,051
235
94,898
20
5,399
24,497
4,786
15,108
1,163
2,783
19,319
1,103
4,572
12
78,762
1,792
2,335
79,236
3,857
10,227
349
665
9,451
978
2,310
11
111,211
7,665
31,762
113,521
15,923
37,547
4,098
9,332
50,621
3,211
10,933
258
284,871
6,951
28,937
110,515
17,098
44,252
4,691
8,739
52,253
2,887
10,524
136
286,983
8,087
33,955
109,530
19,692
53,730
6,507
10,058
56,435
2,699
10,532
263
311,488
8,037
33,235
100,726
20,207
55,751
7,173
10,476
59,190
2,736
11,216
375
309,122
5,901
34,018
101,593
23,620
65,462
9,351
13,810
70,006
2,939
13,374
513
340,587
Overseas
US
Rest of the World
Total Overseas
3,726
23,967
27,693
5,008
17,201
22,209
574
16,364
16,938
9,308
57,532
66,840
60,440
68,555
128,995
63,496
76,240
139,736
72,933
91,817
164,750
74,598
105,618
180,216
Reverse repos
UK
US
Rest of World
Total reverse repos
29,228
8,216
6,543
43,987
29,228
8,216
6,543
43,987
19,777
18,603
11,517
49,897
42,989
22,811
4,247
70,047
42,025
17,397
2,072
61,494
34,234
16,154
2,124
52,512
166,578
100,971
128,149
395,698
465,875
521,271
535,366
573,315
(17,460)
378,238
(25,153)
440,722
(21,136)
500,135
(19,760)
515,606
(18,055)
555,260
114,664
237,047
43,987
395,698
117,452
298,526
49,897
465,875
123,941
327,283
70,047
521,271
88,429
385,443
61,494
535,366
95,000
425,803
52,512
573,315
Loans and advances to customers - gross

Loans and advances to customers - net
Fixed rate
Variable rate
Reverse repos
Loans and advances to customers - gross
34,528
88,063
43,987
166,578
23,470
77,501
100,971
56,666
71,483
128,149
RBS provides credit facilities at variable rates to its corporate and retail customers. Variable rate credit extended to RBSs corporate and commercial
customers includes bullet and instalment loans, finance lease agreements and overdrafts; interest is generally charged at a margin over a benchmark
rate such as LIBOR or base rate. Interest on variable rate retail loans may also be based on LIBOR or base rate; other variable rate retail lending is
charged at variable interest rates set by RBS such as its mortgage standard variable rate in the UK.
462

For details of the factors considered in determining the amount of provisions, refer to the accounting policy on page 353 and Critical accounting policies
and key sources of estimation uncertainty on page 359. The following table shows the movements in loan impairment provisions.
Provisions at the beginning of the year

UK
Overseas
Transfer (to)/from disposal groups
UK
Overseas
UK
Overseas
Disposals
Overseas
Amounts written-off
UK
Overseas
Recoveries of amounts previously written-off
UK
Overseas
(Released)/charged to income statement - continuing operations (1)
UK
Overseas
Charged to income statement - discontinued operations
Overseas
UK
Overseas
Provisions at the end of the year
UK
Overseas
Provisions at the end of the year comprise
Customers
Banks
Gross loans and advances to customers (2)
UK
Overseas
2014
m
2013
m
2012
m
2011
m
2010
m
11,005
14,211
25,216
9,754
11,496
21,250
8,222
11,661
19,883
8,537
9,645
18,182
7,004
10,279
17,283
(553)
(553)
(9)
(9)
764
764
(773)
(773)
(25)
(47)
(72)
929
(1,596)
(667)
323
(202)
121
635
(945)
(310)
6
(289)
(283)
(23)
66
43
(6)
(77)
(5)
(2,172)
(3,570)
(1,708)
(5,278)
(2,547)
(1,799)
(4,346)
(2,127)
(2,139)
(4,266)
(2,408)
(2,119)
(4,527)
(2,270)
(3,772)
(6,042)
77
128
205
78
178
256
164
177
341
158
369
527
151
260
411
(110)
(1,254)
(1,364)
3,593
4,512
8,105
2,351
2,703
5,054
2,937
3,753
6,690
3,916
4,164
8,080
194
307
265
543
1,106
(146)
(101)
(247)
(196)
(195)
(391)
(255)
(221)
(476)
(235)
(249)
(484)
(216)
(239)
(455)
8,185
9,315
17,500
11,005
14,211
25,216
9,754
11,496
21,250
8,222
11,661
19,883
8,537
9,645
18,182
17,460
40
17,500
25,153
63
25,216
21,136
114
21,250
19,760
123
19,883
18,055
127
18,182
284,871
66,840
351,711
286,983
128,995
415,978
311,488
139,736
451,224
309,122
164,750
473,872
340,587
180,216
520,803
463

2014
2013
2012
2011
2010
Closing customer provisions as a % of gross loans and advances to customers (2)

UK
Overseas
Total
2.9%
13.9%
5.0%
3.8%
11.0%
6.0%
3.1%
8.2%
4.7%
2.6%
7.1%
4.2%
2.5%
5.3%
3.5%
Customer (releases)/charge to income statement as a % of gross loans and advances

to customers (2)
UK
Overseas
Total
(1.9%)
(0.4%)
1.3%
3.5%
2.0%
0.8%
1.9%
1.1%
1.0%
2.3%
1.4%
1.1%
2.3%
1.6%
472,545
509,937
541,588
578,057
610,131
(0.3%)
1.1%
1.6%
0.8%
0.9%
0.7%
1.2%
0.7%
1.3%
0.9%
Average loans and advances to customers - gross

As a % of average loans and advances to customers during the year
Total customer provisions charged to income statement
Amounts written-off (net of recoveries) - customers
Notes:
(1) Includes 10 million release relating to loans and advances to banks (2013 - 15 million release; 2012 - 23 million charge; 2011 - nil; 2010 - 13 million release).
(2) Excludes reverse repos.
Analysis of closing customer loan impairment provisions

The following table analyses customer loan impairment provisions by geographical area and type of UK customer.
2014
Closing
provision
m
UK
Manufacturing
Construction
Finance
Service industries and
business activities
Agriculture, forestry and
fishing
Property
Personal lending
Finance leases and
instalment credit
Accrued interest
Total UK
Overseas
Impaired book provisions
Latent book provisions
Total provisions
1,016
17,460
2013
% of
total
loans
%
Closing
provision
m
2012
% of
total
loans
%
Closing
provision
m
2011
% of
total
loans
%
Closing
provision
m
2010
% of
total
loans
%
Closing
provision
m
% of
total
loans
%
1
142
365
65
2.2
2.7
1.2
9.0
2
140
515
73
1.7
2.1
1.1
7.0
134
483
104
1.8
2.2
1.4
7.5
135
502
64
1.7
2.2
1.5
7.0
99
605
97
1.1
2.7
1.8
6.5
1,510
14.4
2,192
12.6
1,480
12.5
1,219
12.5
1,091
13.4
33
3,671
191
1,453
0.9
10.7
32.3
4.5
45
5,190
319
1,718
0.7
10.6
26.6
4.1
34
3,944
457
2,152
0.6
11.9
24.3
4.4
36
2,860
397
1,926
0.6
11.8
21.3
4.3
26
2,124
313
2,517
0.6
12.6
19.5
4.5
82
7,513
8,931
16,444
3.1
81.0
19.0
100.0
136
10,330
12,820
23,150
2.5
69.0
31.0
100.0
184
8,972
10,204
19,176
2.3
0.1
69.0
31.0
100.0
367
7,506
10,268
17,774
2.4
0.1
65.4
34.6
100.0
436
7,308
8,097
15,405
2.6
0.1
65.4
34.6
100.0
2,003
25,153
1,960
21,136
1,986
19,760
2,650
18,055
464
Analysis of write-offs
The following table analyses amounts written-off by geographical area and type of UK customer.
UK
Manufacturing
Construction
Finance
Agriculture, forestry and fishing
Property
Personal lending
Total UK
Overseas
Total write-offs (1)
2014
m
2013
m
2012
m
2011
m
2010
m
48
175
28
719
3
1,917
76
546
58
3,570
1,708
5,278
41
159
47
422
6
950
180
681
61
2,547
1,799
4,346
61
158
30
542
11
490
32
610
193
2,127
2,139
4,266
115
228
24
383
4
493
25
1,007
129
2,408
2,119
4,527
107
110
6
410
5
396
17
1,152
67
2,270
3,772
6,042
Note:
(1) Includes 8 million written-off in respect of loans and advances to banks (2013 - 40 million; 2012 - 29 million).
Analysis of recoveries
The following table analyses recoveries of amounts written-off by geographical area and type of UK customer.
UK
Manufacturing
Construction
Finance
Property
Personal lending
Total UK
Overseas
Total recoveries
2014
m
2013
m
2012
m
2011
m
2010
m
2
9
11
29
26
77
128
205
1
1
21
5
48
2
78
178
256
1
10
1
16
33
6
93
4
164
177
341
4
6
10
8
9
111
10
158
369
527
2
1
7
4
6
128
3
151
260
411
465

Risk elements in lending (REIL) comprises impaired loans and accruing loans past due 90 days or more as to principal or interest.
Impaired loans are all loans (including loans subject to forbearance) for which an impairment provision has been established; for collectively assessed
loans, impairment loss provisions are not allocated to individual loans and the entire portfolio is included in impaired loans.
Accruing loans past due 90 days or more comprises loans past due 90 days where no impairment loss is expected.
Impaired loans (1)

UK
Overseas
Total
Accruing loans which are contractually overdue 90 days or more as to principal
or interest
UK
Overseas
Total
Total REIL
Closing provisions for impairment as a % of total REIL
REIL as a % of gross lending to customers excluding reverse repos
2014
m
2013
m
2012
m
2011
m
2010
m
11,562
13,681
25,243
17,480
19,691
37,171
18,412
20,074
38,486
15,576
23,171
38,747
15,738
19,963
35,701
1,536
105
1,641
26,884
1,962
259
2,221
39,392
2,007
634
2,641
41,127
1,698
400
2,098
40,845
2,374
523
2,897
38,598
65%
7.6%
64%
9.5%
52%
9.1%
49%
8.6%
47%
7.4%
Notes:
(1) The write-off of impaired loans affects closing provisions for impairment as a % of total REIL (the coverage ratio). The coverage ratio reduces if the loan written-off carries a higher than average
provision and increases if the loan written-off carries a lower than average provision.
(2) Impaired loans at 31 December 2014 include 7,052 million (2013 - 7,687 million; 2012 - 6,009 million) of loans subject to forbearance granted during the year.
2014
m
Gross income not recognised but which would have been recognised under
the original terms of impaired loans
UK
Overseas
Interest on impaired loans included in net interest income

UK
Overseas
2013
m
2012
m
2011
m
2010
m
404
165
569
571
601
1,172
665
805
1,470
636
811
1,447
579
648
1,227
146
101
247
196
195
391
255
221
476
235
249
484
216
239
455
Potential problem loans

Potential problem loans (PPL) are loans for which an impairment event has taken place but no impairment loss is expected. This category is used for
advances which are not past due 90 days or revolving credit facilities where identification as 90 days overdue is not feasible.
2014
m
2013
m
2012
m
2011
m
2010
m
1,206
789
807
739
633
Both REIL and PPL are reported gross and take no account of the value of any security held which could reduce the eventual loss should it occur, nor of
any provision marked. Therefore impaired assets which are highly collateralised, such as mortgages, will have a low coverage ratio of provisions held
against the reported impaired balance.
466
Forbearance
The table below shows loans granted forbearance during the year. These loans are unimpaired: either the loan was performing before and after the
granting of forbearance or the loan was non-performing before but subsequently transferred to the performing book. Loans with impairment provisions
subject to forbearance continue to be reported as impaired loans.
Loans granted forbearance
2014
m
2013
m
2012
m
2011
m
2010
m
6,091
7,901
11,196
7,674
5,758
Notes:
(1) Wholesale loans subject to forbearance include only those arrangements above thresholds set individually by the segments, ranging from nil to 3 million.
(2) For 2014, wholesale loans subject to forbearance were 3,040 million (2013 - 4,305 million) (refer to page 249) and secured retail loans subject to forbearance were 3,051 million (2013 - 3,596
million) (refer to pages 261 to 273). Unsecured retail loans subject to forbearance are not included. The balance of unsecured retail loans subject to forbearance amounted to 244 million (2013 272 million).
Cross border exposures

Cross border exposures are loans and advances including finance leases and instalment credit receivables and other monetary assets, such as debt
securities, including non-local currency claims of overseas offices on local residents. RBS monitors the geographical breakdown of these exposures
based on the country of domicile of the borrower or guarantor of ultimate risk. Cross border exposures exclude exposures to local residents in local
currencies.
The table below sets out cross border exposures greater than 0.5% of RBSs total assets. None of these countries have experienced repayment
difficulties that have required restructuring of outstanding debt.
2014
Germany
France
United States
Netherlands
Japan
Italy
Spain
Republic of Ireland
Government
m
Banks
m
Other
m
Total
m
Short positions
m
Net of short
positions
m
15,923
7,405
393
5,050
3,093
3,484
813
180
5,111
11,660
2,576
1,308
3,626
996
913
1,454
2,442
4,240
18,403
6,925
2,125
769
2,449
1,816
23,476
23,305
21,372
13,283
8,844
5,249
4,175
3,450
2,166
2,226
7,029
1,392
66
3,029
566
10
21,310
21,079
14,343
11,891
8,778
2,220
3,609
3,440
12,308
4,686
9,016
4,979
34
5,350
1,461
170
2,931
10,234
2,062
1,685
4,872
646
5,748
2,600
4,819
4,406
24,722
6,023
1,876
1,141
4,814
2,773
20,058
19,326
35,800
12,687
6,782
7,137
12,023
5,543
4,435
2,352
7,984
1,192
2,556
3,302
801
51
15,623
16,974
27,816
11,495
4,226
3,835
11,222
5,492
14,678
6,563
18,936
5,350
4,338
3,767
893
217
4,289
13,285
1,736
2,227
6,822
373
4,789
3,557
6,812
6,224
30,983
11,200
1,410
1,165
6,328
3,071
25,779
26,072
51,655
18,777
12,570
5,305
12,010
6,845
1,956
2,157
12,080
1,124
2,326
2,301
515
59
23,823
23,915
39,575
17,653
10,244
3,004
11,495
6,786
2013
Germany
France
United States
Netherlands
Japan
Italy
Spain
Republic of Ireland
2012
Germany
France
United States
Netherlands
Japan
Italy
Spain
Republic of Ireland
467

Analysis of deposits - product analysis
The following table analyses deposits excluding repos by geographical area (location of office) and type of deposit.
2014
m
2013
m
2012
m
98,582
243,315
341,897
85,268
253,980
339,248
73,439
290,127
363,566
13,992
34,205
48,197
390,094
38,235
72,242
110,477
449,725
42,250
84,496
126,746
490,312
Overseas
US
Rest of the World
Total overseas
1,915
46,282
48,197
59,046
51,431
110,477
65,734
61,012
126,746
Repos
UK
US
Rest of the World
Total repos
42,708
14,626
4,876
62,210
40,018
38,085
7,031
85,134
62,055
63,744
6,573
132,372
UK
Deposits
- interest-free
- interest-bearing
Total UK
Overseas
Deposits
- interest-free
- interest-bearing
Total overseas
Total deposits
Certificates of deposit and other time deposits

The following table shows certificates of deposit and other time deposits over $100,000 or equivalent by remaining maturity.
2014
UK based companies and branches

Certificates of deposit
Other time deposits
Overseas based companies and branches
Certificates of deposit
Other time deposits
Over 3
months
but within
6 months
m
Over 6
months
but within
12 months
m
Over
12 months
m
208
18,552
351
1,521
421
2,995
149
2,573
1,129
25,641
1
4,773
23,534
965
2,837
875
4,291
1,343
4,065
1
7,956
34,727
Within
3 months
m
Total
m
468
Short-term borrowings
Short-term borrowings comprise repurchase agreements, borrowings from financial institutions, commercial paper (CP) and certificates of deposit (CD).
Derivative collateral received from financial institutions is excluded from the table, as are certain long-term borrowings.
Financial Commercial
Repos institutions (1,2)
paper
Certificates
of deposit
2014
Total
Repos
Financial Commercial
institutions (1,2)
paper
Certificates
of deposit
2013
Total
2012
Total
At year end
- balance (bn)
- weighted average interest rate
62
0.4%
56
0.3%
1
0.4%
1
0.7%
120
0.3%
84
0.3%
61
0.6%
2
0.4%
2
0.6%
149
0.4%
218
0.5%
During the year

- maximum balance (bn)
- average balance (bn)
- weighted average interest rate
129
91
0.3%
72
59
0.4%
2
1
0.5%
2
2
0.5%
205
153
0.3%
172
130
0.3%
155
71
0.6%
3
3
0.4%
3
3
0.9%
333
207
0.4%
322
251
0.5%
Notes:
(1) Excludes derivative cash collateral of 39 billion at 31 December 2014 (2013 - 26 billion; 2012 - 37 billion); and 2014 average of 30 billion (2013 - 31 billion; 2012 - 38 billion).
(2) Excludes Federal Home Loan Bank long-term borrowings of nil at 31 December 2014 (2013 - 2 billion; 2012 - 1 billion); and 2014 average of 1 billion (2013 and 2012 - 1 billion).
Balances are generally based on monthly data. Average interest rates during the year are computed by dividing total interest expense by the average
amount borrowed. Weighted average interest rates at year end are for a single day and as such may reflect one-day market distortions, which may not
be indicative of generally prevailing rates.
Other contractual cash obligations
The table below summarises other contractual cash obligations by payment date.
2014
Operating leases
Contractual obligations to purchase goods or services
0-3 months
m
3-12 months
m
1-3 years
m
3-5 years
m
5-10 years
m
10-20 years
m
62
104
166
175
285
460
424
703
1,127
360
734
1,094
695
1
696
1,415
1,415
90
107
197
258
266
524
630
189
819
513
588
1,101
786
12
798
1,358
1,358
214
110
324
185
334
519
694
500
1,194
559
15
574
910
910
1,376
1,376
2013
Operating leases
2012
Operating leases
Undrawn formal facilities, credit lines and other commitments to lend were 212,777 million (2013 - 213,046 million; 2012 - 215,808 million). While
RBS has given commitments to provide these funds, some facilities may be subject to certain conditions being met by the counterparty. RBS does not
expect all facilities to be drawn, and some may lapse before drawdown.
Exchange rates
The following tables show the Noon Buying Rate in New York for cable transfers in sterling as certified for customs purposes by the Federal Reserve
Bank of New York.
US dollars per 1
Noon Buying Rate
High
Low
January
2015
1.5361
1.5022
December
2014
November
2014
1.5743
1.5517
1.5991
1.5638
2014
2013
October
2014
1.6216
1.5930
2012
September
2014
1.6502
1.6088
2011
August
2014
1.6874
1.6570
2010
Noon Buying Rate

Period end rate
Average rate for the year (1)
1.5578
1.6461
1.6574
1.5673
1.6262
1.5924
1.5537
1.6105
1.5392
1.5415
Consolidation rate (2)

Period end rate
Average rate for the year
1.5615
1.6475
1.6542
1.5646
1.6164
1.5850
1.5475
1.6039
1.5524
1.5455
Notes:
(1) The average of the Noon Buying Rates on the last US business day of each month during the year.
(2) The rates used for translating US dollars into sterling in the preparation of the financial statements.
(3) On 25 February 2015, the Noon Buying Rate was 1.00 = US$1.5499.
469
Supervision
United Kingdom
The home supervisors for RBS are the Prudential Regulation Authority
(PRA) and the Financial Conduct Authority (FCA). As with all significant
banking institutions, the PRA is the consolidated supervisor of RBS. The
PRA, an operationally independent subsidiary of the Bank of England, is
responsible for promoting the safety and soundness of systemically
important financial institutions in the UK. The FCA's overall objective is to
ensure financial markets function well. This is supported by its
operational objectives of: securing an appropriate degree of protection for
consumers; protecting and enhancing the integrity of the UK financial
system; and promoting effective competition in the interests of
consumers.
As at 31 December 2014, 16 companies in RBS, spanning a range of
financial services sectors (banking, insurance and investment business),
were authorised to conduct financial activities in the UK. The UK
authorised banks in RBS Group include The Royal Bank of Scotland plc,
National Westminster Bank Plc, Coutts & Co and Ulster Bank Limited.
Wholesale activities, other than Treasury activities, are concentrated in
the Corporate & Institutional Banking business, and are undertaken under
the names of The Royal Bank of Scotland plc and National Westminster
Bank Plc. Retail banking activities in England, Scotland and Wales are
managed by the Personal & Business Banking business, and by Ulster
Bank Limited in Northern Ireland. The banking service in the Republic of
Ireland is provided by Ulster Bank Ireland Limited, which is supervised by
the Central Bank of Ireland and the European Central Bank under the
Single Supervisory Mechanism.
Investment management business is principally undertaken by
companies in the Commercial & Private Banking business, including
Coutts & Co, Adam & Company Investment Management Limited, and in
the Corporate & Institutional Banking business, through RBS Asset
Management Limited and The Royal Bank of Scotland plc.
RBS is subject to extensive regulations that impose obligations on
financial institutions to maintain appropriate policies, procedures and
controls to ensure compliance with the rules and regulations to which
they are subject.
United States
The Royal Bank of Scotland Group plc is both a bank holding company
and a financial holding company within the meaning of the US Bank
Holding Company Act of 1956. As such, it is subject to the regulation and
supervision of the Board of Governors of the Federal Reserve System
(the Federal Reserve). Among other things, the Group's direct and
indirect activities and investments in the United States are limited to
those that are 'financial in nature' or 'incidental' or 'complementary' to a
financial activity, as determined by the Federal Reserve. The Group is
also required to obtain the prior approval of the Federal Reserve before
acquiring directly or indirectly, the ownership or control of more than 5%
of any class of the voting shares of any US bank or holding company.
Under current Federal Reserve policy, the Group is required to act as a
source of financial strength for its US bank subsidiaries. Among other
things, this source of strength obligation could require the Group to inject
capital into any of its US bank subsidiaries if any of them became
undercapitalised.
Anti-money laundering, anti-terrorism and economic sanctions

regulations are a major focus of the US government for financial
institutions and are rigorously enforced by the US government agencies.
The Group is in the process of selling down its holding in Citizens
Financial Group, but currently retains a sufficient ownership stake as to
come under the regulatory arrangements described below.
RBSs US bank and non-bank subsidiaries, and RBS's US branches are
also subject to supervision and regulation by a variety of other US
regulatory agencies. Citizens Bank, NA is supervised by the Office of the
Comptroller of the Currency, which is charged with the regulation and
supervision of nationally chartered banks. Citizens Bank, NA owns
Citizens Securities, Inc., a US registered broker dealer subject to
regulation and supervision by the US Securities and Exchange
Commission (SEC) and the Financial Industry Regulatory Authority
(FINRA) with respect to its securities activities. Citizens Bank of
Pennsylvania is subject to the regulation and supervision of the US
Federal Deposit Insurance Corporation (FDIC) and the Pennsylvania
Department of Banking. Both banks are subject to supervision and
regulation by the Consumer Financial Protection Bureau (CFPB). Citizens
Financial Group, Inc. is under the supervision of the Federal Reserve
Bank of Boston as a bank holding company. RBSs Connecticut branch is
supervised by the Connecticut Department of Banking and the Federal
Reserve Bank of Boston.
The Group's primary US broker dealer, RBS Securities Inc. (RBSSI),
formerly known as Greenwich Capital Markets, Inc., is also subject to
regulation and supervision mainly by the SEC and FINRA with respect to
its securities activities. The futures activities of RBSSI are subject to
regulation and oversight mainly by the US Commodity Futures Trading
Commission (CFTC), National Futures Association (NFA) and the
Chicago Mercantile Exchange Group (CME). RBSSI is also supervised
by the Federal Reserve Bank of Boston.
The Royal Bank of Scotland plc is a provisionally registered swap dealer;
it too is subject to oversight by the CFTC and the NFA.
Other jurisdictions
RBS operates in over 40 countries through a network of branches, local
banks and non-bank subsidiaries and these activities are subject to
supervision in most cases by a local regulator or central bank.
Description of property and equipment
RBS operates from a number of locations worldwide, principally in the
UK. At 31 December 2014, the Royal Bank and NatWest had 563 and
1,286 retail branches, respectively, in the UK. Ulster Bank has a footprint
of 199 branches and an extensive network of business banking offices
across Northern Ireland and the Republic of Ireland. Citizens Financial
Group, Inc. had 1,218 retail banking offices (including in-store branches)
covering Connecticut, Delaware, Massachusetts, Michigan, New
Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island
and Vermont. A substantial majority of the UK branches are owned by the
Royal Bank, NatWest and their subsidiaries or are held under leases with
unexpired terms of over 50 years. RBS's principal properties include its
headquarters at Gogarburn, Edinburgh, its principal offices in London at
135 and 280 Bishopsgate and the Drummond House administration
centre located at South Gyle, Edinburgh.
Total capital expenditure on premises (excluding investment properties),
computers and other equipment in the year ended 31 December 2014
was 433 million (2013 - 571 million; 2012 - 801 million).
470
Major shareholders
In December 2008, The Solicitor for the Affairs of Her Majesty's Treasury
(HM Treasury) acquired 22,854 million ordinary shares of 25p each
representing 57.9% of the company's issued ordinary share capital.
During 2009, HM Treasury acquired a further 16,791 million ordinary
shares of 25p each raising their holding to 70.3% of the company's
issued ordinary share capital.
On entering into the Contingent Subscription in 2009, the company

recognised the present value of the annual fees payable under the
agreement (1,208 million) as a liability and debited a contingent capital
reserve within equity. Following termination of the Contingent
Subscription, the outstanding final annual fee of 320 million was not
payable. The balance sheet liability for this fee was extinguished with a
corresponding entry to equity.
In December 2009, HM Treasury acquired 51 billion B shares in the

company representing the entire issued B share capital. As a result of the
ordinary share sub-division and consolidation which took place in June
2012, HM Treasurys holding in the companys ordinary shares became
3,964 million ordinary shares of 1 each. At 31 December 2014, HM
Treasurys holding in the companys ordinary shares was 62.3%.
The company gave certain representations and warranties to HM

Treasury on the date of the Acquisition and Contingent Capital
Agreement, on the date the circular was posted to shareholders, on the
first date on which all of the conditions precedent were satisfied, or
waived, and on the date of the Acquisitions.
As far as the company is aware, there have been no significant changes

in the percentage ownership of major shareholders of the company's
ordinary shares, B shares or preference shares during the three years
ended 25 February 2015. All shareholders within a class of the
company's shares have the same voting rights.
The company agreed to reimburse HM Treasury for its expenses incurred

in connection with the Acquisitions.
As at 31 December 2014, almost all of the company's US$ denominated

preference shares and American Depository Shares representing
ordinary shares were held by shareholders registered in the US. All other
shares were predominantly held by shareholders registered outside the
US.
Material contracts
The company and its subsidiaries are party to various contracts in the
ordinary course of business. Material contracts include the following:
B Share Acquisition and Contingent Capital Agreement
On 26 November 2009, the company and HM Treasury entered into the
Acquisition and Contingent Capital Agreement pursuant to which HM
Treasury subscribed for the initial B shares and the Dividend Access
Share (the "Acquisitions") and agreed the terms of HM Treasury's
subscription (the Contingent Subscription) for an additional 8 billion in
aggregate in the form of further B shares (the "Contingent B shares"),
which will be issued on the same terms as the initial B shares. The
Acquisitions were subject to the satisfaction of various conditions,
including the company having obtained the approval of its shareholders in
relation to the Acquisitions.
The company and HM Treasury further agreed the terms of the 8 billion
Contingent Subscription of the Contingent B shares in the Acquisition and
Contingent Capital Agreement. For a period of five years from 22
December 2009 or, if earlier, until the occurrence of a termination event
or until the companys decision (with PRA (formerly FSA) consent) to
terminate such Contingent Subscription (the "Contingent Period"), if the
Core Tier 1 ratio of the company fell below five per cent (and if certain
other conditions were met) HM Treasury committed to subscribe for the
Contingent B shares in no fewer than two tranches of 6 billion and 2
billion (or such smaller amounts as the company and HM Treasury may
agree). Any unused portion of the 8 billion could have been subscribed
in one or more further tranches.
The company agreed to a number of undertakings, including with respect

to: (i) restrictions on the payment of dividends or other distributions on,
and the redemption of, certain securities; (ii) expectations regarding the
repurchase of the B shares by the company; (iii) negotiating in good faith
to maintain the status of the B shares and Dividend Access Share as
Core Tier 1 capital; and (iv) restrictions in relation to the company's share
premium account.
HM Treasury has agreed to waive its statutory pre-emption rights arising
out of the B shares and the Dividend Access Share in respect of any
future issue of equity securities by the company other than B shares and
has agreed to vote its B shares and the Dividend Access Share, as
applicable, in favour of each special resolution to disapply its preemption rights under the B shares and/or the Dividend Access Share
then held by HM Treasury every time they arise in respect of any such
future issue. The pre-emption rights arising out of the B shares and the
Dividend Access Share have also been disapplied in the Articles of
Association.
HM Treasury has agreed that it shall not be entitled to exercise its option
to convert B shares into ordinary shares to the extent that it holds more
than 75 per cent of the ordinary shares of the company or to the extent
that the exercise of such option would result in it holding more than 75
per cent of the ordinary shares of the company.
HM Treasury has agreed that it shall not be entitled to vote the B shares
or the Dividend Access Share to the extent that votes cast on such B
shares and the Dividend Access Share, together with any other votes
which HM Treasury is entitled to cast in respect of any ordinary shares
held by or on behalf of HM Treasury, would exceed 75 per cent of the
total votes eligible to be cast on a resolution proposed at a general
meeting of the company.
For as long as it is a substantial shareholder of the company (within the
meaning of the UKLA's Listing Rules), HM Treasury has undertaken not
to vote on related party transaction resolutions at general meetings and
to direct that its affiliates do not so vote.
On December 16, 2013, the company announced that, having received

approval from the PRA, it had terminated the 8 billion Contingent
Subscription. RBS was able to cancel the Contingent Subscription as a
result of the actions announced in the second half of 2013 to further
strengthen its capital position.
471
Material contracts continued

DAS Retirement Agreement
The Dividend Access Share (DAS) was created in 2009 (see B Share
Acquisition and Contingent Capital Agreement above). On 9 April 2014,
the Company entered into the DAS Retirement Agreement (DRA) with
HMT which was approved by the Companys shareholders on 25 June
2014. Pursuant to the terms of the DRA the company has paid HMT an
initial DAS dividend of 320 million. A further 1.18 billion is payable to
HMT (together with the initial dividend, the DAS Retirement Dividend
Amount), in the form of one or more further DAS dividends, at the
discretion of the directors of the company. Any unpaid portion of the DAS
Retirement Dividend Amount will be subject to an increase of 5 percent.
per annum, calculated on a daily accruals basis from 1 January 2016, if
such portion has not been paid before 1 January 2016 and an increase of
10 per cent. per annum, calculated on a daily accruals basis from 1
January 2021, on any part of the balance that has not been paid before 1
January 2021. Once the DAS Retirement Dividend Amount (subject to
any increase) has been paid, the DAS will lose its enhanced dividend
rights and will become a single B share.
State Aid Commitment Deed
As a result of the State Aid granted to the company, it was required to
work with HM Treasury to submit a State Aid restructuring plan to the
European Commission (EC), which was then approved under the State
Aid rules. The company agreed a series of measures which
supplemented the measures in the company's strategic plan.
RBS entered into a State Aid Commitment Deed with HM Treasury at the
time of the initial EC decision and following the European Commissions
approval of amendments to the restructuring plan in April 2014 entered
into a Revised State Aid Commitment Deed with HM Treasury (together
referred to as the State Aid Commitment Deeds).
These provide that RBS will comply or procure compliance with these
measures and behavioural commitments. RBS agreed to do all acts and
take all measures to ensure HM Treasury's compliance with its
obligations under any EC decision approving State Aid to RBS.
The State Aid Commitment Deeds also provide that if the EC adopts a
decision that the UK Government must recover any State Aid (a
"Repayment Decision") and the recovery order of the Repayment
Decision has not been annulled or suspended by the General Court or
the European Court of Justice, then RBS must repay HM Treasury any
aid ordered to be recovered under the Repayment Decision.
The State Aid Commitment Deeds also provide for RBS's undertakings in
respect of State Aid to be modified in certain limited circumstances.
However, HM Treasury has undertaken that it will not, without the
consent of RBS, agree modifications to RBS's undertakings with respect
to State Aid which are significantly more onerous to RBS than those
granted in order to obtain the State Aid approval.
Sale of RBS England & Wales and NatWest Scotland branch based
business
On 27 September 2013, RBS agreed a 600 million pre-IPO investment
with a consortium of investors led by Corsair Capital and Centerbridge
Partners, in relation to its RBS England & Wales and NatWest Scotland
branch based business. Following completion of the operational and legal
separation of the business into a standalone bank to be branded Williams
& Glyn, RBS will pursue an Initial Public Offering (IPO). The pre-IPO
investment took the form of a 600 million bond, which was issued by the
Royal Bank on 21 October 2013, which will be exchangeable for a
significant minority interest in Williams & Glyn at the time of the IPO. The
bond will convert into Williams & Glyn shares at the IPO price, subject to
a minimum ownership level which will be linked to the tangible book value
of Williams & Glyn prior to the IPO, and in any case no more than a stake
of 49%. To the extent the maximum ownership level is reached, the bond
will be partially redeemed in cash such that investors will receive a total
value of 600 million of cash and shares at the IPO price. At the IPO,
subject to RBSs consent, investors will have the option to acquire up to
10% additionally at the IPO price, subject to their pro forma ownership
being no more than 49% in aggregate. RBS provided a 270 million
secured financing package to the investor consortium in relation to the
investment.
Separation and Shareholder Agreement (SSA) with Citizens Financial
Group, Inc.
On 26 September 2014, the company entered into an SSA with Citizens
Financial Group, Inc. (CFG) immediately prior to the completion of the
IPO of CFG. The SSA governs the relationship between the parties
during the divestment of the companys shareholding in CFG. The SSA
will remain in place until the date on which the company ceases to own at
least 4.99% of CFGs issued and outstanding common stock or, if earlier,
the date on which the company receives written notice from the Federal
Reserve Board that the company is not deemed to control CFG for the
purposes of the US Bank Holding Company Act. Certain provisions of the
SSA will terminate upon a reduction of the companys ownership of CFG
below specified thresholds. The SSA details, inter alia, the governance of
CFG (and certain rights of the company relating to the appointment of
directors, members of board committees and certain executives of CFG),
corporate actions requiring the consent of the company, information
rights and rights of access to CFG personnel and compliance covenants.
The SSA includes mutual indemnities for breach of the SSA, losses
arising from the indemnifying partys business and, in the case of CFG,
losses arising from material inaccuracies in CFGs filings with
governmental authorities and securities exchanges (excluding any
liabilities arising out of information provided by the company for inclusion
therein, with respect to which the company has agreed to indemnify
CFG).
State Aid Costs Reimbursement Deed

Under the State Aid Costs Reimbursement Deed, RBS has agreed to
reimburse HM Treasury for fees, costs and expenses associated with the
State Aid and State Aid approval.
472
HMT and UKFI Relationship Deed

On 7 November 2014, in order to comply with an amendment to the UK
Listing Rules, the company entered into a Relationship Deed with HM
Treasury and UK Financial Investments Limited in relation to the
companys obligations under the UK Listing Rules to put in place an
agreement with any controlling shareholder (as defined for these
purposes in the Listing Rules). The Relationship Deed covers the three
independence provisions mandated by the Listing Rules: (i) that contracts
between the company and HM Treasury (or any of its subsidiaries) will be
arm's length and normal commercial arrangements, (ii) that neither HM
Treasury nor any of its associates will take any action that would have the
effect of preventing the company from complying with its obligations
under the Listing Rules; and (iii) neither HM Treasury nor any of its
associates will propose or procure the proposal of a shareholder
resolution which is intended or appears to be intended to circumvent the
proper application of the Listing Rules.
473
Risk factors
Set out below are certain risk factors which could adversely affect the
Group's future results, its financial condition and prospects and cause
them to be materially different from what is expected. The factors
discussed below and elsewhere in this report should not be regarded as
a complete and comprehensive statement of all potential risks and
uncertainties facing the Group.
The Groups ability to achieve its capital targets will depend on the
success of the Group's plans to further reduce the size of its business
through the restructuring of its corporate and institutional banking
business and make further divestments of certain of its portfolios and
businesses including its remaining stake in Citizens Financial Group
In response to the global economic and financial crisis that began in 2008
and the weak economic environment that followed, the Group engaged in
a financial and core business restructuring focused on achieving
appropriate risk-adjusted returns under these changed circumstances,
reducing reliance on wholesale funding, lowering exposure to capitalintensive businesses and meeting new capital standard requirements. In
November 2013, following HM Treasurys assessment of the merits of
creating an external bad bank to hold certain assets of the Group, the
Group committed to take a series of actions to further derisk its business
and strengthen its capital position. In order to strengthen its capital
position and CET1 ratio, the Group decided to accelerate the divestment
of Citizens Financial Group (CFG), the Groups US banking subsidiary,
by selling off 28.75% in an initial public offering in September 2014, and
fully divesting its interest in CFG by the end of 2016; and to intensify
management actions to reduce risk weighted assets (including through
an accelerated divestment of certain of the non-core assets transferred to
RBS Capital Resolution (RCR)).
In the first quarter of 2015, the Group announced its intention to
restructure its corporate and institutional banking (CIB) business to
focus on UK corporate and financial institutions with a targeted presence
in selected western European customer segments. The future CIB model
will:
focus on the Groups leading positions in UK rates, debt capital
markets and foreign exchange;
retain two trading hubs in the US and Singapore to support the main
London trading operation;
exit central and eastern Europe, the Middle East and Africa, and
substantially reduce its presence in Asia and in the US; and
complete the run-down of US asset-backed products.
Following the decision to refine the CIB business model, the Group has
decided to lift its capital targets and move to a CET1 ratio of around 13%
during the restructuring period (higher than the targets of 11% by 31
December 2015 and above 12% by the end of 2016 previously
announced).
In addition, the Group is in the process of implementing the new

divisional and functional structure put into place in 2014 and, as a result
of the restructuring of its CIB business, is now taking further steps to
implement a number of strategic initiatives which will result in a further
reduction of the Groups balance sheet as well as the scope of its
activities. Implementation by the Group of these initiatives will require
significant restructuring of the Group at the same time that it will also be
implementing structural changes to comply with regulatory changes
including those introduced under the UK Financial Services (Banking
Reform) Act 2013 (the Banking Reform Act 2013), including its ringfencing requirements (the ring-fence). See also Implementation of the
ring-fence in the UK which will begin in 2015 will result in material
structural changes to the Groups business. These changes could have a
material adverse effect on the Group. There can be no assurance that
the Group will be able to successfully implement this restructuring
programme together with other changes required of the Group in the time
frames contemplated or at all, and, as a result, the Group may not be
able to meet its capital targets.
The Groups ability to dispose of businesses and certain portfolios,
including the further disposal of its remaining stake in CFG and potential
disposals associated with the restructuring of its CIB business, and the
price achieved for such disposals will be dependent on prevailing
economic and market conditions, which remain volatile. As a result there
is no assurance that the Group will be able to sell or run down (as
applicable) the businesses it is now planning to sell or exit or asset
portfolios it is seeking to sell either on favourable economic terms to the
Group or at all. Material tax or other contingent liabilities could arise on
the disposal or run-down of assets or businesses and there is no
assurance that any conditions precedent agreed will be satisfied, or
consents and approvals required will be obtained in a timely manner, or
at all. The Group may be exposed to deteriorations in businesses or
portfolios being sold between the announcement of the disposal and its
completion, which period may span many months. In addition, the Group
may be exposed to certain risks, including risks arising out of ongoing
liabilities and obligations, breaches of covenants, representations and
warranties, indemnity claims, transitional services arrangements and
redundancy or other transaction related costs.
The occurrence of any of the risks described above could negatively
affect the Groups ability to implement its strategic plan and achieve its
capital targets and could have a material adverse effect on the Groups
business, reputation, results of operations, financial condition and cash
flows. There can also be no assurance that if the Group is able to
execute its new strategic plan that the new strategy will ultimately be
successful or beneficial to the Group.
474
Implementation of the ring-fence in the UK which will begin in 2015 will

result in material structural changes to the Groups business. These
changes could have a material adverse effect on the Group
The UK Governments White Paper on Banking Reform published in
September 2012 outlined material structural reforms in the UK banking
industry. The measures were drawn in large part from the
recommendations of the Independent Commission on Banking (ICB),
which in its final report published in 2012, included the implementation of
a ring-fence of retail banking operations. The implementation of the ringfencing of retail banking operations was introduced under the Banking
Reform Act 2013. The Banking Reform Act 2013 provided primary
enabling legislation in the short term with a view to completing the
legislative framework for the ring-fence of retail banking operations by
May 2015, requiring compliance as soon as practicable thereafter and
setting a final deadline for full implementation by 2019. In June 2014, HM
Treasury published two statutory instruments, which were passed by
Parliament in July 2014, setting out the detail of the ring-fencing regime,
specifying which entities will be ring-fenced banks and the activities and
services that ring-fenced banks can, and cannot, conduct which came
into force on 1 January 2015. In October 2014, the PRA published its first
consultation paper (CP19/14) on the PRA's ring-fencing rules, focusing
on legal structure, governance and continuity of services and facilities.
The PRA requested that all firms expected to be affected by ring-fencing,
including the Group, submit a preliminary plan of their anticipated legal
and operating structures to their supervisors by 6 January 2015, which
the Group has done. The PRA will carry out further consultations during
2015 with the Group and other affected UK banks and is expected
publish its final rules and supervisory statements during 2016.
Although final rules and supervisory statements will not be available until
later in 2015 and early 2016, based on the proposals put forward by the
Group to the PRA and the FCA to implement the ring-fence, the Group
has identified a number of material risks associated with such
implementation in addition to the uncertainty associated with starting to
plan implementation before final rules and guidance are in place. These
risks will be exacerbated by the Groups other ongoing restructuring
efforts.
The Group intends to establish a ring-fence bank (RFB) for its

banking services while the non-ring-fence group (NRFB) will hold
the Groups remaining CIB activities, the operations of RBS
International and some corporate banking activities that are not
permitted activities for the RFB and will be the remaining businesses
following completion of the restructuring of the Groups CIB
business. The establishment of the RFB and the NRFB will require
a significant legal and organisational restructuring of the Group and
the transfer of large numbers of customers between legal entities.
The scale and complexity of completing this process and the
operational and legal challenges that will need to be overcome will
pose significant execution risks for the Group. The legal
restructuring and migration of customers will have a material impact
on how the Group conducts its business and the Group is unable to
predict how some customers may react to any requirement to deal
with both the RFB and NRFB to obtain certain products and
services. Such implementation will be costly and although final
implementation is not required until 2019, there is no certainty that
the Group will be able to complete the legal restructuring and
migration of customers to the RFB or NFRB, as applicable, such that
the ring-fence exercise is completed on time or in accordance with
future regulatory rules for which there is currently significant
uncertainty.
As part of the establishment of the RFB, it will be necessary for the

RFB to operate independently from the NRFB and an entirely new
corporate governance structure will need to be put in place by the
Group to ensure the RFBs independence. These requirements have
implications for how the Group sets up its board and committee
corporate governance structure and the Group cannot predict how
the Group will function as a public listed company with a subsidiary
(the RFB) that will have an independent board and committee
structure. In addition, the Group will need to revise its operations
infrastructure so as to establish an appropriate level of segregation
of the infrastructure of the RFB in areas such as information
technology (IT) infrastructure, human resources and the
management of treasury operations, including capital and liquidity.
The Group will also need to evaluate, among other things, the tax
exposure of each of the RFB and NRFB, as well as the impact of the
ring-fence on intra-group funding and the credit ratings and external
funding arrangements of each of these entities. As this structure has
never been tested, the Group cannot provide any assurances
regarding its ability to successfully implement such a structure.
Although the intention is to establish corporate governance and
operations in accordance with applicable rules (although not yet
finalised) that are as cost efficient as possible, the effects of
operating the Group, the RFB and the NRFB in this manner could
have a material adverse effect on the Groups business, financial
condition and results of operations.
475

In order to comply with the ring-fence requirements, from 2026 it will
not be possible for the RFB and the NRFB to participate in the same
pension plan. As a result, it will be necessary for either the RFB or
NRFB to leave the pension plan which will trigger certain legal and
regulatory obligations. Although the Group will have a number of
options available to it to meet its obligations resulting from the
separation, it is expected that the costs of separation will be
material, including possibly increasing annual cash contributions
required to be made into the Groups pension plans. See The
Group may be required to make further contributions to its pension
schemes if the value of pension fund assets is not sufficient to cover
potential obligations and to satisfy ring-fencing requirements.
The 2013/2014 Strategic Plan, the restructuring of the Groups CIB

business, the implementation of a ring-fence compliant structure and the
IT and operational investment programme (as described below)
hereinafter collectively referred to as the Transformation Plan. With the
implementation of the Transformation Plan, and in particular the
restructuring of the Groups CIB business and implementation of the
regulatory ring-fence regime coming into force in the UK, the Group is
entering a further period of major restructuring, that will require significant
resource and management attention over the next four years, with the
intent to continue simplifying the Groups business, making the bank
safer by narrowing its business focus, further strengthening its capital
position and improving its customer offering.
Implementation of the ring-fence proposals in the UK will result in major

changes to the Groups corporate structure, to the delivery of its business
activities conducted in the UK and other jurisdictions where the Group will
operate, as well as changes to the Groups business model. The steps
required to implement the ring-fence of its retail and certain other core
banking activities in the UK from other activities of the Group as well as
restructuring other operations within the Group in order to comply with the
new rules and regulations are extraordinarily complex and will take an
extended period of time to put into place. Implementation will be costly
and there can be no assurance that the ring-fence of the RFB and the
NRFB will be completed on time to meet the regulatory deadline in 2019.
As a result, the implementation of the ring-fence could have a material
adverse effect on the Groups reputation, results of operations, financial
condition and prospects.
Each aspect of the implementation of the Transformation Plan carries

material risks. See also Implementation by the Group of the various
initiatives and programmes which form part of the Groups
Transformation Plan subjects the Group to increased and material
execution risk. In addition, although the goal is to emerge as a simpler,
safer, customer focused and profitable bank, the aggregate business of
the Group will be materially smaller and different than the institution that
entered the financial crisis as one of the largest and most diverse
financial institutions in the world. On completion of the Transformation
Plan in 2019 the Group will be primarily a UK and Western Europe
focused bank with a much less diverse group of businesses, products
and services. It will service a much smaller group of customers, including
large corporate and financial institutions, with its focus and its potential
for profitability and growth largely dependent on its success with its retail
and SME customers in the UK.
The Group continues to implement certain divestment and restructuring

activities announced in 2013 and 2014 as part of its 2013/2014 Strategic
Plan but will now enter a further period of major restructuring through the
implementation of the regulatory regime relating to the ring-fence of
financial institutions by 2019 and the restructuring of the Groups CIB
business. Although the goals of this long period of restructuring are to
emerge as a less complex and safer bank there can be no assurance that
the final results will be successful and that the Group will be a viable,
competitive, customer focused and profitable bank
In the third quarter of 2013 and in 2014, the Group revised its strategic
plan by implementing its new divisional and functional structure and
embarked on a major investment program to upgrade the Groups
operations and IT infrastructure (the 2013/2014 Strategic Plan). The
2013/2014 Strategic Plan built on the core business restructuring
implemented by the Group after the financial crisis which initially focused
on reducing the size of the Groups balance sheet, disposing of the
higher risk and capital intensive assets in RCR and strengthening the
Groups capital position, including though the full divestment of the
Groups interest in CFG. The 2013/2014 Strategic Plan was intended to
reduce the size of the Groups business, mainly within the Markets
division, and further strengthen its capital position in response to
continuing regulatory change and simplifying the Group by replacing the
previous divisional structure with three customer facing franchises
focused on the UK and a smaller group of UK based customers.
This smaller customer base and geographic concentration also carry

material business risks. As a result, in addition to the execution risks
associated with completion of the Transformation Plan there can be no
assurance that even if the Group executes the Transformation Plan it will
prove to be a successful strategy or that the Group, on completion of the
Transformation Plan, will be a viable, competitive, customer focused and
profitable bank. For a further description of the risks associated with the
various initiatives comprised in the Transformation Plan, see The
Groups ability to achieve its capital targets will depend on the success of
the Group's plans to further reduce the size of its business through the
restructuring of its corporate and institutional banking business and make
further divestments of certain of its portfolios and businesses including its
remaining stake in Citizens Financial Group, Implementation of the ringfence in the UK which will begin in 2015 will result in material structural
changes to the Groups business. These changes could have a material
adverse effect on the Group, The Group is currently implementing a
number of significant investment and rationalisation initiatives as part of
the Groups IT and operational investment programme. Should such
investment and rationalisation initiatives fail to achieve the expected
results, it could have a material adverse impact on the Groups
operations and its ability to retain or grow its customer business. Failure
of the Transformation Plan to result in a viable, competitive, customer
focused and profitable bank would have a material adverse effect on the
Groups business, results of operations and financial condition.
476
The Group is currently implementing a number of significant investment

and rationalisation initiatives as part of the Groups IT and operational
investment programme. Should such investment and rationalisation
initiatives fail to achieve the expected results, it could have a material
adverse impact on the Groups operations and its ability to retain or grow
its customer business
The intent of the 2013/2014 Strategic Plan and of the restructuring of the
Groups CIB business is to further simplify and downsize the Group with
an increased focus on service to its customers. Such initiatives are being
combined and supplemented with significant investments in technology
and more efficient support functions intended to contribute to delivering
significant improvements in the Groups Return on Equity and costs:
income ratio in the longer term as well as improve the resilience,
accessibility and product offering of the Group.
The Group started implementing an investment programme of 750
million in 2013 expected to run through 2015 to materially upgrade its IT
capability in the UK, to enhance the digital services provided to its bank
customers and also improve the reliability and resilience of the IT
systems following a number of system failures in the past couple of
years. This investment in the Groups IT capability is intended to address
the material increase in customer use of online and mobile technology for
banking over the past few years as well as provide the capability to
continue to grow such services in the future. Increasingly many of the
products and services offered by the Group are, and will become,
technology intensive and the Groups ability to develop such services has
become increasingly important to retaining and growing the Groups
customer business in the UK.
If the Group is unable to offer competitive, attractive and innovative
products that are also profitable, it could lose market share, incur losses
on some or all of its activities and lose opportunities for growth. In
addition to upgrading its current IT infrastructure, the Group is also
undertaking a major project to rationalise its legacy IT infrastructure,
aiming to lower costs and improve resilience. With the implementation of
the ring-fence regulatory regime there will be further need to manage the
Groups IT infrastructure to comply with the regulatory requirements of
such regime.
As with any project of comparable size and complexity, there can be no
assurance that the Group will be able to implement all of the initiatives
forming part of its investment plan, including the IT investment
programme on time or at all, and it may experience unexpected cost
increases and delays. Any failure by the Group to realise the benefits of
this investment programme, whether on time or at all, could have a
material adverse effect on the Groups business, results of operations
and its ability to retain or grow its customer business.
Implementation by the Group of the various initiatives and programmes
which form part of the Groups Transformation Plan subjects the Group to
increased and material execution risk
The level of structural change intended to be implemented within the
Group over the medium term as a result of the Transformation Plan,
taken together with the overall scale of change to make the Group a
smaller, more focused financial institution, will be disruptive and is likely
to increase operational and people risks for the Group and to impact its
revenues and business. As a result of the material restructuring plans
that make up the Transformation Plan, the Group is subject to increased
and material execution risk in many areas including:
Implementation of the Transformation Plan is expected to result in

significant costs, mainly in connection with the Groups restructuring
of its CIB business, which costs will be incremental to current plans
and exclude potential losses on the sale of financial assets and
transfer of financial liabilities. Due to material uncertainties and
factors outside the Groups control, the costs of implementation
could be materially higher than currently contemplated. One of the
objectives of the Transformation Plan is also to achieve a mediumterm reduction in annual underlying costs (i.e., excluding
restructuring and conduct-related charges). Due to material
uncertainties and factors outside the Groups control, this level of
cost saving may not be achieved within the planned timescale or at
any time.
The Transformation Plan includes assumptions on levels of

customer retention and revenue generation from the new business
model. Due to material uncertainties and factors outside the
Groups control, including normal levels of market fluctuation, this
level of revenue may not be achieved in the timescale envisaged or
at any time.
The Group will be reliant on attracting and retaining qualified

employees to manage the implementation of the Transformation
Plan and, in particular, the restructuring of the Groups CIB business
and to oversee the implementation of the ring-fence and operate in
the new ring-fence environment. No assurance can be given that it
will be able to attract and retain such employees. See also The
Group may be unable to attract or retain senior management
(including members of the board) and other skilled personnel of the
appropriate qualification and competence. The Group may also
suffer if it does not maintain good employee relations.
The significant reorganisation and restructuring resulting from the

combined initiatives constituting the Transformation Plan will
fundamentally change the Groups business. Implementation will be
disruptive and will increase operational risk. See Operational risks
are inherent in the Groups businesses and these risks could
increase as the Group implements its Transformation Plan.
The Transformation Plan makes certain assumptions about future

regulation including, but not limited to, the rules to be issued by PRA
and FCA in connection with the ring-fence regime. Material
differences between the rules ultimately adopted and the
assumptions made in the plan proposed to implement the ring-fence
could make it impossible to execute the ring-fence as currently
envisaged. The Transformation Plan is also intended to improve the
Groups control environment, particularly in its remaining CIB
franchise. Due to material uncertainties, factors beyond the Groups
control, and the increased operational risk described above, there
can be no guarantee that such improvements will be achieved in the
timescale envisaged or at any time or that it will not result in further
regulatory scrutiny.
If any of the risks outlined above were to occur, singly or in the

aggregate, they could have a material adverse effect on the Groups
business, results of operations and financial condition.
477

The Group is subject to a number of legal, regulatory and governmental
actions and investigations. Unfavourable outcomes in such actions and
investigations could have a material adverse effect on the Groups
operations, operating results, investor confidence and reputation
The Groups operations are diverse and complex, and it operates in legal
and regulatory environments that expose it to potentially significant
litigation, regulatory and governmental investigations and other regulatory
risk. As a result, the Group has recently settled a number of legal and
regulatory investigations and is, and may in the future be, involved in a
number of legal and regulatory proceedings and investigations in the UK,
the EU, the US and other jurisdictions.
The Group is involved in ongoing class action litigation, investigations into
foreign exchange trading and rate setting activities, continuing LIBOR
related litigation and investigations, securitisation and securities related
litigation, and anti-money laundering, sanctions, mis-selling and
compliance related investigations, in addition to a number of other
matters. In November 2014, the Group announced that it had reached a
settlement with the FCA in the United Kingdom and with the Commodity
Futures Trading Commission (CFTC) in the US in relation to
investigations into failings in RBSs foreign exchange business within its
Corporate and Institutional Banking division. The Group agreed to pay
penalties of 217 million to the FCA and $290 million to the CFTC to
resolve the investigations. The Group continues to cooperate with these
and other governmental and regulatory authorities and remains in
discussion with these authorities on these issues including settlement
discussions regarding the criminal investigation being conducted by the
anti-trust and criminal division of the US Department of Justice and
certain other financial regulatory authorities. Settlements in relation to
these ongoing investigations may result in additional financial, nonmonetary penalties, and collateral consequences, which may be material,
and may give rise to additional legal claims being asserted against the
Group. The Group entered into a deferred prosecution agreement in 2013
in connection with the settlement of the charges relating to the LIBOR
investigation (the LIBOR DPA). Findings of misconduct by the US
Department of Justice relating to the Group, its subsidiaries or
employees, may result in a breach of the terms of the LIBOR DPA which
may lead to an extension of its terms or further prosecution.
Legal, governmental and regulatory proceedings and investigations are
subject to many uncertainties, and their outcomes, including the timing
and amount of fines or settlements, which may be material, are often
difficult to predict, particularly in the early stages of a case or
investigation. It is expected that the Group will continue to have a
material exposure to legacy litigation and governmental and regulatory
proceedings and investigations in the medium term. For more detail on
certain of the Groups ongoing legal, governmental and regulatory
proceedings, see pages 430 to 439. Adverse regulatory, governmental or
law enforcement proceedings or adverse judgements in litigation could
result in restrictions or limitations on the Groups operations or have a
significant effect on the Groups reputation, results of operations and
capital position.
The Group may be required to make new or increase existing provisions

in relation to legal proceedings, investigations and governmental and
regulatory matters. In Q3 2014, the Group booked a provision of 400
million relating to penalties incurred in connection with the investigations
and reviews relating to foreign exchange trading settled with the FCA and
the CFTC and during 2014 the Group booked additional provisions of
650 million for Payment Protection Insurance (resulting in total
provisions made for this matter of 3.7 billion, of which 2.9 billion had
been utilised at 31 December 2014). The provision for interest rate
hedging products redress and administration costs was also increased by
185 million in 2014, with total provisions relating to this matter totalling
1.4 billion, of which 1.0 billion had been utilised at 31 December 2014.
Significant increases in provisions relating to ongoing investigations may
have an adverse effect on the Groups reputation as well as its financial
The Group, like many other financial institutions, has come under greater
regulatory scrutiny in recent years and expects heightened levels of
regulatory supervision to continue for the foreseeable future, particularly
as it relates to compliance with historical, new and existing corporate
governance, employee compensation, conduct of business, consumer
protection regimes, anti-money laundering and antiterrorism laws and
regulations, as well as the provisions of applicable sanctions
programmes. Past, current or future failures to comply with any one or
more of these laws or regulations could have a material adverse effect on
the Groups reputation, financial condition and results of operations.
The Group is subject to political risks
Ahead of the upcoming UK election in May 2015, there is uncertainty
around how the policies of the elected government may impact the
Group, including a possible referendum on the UK's membership of the
EU. The implementation of these policies, including the outcome of the
EU referendum, could significantly impact the environment in which the
Group operates and the fiscal, monetary, legal and regulatory
requirements to which it is subject, and in turn could have a material
adverse effect on its business, financial condition and results of
operations.
The Group may be unable to attract or retain senior management
(including members of the board) and other skilled personnel of the
appropriate qualification and competence. The Group may also suffer if it
does not maintain good employee relations
Implementation of the Groups strategy and its future success depends
on its ability to attract, retain and remunerate highly skilled and qualified
personnel, including senior management (which include directors and
other key employees), in a highly competitive labour market. This cannot
be guaranteed, particularly in light of heightened regulatory oversight of
banks and the increasing scrutiny of, and (in some cases) restrictions
placed upon, employee compensation arrangements, in particular those
of banks in receipt of Government support (such as the Group). Following
the implementation in the UK of provisions of CRD IV relating to
compensation in the financial sector and taking into account the views of
UKFI, the Group is restricted from paying variable remuneration to
individuals for a particular year in an amount higher than the level of his
or her fixed remuneration which may place the Group at a competitive
disadvantage.
478
The Groups directors as well as members of its executive committee and

certain other senior managers and employees will also be subject to the
new responsibility regime introduced under the Banking Reform Act 2013
which will impose greater responsibility on such individuals. The new
rules include (i) a senior managers regime which will require such senior
managers to be pre-approved either by the PRA or FCA whilst the new
rules themselves also introduce a presumption of responsibility for
those approved as such - where contraventions of a relevant regulatory
requirement occur, the accountable senior manager will be presumed
guilty of misconduct unless he or she shows to the satisfaction of the
relevant regulator that he or she took all reasonable steps to prevent the
contravention occurring (or continuing), (ii) a certification regime which
will require the Group to assess the fitness and propriety of certain of its
employees (other than senior managers), who are considered to pose a
risk of significant harm to the Group or its customers and (iii) a conduct
rules regime (which as currently proposed would apply regulatory
prescribed conduct rules to most employees of the Group with a UK
nexus).
The rules implementing the new regime are still under consultation by the
PRA and the FCA and there remains uncertainty as to the final scope of
the new rules and any transitional arrangements. Final rules are expected
to enter into force in late 2015 (and early 2016 for the new certification
regime). The new regulatory regime may contribute to reduce the pool of
candidates for key management and non-executive roles, including nonexecutive directors with the right skills, knowledge and experience, or
increase the number of departures of existing employees, given concerns
over the reverse burden of proof as well as the allocation of
responsibilities introduced by the new rules.
In addition to the effects of such measures on the Groups ability to retain
non-executive directors, senior management and other key employees,
the market for skilled personnel is increasingly competitive, thereby
raising the cost of hiring, training and retaining skilled personnel.
The Groups changing strategy, particularly as a result of the Groups
2013/2014 Strategic Plan, including the accelerated disposal of the
Groups interest in CFG, led to the departure of many experienced and
capable employees. The continuing restructuring of the Group, including
as a result of the restructuring of the Groups CIB business and the
implementation of the ring-fence regulatory regime, is expected to lead to
the departure of additional experienced and capable employees. The lack
of continuity of senior management and the loss of important personnel
coordinating certain or several aspects of the Transformation Plan could
have an adverse impact on the implementation of the Groups
Transformation Plan and regulatory commitments. The failure to attract or
retain a sufficient number of appropriately skilled personnel to manage
the complex restructuring required to implement the Transformation Plan,
and in particular the implementation of the ring-fence and the
restructuring of the Groups CIB business could prevent the Group from
successfully implementing its strategy. This could have a material
adverse effect on the Groups business, financial condition and results of
operations.
In addition, certain of the Groups employees in the UK, continental

Europe and other jurisdictions in which the Group operates are
represented by employee representative bodies, including trade unions.
Engagement with its employees and such bodies is important to the
Group and a breakdown of these relationships could adversely affect the
Groups business, reputation and results.
Operational risks are inherent in the Groups businesses and these risks
could increase as the Group implements its Transformation Plan
Operational risk is the risk of loss resulting from inadequate or failed
internal processes, people and systems, or from external events. The
Group has complex and geographically diverse operations and
operational risk and losses can result from internal and external fraud,
errors by employees or third parties, failure to document transactions
properly or to obtain proper authorisations, failure to comply with
applicable regulatory requirements and conduct of business rules
(including those arising out of anti-bribery, anti-money laundering and
anti-terrorism legislation, as well as the provisions of applicable sanctions
programmes), equipment failures, business continuity and data security
system failures, natural disasters or the inadequacy or failure of systems
and controls, including those of the Groups suppliers or counterparties.
Operational risks will be heightened as a result of the Groups
implementation of its Transformation Plan as described in more detail
under Implementation by the Group of the various initiatives and
programmes which form part of the Groups Transformation Plan subjects
the Group to increased and material execution risk. Although the Group
has implemented risk controls and loss mitigation actions and significant
resources and planning have been devoted to plans to mitigate
operational risk associated with the Groups activities as well as the
implementation of the Groups Transformation Plan, it is not possible to
be certain that such actions have been or will be effective in controlling
each of the operational risks faced by the Group. Ineffective management
of operational risks, including the material operational risks that will arise
in implementing the Transformation Plan, could have a material adverse
effect on the Groups business, financial condition and results of
operations.
The Group operates in highly competitive markets that are subject to
intense scrutiny by the competition authorities. Its business and results
of operations may be adversely affected by increasing competitive
pressures and competition rulings and other government measures
The competitive landscape for banks and other financial institutions in the
UK, the US and throughout the rest of Europe is changing rapidly. Recent
regulatory and legal changes are likely to result in new market
participants and changed competitive dynamics in certain key areas,
such as in retail banking in the UK. The UK retail banking sector has
been subjected to intense scrutiny by the UK competition authorities and
by other bodies in recent years, including market reviews conducted by
the Competition & Markets Authority (CMA) and its predecessor the
Office of Fair Trading regarding SME banking and Personal Current
Accounts (PCAs), the ICB, whose final report was published in 2012 and
the Parliamentary Commission on Banking Standards whose report was
published in 2013. These reviews raised significant concerns about the
effectiveness of competition in the banking sector.
479

In 2014, the CMA published two market studies about SME banking and
PCAs. On the basis of its findings and following consultation, the CMA
made a market investigation reference (MIR) in relation to both SME
banking and PCAs. An MIR can be made only if the CMA has reasonable
grounds for suspecting that any feature, or combination of features, of a
market in the UK for goods or services prevents, restricts or distorts
competition. Such investigations typically last between 15-24 months and
the CMA currently expects to publish provisional findings in September
2015. While it is too early to assess the potential impact on the Group of
these reviews and investigations, the competitive landscape in which the
Group operates may be significantly affected as a result and this impact
will become more significant as the Group implements its Transformation
Plan and its business is increasingly concentrated in the UK on retail
activities.
The wholesale banking sector has also been the subject of recent
scrutiny. In 2014, the FCA launched a review of competition in the
wholesale sector (primarily relating to competition in wholesale securities
and investment markets and related activities such as corporate banking)
to identify areas which might merit in-depth market study and in February
2015 announced that it would be launching a market study to investigate
competition in investment and corporate banking services. Adverse
findings resulting from this study may result in the imposition of fines or
restrictions on mergers and consolidations within the UK financial sector
and the FCA may also refer the matter further to the CMA, which has
extensive powers to take measures to restore effective competition.
The competitive landscape in the UK is also likely to be affected by the
UK Governments implementation of the ring-fence regime and other
customer protection measures introduced by the Banking Reform Act
2013. Although final ring-fence rules will not be available until 2016, firms
(including the Group) have submitted plans for their legal and operational
structures to implement the new ring-fence regime to the PRA. The
implementation of such plans may result in the consolidation of newly
separated businesses or assets of certain financial institutions with those
of other parties to realise new synergies or protect their competitive
position. This consolidation, in combination with the introduction of new
entrants into the markets in which the Group operates which is being
actively encouraged by the UK Government is likely to increase
competitive pressures on the Group.
In addition, certain competitors may have more efficient operations,
including better IT systems allowing them to implement innovative
technologies for delivering services to their customers, and may have
access to lower cost funding and/or be able to attract deposits on more
favourable terms than the Group. Furthermore, the Groups competitors
may be better able to attract and retain clients and key employees, which
may negatively impact the Groups relative performance and future
prospects. In addition, recent and future disposals and restructurings by
the Group in the context of its Transformation Plan as well as constraints
imposed on the Groups compensation structure and its ability to
compensate its employees at the same level as its competitors may also
have an impact on its ability to compete effectively.
These and other changes to competition could have a material adverse
effect on the Groups business, margins, profitability, financial condition
and prospects.
The Groups businesses and performance can be negatively affected by

actual or perceived global economic and financial market conditions and
other global risks although the Group will be increasingly impacted by
developments in the UK as its operations become gradually more
focused on the UK
On completion of the Groups Transformation Programme its business
focus will be preponderantly in the UK. However, the Groups businesses
and many of its customers are, and will be, affected by global economic
conditions, perceptions of those conditions and future economic
prospects. The outlook for the global economy over the near to mediumterm is increasingly uncertain due to a number of factors including
geopolitical risks, concerns around global growth and deflation. Risks to
growth and stability stem mainly from continued imbalances in many
countries in Europe and elsewhere, slowing growth in emerging markets
and China and the potential consequences of continued sanctions and
depressed oil prices on the Russian economy. Further instability may
result from uncertainty as to how economies and counterparties will be
affected, directly or indirectly, by lower oil prices and other commodity
prices as well as to the impact of monetary policy measures adopted by
the ECB, the US Federal Reserve and the Swiss Central Bank. There
remains considerable uncertainty about when the Bank of England and
the Federal Reserve will begin to raise policy interest rates. The Groups
businesses and performance are also affected by financial market
conditions. Although capital and credit markets around the world have
been relatively stable since 2012, financial markets, in particular equity
markets, experienced higher volatility in the last quarter of 2014 which
has continued into 2015. This volatility is attributable to many of the
factors noted above.
In addition, the Group is exposed to risks arising out of geopolitical
events, such as trade barriers, exchange controls and other measures
taken by sovereign governments that can hinder economic or financial
activity levels. Furthermore, unfavourable political, military or diplomatic
events, armed conflict, pandemics and terrorist acts and threats, and the
responses to them by governments could also adversely affect economic
activity and have an adverse effect upon the Groups business, financial
The challenging operating environment for the Groups businesses,
created by uncertain economic and market conditions is characterised by:
reduced activity levels, additional write-downs and impairment

charges and lower profitability, which either alone or in combination
with regulatory changes or the activities of other market participants
may restrict the ability of the Group to access capital, funding and
liquidity;
prolonged periods of low interest rates resulting from ongoing

central bank measures to foster economic growth which constrain,
through margin compression and low returns on assets, the interest
income earned by the Group; and
the risk of increased volatility in yields and asset valuations as

central banks start or accelerate looser monetary policies or tighten
or unwind historically unprecedented loose monetary policy or
extraordinary measures. The resulting environment of uncertainty for
the market and consumers could lead to challenging trading and
market conditions.
480
Developments relating to current economic conditions and the risk of a

return to a volatile financial environment, including those discussed
above, could have a material adverse effect on the Groups business,
financial condition, results of operations and prospects.
As the Group refocuses on its operations in the UK as a result of its
Transformation Plan, and in particular the restructuring of the Groups
CIB business, it is increasingly exposed to the UK economy. Although
the prospects for the UK and the US remain the strongest among the G-7
and Irelands economy continues to improve, actual or perceived difficult
global economic conditions, failure to meet economic growth projections,
particularly in the UK and the Groups key markets, the worsening of the
scope and severity of the weak economic conditions currently
experienced by a number of EU member states and elsewhere, potential
volatility in the UK housing market and restrictions on mortgage lending
as well as increased competition, particularly in the UK, would create
challenging economic and market conditions and a difficult operating
environment for the Groups businesses.
The Group is exposed to any weakening of the European economy and
the renewed threat of default by certain countries in the Eurozone
With few exceptions, countries in Europe have not yet recovered from the
effects of the financial crisis. Consensus forecasts of growth in 2015 and
2016 for some of the largest European economies such as France and
Italy are low. In addition, the possibility of a European sovereign default
has risen due to the recent election in Greece and the outcome and
impact of ongoing negotiations by the new Greek government with
respect to its outstanding debt is uncertain. The risk that the effect of any
sovereign default spreads by contagion to other EU economies and the
UK economy remains. The euro could be abandoned as a currency by
one or more countries, or in an extreme scenario, the abandonment of
the euro could result in the dissolution of the European Economic and
Monetary Union (EEMU). While the European Central Bank announced in
January 2015 a 1.1 trillion quantitative easing programme designed to
improve confidence in Eurozone equities and encourage more private
bank lending, there remains considerable uncertainty as to whether such
measures will be successful.
The effects on the UK, European and global economies of any potential
dissolution of the EMU or exit of one or more EU member states from the
EMU and the resulting redenomination of financial instruments from the
euro to a different currency, are impossible to predict fully. However, if
any such events were to occur they would likely:
result in significant market dislocation;
heighten counterparty risk;
result in downgrades of credit ratings for European borrowers, giving

rise to increases in credit spreads and decreases in security values;
disrupt and adversely affect the economic activity of the UK and

other European markets; and
adversely affect the management of market risk and in particular

asset and liability management due, in part, to redenomination of
financial assets and liabilities and the potential for mismatches.
The occurrence of any of these events would have a material adverse

effect on the Groups business, financial condition, results of operations
and prospects.
The Group is subject to a variety of risks as a result of implementing the
State Aid restructuring plan
The Group obtained State Aid approval for the aid given to the Group by
the UK Government as part of the placing and open offer undertaken by
the Group in December 2008. RBS announced on 9 April 2014 that it
had entered into an agreement (DAS Retirement Agreement) with HM
Treasury for the future retirement of the Dividend Access Share (DAS).
The EC concluded that these new arrangements did not constitute new
State aid and approved changes to RBSs restructuring plan in its State
Aid Amendment Decision of 9 April 2014. RBSG also entered into a
Revised State Aid Commitment Deed with HMT under which it undertook
to do all acts and things necessary to ensure that HMT is able to comply
with the revised State aid commitments made by HMT to the EC, which
mainly relate to the deadline for the Groups divestment of the Williams &
Glyn business and the divestment of the rest of the Groups interest in
CFG.
Implementation of the State Aid restructuring plan exposes the Group to
a number of risks. The most significant risks relate to required asset
disposals, a number of which are now completed. The Group completed
an initial public offering of CFGs common stock in September 2014. The
divestment of Williams & Glyn continues to progress following the
announcement of a pre-IPO investment by a consortium of investors in
September 2013. The Group is required, pursuant to the terms of the
State Aid Amendment Decision, to dispose of its remaining interest in
CFG by the end of 2016 (with a possible 12 month extension) and must
divest its interest in Williams & Glyn by way of an initial public offering by
the end of 2016 with the disposal of the remainder of its interest by the
end of 2017. Under the terms of the State Aid Amendment Decision, a
divestiture trustee may be empowered to conduct these disposals, with
the mandate to complete the disposal at no minimum price, if the Group
fails to complete such required disposals within agreed or renegotiated
time frames, which may result in the Group achieving less than the full
value of its investment due to then prevailing market conditions.
Furthermore, if the Group is unable to comply with the terms of the State
Aid Amendment Decision, including the required divestments, it might
constitute a misuse of aid which could have a material adverse impact on
the Group.
The occurrence of any of the risks described above could have a material
adverse effect on the Groups business, results of operations, financial
condition, capital position and competitive position.
481

HM Treasury (or UK Financial Investments Limited (UKFI) on its behalf)
may be able to exercise a significant degree of influence over the Group
and any proposed offer or sale of its interests may affect the price of
securities issued by the Group
The UK Government, through HM Treasury, currently holds 62.3% of the
issued ordinary share capital of the Group. On 22 December 2009, the
Group issued 25.5 billion of B Shares to the UK Government. The B
Shares are convertible, at the option of the holder at any time, into
ordinary shares. The UK Government has agreed that it shall not
exercise the rights of conversion in respect of the B Shares if and to the
extent that following any such conversion it would hold more than 75% of
the total issued shares in the Group. Any breach of this agreement could
result in the delisting of RBSG from the Official List of the UK Listing
Authority and potentially other exchanges where its securities are
currently listed and traded. HM Treasury (or the UKFI on its behalf) may
sell all or a part of its holding of ordinary shares at any time. Any offers or
sale of a substantial number of ordinary shares or securities convertible
or exchangeable into ordinary shares by or on behalf of HM Treasury, or
an expectation that it may undertake such an offer or sale, could
negatively affect prevailing market prices for securities issued by the
Group.
In addition, UKFI manages HM Treasurys shareholder relationship with
the Group and, although HM Treasury has indicated that it intends to
respect the commercial decisions of the Group and that the Group will
continue to have its own independent board of directors and
management team determining its own strategy, should HM Treasurys
intentions change, its position as a majority shareholder (and UKFIs
position as manager of this shareholding) means that HM Treasury or
UKFI might be able to exercise a significant degree of influence over,
among other things, the election of directors and appointment of senior
management, dividend policy, remuneration policy, or limiting the Groups
operations. The manner in which HM Treasury or UKFI exercises HM
Treasurys rights as majority shareholder could give rise to conflict
between the interests of HM Treasury and the interests of other
shareholders. The Board has a duty to promote the success of the Group
for the benefit of its members as a whole.
The Groups business performance could be adversely affected if its
capital is not managed effectively or as a result of changes to capital
adequacy requirements
Effective management of the Groups capital is critical to its ability to
operate its businesses, and to pursue its strategy of returning to
standalone strength. The Group is required by regulators in the UK, the
EU, the US and other jurisdictions in which it undertakes regulated
activities to maintain adequate capital resources. Adequate capital also
gives the Group financial flexibility in the face of continuing turbulence
and uncertainty in the global economy and specifically in its core UK, US
and European markets. From 2016, in accordance with the provisions of
the Capital Requirements Regulation (CRR), a minimum level of capital
adequacy will be required to meet new regulatory capital requirements
allowing the Group to make certain discretionary payments relating to
CET1 (dividends), variable remuneration and payments on additional tier
1 instruments.
The Basel Committee on Banking Supervisions package of reforms to

the regulatory capital framework (Basel III) raised the quantity and
quality of capital required to be held by a financial institution with an
emphasis on Common Equity Tier 1 (CET1) capital and introduces an
additional requirement for both a capital conservation buffer and a
countercyclical buffer to be met with CET1 capital. Global systemically
important banks (GSIBs) will be subject to an additional CET1 capital
requirement, depending on a banks systemic importance. The Group has
been identified by the Financial Stability Board (FSB) as a GSIB. The
FSB list of GSIBs is updated annually, based on new data and changes
to methodology. The November 2014 update placed the Group in the
second from bottom category of GSIBs, subjecting it to more intensive
oversight and supervision and requiring the Group to have additional loss
absorption capacity of 1.5% in CET1, to be phased in from the beginning
of 2016.
In addition, regulatory proposals relating to domestically systemically
important banks (DSIBs) continue to be progressed and could impact the
level of CET1 that is required to be held by the Group. The EBA
published in December 2014 a quantitative methodology as to how
European regulators could quantify which firms would qualify as DSIBs.
In addition the Financial Policy Committee (FPC) of the Bank of
England intends to consult with firms in the UK on the UK framework.
Basel III has been implemented in the EU with a new Directive and
Regulation (collectively known as CRD IV) which became effective from
1 January 2014, subject to a number of transitional provisions and
clarifications. A number of the requirements introduced under CRD IV
have been and continue to be further supplemented through the
Regulatory and Implementing Technical Standards (RTSs/ITSs)
produced by the European Banking Authority (EBA) and to be adopted by
the European Commission which are not yet all finalised. The EU rules
deviate from the Basel III rules in certain aspects, and provide national
flexibility to apply more stringent prudential requirements than set out in
the Basel framework.
Under CRD IV, the Group is required, on a consolidated basis, to hold a
minimum amount of regulatory capital of 8% of risk weighted assets of
which at least 4.5% must be CET1 capital and at least 6% must be tier 1
capital (together, the Pillar 1 requirements). In addition, national
supervisory authorities may add extra capital requirements to cover risks
they believe are not covered or insufficiently covered by the Pillar 1
requirements (the Pillar 2A guidance). The PRA requires that Pillar 2A
risks should be met with at least 56% CET1 capital, no more than 44%
additional tier 1 capital and at most 25% tier 2 capital. CRD IV also
introduces five new capital buffers that are in addition to the Pillar 1 and
Pillar 2A requirements and are to be met with CET1 capital: (i) the capital
conservation buffer, (ii) the institution-specific counter-cyclical buffer, (iii)
the global systemically important institutions buffer, (iv) the other
systemically important institutions buffer and (v) the systemic risk buffer.
Some or all of these buffers may be applicable to the Group as
determined by the PRA.
482
The combination of the capital conservation buffer, the institution-specific

counter-cyclical capital buffer and the higher of (depending on the
institution), the systemic risk buffer, the global systemically important
institutions buffer and the other systemically important institution buffer, in
each case (as applicable to the institution) is referred to as the combined
buffer requirement. The PRA has also introduced a firm specific Pillar
2B buffer (Pillar 2B buffer) which is based on various factors including
firm-specific stress test results and is to be met with CET1. The PRA will
assess the Pillar 2B buffer annually and UK Banks are required to meet
the higher of the combined buffer requirement or Pillar 2B requirement.
The PRA published a consultation in January 2015 suggesting certain
changes to its Pillar 2A framework which will introduce new
methodologies for determining Pillar 2A capital as well as the PRAs
approach to operating the Pillar 2A buffer.
In addition, under the provisions of the CRR, which took effect from 1
January 2014, deferred tax assets that rely on future profitability (for
example, deferred tax assets related to trade losses) and do not arise
from temporary differences must be deducted in full from CET1 capital.
Other deferred tax assets which rely on future profitability and arise from
temporary differences are subject to a threshold test and only the amount
in excess of the threshold is deducted from CET1 capital. The regulatory
treatment of such deferred tax assets is dependent on there being no
adverse changes to regulatory requirements.
Under Article 141 (Restrictions on distribution) of the CRD IV Directive,
member states of the EU must require that institutions that fail to meet
the combined buffer requirement will be subject to restricted
discretionary payments (which are defined broadly by CRD IV as
payments relating to CET1 (dividends), variable remuneration and
payments on additional tier 1 instruments). The restrictions will be scaled
according to the extent of the breach of the combined buffer
requirement and calculated as a percentage of the profits of the
institution since the last distribution of profits or discretionary payment.
Such calculation will result in a maximum distributable amount (or
MDA) in each relevant period. As an example, the scaling is such that in
the bottom quartile of the combined buffer requirement, no
discretionary distributions will be permitted to be paid. In the event of a
breach of the combined buffer requirement, the Group will be required to
calculate its maximum distributable amount, and as a consequence it
may be necessary for the Group to reduce discretionary payments.
In October 2014 the FPC published its recommendation on the overall
leverage ratio framework for the UK banking system. The FPC
recommended a minimum leverage ratio requirement of 3% (to be met
75% by CET1 and a maximum of 25% by additional tier 1 capital), a
supplementary leverage buffer applied to G-SIBs equal to 35% of the
corresponding risk weighted systemic risk buffer (to be met by CET1) and
a countercyclical buffer equal to 35% of the risk weighted countercyclical
capital buffer (also to be met by CET1). Transition timings have been
aligned to those laid out in Basel III and the exposure measure will follow
that laid out by the Basel Committee for Banking Supervision. The FPC
explicitly ruled out a breach of the leverage ratio resulting in an automatic
constraint to capital distributions via the maximum distributable amount,
preferring to leave this linked to risk weighted assets for the purposes of
simplicity.
However, if a breach of the leverage buffers (both G-SIB and

countercyclical) were to occur then a recovery plan would need to be
discussed with the PRA. The current Group leverage ratio is 4.2% fully
met through CET1 leaving it above the minimum requirement while the
countercyclical buffer is close to zero.
In addition to the capital requirements under CRD IV, the bank resolution
and recovery directive (BRRD) introduces requirements for banks to
maintain at all times a sufficient aggregate amount of own funds and
eligible liabilities (that is, liabilities that may be bailed in using the bail-in
tool), known as the minimum requirements for eligible liabilities (MREL).
The aim is that the minimum amount should be proportionate and
adapted for each category of bank on the basis of their risk or the
composition of their sources of funding. The UK Government has
transposed the BRRD's provisions into law with a requirement that the
Bank of England implements further secondary legislation to implement
MREL requirements by 2016 which will take into account the regulatory
technical standards to be developed by the EBA specifying the
assessment criteria that resolution authorities should use to determine
the minimum requirement for own funds and eligible liabilities for
individual firms. The EBA noted that the technical standards would be
compatible with the proposed term sheet published by the FSB on total
loss absorbing capacity (TLAC) requirements for GSIBs but there
remains a degree of uncertainty as to the extent to which MREL and
TLAC requirements may differ. As the implementation of capital and loss
absorption requirements under BRRD in the UK is subject to adoption of
secondary legislation and subject to PRA supervisory discretion in
places, and the implementation and scope of TLAC remains subject to
significant uncertainty, the Group is currently unable to predict the impact
such rules would have on its overall capital and loss absorption
requirements or its ability to comply with applicable capital or loss
absorbency requirements or to make certain discretionary distributions.
Building on changes made to requirements in relation to the quality and
aggregate quantity of capital that banks must hold, the Basel Committee
and other agencies are increasingly focussed on changes that will
increase, or re-calibrate, measures of risk weighted assets as the key
measure of the different categories of risk in the denominator of the riskbased capital ratio. There is no current global consensus regarding the
key objectives of this further evolution of the international capital
framework. One extreme position advocated by some regulators would
materially deemphasise the role of a risk-based capital ratio. A more
broadly held opinion among regulators seeks to retain the ratio but also
reform it, in particular by addressing perceived excessive complexity and
variability between banks and banking systems. In particular, the Basel
Committee on Banking Supervision published a consultation paper in
December 2014, in which it recommended reduced reliance on external
credit ratings when assessing risk weighted assets and to replace such
ratings with certain risk drivers based on the particular type of exposure
of each asset. While they are at different stages of maturity, a number of
initiatives across risk types and business lines are in progress that will
impact RWAs at their conclusion. While the quantum of impacts is
uncertain owing to lack of clarity of definition of the changes and the
timing of their introduction, the likelihood of an impact resulting from each
initiative is high and such impacts could result in higher levels of risk
weighted assets.
483

The Basel Committee changes and other future changes to capital
adequacy and loss absorbency and liquidity requirements in the
European Union, the UK, the US and in other jurisdictions in which the
Group operates, including the Groups ability to satisfy the increasingly
stringent stress case scenarios imposed by regulators and the adoption
of the MREL and TLAC proposals, may require the Group to issue Tier 1
capital (including CET1), Tier 2 capital and certain loss absorbing debt
securities, and may result in existing Tier 1 and Tier 2 securities issued
by the Group ceasing to count towards the Groups regulatory capital.
The requirement to increase the Groups levels of CET1 and Tier 2
capital, or loss absorbing debt securities, which could be mandated by
the Groups regulators, could have a number of negative consequences
for the Group and its shareholders, including impairing the Groups ability
to pay dividends on, or make other distributions in respect of, ordinary
shares and diluting the ownership of existing shareholders of the Group.
If the Group is unable to raise the requisite amount of Tier 1 and Tier 2
capital, or loss absorbing debt securities it may be required to reduce
further the amount of its risk weighted assets or total assets and engage
in the disposal of core and other non-core businesses, which may not
occur on a timely basis or achieve prices which would otherwise be
attractive to the Group.
On a fully loaded Basel III basis, the Groups CET1 ratio was 11.2% at
December 31, 2014. The Groups Transformation Plan targets a fully
loaded Basel III CET1 ratio of 13% over the restructuring period. The
Groups ability to achieve such targets depends on a number of factors,
including the implementation of the ring-fence, the execution of the
restructuring of the Groups CIB business and the implementation of the
2013/2014 Strategic Plan, which includes plans for a further significant
restructuring of the Group as well as further sales of its remaining stake
in CFG in the U.S. See Forward looking Statements and The Groups
ability to achieve its capital targets will depend on the success of the
Group's plans to further reduce the size of its business through the
restructuring of its corporate and institutional banking business and make
further divestments of certain of its portfolios and businesses including its
remaining stake in Citizens Financial Group'.
Any change that limits the Groups ability to implement its capital plan, to
access funding sources or to manage effectively its balance sheet and
capital resources (including, for example, reductions in profits and
retained earnings as a result of write-downs or otherwise, increases in
risk-weighted assets, regulatory changes, actions by regulators, delays in
the disposal of certain key assets or the inability to syndicate loans as a
result of market conditions, a growth in unfunded pension exposures or
otherwise) could have a material adverse effect on its business, financial
condition and regulatory capital position.
The Groups borrowing costs, its access to the debt capital markets and
its liquidity depend significantly on its credit ratings and, to a lesser
extent, on the rating of the UK Government
The credit ratings of RBSG, RBS and other Group members directly
affect the cost of, access to and sources of their financing and liquidity. A
number of UK and other European financial institutions, including RBSG,
the Royal Bank and other Group members, have been downgraded
multiple times in recent years in connection with rating methodology
changes, a review of systemic support assumptions incorporated into
bank ratings and the likelihood, in the case of UK banks, that the UK
Government is more likely in the future to make greater use of its
resolution tools that allow burden sharing with debt holders. In 2014
credit ratings of RBSG, the Royal Bank and other Group members were
downgraded in connection with the Groups creation of RCR, coupled
with concerns about execution risks, litigation risk and the potential for
conduct related fines. RBSGs long-term and short-term credit ratings
were further downgraded by two notches in 2015 by Standard & Poors
Rating Services (S&P) to reflect S&Ps view that extraordinary
government support would now be unlikely in the case of UK nonoperating bank holding companies and is likely to become less
predictable for bank operating companies in the UK under the newly
enacted legislation implementing the bail-in provisions of the BRRD.
Rating agencies continue to evaluate the rating methodologies applicable
to UK and European financial institutions and any change in such rating
agencies methodologies could materially adversely affect the credit
ratings of Group companies.
Any further reductions in the long-term or short-term credit ratings of
RBSG or one of its principal subsidiaries (particularly the Royal Bank)
would increase borrowing costs, require the Group to replace funding lost
due to the downgrade, which may include the loss of customer deposits,
and might also limit the Groups access to capital and money markets
and trigger additional collateral requirements in derivatives contracts and
other secured funding arrangements. At 31 December 2014, a
simultaneous one notch long-term and associated short-term downgrade
in the credit ratings of RBSG and the Royal Bank by the three main
ratings agencies would have required the Group to post estimated
additional collateral of 4.5 billion, without taking account of mitigating
action by management.
Any downgrade in the UK Governments credit ratings could adversely
affect the credit ratings of Group companies and may have the effects
noted above. Credit ratings of RBSG, the Royal Bank, The Royal Bank
of Scotland N.V. (RBS N.V.) and Ulster Bank Limited are also important
to the Group when competing in certain markets, such as over-thecounter derivatives. As a result, any further reductions in RBSGs longterm or short-term credit ratings or those of its principal subsidiaries could
adversely affect the Groups access to liquidity and its competitive
position, increase its funding costs and have a material adverse impact
on the Groups earnings, cash flow and financial condition.
484
The Groups ability to meet its obligations including its funding

commitments depends on the Groups ability to access sources of
liquidity and funding
Liquidity risk is the risk that a bank will be unable to meet its obligations,
including funding commitments, as they fall due. This risk is inherent in
banking operations and can be heightened by a number of factors,
including an over reliance on a particular source of wholesale funding
(including, for example, short-term and overnight funding), changes in
credit ratings or market-wide phenomena such as market dislocation and
major disasters. Credit markets worldwide, including interbank markets,
have experienced severe reductions in liquidity and term-funding during
prolonged periods in recent years. Although credit markets continued to
improve during 2014 and such markets remain accommodating in the
early part of 2015 (in part as a result of measures taken by central banks
around the world, including the ECB), and the Groups overall liquidity
position remained strong, certain European banks, in particular in the
peripheral countries of Spain, Portugal, Greece, Italy and Ireland,
remained reliant on central banks as one of their principal sources of
liquidity. Although the measures taken by Central Banks have had a
positive impact, the risk of volatility returning to the global credit markets
remains.
The market view of bank credit risk has changed radically as a result of
the financial crisis and banks perceived by the market to be riskier have
had to issue debt at significant spreads. Any uncertainty relating to the
credit risk of financial institutions may lead to reductions in levels of
interbank lending and may restrict the Groups access to traditional
sources of funding or increase the costs of accessing such funding. The
ability of the Groups regulator to bail-in senior and subordinated debt
under the provisions of BRRD implemented in the UK since January 2015
may also increase investors perception of risk and hence affect the
availability and cost of funding for the Group.
Management of the Groups liquidity and funding focuses, among other
things, on maintaining a resilient funding strategy for its assets in line with
the Groups wider strategic plan. Although conditions have improved,
there have been recent periods where corporate and financial institution
counterparties have reduced their credit exposures to banks and other
financial institutions, limiting the availability of these sources of funding.
Under certain circumstances, the Group may need to seek funds from
alternative sources potentially at higher costs than has previously been
the case, and/or with higher collateral or may be required to consider
disposals of other assets not previously identified for disposal to reduce
its funding commitments. The Group has, at times, been required to rely
on shorter-term and overnight funding with a consequent reduction in
overall liquidity, and to increase its recourse to liquidity schemes provided
by central banks. Such schemes require assets to be pledged as
collateral. Changes in asset values or eligibility criteria can reduce
available assets and consequently available liquidity, particularly during
periods of stress when access to the schemes may be needed most.
The Group relies on customer deposits to meet a considerable portion of

its funding and it has targeted maintaining a loan to deposit ratio of
around 100%. The level of deposits may fluctuate due to factors outside
the Groups control, such as a loss of confidence, increasing competitive
pressures for retail customer deposits or the repatriation of deposits by
foreign wholesale or central bank depositors, which could result in a
significant outflow of deposits within a short period of time. An inability to
grow, or any material decrease in, the Groups deposits could, particularly
if accompanied by one of the other factors described above, have a
material adverse impact on the Groups ability to satisfy its liquidity
needs.
The occurrence of any of the risks described above could have a material
adverse impact on the Groups financial condition and results of
operations.
The Groups businesses are subject to substantial regulation and
oversight. Significant regulatory developments and increased scrutiny by
the Groups key regulators has had and is likely to continue to increase
compliance risks and could have a material adverse effect on how the
Group conducts its business and on its results of operations and financial
condition
The Group is subject to extensive financial services laws, regulations,
corporate governance requirements, administrative actions and policies
in each jurisdiction in which it operates. Many of these have changed
recently and are subject to further material changes. Among others, the
adoption of rules relating to ring-fencing, prohibitions on proprietary
trading, the entry into force of CRD IV and the BRRD and certain other
measures in the UK, the EU and the US has considerably affected the
regulatory landscape in which the Group operates and will operate in the
future. Increasing regulatory focus in certain areas and ongoing and
possible future changes in the financial services regulatory landscape
(including requirements imposed by virtue of the Groups participation in
government or regulator-led initiatives), have resulted in the Group facing
greater regulation and scrutiny in the UK, the US and other countries in
which it operates.
Although it is difficult to predict with certainty the effect that the recent
regulatory changes, developments and heightened levels of public and
regulatory scrutiny will have on the Group, the enactment of legislation
and regulations in the UK and the EU, the other parts of Europe in which
the Group operates and the US has resulted in increased capital, funding
and liquidity requirements, changes in the competitive landscape,
changes in other regulatory requirements and increased operating costs
and has impacted, and will continue to impact, products offerings and
business models. See also Implementation of the ring-fence in the UK
which will begin in 2015 will result in material structural changes to the
Groups business. These changes could have a material adverse effect
on the Group. Such changes may also result in an increased number of
regulatory investigations and proceedings and have increased the risks
relating to the Groups ability to comply with the applicable body of rules
and regulations in the manner and within the timeframes required.
485

Any of these developments (including failures to comply with new rules
and regulations) could have an impact on how the Group conducts its
business, its authorisations and licences, the products and services it
offers, its reputation, the value of its assets, and could have a material
adverse effect on its business, funding costs and its results of operations
and financial condition. See Implementation by the Group of the various
initiatives and programmes which form part of the Groups
Transformation Plan subjects the Group to increased and material
execution risk.
Areas in which, and examples of where, governmental policies,
regulatory and accounting changes and increased public and regulatory
scrutiny could have an adverse impact (some of which could be material)
on the Group include those set out above as well as the following:
requirements to separate retail banking from investment banking

(ring-fencing);
restrictions on proprietary trading and similar activities within a

commercial bank and/or a group which contains a commercial bank;
the implementation of additional or conflicting capital, loss

absorption or liquidity requirements, including those mandated under
MREL or by the Financial Stability Boards recommendations on
TLAC;
restructuring certain of the Groups non-retail banking activities in

jurisdictions outside the UK in order to satisfy local capital, liquidity
and other prudential requirements;
the monetary, fiscal, interest rate and other policies of central banks
and other governmental or regulatory bodies;
the design and implementation of national or supra-national

mandated recovery, resolution or insolvency regimes;
additional rules and requirements adopted at the European level

relating to the separation of certain trading activities from retail
banking operations;
further investigations, proceedings or fines either against the Group

in isolation or together with other large financial institutions with
respect to market conduct wrongdoing;
the imposition of government imposed requirements and/or related

fines and sanctions with respect to lending to the UK SME market
and larger commercial and corporate entities and residential
mortgage lending;
additional rules and regulatory initiatives and review relating to

customer protection, including the FCAs Treating Customers Fairly
regime;
requirements to operate in a way that prioritises objectives other

than shareholder value creation;
the imposition of restrictions on the Groups ability to compensate its

senior management and other employees and increased
responsibility and liability rules applicable to senior and key
employees;
regulations relating to, and enforcement of, anti-bribery, anti-money

laundering, anti-terrorism or other similar sanctions regimes;
rules relating to foreign ownership, expropriation, nationalisation and

confiscation of assets;
other requirements or policies affecting the Groups profitability,

such as the imposition of onerous compliance obligations, further
restrictions on business growth, product offering, or pricing;
changes to financial reporting standards (including accounting

standards), corporate governance requirements, corporate
structures and conduct of business rules;
reviews and investigations relating to the retail banking sector in the

UK, including with respect to SME banking and PCAs;
the introduction of, and changes to, taxes, levies or fees applicable
to the Groups operations (such as the imposition of a financial
transaction tax or changes in tax rates or to the treatment of carryforward tax losses that reduce the value of deferred tax assets and
require increased payments of tax); and
the regulation or endorsement of credit ratings used in the EU

(whether issued by agencies in EU member states or in other
countries, such as the US).
Changes in laws, rules or regulations, or in their interpretation or

enforcement, or the implementation of new laws, rules or regulations,
including contradictory laws, rules or regulations by key regulators in
different jurisdictions, or failure by the Group to comply with such laws,
rules and regulations, may have a material adverse effect on the Groups
business, financial condition and results of operations. In addition,
uncertainty and lack of international regulatory coordination as enhanced
supervisory standards are developed and implemented may adversely
affect the Groups ability to engage in effective business, capital and risk
management planning.
486
The Group is subject to resolution procedures under resolution and

recovery schemes which may result in various actions being taken in
relation to the Group and any securities of the Group, including the write
off, write-down or conversion of the Groups securities
In the EU, the UK and the US regulators have or are in the process of
implementing resolution regimes to ensure the timely and orderly
resolution of financial institutions and limit the systemic risks resulting
from the failure of global and complex financial groups. In the EU and the
UK, the BRRD which came into force on 1 January 2015, sets out a
harmonised legal framework governing the tools and powers available to
national authorities to address the failure of banks and certain other
financial institutions. These tools and powers include preparatory and
preventive measures, early supervisory intervention powers and
resolution tools. In July 2014, the PRA published a paper on the
implementation of the BRRD in the UK and in December 2014 HM
Treasury published final versions of the statutory instruments transposing
the BRRD which came into effect in January 2015. The PRA published
its final rules and requirements implementing the BRRD in January 2015.
The EBA also published final draft regulatory technical standards in
December 2014 on the content of resolution plans and final guidelines on
measures to reduce or remove impediments to resolvability. The
implementation of the BRRD in the UK may also continue to evolve over
time to ensure continued consistency with the FSB recommendations on
resolution regimes and resolution planning for GSIBs, in particular with
respect to TLAC requirements.
As a result of its status as a GSIB and in accordance with the PRAs
resolution and recovery schemes then in place in the UK, the Group was
required to meet certain resolution planning requirements by the end of
2012 and 2013. The Groups US businesses and CFG made their
required submissions to the Federal Reserve and the FDIC by their 1 July
2014 due dates. The US supervisory agencies subsequently announced
that, beginning in 2015, banks would be required to submit their annual
resolution plans by 31 December of each year instead of by 1 July.
Similar to other major financial institutions, both the Group and its key
subsidiaries remain engaged in a constructive dialogue on resolution and
recovery planning with key national regulators and other authorities.
In addition to the preventive measures set out above, the UK resolution
authority now has available a wide range of powers to deal with failing
financial institutions. As a result of the implementation of BRRD in the UK
in January 2015, the provisions of the Banking Act 2009 have been
substantially amended to enable the relevant authorities to deal with and
stabilise certain deposit-taking UK incorporated institutions that are
failing, or are likely to fail. In addition to the existing stabilisation options
available under the Banking Act 2009 being (i) the transfer of all or part of
the business of the relevant entity and/or the securities of the relevant
entity to a private sector purchaser, (ii) the transfer of all or part of the
business of the relevant entity to a bridge bank wholly owned by the
Bank of England and (iii) temporary public ownership (nationalisation) of
the relevant entity, the resolution entity will now be able to rely on an
asset separation tool which will enable the Bank of England to use
property transfer powers to transfer assets, rights and liabilities of a
failing bank to an asset management vehicle. In addition, the new rules
have transposed the BRRD requirement that the government stabilisation
options may only be used once there has been a contribution to loss
absorption and recapitalisation of at least 8% of the total liabilities of the
institution under resolution.
Among the changes introduced by the Banking Reform Act 2013, the
Banking Act 2009 was amended to insert a bail-in option as part of the
powers available to the UK resolution authority. The bail-in option was
introduced as an additional power available to the Bank of England to
enable it to recapitalise a failed institution by allocating losses to its
shareholders and unsecured creditors in a manner that seeks to respect
the hierarchy of claims in liquidation. The BRRD also includes a bail-in
tool, which gives the relevant supervisory authorities the power to write
down or write off claims (including debt securities issued by the Group
and its subsidiaries) of certain unsecured creditors of a failing institution
and/or to convert certain debt claims to equity or to other securities of the
failing institution or to alter the terms of an existing liability. The UK
Government amended the provisions of the Banking Act 2009, as
amended by the Banking Reform Act 2013, to ensure the consistency of
these provisions with the bail-in provisions under the BRRD which came
into effect on 1 January 2015, subject to certain transition provisions
effective for debt instruments as of 19 February 2015 and with the
exception of provisions relating to MREL and Article 55 of the BRRD
which relates to liabilities within the scope of the bail-in powers but
governed by the law of a third country. Such bail-in mechanism, pursuant
to which losses would be imposed on shareholders and, as appropriate,
creditors (including senior creditors) of the Group (through write-down or
conversion into equity of liabilities including debt securities) would be
used to recapitalise and restore the Group to solvency. The bail-in regime
adopted under the BRRD (and implemented in the UK) also provides
that shareholders and creditors should not be left worse off as a result of
the exercise of the stabilisation powers than they would have been had
the bank not been resolved, but instead placed into insolvency. The
exercise of the bail-in option will be determined by the resolution authority
which will have discretion to determine whether the Group has reached a
point of non-viability. Because of this inherent uncertainty, it will be
difficult to predict when, if at all, the exercise of the bail-in power may
occur.
The methods for implementation of any resolution and recovery scheme
remain the subject of debate, particularly with respect to banking group
companies and for GSIBs with complex cross border activities. Such
debate includes whether the bail-in tool may be exercised through a
single point of entry at the holding company or at various levels of the
corporate structure of a GSIB.
The potential impact of these resolution and recovery powers may
include the total loss of value of securities issued by the Group and, in
addition for debt holders, the possible conversion into equity securities,
and under certain circumstances the inability of the Group to perform its
obligations under its securities. The possible application of bail-in to the
Groups or certain of its subsidiaries debt securities and additional Tier 1
and Tier 2 capital securities may also make it more difficult to issue such
securities in the capital markets and the cost of raising such funds may
be higher than has historically been the case.
487

The Groups operations are highly dependent on its IT systems and is
increasingly exposed to cyber security threats
The Groups operations are dependent on the ability to process a very
large number of transactions efficiently and accurately while complying
with applicable laws and regulations where it does business. The proper
functioning of the Groups payment systems, financial and sanctions
controls, risk management, credit analysis and reporting, accounting,
customer service and other IT systems, as well as the communication
networks between its branches and main data processing centres, are
critical to the Groups operations. In June 2012, computer system
failures prevented NatWest, RBS and Ulster Bank customers from
accessing accounts in both the UK and Ireland. Ongoing issues relating
to the failure continued for several months, requiring the Group to set
aside a provision for compensation to customers who suffered losses as
a result of the system failure. In addition, in November 2014, the Group
reached a settlement with the FCA and the PRA in relation to this incident
and agreed a penalty of 42 million with the FCA and 14 million with the
PRA. Ulster Bank, one of the Groups subsidiaries, was also fined 3.5m
by the Central Bank of Ireland in relation to the IT incident and IT
governance failures which occurred in 2012. The vulnerabilities of the
Groups IT systems are due to the complexity of the Groups IT
infrastructure attributable in part to overlapping multiple legacy systems
resulting from the Groups acquisitions and the consequential gaps in
how the IT systems operate, and insufficient-investments in IT
infrastructure in the past, creating challenges in recovering from system
breakdowns. Critical system failure, any prolonged loss of service
availability or any material breach of data security, particularly involving
confidential customer data, could cause serious damage to the Groups
ability to service its customers, could result in significant compensation
costs, could breach regulations under which the Group operates and
could cause long-term damage to the Groups reputation, business and
brands. The Group is also currently implementing a significant IT
investment programme which involves execution risks and may not be
successful. See The Group is currently implementing a number of
significant investment and rationalisation initiatives as part of the Groups
IT and operational investment programme. Should such investment and
rationalisation initiatives fail to achieve the expected results, it could have
a material adverse impact on the Groups operations and its ability to
retain or grow its customer business.
In addition, the Group is subject to cyber-security threats which have
targeted financial institutions as well as governments and other
institutions and have increased in the recent years. Failure to protect the
Groups operations from cyber-attacks could result in the loss of
customer data or other sensitive information. During 2013, the Group
experienced a number of IT failures following a series of deliberate
attacks which temporarily prevented RBS, CFG and NatWest customers
from accessing their accounts or making payments. The Bank of
England, the FCA and HM Treasury have identified cyber security as a
systemic risk to the UK financial sector and highlighted the need for
financial institutions to improve resilience to cyber-attacks and the Group
expects greater regulatory engagement on cyber security in the future.
Although the Group has been implementing remedial actions to improve
its resilience to the increasing intensity and sophistication of cyberattacks, the Group expects to be the target of continued attacks in the
future and there can be no assurance that the Group will be able to
prevent all threats.
The Groups operations have inherent reputational risk

Reputational risk, meaning the risk of brand damage and/or financial loss
due to a failure to meet stakeholders expectations of the Groups
conduct and performance, is inherent in the Groups business.
Stakeholders include customers, investors, rating agencies, employees,
suppliers, government, politicians, regulators, special interest groups,
consumer groups, media and the general public. Brand damage can be
detrimental to the business of the Group in a number of ways, including
its ability to build or sustain business relationships with customers, low
staff morale, regulatory censure or reduced access to, or an increase in
the cost of, funding. In particular, negative public opinion resulting from
the actual or perceived manner in which the Group conducts its business
activities, the Groups financial performance, ongoing investigations and
proceedings and the settlement of any such investigations and
proceedings, the level of direct and indirect government support or actual
or perceived practices in the banking and financial industry may
adversely affect the Groups ability to keep and attract customers and, in
particular, corporate and retail depositors. Reputational risks may be
increased as a result of the implementation of the Groups
Transformation Plan. Modern technologies, in particular online social
networks and other broadcast tools which facilitate communication with
large audiences in short time frames and with minimal costs, may
significantly enhance and accelerate the impact of damaging information
and allegations. The Group cannot ensure that it will be successful in
avoiding damage to its business from reputational risk, which could result
in a material adverse effect on the Groups business, financial condition,
results of operations and prospects.
The Group may suffer losses due to employee misconduct
The Groups businesses are exposed to risk from potential noncompliance with policies, regulatory rules, employee misconduct or
negligence and fraud, which could result in regulatory sanctions and
serious reputational or financial harm to the Group. In recent years, a
number of multinational financial institutions, including the Group, have
suffered material losses due to the actions of employees, including, for
example, in connection with the LIBOR and foreign exchange
investigations. It is not always possible to deter employee misconduct
and the precautions the Group takes to prevent and detect this activity
may not always be effective.
The Groups earnings and financial condition have been, and its future
earnings and financial condition may continue to be, materially affected
by depressed asset valuations resulting from poor market conditions
In previous years, severe market events resulted in the Group recording
large write-downs on its credit market exposures. Any deterioration in
economic and financial market conditions or weak economic growth could
lead to further impairment charges and write-downs. Moreover, market
volatility and illiquidity (and the assumptions, judgements and estimates
in relation to such matters that may change over time and may ultimately
not turn out to be accurate) make it difficult to value certain of the Groups
exposures. Valuations in future periods, reflecting, among other things,
the then prevailing market conditions and changes in the credit ratings of
certain of the Groups assets, may result in significant changes in the fair
values of the Groups exposures, such as credit market exposures and
the value ultimately realised by the Group may be materially different
from the current or estimated fair value.
488
As part of the Groups previous restructuring and capital initiatives,

including the 2013/2014 Strategic Plan, it has already materially reduced
the size of its balance sheet mainly through the sale and run-off of noncore assets. The assets transferred to RCR (which included assets
formerly part of the Groups Non-Core division together with additional
assets identified as part of a HM Treasury review), became part of the
Groups Capital Resolution Group (CRG) as of 1 January 2014. In
connection with the establishment of CRG, the Group indicated its
aspiration to remove the vast majority, if not all of the assets comprising
RCR within three years which resulted in increased impairments of 4.5
billion which were recognised in Q4 2013. The value of the assets in
RCR, excluding derivatives, was 14.9 billion at 31December 2014
following significant reductions during 2014. Although the Group to date
has successfully reduced the size of the RCR portfolio, the remaining
assets in RCR may be difficult to sell and could be subject to further write
downs or, when sold, realised losses. The CRG also includes the Groups
stake in the Williams & Glyn business as well as its remaining stake in
CFG. In addition, as part of the restructuring of the Groups CIB business,
the Group will be exiting or disposing of substantial parts of that business.
The Groups interest in these businesses may be difficult to sell due to
unfavourable market conditions for such assets or businesses. See also
The Groups ability to achieve its capital targets will depend on the
success of the Group's plans to further reduce the size of its business
through the restructuring of its corporate and institutional banking
business and make further divestments of certain of its portfolios and
businesses including its remaining stake in Citizens Financial Group. Any
of these factors could require the Group to recognise further significant
write-downs, realise increased impairment charges or goodwill
impairments, all of which may have a material adverse effect on its
financial condition, results of operations and capital ratios.
The Group may be required to make further contributions to its pension
schemes if the value of pension fund assets is not sufficient to cover
potential obligations and to satisfy ring-fencing requirements
The Group maintains a number of defined benefit pension schemes for
certain former and current employees. Pension risk is the risk that the
assets of the Groups various defined benefit pension schemes do not
fully match the timing and amount of the schemes liabilities which are
long-term in nature, and as a result of which, the Group is required or
chooses to make additional contributions to the schemes. Pension
scheme liabilities vary with changes to long-term interest rates, inflation,
pensionable salaries and the longevity of scheme members as well as
changes in applicable legislation. The funded schemes hold assets to
meet projected liabilities to the scheme members. Risk arises from the
schemes because the value of the asset portfolios, together with any
additional future contributions to the schemes, may be less than expected
and because there may be greater than expected increases in the
estimated value of the schemes liabilities.
In these circumstances, the Group could be obliged, or may choose, to

make additional contributions to the schemes. Given the economic and
financial market difficulties that arose out of the financial crisis and the
risk that such conditions may occur again over the near and medium
term, the Group has experienced and may continue to experience
increasing pension deficits or be required or elect to make further
contributions to its pension schemes. Such deficits and contributions
could be significant and have an adverse impact on the Groups results of
operations or financial condition. In May 2014, the triennial funding
valuation of The Royal Bank of Scotland Group Pension Fund was
agreed which showed that the value of the liabilities exceeded the value
of assets by 5.6 billion at 31 March 2013, a ratio of 82%. To eliminate
this deficit, RBS will pay annual contributions of 650 million from 2014 to
2016 and 450 million (indexed in line with inflation) from 2017 to 2023.
These contributions are in addition to regular annual contributions of
approximately 270 million in respect of the ongoing accrual of benefits
as well as contributions to meet the expenses of running the scheme.
The Banking Reform Act 2013 requires banks to ring-fence specific
activities (principally retail and small business deposits) from certain other
activities. Ring-fencing will require changes to the structure of the
Groups existing defined benefit pension schemes as ring-fenced banks
may not be liable for debts to pension schemes that might arise as a
result of the failure of another entity of the ring-fenced banks group,
which could affect assessments of the Groups schemes deficits. The
draft Financial Services and Markets Act 2000 (Banking Reform
Pensions) Regulations 2015 requires that ring-fence banks ensure that
they cannot become liable for the pension schemes of the rest of their
group, or anyone else after 1 January 2026. The Group is developing a
strategy to meet the requirements of these regulations, which has been
discussed with the PRA. The implementation of this strategy will require
the agreement of pension scheme trustees. Discussions with the
pension trustee will be influenced by the Groups overall ring-fence
strategy and its pension funding and investment strategies. If agreement
is not reached with the pension trustee, alternative options less
favourable to the Group will need to be developed to meet the
requirements of the pension regulations. The costs associated with the
restructuring of the Groups existing defined benefit pension schemes
could be material and could result in higher levels of additional
contributions than those described above and currently agreed with the
pension trustee.
489

The financial performance of the Group has been, and may continue to
be, materially affected by counterparty credit quality and deterioration in
credit quality could arise due to prevailing economic and market
conditions and legal and regulatory developments
The Group has exposure to many different industries and counterparties,
and risks arising from actual or perceived changes in credit quality and
the recoverability of monies due from borrowers and counterparties are
inherent in a wide range of the Groups businesses. In particular, the
Group has significant exposure to certain individual counterparties in
weaker business sectors and geographic markets and also has
concentrated country exposure in the UK, the US and across the rest of
Europe (principally Germany, The Netherlands, Ireland and France) (at
31 December 2014 credit risk assets (excluding personal finance) in the
UK were 180.8 billion, in North America 81.8 billion and in Western
Europe (excluding the UK) 76.3 billion); and within certain business
sectors, namely personal finance, financial institutions, commercial real
estate, shipping and the oil and gas sector (at 31 December 2014
personal finance lending amounted to 180.8 billion, lending to financial
institutions was 91.5 billion, commercial real estate lending was 43.3
billion, lending to the oil and gas sector was 10.7 billion and lending
against ocean going vessels was 10.4 billion). As the Group implements
its new strategy and withdraws from many geographic markets and
materially scales down its activities in the United States, the Groups
relative exposure to the UK will increase significantly as its business
becomes more concentrated in the UK.
The credit quality of the Groups borrowers and counterparties is
impacted by prevailing economic and market conditions and by the legal
and regulatory landscape in their respective markets.
Credit quality has improved in certain of the Groups core markets, in
particular the UK and Ireland, as these economies have improved.
However, a further deterioration in economic and market conditions or
changes to legal or regulatory landscapes could worsen borrower and
counterparty credit quality and also impact the Groups ability to enforce
contractual security rights. In addition, the Groups credit risk is
exacerbated when the collateral it holds cannot be realised or is
liquidated at prices not sufficient to recover the full amount of the loan or
derivative exposure that is due to the Group, which is most likely to occur
during periods of illiquidity and depressed asset valuations, such as those
experienced in recent years. This has been particularly the case with
respect to large parts of the Groups commercial real estate portfolio. Any
such losses could have an adverse effect on the Groups results of
operations and financial condition.
Concerns about, or a default by, one financial institution could lead to
significant liquidity problems and losses or defaults by other financial
institutions, as the commercial and financial soundness of many financial
institutions may be closely related as a result of credit, trading, clearing
and other relationships. Even the perceived lack of creditworthiness of, or
questions about, a counterparty may lead to market-wide liquidity
problems and losses for, or defaults by, the Group. This systemic risk
may adversely affect financial intermediaries, such as clearing agencies,
clearing houses, banks, securities firms and exchanges with which the
Group interacts on a daily basis, all of which could have a material
adverse effect on the Groups access to liquidity or could result in losses
which could have a material adverse effect on the Groups financial
condition, results of operations and prospects.
In certain jurisdictions in which the Group does business, particularly

Ireland, additional constraints have been imposed in recent years on the
ability of certain financial institutions to complete foreclosure proceedings
in a timely manner (or at all), including as a result of interventions by
certain states and local and national governments. These constraints
have lengthened the time to complete foreclosures, increased the
backlog of repossessed properties and, in certain cases, have resulted in
the invalidation of purported foreclosures.
The EU, the ECB, the International Monetary Fund and various national
authorities have proposed and implemented certain measures intended
to address systemic financial stresses in the Eurozone, including the
creation of a European Banking Union which, through a Single Resolution
Mechanism (SRM) will apply the substantive rules of bank recovery and
resolution set out in the BRRD. Current expectations are that the SRM
will apply from 1 January 2016, subject to certain provisions which came
into effect from 1 January 2015 relating to the cooperation between
national resolution authorities and the financial stability board. The
effectiveness of these and other actions proposed and implemented at
both the EU and national level to address systemic stresses in the
Eurozone is not assured.
The trends and risks affecting borrower and counterparty credit quality
have caused, and in the future may cause, the Group to experience
further and accelerated impairment charges, increased repurchase
demands, higher costs, additional write-downs and losses for the Group
and an inability to engage in routine funding transactions.
Changes in interest rates, foreign exchange rates, credit spreads, bond,
equity and commodity prices, basis, volatility and correlation risks and
other market factors have significantly affected and will continue to affect
the Groups business and results of operations
Some of the most significant market risks the Group faces are interest
rate, foreign exchange, credit spread, bond, equity and commodity prices
and basis, volatility and correlation risks. Changes in interest rate levels
(or extended periods of low interest rates such as experienced over the
past several years), yield curves (which remain depressed) and spreads
may affect the interest rate margin realised between lending and
borrowing costs, the effect of which may be heightened during periods of
liquidity stress. Changes in currency rates, particularly in the sterling-US
dollar and sterling-euro exchange rates, affect the value of assets,
liabilities, income and expenses denominated in foreign currencies and
the reported earnings of the Groups non-UK subsidiaries and may affect
the Groups reported consolidated financial condition or its income from
foreign exchange dealing. Such changes may result from the decisions of
Central Banks in Europe and of the Federal Reserve in the US and lead
to sharp and sudden variations in foreign exchange rates. For accounting
purposes, the Group carries some of its issued debt, such as debt
securities, at the current market price on its balance sheet. Factors
affecting the current market price for such debt, such as the credit
spreads of the Group, may result in a change to the fair value of such
debt, which is recognised in the income statement as a profit or loss.
490
The performance and volatility of financial markets affects bond and

equity prices, has caused, and may in the future cause, changes in the
value of the Groups investment and trading portfolios. Financial markets
experienced significant volatility towards the end of 2014 and this trend
has continued in early 2015, resulting in further short term changes in the
valuation of certain of the Groups assets. In addition, during the last
quarter of 2014, oil prices fell significantly against their historical levels
and other commodity prices also decreased. The Group is exposed to oil
prices though its exposure to counterparties in the energy sector and oil
producing countries. Further or sustained decreases in oil prices could
negatively impact counterparties and the value of the Groups trading
portfolios. As part of its on-going derivatives operations, the Group also
faces significant basis, volatility and correlation risks, the occurrence of
which are also impacted by the factors noted above.
While the Group has implemented risk management methods to mitigate
and control these and other market risks to which it is exposed, it is
difficult to predict with accuracy changes in economic or market
conditions and to anticipate the effects that such changes could have on
the Groups financial performance and business operations.
The value or effectiveness of any credit protection that the Group has
purchased depends on the value of the underlying assets and the
financial condition of the insurers and counterparties
The Group has credit exposure arising from over-the-counter derivative
contracts, mainly credit default swaps (CDSs), and other credit
derivatives, each of which are carried at fair value. The fair value of these
CDSs, as well as the Groups exposure to the risk of default by the
underlying counterparties, depends on the valuation and the perceived
credit risk of the instrument against which protection has been bought.
Many market counterparties have been adversely affected by their
exposure to residential mortgage linked and corporate credit products,
whether synthetic or otherwise, and their actual and perceived
creditworthiness may deteriorate rapidly. If the financial condition of these
counterparties or their actual or perceived creditworthiness deteriorates,
the Group may record further credit valuation adjustments on the credit
protection bought from these counterparties under the CDSs. The Group
also recognises any fluctuations in the fair value of other credit
derivatives. Any such adjustments or fair value changes may have a
material adverse impact on the Groups financial condition and results of
operations.
In the UK and in other jurisdictions, the Group is responsible for
contributing to compensation schemes in respect of banks and other
authorised financial services firms that are unable to meet their
obligations to customers
In the UK, the Financial Services Compensation Scheme (FSCS) was
established under the FSMA and is the UKs statutory fund of last resort
for customers of authorised financial services firms. The FSCS can pay
compensation to customers if a firm is unable, or likely to be unable, to
pay claims against it and may be required to make payments either in
connection with the exercise of a stabilisation power or in exercise of the
bank insolvency procedures under the Banking Act 2009.
The FSCS is funded by levies on firms authorised by the FCA, including

the Group. In the event that the FSCS raises funds from the authorised
firms, raises those funds more frequently or significantly increases the
levies to be paid by such firms, the associated costs to the Group may
have an adverse impact on its results of operations and financial
condition.
In addition, the BRRD requires Member States to establish financing
arrangements for the purpose of ensuring the effective application by
national resolution authorities of the resolution tools and powers, which
will require national resolution funds to raise ex ante contributions on
banks and investment firms in proportion to their liabilities and risk
profiles as well as ex post funding contributions. Following the adoption
of the European delegated regulation on ex-ante contributions, the UK
government confirmed that it would implement the ex post funding
requirements through the UK bank levy of the Finance Act 2011.
To the extent that other jurisdictions where the Group operates have
introduced or plan to introduce similar compensation, contributory or
reimbursement schemes (such as in the US with the Federal Deposit
Insurance Corporation), the Group may make further provisions and may
incur additional costs and liabilities, which may have an adverse impact
on its financial condition and results of operations.
The value of certain financial instruments recorded at fair value is
determined using financial models incorporating assumptions,
judgements and estimates that may change over time or may ultimately
not turn out to be accurate
Under International Financial Reporting Standards (IFRS), the Group
recognises at fair value: (i) financial instruments classified as held-fortrading or designated as at fair value through profit or loss; (ii) financial
assets classified as available-for-sale; and (iii) derivatives.
Generally, to establish the fair value of these instruments, the Group
relies on quoted market prices or, where the market for a financial
instrument is not sufficiently active, internal valuation models that utilise
observable market data. In certain circumstances, the data for individual
financial instruments or classes of financial instruments utilised by such
valuation models may not be available or may become unavailable due to
prevailing market conditions. In such circumstances, the Groups internal
valuation models require the Group to make assumptions, judgements
and estimates to establish fair value, which are complex and often relate
to matters that are inherently uncertain. These assumptions, judgements
and estimates also need to be updated to reflect changing facts, trends
and market conditions. The resulting change in the fair values of the
financial instruments has had and could continue to have a material
adverse effect on the Groups earnings, financial condition and capital
position.
491

The Group relies on valuation, capital and stress test models to conduct
its business and anticipate capital and funding requirements. Failure of
these models to provide accurate results or accurately reflect changes in
the micro and macro economic environment in which the Group operates
could have a material adverse effect on the Groups business, capital and
results
Given the complexity of the Groups business, strategy and capital
requirements, the Group relies on analytical models to assess the value
of its assets and its risk exposure and anticipate capital and funding
requirements. The Groups valuation, capital and stress test models and
the parameters and assumptions on which they are based need to be
constantly updated to ensure their accuracy. Failure of these models to
accurately reflect changes in the environment in which the Group
operates or the failure to properly input any such changes could have an
adverse impact on the modelled results or could fail to accurately capture
the risk profile of the Groups financial instruments. Some of the analytical
models used by the Group are predictive in nature. The use of predictive
models has inherent risks and may incorrectly forecast future behaviour,
leading to flawed decision making and potential losses. The Group also
uses valuation models that rely on market data inputs. If incorrect market
data is input into a valuation model, it may result in incorrect valuations or
valuations different to those which were predicted and used by the Group
in its forecasts or decision making. Should such models prove to be
incorrect or misleading, decisions made by the Group in reliance thereon
could expose the Group to business, capital and funding risk.
The Groups results could be adversely affected in the event of goodwill
impairment
The Group capitalises goodwill, which is calculated as the excess of the
cost of an acquisition over the net fair value of the identifiable assets,
liabilities and contingent liabilities acquired. Acquired goodwill is
recognised initially at cost and subsequently at cost less any
accumulated impairment losses. As required by IFRS, the Group tests
goodwill for impairment annually, or more frequently when events or
circumstances indicate that it might be impaired. An impairment test
involves comparing the recoverable amount (the higher of the value in
use and fair value less cost to sell) of an individual cash generating unit
with its carrying value. At 31 December 2014, the Group carried goodwill
of 6.3 billion on its balance sheet.
The value in use and fair value of the Groups cash generating units are
affected by market conditions and the performance of the economies in
which the Group operates. Where the Group is required to recognise a
goodwill impairment, it is recorded in the Groups income statement,
although it has no effect on the Groups regulatory capital position.
Further impairments of the Groups goodwill could have an adverse effect
on the Groups results and financial condition.
Any significant write-down of goodwill could have a material adverse
effect on the Groups results of operations.
The recoverability of certain deferred tax assets recognised by the Group
depends on the Groups ability to generate sufficient future taxable profits
and may be affected by changes to tax legislation
In accordance with IFRS, the Group has recognised deferred tax assets
on losses available to relieve future profits from tax only to the extent that
it is probable that they will be recovered. The deferred tax assets are
quantified on the basis of current tax legislation and accounting standards
and are subject to change in respect of the future rates of tax or the rules
for computing taxable profits and offsetting allowable losses. Failure to
generate sufficient future taxable profits or changes in tax legislation
(including rates of tax) or accounting standards may reduce the
recoverable amount of the recognised deferred tax assets. At 31
December 2014, the value of the Groups deferred tax assets was 1.5
billion. In December 2014 the UK Government announced a
proposed restriction on the use of certain brought forward tax losses of
banking companies to 50% of relevant profits from 1 April 2015 which
may also affect the recoverable amount of recognised deferred tax
assets. In addition, the implementation of the rules relating to ring-fencing
and the resulting restructuring of the Group may further restrict the
Groups ability to recognise tax losses within the Group as deferred tax
assets .
492
494
494
495
496
498
499
502
502
502
503
504
505
512
513
516
516
Financial calendar
Shareholder enquiries
Analyses of ordinary shareholders
Trading market
Dividend history
Taxation for US Holders
Exchange controls
Memorandum and Articles of Association
Incorporation and registration
Forward-looking statements
Glossary of terms
EDTF recommendations
Index
Important addresses
Principal offices
493
Financial calendar
Annual General Meeting
Interim results
23 June 2015
RBS Conference Centre
RBS Gogarburn
Edinburgh EH12 1HQ
30 July 2015
Shareholdings in the company may be checked by visiting the
Shareholder centre section of our website, www.rbs.com. You will need
the shareholder reference number printed on your share certificate or tax
voucher to gain access to this information.
Listed below are the most commonly used features on the website:
holding enquiry - view balances, values, history, payments and

reinvestments;
address change - change your registered address;
e-Comms sign-up - choose to receive email notification when your

shareholder communications become available instead of paper
communications;
outstanding payments - reissue any uncashed payments using our

online replacement service; and
downloadable forms - including stock transfer and change of

address forms.
You may also check your shareholding by contacting our Registrar:

Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ
Telephone: +44 (0)870 702 0135
Fax: +44 (0)870 703 6009
Website: www.investorcentre.co.uk/contactus
Dividends
Payment dates
Cumulative preference shares
Non-cumulative preference shares
31 May and 31 December 2015

31 March, 30 June, 30 September
and 31 December 2015
Ex-dividend date
30 April 2015
Record date
1 May 2015
For further information on the payment of dividends, see page 498.

Braille and audio Strategic report with additional information
Shareholders requiring a Braille or audio version of the Strategic report
with additional information should contact the Registrar on +44 (0)870
702 0135.
ShareGift
The company is aware that shareholders who hold a small number of
shares may be retaining these shares because dealing costs make it
uneconomical to dispose of them. ShareGift, the charity share donation
scheme, is a free service operated by The Orr Mackintosh Foundation
(registered charity 1052686) to enable shareholders to donate shares to
charity.
Donating your shares in this way will not give rise to either a gain or a
loss for UK capital gains tax purposes and you may be able to reclaim UK
income tax on gifted shares. Further information can be obtained from
HM Revenue & Customs.
Should you wish to donate your shares to charity in this way you should
contact ShareGift for further information:
ShareGift, The Orr Mackintosh Foundation
17 Carlton House Terrace, London SW1Y 5AH
Telephone: +44 (0)20 7930 3737
Website: www.sharegift.org
494
Share fraud warning

Fraudsters use persuasive and high-pressure tactics to lure investors into
scams. They may offer to sell shares that turn out to be worthless or nonexistent, or to buy shares at an inflated price in return for an upfront
payment. While high profits are promised, if you buy or sell shares in this
way you will probably lose your money.
Call the FCA on 0800 111 6768 if the firm does not have contact
details on the Register or you are told they are out of date.
Search the list of unauthorised firms to avoid at

www.fca.org.uk/scams
Consider that if you buy or sell shares from an unauthorised firm you
will not have access to the Financial Ombudsman Service or
Financial Services Compensation Scheme.
Keep in mind that firms authorised by the FCA are unlikely to

contact you out of the blue with an offer to buy or sell shares.
Do not get into a conversation, note the name of the person and firm
contacting you and then end the call.
Think about getting independent financial and professional advice

before you hand over any money.
Check the Financial Services Register at www.fca.org.uk to see if

the person and firm contacting you is authorised by the FCA.
Remember if it sounds too good to be true, it probably is.
Beware of fraudsters claiming to be from an authorised firm, copying

its website or giving you false contact details.
Use the firms contact details listed on the Register if you want to
call it back.
Report a scam
If you are approached by fraudsters please tell the FCA using the share
fraud reporting form at www.fca.gov.uk/scams, where you can find out
more about investment scams. You can also call the FCA Consumer
Helpline on 0800 111 6768. If you have already paid money to share
fraudsters you should contact Action Fraud on 0300 123 2040.
Analyses of ordinary shareholders

At 31 December 2014
Individuals
Banks and nominee companies
Investment trusts
Insurance companies
Other companies
Pension trusts
Other corporate bodies
Range of shareholdings:
1 - 1,000
1,001 - 10,000
10,001 - 100,000
100,001 - 1,000,000
1,000,001 - 10,000,000
10,000,001 and over
Shareholdings
Number
of shares
- millions
194,957
10,181
97
90
903
28
85
112.1
6,189.9
0.7
0.3
16.9
0.9
45.1
1.8
97.2
0.3
0.7
206,341
6,365.9
100.0
178,446
26,206
1,050
412
182
45
44.6
59.3
29.4
143.2
579.0
5,510.4
0.7
0.9
0.5
2.2
9.1
86.6
206,341
6,365.9
100.0
495
Trading market
Non-cumulative dollar preference shares
The following series of American Depositary shares (ADSs) representing non-cumulative preference shares issued in the US were outstanding at 31
December 2014:
Date of issue
Series of ADS
Number of ADSs/non-cumulative
preference shares in issue
Number of
registered holders
26 March 1997
8 February 1999
30 September 2004
26 August 2004
19 May 2005
9 November 2005
25 May 2006
27 December 2006
28 June 2007
27 September 2007
4 October 2007
F
H
L
M
N
P
Q
R
S
T
U
6,255,408
9,687,654
30,027,877
23,125,869
22,113,160
9,883,307
20,646,938
10,163,932
26,449,040
51,245,839
10,130
48
30
17
6
10
19
6
3
2
14
1
Each of the respective ADSs set out above represents the right to receive
one corresponding preference share, and is evidenced by an American
Depository Receipt (ADR) and is listed on the New York Stock Exchange,
a subsidiary of NYSE Euronext (NYSE).
The ADRs evidencing the ADSs above were issued pursuant to Deposit
Agreements, among the company, The Bank of New York, as depository,
and all holders from time-to-time of ADRs issued thereunder. Currently,
there is no non-United States trading market for any of the noncumulative dollar preference shares. All of the non-cumulative dollar
preference shares are held by the depository, as custodian, in bearer
form.
PROs
In August 2001, the company issued US$1.2 billion perpetual regulatory
tier one securities (PROs) which are listed on the NYSE.
ADSs representing ordinary shares

In October 2007, the company listed ADSs, each representing one
ordinary share nominal value 25p each (or a right to receive one ordinary
share), and evidenced by an ADR or uncertificated securities, on the
NYSE. With effect from 7 November 2008, the ratio of one ADS
representing one ordinary share changed to one ADS representing 20
ordinary shares.
Following a sub-division and one-for-ten consolidation of RBSs ordinary
shares in June 2012, the ratio of one ADS representing 20 ordinary
shares was adjusted to one ADS representing two ordinary shares. As at
31 December 2014, 30.7 million ordinary ADSs were outstanding.
The ordinary ADSs were issued pursuant to a Deposit Agreement,
among the company, The Bank of New York Mellon, as depository, and
all owners and holders from time to time of ordinary ADSs issued
thereunder. The ordinary shares of the company are listed and traded on
the London Stock Exchange. All ordinary shares are deposited with the
principal London office of The Bank of New York Mellon, as custodian for
the depository.
496
The following table shows the high and low sales prices for each of the outstanding ADSs representing non-cumulative dollar preference shares, PROs,
ordinary shares and ADSs representing ordinary shares.
By month
Jan 2015
Dec 2014
Nov 2014
Oct 2014
Sep 2014
Aug 2014
By quarter
2014: Q4
2014: Q3
2014: Q2
2014: Q1
2013: Q4
2013: Q3
2013: Q2
2013: Q1
By year
2014
2013
2012
2011
2010
Ordinary
Series U
ADSs (1) PROs (1,2) shares (3)
US$
US$
Ordinary
ADSs (4)
US$
Series F
ADSs (1)
US$
Series H
ADSs (1)
US$
Series L
ADSs (1)
US$
Series M
ADSs (1)
US$
Series N
ADSs (1)
US$
Series P
ADSs (1)
US$
Series Q
ADSs (1)
US$
Series R
ADSs (1)
US$
Series S
ADSs (1)
US$
Series T
ADSs (1)
US$
High
Low
High
Low
High
Low
High
Low
High
Low
High
Low
26.24
25.65
26.19
25.39
26.16
25.78
26.06
25.78
25.95
25.29
26.07
25.58
25.80
25.45
25.79
25.13
25.92
25.56
25.55
25.13
25.70
25.15
25.69
25.36
24.00
23.50
23.92
23.18
24.05
23.57
23.49
23.10
23.74
22.40
23.78
23.05
24.91
24.68
24.84
24.15
24.93
24.66
24.58
24.20
24.90
23.78
24.89
24.38
25.06
24.76
24.90
24.08
24.99
24.61
24.61
24.03
24.95
23.83
24.94
24.13
24.82
24.11
24.49
23.77
24.58
24.10
24.02
23.63
24.38
23.42
24.35
23.54
25.30
25.09
25.35
24.81
25.39
25.22
25.13
24.70
25.43
24.45
25.38
24.90
24.51
23.90
24.32
23.58
24.52
24.01
24.04
23.48
24.34
23.34
24.27
23.43
25.28
24.88
25.07
24.48
25.06
24.91
24.82
24.40
25.01
23.96
25.03
24.41
25.66
25.35
25.60
25.05
25.80
25.37
25.35
25.12
25.68
24.90
25.68
25.14
107.75
104.25
105.50
104.00
105.88
104.38
106.13
105.00
106.50
103.50
105.75
103.50
119.09
117.04
117.51
116.99
117.44
116.84
117.28
116.68
118.58
116.88
119.20
117.98
3.944
3.624
4.035
3.637
3.953
3.738
3.880
3.377
3.682
3.422
3.664
3.374
11.93
10.86
12.57
11.32
12.34
11.63
12.43
10.85
11.93
11.01
12.14
11.28
High
Low
High
Low
High
Low
High
Low
High
Low
High
Low
High
Low
High
Low
26.19
25.39
26.07
25.29
26.44
25.35
25.59
24.93
25.24
24.32
24.95
24.16
25.86
24.07
25.62
24.77
25.92
25.13
25.70
25.15
25.65
24.93
25.15
24.23
24.85
23.83
24.70
23.64
25.55
23.52
25.41
24.70
24.05
23.10
23.78
22.40
23.40
21.35
21.66
19.89
20.25
19.13
20.42
18.46
23.87
18.99
24.00
22.39
24.93
24.15
24.90
23.78
24.29
22.74
22.84
20.86
21.88
20.23
21.16
19.58
24.03
20.21
23.87
22.24
24.99
24.03
24.95
23.83
24.08
22.53
22.75
20.68
21.75
20.07
21.08
19.46
23.72
20.16
23.69
22.20
24.58
23.63
24.38
23.42
23.84
22.18
22.33
20.39
21.40
19.88
20.89
19.29
23.92
20.00
23.71
21.92
25.39
24.70
25.43
24.45
24.99
23.63
23.73
21.85
22.95
21.16
22.24
20.57
24.63
21.05
24.54
23.32
24.52
23.48
24.34
23.34
23.80
21.93
22.26
20.06
21.18
19.70
20.71
19.26
23.70
19.79
23.47
21.77
25.07
24.40
25.03
23.96
24.63
23.17
23.16
21.68
22.49
20.72
21.82
20.23
24.45
20.49
24.21
23.03
25.80
25.05
25.68
24.90
25.57
24.90
25.12
24.17
24.76
23.05
23.84
22.28
25.44
21.83
25.03
24.19
106.13
104.00
107.00
103.50
107.13
101.75
101.50
97.25
97.50
92.50
95.00
89.00
98.50
84.00
97.00
89.00
117.51
116.68
121.97
116.88
121.92
107.64
107.72
105.04
105.16
102.20
102.80
91.38
106.76
90.27
107.70
100.24
4.035
3.377
3.682
3.141
3.466
2.955
3.750
2.991
3.849
3.159
3.727
2.700
3.519
2.661
3.678
2.755
12.57
10.85
12.38
10.75
11.59
9.91
12.40
9.86
12.35
10.25
11.97
8.23
10.81
8.15
11.84
8.37
High
Low
High
Low
High
Low
High
Low
High
Low
26.44
24.93
25.86
24.07
25.35
17.60
25.05
16.21
23.97
16.57
25.92
24.23
25.55
23.52
24.96
16.76
23.95
15.35
23.85
15.10
24.05
19.89
24.00
18.46
23.57
15.46
19.40
13.87
19.88
13.35
24.93
20.86
24.03
19.58
23.09
11.63
18.80
10.21
17.75
10.95
24.99
20.68
23.72
19.46
22.98
11.53
18.82
10.11
17.73
10.91
24.58
20.39
23.92
19.29
22.83
11.41
18.40
9.97
17.77
10.75
25.43
21.85
24.63
20.57
23.40
12.24
19.40
10.62
17.91
11.24
24.52
20.06
23.70
19.26
22.96
11.41
18.35
9.98
17.75
10.80
25.07
21.68
24.45
20.23
23.31
11.83
18.88
10.22
17.73
10.99
25.80 107.13 121.97

24.17
97.25 105.04
25.44
98.50 107.70
21.83
84.00
90.27
24.50
90.00 100.59
13.08
53.63
66.58
20.60
84.00
96.69
11.43
46.00
63.58
18.64
78.25
97.06
11.90
53.00
67.13
4.035
2.955
3.849
2.661
3.250
1.966
4.900
1.734
5.804
3.125
12.57
9.86
12.35
8.15
10.79
6.09
15.83
5.36
17.30
9.89
Notes:
(1) Prices as reported on the NYSE or NASDAQ.
(2) Price quoted as a % of US$1,000 nominal.
(3) Prices as reported in the Daily Official List of the London Stock Exchange. Following the sub-division and one-for-ten consolidation of ordinary shares in June 2012, prices prior to that date were
restated accordingly.
(4) Prices as reported on the NYSE composite tape. Following the sub-division and one-for-ten consolidation of ordinary shares in June 2012, the ratio of one ADS representing 20 ordinary shares was
adjusted to one ADS representing two ordinary shares.
On 25 February 2015, the closing price of the ordinary shares on the London Stock Exchange was 4.033 equivalent to $6.251 per ordinary share
translated at the Noon Buying Rate of $1.5499 per 1.00, and the closing price of the ordinary ADSs on the NYSE was $12.43.
497
Dividend history
Preference dividends
2014
2014
2013
2012
2011
2010
1.91
1.81
1.44
1.60
1.59
1.56
1.69
1.53
1.65
1.81
7,640
1.16
1.10
0.87
0.97
0.96
0.95
1.02
0.93
1.00
1.10
4,637
1.16
1.10
0.87
1.03
1.03
1.01
1.09
0.99
1.07
1.17
4,881
1.21
1.14
0.91
0.75
0.74
0.73
0.79
0.72
0.77
0.85
2,406
1.19
1.13
0.90
1.06
1.03
0.86
0.26
0.26
0.25
0.27
0.25
0.27
0.29
2,474
91.18
55.34
55.12
57.86
56.87
59.98
73.02
69.70
4,667
44.32
42.31
2,833
45.76
44.83
3,027
44.65
42.25
2,813
121.70
73.87
73.87
73.87
73.87
73.87
47.80
29.01
28.42
89.62
Amount per share

- Series F (1)
- Series H (1)
- Series L (1)
- Series M (2)
- Series N (2)
- Series P (2)
- Series Q (2)
- Series R (2)
- Series S (2)
- Series T (2)
- Series U (2)
- Series 1 (1)
- Series 1 (2)
- Series 2 (2)
- Series 3 (2)
- Series 1 (1)
- Series 1 (2)
Notes:
(1) Classified as subordinated liabilities.
(2) Classified as equity.
On 26 November 2009, RBS entered into a State Aid Commitment Deed

with HM Treasury containing commitments and undertakings that were
designed to ensure that HM Treasury was able to comply with the
commitments to be given by it to the European Commission for the
purposes of obtaining approval for the State aid provided to RBS. As part
of these commitments and undertakings, RBS agreed not to pay
discretionary coupons and dividends on its existing hybrid capital
instruments for a period of two years. This period commenced on 30 April
2010 for RBS Group instruments and ended on 30 April 2012; the two
year deferral period for RBS Holdings N.V. instruments commenced on 1
April 2011 and ended on 1 April 2013.
On 4 May 2012, RBS determined that it was in a position to recommence

payments on RBS Group instruments. In June 2013 RBS Holdings N.V.
resumed payments on its hybrid capital instruments. Future coupons and
dividends on hybrid capital instruments will only be paid subject to, and in
accordance with, the terms of the relevant instruments.
For further information, see Note 7 on the consolidated accounts.
Ordinary dividends
The company has not paid an ordinary dividend since 2007. In 2008, the
company issued new ordinary shares by way of a capitalisation issue
rather than paying an interim dividend.
498
Taxation for US Holders

The following discussion summarises certain US federal and UK tax
consequences of the ownership and disposition of ordinary shares, ADSs
representing ordinary shares (ordinary ADSs), ADSs representing noncumulative dollar preference shares (preference ADSs) or PROs by a
beneficial owner that is a citizen or resident of the United States or that
otherwise will be subject to US federal income tax on a net income basis
in respect of the ordinary shares, ordinary ADSs, preference ADSs or
PROs (a US Holder). This summary assumes that a US Holder is
holding ordinary shares, ordinary ADSs, preference ADSs or PROs, as
applicable, as capital assets. This summary does not address the tax
consequences to a US Holder (i) that is resident in the UK for UK tax
purposes, (ii) that carries on a trade, profession or vocation through a
branch, agency or permanent establishment in the UK in connection with
which their ordinary shares, ordinary ADSs, preference ADSs or PROs
are held, used or acquired, or (iii) generally, that is a corporation which
alone or together with one or more associated companies, controls,
directly or indirectly, 10% or more of the voting stock of the company, nor
does this summary address all of the tax consequences that may be
relevant to a US Holder in light of its particular circumstances, including
alternative minimum tax and Medicare contribution tax consequences, as
well as differing tax consequences that may apply to US Holders subject
to special rules, such as certain financial institutions, dealers or traders in
securities who use a mark-to-market method of tax accounting, persons
holding ordinary shares, ordinary ADSs, preference ADSs or PROs as
part of a hedging transaction, straddle, wash sale, conversion transaction
or integrated transaction or persons entering into a constructive sale with
respect to such securities, persons whose functional currency for US
federal income tax purposes is not the US dollar, entities classified as
partnerships for US federal income tax purposes, tax-exempt entities or
persons that own or are deemed to own 10% or more of the voting stock
of the company.
The statements and practices set forth below regarding US and UK tax
laws, including the US/UK double taxation convention relating to income
and capital gains which entered into force on 31 March 2003 (the
Treaty) and the US/UK double taxation convention relating to estate and
gift taxes (the Estate Taxation Treaty), are based on those laws and
practices as in force and as applied in practice on the date of this report.
This summary is not exhaustive of all possible tax considerations and
holders are advised to satisfy themselves as to the overall tax
consequences, including specifically the consequences under US federal,
state, local and other laws, and possible changes in taxation law, of the
acquisition, ownership and disposition of ordinary shares, ordinary ADSs,
preference ADSs or PROs by consulting their own tax advisers.
The following discussion assumes that the company was not for the
taxable year ended 31 December 2014, and will not become in the
foreseeable future, a passive foreign investment company - see Passive
Foreign Investment Company (PFIC) considerations on page 502.
Ordinary shares, ordinary ADSs and preference ADSs

Taxation of dividends
For the purposes of the Treaty, the Estate Taxation Treaty and the US
Internal Revenue Code of 1986 as amended (the Code), US Holders of
ordinary ADSs and preference ADSs should be treated as owners of the
respective ordinary shares and the non-cumulative dollar preference
shares underlying such ADSs.
The US Treasury has expressed concerns that parties to whom
depositary receipts are released before shares are delivered to the
depositary, or intermediaries in the chain of ownership between US
holders and the issuer of the security underlying the depositary receipts,
may be taking actions that are inconsistent with the claiming of foreign
tax credits for US holders of depositary receipts. Such actions would also
be inconsistent with the claiming of the favourable US tax rates
applicable to dividends received by certain non-corporate US holders
(described below). Accordingly, the availability of the favourable tax rates
for dividends received by certain non-corporate US holders could be
affected by actions taken by such parties or intermediaries.
The company is not required to withhold UK tax at source from dividend
payments it makes or from any amount (including any amounts in respect
of accrued dividends) distributed by the company. US Holders who are
not resident in the UK and who do not carry on a trade, profession or
vocation in the UK through a branch, agency or permanent establishment
in connection with which their ordinary shares, ordinary ADSs or
preference ADSs are held, used or acquired will not be subject to UK tax
in respect of any dividends received on the relevant shares or ADSs.
Distributions by the company (other than certain pro-rata distributions of
ordinary shares or rights to receive such shares) will constitute foreign
source dividend income for US federal income tax purposes to the extent
paid out of the current or accumulated earnings and profits of the
company, as determined under US federal income tax principles.
Because the company does not maintain calculations of its earnings and
profits under US federal income tax principles, it is expected that
distributions will be reported to US Holders as dividends. Payments will
not be eligible for the dividends-received deduction generally allowed to
corporate US holders.
Subject to applicable limitations that vary depending upon a US Holder's
particular circumstances and the discussion above regarding concerns
expressed by the US Treasury, dividends paid to certain non-corporate
US Holders may be taxable at the favourable rates applicable to longterm capital gain. Non-corporate US Holders should consult their own tax
advisers to determine whether they are subject to any special rules that
limit their ability to be taxed at these favourable rates.
Dividends will be included in a US Holder's income on the date of the US
Holder's (or in the case of ADSs, the depositary's) receipt of the dividend.
The amount of any dividend paid in pounds sterling to be included in
income by a US Holder will be the US dollar amount calculated by
reference to the relevant exchange rate in effect on the date of such
receipt regardless of whether the payment is in fact converted into US
dollars. If the dividend is converted into US dollars on the date of receipt,
the US Holder generally should not be required to recognise foreign
currency gain or loss in respect of the dividend income. If the amount of
such dividend is converted into US dollars after the date of receipt, the
US Holder may have foreign currency gain or loss.
499
Taxation for US Holders continued

Taxation of capital gains
A US Holder that is not resident in the UK will not normally be liable for
UK tax on capital gains realised on the disposition of an ordinary share,
an ordinary ADS or a preference ADS unless at the time of the disposal,
in the case of a corporate US Holder, such US Holder carries on a trade
in the UK through a permanent establishment or, in the case of any other
US Holder, such US Holder carries on a trade, profession or vocation in
the UK through a branch or agency and, in each case, such ordinary
share, ordinary ADS or preference ADS is or has been used, held or
acquired by or for the purposes of such trade (or profession or vocation),
carried on through such permanent establishment, branch or agency.
Special rules apply to individuals who are temporarily not resident in the
UK.
A US Holder will, upon the sale or other disposition of an ordinary share,
an ordinary ADS or a preference ADS, or upon the redemption of
preference ADS, generally recognise capital gain or loss for US federal
income tax purposes (assuming that in the case of a redemption of a
preference ADS, such US Holder does not own, and is not deemed to
own, any ordinary shares or ordinary ADSs of the company) in an amount
equal to the difference between the amount realised (excluding in the
case of a redemption any amount treated as a dividend for US federal
income tax purposes, which will be taxed accordingly) and the US
Holder's tax basis in such share or ADS. This capital gain or loss will be
long-term capital gain or loss if the US Holder held the share or ADS so
sold, disposed or redeemed for more than one year. The deductibility of
capital losses is subject to limitations.
A US Holder who is liable for both UK and US tax on a gain recognised
on the disposal of an ordinary share, an ordinary ADS or a preference
ADS may be entitled, subject to certain limitations, to credit the UK tax
against its US federal income tax liability in respect of such gain.
Estate and gift tax
Subject to the discussion of the Estate Tax Treaty in the following
paragraph, ordinary shares, ordinary ADSs or preference ADSs
beneficially owned by an individual may be subject to UK inheritance tax
(subject to exemptions and reliefs) on the death of the individual or in
certain circumstances, if such shares or ADSs are the subject of a gift
(including a transfer at less than market value) by such individual.
Inheritance tax is not generally chargeable on gifts to individuals made
more than seven years before the death of the donor. Ordinary shares,
ordinary ADSs or preference ADSs held by the trustees of a settlement
may also be subject to UK inheritance tax. Special rules apply to such
settlements.
An ordinary share, an ordinary ADS or a preference ADS beneficially
owned by an individual, whose domicile is determined to be the United
States for purposes of the Estate Tax Treaty and who is not a national of
the UK, will not be subject to UK inheritance tax on the individual's death
or on a lifetime transfer of such share or ADS, except in certain cases
where the share or ADS (i) is comprised in a settlement (unless, at the
time of the settlement, the settlor was domiciled in the United States and
was not a national of the UK); (ii) is part of the business property of a UK
permanent establishment of an enterprise; or (iii) pertains to a UK fixed
base of an individual used for the performance of independent personal
services.
The Estate Tax Treaty generally provides a credit against US federal

estate or gift tax liability for the amount of any tax paid in the UK in a case
where the ordinary share, ordinary ADS or preference ADS is subject to
both UK inheritance tax and US federal estate or gift tax.
UK stamp duty and stamp duty reserve tax (SDRT)
The following is a summary of the UK stamp duty and SDRT
consequences of transferring an ADS (otherwise than to the custodian on
cancellation of the ADS) or of transferring an ordinary share. A transfer of
an ADS executed and retained in the United States will not give rise to a
liability to pay stamp duty and an agreement to transfer an ADS will not
give rise to SDRT. Stamp duty or SDRT will normally be payable on or in
respect of transfers of ordinary shares and accordingly any holder that
acquires or intends to acquire ordinary shares is advised to consult its
own tax adviser in relation to stamp duty and SDRT.
PROs
United States
Payments of interest on a PRO (including any UK withholding tax, as to
which see below) will constitute foreign source dividend income for US
federal income tax purposes to the extent paid out of the current or
accumulated earnings and profits of the company, as determined under
US federal income tax principles. Because the company does not
maintain calculations of its earnings and profits under US federal income
tax principles, it is expected that distributions will be reported to US
Holders as dividends. Payments will not be eligible for the dividendsreceived deduction generally allowed to corporate US holders. A US
Holder who is entitled under the Treaty to a refund of UK tax, if any,
withheld on a payment will not be entitled to claim a foreign tax credit with
respect to the refundable tax. Subject to applicable limitations that vary
depending upon a US Holder's particular circumstances and the
discussion above regarding concerns expressed by the US Treasury,
dividends paid to certain non-corporate US Holders may be taxable at the
favourable rates applicable to long-term capital gain. Non-corporate US
Holders should consult their own tax advisers to determine whether they
are subject to any special rules that limit their ability to be taxed at these
favourable rates.
A US Holder will, upon the sale, exchange or redemption of a PRO,
generally recognise capital gain or loss for US federal income tax
purposes (assuming that in the case of a redemption, such US Holder
does not own, and is not deemed to own, any ordinary shares or ordinary
ADSs of the company) in an amount equal to the difference between the
amount realised (excluding any amount in respect of mandatory interest
and any missed payments which are to be satisfied on a missed payment
satisfaction date, which would be treated as ordinary income) and the US
Holder's tax basis in the PRO. This capital gain or loss will be long-term
capital gain or loss if the US Holder held the PRO so sold, disposed or
redeemed for more than one year. The deductibility of capital losses is
subject to limitations.
A US Holder who is liable for both UK and US tax on gain recognised on
the disposal of PROs may be entitled, subject to certain limitations, to
credit the UK tax against all or a portion of its US federal income tax
liability in respect of such gain.
500
United Kingdom
Taxation of payments on the PROs
Payments on the PROs will constitute interest rather than dividends for
UK withholding tax purposes. The PROs are not expected to fall within
the exemption from withholding tax provided for in the Taxation of
Regulatory Capital Securities Regulations 2013 which apply to securities
which qualify (or have qualified) as Additional Tier 1 instruments under
Article 52 of the Commission Regulation (EU) No. 575/2013 or Tier 2
instruments under Article 63 of that regulation and which form (or have
formed) a component of Additional Tier 1 capital or Tier 2 capital.
However, the PROs constitute quoted eurobonds within the meaning of
section 987 of the Income Tax Act 2007 and therefore payments of
interest will not be subject to withholding or deduction for or on account of
UK tax as long as the PROs remain at all times listed on a recognised
stock exchange within the meaning of section 1005 of the Income Tax
Act 2007, such as the main market of the New York Stock Exchange. In
all other cases, an amount must be withheld on account of UK income tax
at the basic rate (currently 20%) subject to any direction to the contrary
by HM Revenue & Customs under the Treaty and except that the
withholding obligation does not apply to payments to persons who the
company reasonably believes are within the charge to corporation tax or
fall within various categories enjoying a special tax status (including
charities and pension funds), or are partnerships consisting of such
persons (unless HM Revenue & Customs directs otherwise). Where
interest has been paid under deduction of UK withholding tax, US
Holders may be able to recover the tax deducted under the Treaty.
HM Revenue & Customs have powers in certain circumstances to obtain
information in relation to interest and payments derived from securities.
HM Revenue & Customs may communicate this information to the tax
authorities of other jurisdictions.
HM Revenue & Customs confirmed at around the time of the issue of the
PROs that interest payments would not be treated as distributions for UK
tax purposes by reason of (i) the fact that interest may be deferred under
the terms of issue; or (ii) the undated nature of the PROs, provided that at
the time an interest payment is made, the PROs are not held by a
company which is 'associated' with the company or by a 'funded
company'. A company will be associated with the company if, broadly
speaking, it is part of the same group as the company. A company will be
a 'funded company' for these purposes if there are arrangements
involving that company being put in funds (directly or indirectly) by the
company, or an entity associated with the company. In this respect, HM
Revenue & Customs has confirmed that a company holding an interest in
the PROs which incidentally has banking facilities with any company
associated with the company will not be a 'funded company' by virtue of
such facilities.
Interest on the PROs constitutes UK source income for UK tax purposes

and, as such, may be subject to income tax by direct assessment even
where paid without withholding. However, interest with a UK source
received without deduction or withholding on account of UK tax will not be
chargeable to UK tax in the hands of a US Holder unless, in the case of a
corporate US Holder, such US Holder carries on a trade in the UK
through a UK permanent establishment or in the case of other US
Holders, such persons carry on a trade, profession or vocation in the UK
through a branch or agency in each case in connection with which the
interest is received or to which the PROs are attributable. There are also
exemptions for interest received by certain categories of agents (such as
some brokers and investment managers).
EU Directive on taxation of savings income
Under the European Union Council Directive 2003/48/EC on the taxation
of savings income, member states of the European Union are required to
provide to the tax authorities of other member states details of payments
of interest and other similar income paid by a person to an individual or
certain other persons resident in another member state, except that
Austria (and, prior to 1 January 2015, Luxembourg) may instead impose
a withholding system for a transitional period unless during such period
they elect otherwise.
An amending directive has been adopted which will, when implemented,
amend and broaden the scope of the above requirements. It will expand
the range of payments covered by the European Union Council Directive
2003/48/EC, in particular to include additional types of income payable on
securities, and the circumstances in which payments must be reported or
paid subject to withholding. The amending directive requires member
states to adopt implementing legislation by 1 January 2016 to take effect
from 1 January 2017.
Disposal (including redemption)
A disposal (including redemption) of PROs by a non-corporate US Holder
will not give rise to any liability to UK tax on capital gains unless the US
Holder carries on a trade (which for this purpose includes a profession or
a vocation) in the UK through a branch or agency and the PROs are, or
have been, held or acquired for the purposes of that trade, carried on
through such branch or agency.
A transfer of PROs by a US Holder will not give rise to a charge to UK tax
on accrued but unpaid interest payments, unless the US Holder is an
individual or other non-corporate taxpayer and at any time in the relevant
year of assessment or accounting period carries on a trade, profession or
vocation in the UK through a branch or agency to which the PROs are
attributable.
Annual tax charges
Corporate US Holders of PROs may be subject to UK tax charges (or tax
relief) by reference to fluctuations in exchange rates and in respect of
profits, gains and losses arising from the PROs (including on a disposal
or redemption), but only if such corporate US Holders carry on a trade in
the UK through a UK permanent establishment to which the PROs are
attributable.
501
Taxation for US Holders continued

Inheritance tax
In relation to PROs held through Depository Trust Company (or any other
clearing system), the UK inheritance tax position is not free from doubt in
respect of a lifetime transfer, or death of, a US Holder who is not
domiciled nor deemed to be domiciled in the UK for inheritance tax
purposes; HM Revenue & Customs is known to consider that the situs of
securities held in this manner is not necessarily determined by the place
where the securities are registered. In appropriate circumstances, there
may be a charge to UK inheritance tax as a result of a lifetime transfer at
less than market value by, or on the death of, such US Holder.
Inheritance tax is not generally chargeable on gifts to individuals made
more than seven years before the death of the donor. However,
exemption from, or a reduction of, any such UK tax liability may be
available under the Estate Tax Treaty (see below). US Holders should
consult their professional advisers in relation to such potential liability.
PROs beneficially owned by an individual, whose domicile is determined
to be the United States for the purposes of the Estate Tax Treaty and
who is not a national of the UK, will not be subject to UK inheritance tax
on the individual's death or on a lifetime transfer of the PRO, except in
certain cases where the PRO (i) is comprised in a settlement (unless, at
the time of the settlement, the settlor was domiciled in the United States
and was not a national of the UK); (ii) is part of the business property of a
UK permanent establishment of an enterprise; or (iii) pertains to a UK
fixed base of an individual used for the performance of independent
personal services.
The Estate Tax Treaty generally provides a credit against US federal
estate or gift tax liability for the amount of any tax paid in the UK in a case
where the PRO is subject to both UK inheritance tax and US federal
estate or gift tax.
Stamp duty and SDRT
No stamp duty, SDRT or similar tax is imposed in the UK on the issue,
transfer or redemption of the PROs.
Passive Foreign Investment Company (PFIC) considerations
In general, a foreign corporation will be a PFIC for any taxable year in
which, after taking into account the income and assets of the corporation
and certain subsidiaries pursuant to applicable 'look-through rules', either
(i) at least 75% of its gross income is 'passive income' or (ii) at least 50%
of the average quarterly value of its assets is attributable to assets that
produce passive income or are held for the production of passive income.
The company does not believe that it was a PFIC for its 2014 taxable
year. Although interest income is generally passive income, a special rule
allows banks to treat their banking business income as non-passive. To
qualify for this rule, a bank must satisfy certain requirements regarding its
licensing and activities. The company's possible status as a PFIC is
determined annually, however, and may be subject to change if the
company fails to qualify under this special rule for any year in which a US
Holder owned ordinary shares, ordinary ADSs, preference ADSs or
PROs. If the company were to be treated as a PFIC for any taxable year
during which a US Holder owns ordinary shares, ordinary ADSs,
preference ADSs or PROs, US Holders would generally be subject to
adverse US federal income tax consequences and certain reporting
obligations. Holders should consult their own tax advisers as to the
potential application of the PFIC rules to the ownership and disposition of
the company's ordinary shares, ordinary ADSs, preference ADSs or
PROs.
Information reporting and backup withholding

Payments on, and proceeds from the sale of, ordinary shares, ordinary
ADSs, preference ADSs or PROs that are made within the United States
or through certain U.S-related financial intermediaries may be subject to
information reporting and backup withholding unless (i) the US Holder is
an exempt recipient or (ii) in the case of backup withholding, the US
Holder provides a correct taxpayer identification number and certifies that
it is not subject to backup withholding. The amount of any backup
withholding from a payment to a US Holder will be allowed as a credit
against the US Holders US federal income tax liability and may entitle it
to a refund, provided that the required information is timely furnished to
the Internal Revenue Service.
Foreign financial assets reporting
Certain US Holders who are individuals (and under proposed regulations,
certain entities) may be required to report information relating to the
companys securities, subject to certain exceptions (including an
exception for securities held in accounts maintained by US financial
institutions). US Holders are urged to consult their tax advisers regarding
the application of these rules in the US Holders particular circumstances.
Exchange controls
The company has been advised that there are currently no UK laws,
decrees or regulations which would prevent the import or export of
capital, including the availability of cash or cash equivalents for use by
the Group, or the remittance of dividends, interest or other payments to
non-UK resident holders of the company's securities.
There are no restrictions under the Articles of Association of the company
or under UK law, as currently in effect, which limit the right of non-UK
resident owners to hold or, when entitled to vote, freely to vote the
company's securities.
Memorandum and Articles of Association
The company's Memorandum and Articles of Association as in effect at
the date of this annual report are registered with the Registrar of
Companies of Scotland. The Articles of Association were last amended
on 30 May 2012. Copies can be obtained from Companies House in the
UK or from the Groups website (rbs.com).
Incorporation and registration
The company was incorporated and registered in Scotland under the
Companies Act 1948 as a limited company on 25 March 1968 under the
name National and Commercial Banking Group Limited, and changed its
name to The Royal Bank of Scotland Group Limited on 3 September
1979. On 10 March 1982 it was re-registered under the Companies Acts
1948 to 1980 as a public company with limited liability. The company is
registered under Company No. SC45551.
502
Certain sections in this document 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, believe, should, intend, plan, could,
probability, risk, Value-at-Risk (VaR), target, goal, objective, may,
endeavour, outlook, optimistic, prospects and similar expressions or
variations on these expressions.
In particular, this document includes forward-looking statements relating,
but not limited to: The Royal Bank of Scotland Groups (RBS)
Transformation Plan (which includes RBSs 2013/2014 strategic plan
relating to the implementation of its new divisional and functional
structure and the continuation of its balance sheet reduction programme
including its proposed divestments of Williams & Glyn and CFG, RBSs
information technology and operational investment plan, the proposed
restructuring of RBSs CIB business and the restructuring of the Group as
a result of the implementation of the regulatory ring-fencing regime), as
well as restructuring, capital and strategic plans, divestments,
capitalisation, portfolios, net interest margin, capital and leverage ratios,
liquidity, risk-weighted assets (RWAs), RWA equivalents (RWAe), Pillar
2A, Maximum Distributable Amount (MDA), total loss absorbing capital
(TLAC), minimum requirements for eligible liabilities (MREL) return on
equity (ROE), profitability, cost:income ratios, loan:deposit ratios, funding
and risk profile; litigation, government and regulatory investigations
including investigations relating to the setting of interest rates and foreign
exchange trading and rate setting activities; costs or exposures borne by
RBS arising out of the origination or sale of mortgages or mortgagebacked securities in the US; RBSs future financial performance; the level
and extent of future impairments and write-downs; and RBSs exposure
to political risks, credit rating risk and to various types of market risks,
such as interest rate risk, foreign exchange rate risk and commodity and
equity price risk. These statements are based on current plans,
estimates, targets and projections, and are subject to inherent risks,
uncertainties and other factors which could cause actual results to differ
materially from the future results expressed or implied by such forwardlooking statements. For example, certain market risk disclosures are
dependent on choices relying on 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 adversely affect our results and the accuracy of
forward looking statements in this document include the risk factors and
other uncertainties discussed in Appendix 5 to this document. These
include the significant risks for the Group presented by the execution of
the Transformation Plan; RBSs ability to successfully implement the
various initiatives that are comprised in the Transformation Plan,
particularly the balance sheet reduction programme including the
divestment of Williams & Glyn and its remaining stake in CFG, the
proposed restructuring of its CIB business and the significant
restructuring undertaken by the Group as a result of the implementation
of the ring fence; whether RBS will emerge from implementing the
Transformation Plan as a viable, competitive, customer focussed and
profitable bank; RBS ability to achieve its capital targets which depend
on RBS success in reducing the size of its business; the cost and
complexity of the implementation of the ring-fence and the extent to
which it will have a material adverse effect on RBS; the risk of failure to
realise the benefit of RBSs substantial investments in its information
technology and operational infrastructure and systems, the significant
changes, complexity and costs relating to the implementation of the

Transformation Plan, the risks of lower revenues resulting from lower
customer retention and revenue generation as the Group refocuses on
the UK as well as increasing competition. In addition, there are other risks
and uncertainties. These include RBSs ability to attract and retain
qualified personnel; uncertainties regarding the outcomes of legal,
regulatory and governmental actions and investigations that the Group is
subject to and any resulting material adverse effect on the Group of
unfavourable outcomes;; heightened regulatory and governmental
scrutiny and the increasingly regulated environment in which the Group
operates; uncertainty relating to how policies of the new government
elected in the May 2015 UK election may impact RBS including a
possible referendum on the UKs membership of the EU; operational risks
that are inherent in RBSs business and that could increase as RBS
implements its Transformation Plan; the potential negative impact on
RBSs business of actual or perceived global economic and financial
market conditions and other global risks; how RBS will be increasingly
impacted by UK developments as its operations become gradually more
focussed on the UK; uncertainties regarding RBS exposure to any
weakening of economies within the EU and renewed threat of default by
certain counties in the Eurozone; the risks resulting from RBS
implementing the State Aid restructuring plan including with respect to the
disposal of certain assets and businesses as announced or required as
part of the State Aid restructuring plan; the achievement of capital and
costs reduction targets; ineffective management of capital or changes to
regulatory requirements relating to capital adequacy and liquidity; the
ability to access sufficient sources of capital, liquidity and funding when
required; deteriorations in borrower and counterparty credit quality; the
extent of future write-downs and impairment charges caused by
depressed asset valuations; the value and effectiveness of any credit
protection purchased by RBS; the impact of unanticipated turbulence in
interest rates, yield curves, foreign currency exchange rates, credit
spreads, bond prices, commodity prices, equity prices; basis, volatility
and correlation risks; changes in the credit ratings of RBS; changes to the
valuation of financial instruments recorded at fair value; competition and
consolidation in the banking sector; regulatory or legal changes (including
those requiring any restructuring of RBSs operations); changes to the
monetary and interest rate policies of central banks and other
governmental and regulatory bodies; changes in UK and foreign laws,
regulations, accounting standards and taxes; impairments of goodwill; the
high dependence of RBS operations on its information technology
systems and its increasing exposure to cyber security threats; the
reputational risks inherent in RBS operations; the risk that RBS may
suffer losses due to employee misconduct; pension fund shortfalls; the
recoverability of deferred tax assets by the Group; HM Treasury
exercising influence over the operations of RBS; ; limitations on, or
additional requirements imposed on, RBSs activities as a result of HM
Treasurys investment in RBS; and the success of RBS in managing the
risks involved in the foregoing.
The forward-looking statements contained in this document speak only as
of the date of this announcement, and RBS 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 document do
not constitute a public offer under any applicable legislation or an offer to
sell or solicitation of any offer to buy any securities or financial
instruments or any advice or recommendation with respect to such
securities or other financial instruments.
503
ABS
AFS
AQ
AT1
BCBS
C&RA
CD
CDO
CDPC
CDS
CET1
CFG
CIB
CLO
CMBS
CPB
CRA
CRC
CRD
CRE
CRO
CRR
CVA
DFV
EAD
EBA
EC
EMEA
ERF
EU
FCA
FI
FINRA
FLB3
FSA
FSCS
FVTPL
G-SIB
GCCO
GDP
HFT
HMT
HTM
IAS
IASB
Asset-Backed Securities
Available-For-Sale
Asset Quality
Additional Tier 1
Basel Committee on Banking Supervision
Conduct & Regulatory Affairs
Certificate Of Deposit
Collateralised Debt Obligation
Credit Derivative Product Company
Credit Default Swap
Common Equity Tier 1
Citizens Financial Group Inc
Collateralised Loan Obligation
Commercial mortgage-backed securities
Credit Risk Assets
Credit Risk Committee
Capital Requirements Directive
Commercial Real Estate
Chief Risk Officer
Capital Requirements Regulation
Credit Valuation Adjustment
Designated as at Fair Value through profit or loss
Exposure At Default
European Banking Authority
European Commission
Europe, the Middle East and Africa
Executive Risk Forum
European Union
Financial Conduct Authority
Financial Institution
Financial Industry Regulatory Authority
Fully Loaded Basel III
Financial Services Authority
Financial Services Compensation Scheme
Fair Value Through Profit or Loss
Global-Systemically Important Bank
Group Chief Credit Officer
Gross Domestic Product
Held-For-Trading
HM Treasury
Held-to-maturity
International Accounting Standards
International Accounting Standards Board
ICAAP
IFRS
IOC
IPV
IRC
ISDA
LAR
LCR
LGD
LIBOR
LTIP
LTV
MBS
MDA
MIRA
NI
NOC
NSFR
NYSE
OFT
PBB
PD
PFIC
PPI
PRA
RBSG
RCR
REIL
RFS
RMBS
RNIV
ROI
RoW
RWA
SE
SEC
SEPA
SFT
SME
SVaR
TLAC
TSR
UK
UKFI
US/USA
VaR
Internal Capital Adequacy Assessment Process

Integrated Oil Companies
Independent Price Verification
Incremental Risk Charge
International Swaps and Derivatives Association
Loans and Receivables
Liquidity coverage ratio
Loss Given Default
London Interbank Offered Rate
Long Term Incentive Plan
Loan-To-Value
Mortgage-Backed Securities
Maximum Distributable Amount
Material Integrated Risk Assessment
Northern Ireland
National Oil Companies
Net Stable Funding Ratio
New York Stock Exchange
Office of Fair Trading
Probability of Default
Passive Foreign Investment Company
Prudential Regulation Authority
Risk Elements In Lending
RFS Holdings B.V.
Residential Mortgage-Backed Securities
Risks Not In VaR
Republic of Ireland
Rest of the World
Risk-Weighted Asset
Structured Entity
US Securities and Exchange Commission
Single European Payments Area
Securities Financing Transaction
Small and Medium-sized Enterprise
Stressed Value-at-Risk
Total Loss Absorbing Capacity
Total Shareholder Return
United Kingdom
UK Financial Investments Limited
United States of America
Value-at-Risk
504
Glossary of terms
Arrears - the aggregate of contractual payments due on a debt that have

not been met by the borrower. A loan or other financial asset is said to be
'in arrears' when payments have not been made.
Central counterparty (CCP) - an intermediary between a buyer and a

seller (generally a clearing house).
Asset-backed commercial paper (ABCP) - a form of asset-backed

security generally issued by a commercial paper conduit.
Certificates of deposit (CDs) - bearer negotiable instruments

acknowledging the receipt of a fixed term deposit at a specified interest
rate.
Asset-backed securities (ABS) - securities that represent interests in

specific portfolios of assets. They are issued by a structured entity
following a securitisation. The underlying portfolios commonly comprise
residential or commercial mortgages but can include any class of asset
that yields predictable cash flows. Payments on the securities depend
primarily on the cash flows generated by the assets in the underlying pool
and other rights designed to assure timely payment, such as guarantees
or other credit enhancements. Collateralised debt obligations,
collateralised loan obligations, commercial mortgage backed securities
and residential mortgage backed securities are all types of ABS.
Collateralised debt obligations (CDOs) - asset-backed securities for

which the underlying asset portfolios are debt obligations: either bonds
(collateralised bond obligations) or loans (collateralised loan obligations)
or both. The credit exposure underlying synthetic CDOs derives from
credit default swaps. The CDOs issued by an individual vehicle are
usually divided in different tranches: senior tranches (rated AAA),
mezzanine tranches (AA to BB), and equity tranches (unrated). Losses
are borne first by the equity securities, next by the junior securities, and
finally by the senior securities; junior tranches offer higher coupons
(interest payments) to compensate for their increased risk.
Asset quality (AQ) band - probability of default banding for all

counterparties on a scale of 1 to 10.
Collateralised loan obligations (CLOs) - asset-backed securities for which

the underlying asset portfolios are loans, often leveraged loans.
Assets under management - assets managed by the Group on behalf of

clients.
Back-testing - statistical techniques that assess the performance of a
model, and how that model would have performed had it been applied in
the past.
Collectively assessed loan impairment provisions - impairment loss

provisions in respect of impaired loans, such as credit cards or personal
loans, that are below individual assessment thresholds. Such provisions
are established on a portfolio basis, taking account of the level of arrears,
security, past loss experience, credit scores and defaults based on
portfolio trends.
Basel II - the capital adequacy framework issued by the Basel Committee

on Banking Supervision in June 2006 in the form of the International
Convergence of Capital Measurement and Capital Standards.
Commercial mortgage backed securities (CMBS) - asset-backed

securities for which the underlying asset portfolios are loans secured on
commercial real estate.
Basel III - in December 2010, the Basel Committee on Banking

Supervision issued final rules: Basel III: A global regulatory framework
for more resilient banks and banking systems and Basel III: International
framework for liquidity risk measurement, standards and monitoring.
Commercial paper (CP) - unsecured obligations issued by a corporate or

a bank directly or secured obligations (asset-backed CP), often issued
through a commercial paper conduit, to fund working capital. Maturities
typically range from two to 270 days. However, the depth and reliability of
some CP markets means that issuers can repeatedly roll over CP
issuance and effectively achieve longer term funding. CP is issued in a
wide range of denominations and can be either discounted or interestbearing.
Basis point - one hundredth of a per cent i.e. 0.01 per cent. 100 basis
points is 1 per cent. Used when quoting movements in interest rates or
yields on securities.
Bear steepener - a steepening of the yield curve caused by long-term
rates increasing faster than short term rates.
BIPRU - the prudential sourcebook for banks, building societies and
investment firms. The part of the Financial Conduct Authority (FCA)
Handbook that sets out detailed prudential requirements for the banks
that they regulate.
Bull flattener - a flattening of the yield curve in which long term rates are
decreasing faster than short term rates.
Buy-to-let mortgages - mortgages to customers for the purchase of
residential property as a rental investment.
Capital requirements regulation (CRR) - see CRD IV.
Commercial paper conduit - a structured entity that issues commercial

paper and uses the proceeds to purchase or fund a pool of assets. The
commercial paper is secured on the assets and is redeemed either by
further commercial paper issuance, repayment of assets or liquidity
drawings.
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.
505
Glossary of terms
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 - under Basel 2 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 riskweighted 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
Authoritys 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 counterpartys 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.
Debit valuation adjustment (DVA) - an adjustment made by an entity to
the valuation of OTC derivative liabilities to reflect within fair value the
entity's own credit risk.
Debt securities - transferable instruments creating or acknowledging
indebtedness. They include debentures, bonds, certificates of deposit,
notes and commercial paper. The holder of a debt security is typically
entitled to the payment of principal and interest, together with other
contractual rights under the terms of the issue, such as the right to
receive certain information. Debt securities are generally issued for a
fixed term and redeemable by the issuer at the end of that term. Debt
securities can be secured or unsecured.
Debt securities in issue - unsubordinated debt securities issued by the
Group. They include commercial paper, certificates of deposit, bonds and
medium-term notes.
506
Glossary of terms
Deferred tax asset - income taxes recoverable in future periods as a

result of deductible temporary differences (temporary differences
between the accounting and tax base of an asset or liability that will result
in tax deductible amounts in future periods) and the carry-forward of tax
losses and unused tax credits.
Deferred tax liability - income taxes payable in future periods as a result
of taxable temporary differences (temporary differences between the
accounting and tax base of an asset or liability that will result in taxable
amounts in future periods).
Defined benefit obligation - the present value of expected future
payments required to settle the obligations of a defined benefit plan
resulting from employee service.
Defined benefit plan/scheme - pension or other post-retirement benefit
plan other than a defined contribution plan.
Defined contribution plan/scheme - pension or other post-retirement
benefit plan where the employer's obligation is limited to its contributions
to the fund.
Deposits by banks - money deposited with the Group by banks and
recorded as liabilities. They include money-market deposits, securities
sold under repurchase agreements, federal funds purchased and other
short term deposits. Deposits received from customers are recorded as
customer accounts.
Derivative - a contract or agreement whose value changes with changes
in an underlying index such as interest rates, foreign exchange rates,
share prices or indices and which requires no initial investment or an
initial investment that is smaller than would be required for other types of
contracts with a similar response to market factors. The principal types of
derivatives are: swaps, forwards, futures and options.
Discontinued operation - a component of the Group that either has been
disposed of or is classified as held for sale. A discontinued operation is
either: a separate major line of business or geographical area of
operations or part of a single co-ordinated plan to dispose of a separate
major line of business or geographical area of operations; or a subsidiary
acquired exclusively with a view to resale.
Economic capital - an internal measure of the capital required by the
Group to support the risks to which it is exposed.
Economic profit - the difference between the return on shareholders
funds and the cost of that capital. Economic profit is usually expressed as
a percentage.
Effective interest rate method - the effective interest method is a method
of calculating the amortised cost of a financial asset or financial liability
(or group of financial assets or liabilities) and of allocating the interest
income or interest expense over the expected life of the asset or liability.
The effective interest rate is the rate that exactly discounts estimated
future cash flows to the instrument's initial carrying amount. Calculation of
the effective interest rate takes into account fees payable or receivable
that are an integral part of the instrument's yield, premiums or discounts
on acquisition or issue, early redemption fees and transaction costs. All
contractual terms of a financial instrument are considered when
estimating future cash flows.
Encumbrance - an interest in an asset held by another party.

Encumbrance usually impacts the transferability of the asset and can
restrict its free use until the encumbrance is removed.
Equity risk - the risk of changes in the market price of the equities or
equity instruments arising from positions, either long or short, in equities
or equity-based financial instruments.
Eurozone - the 17 European Union countries that have adopted the euro:
Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece,
Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia,
Slovenia and Spain.
Expected loss (EL) - expected loss represents the anticipated loss on an
exposure over one year. It is determined by multiplying probability of
default, loss given default and exposure at default and can be calculated
at individual, credit facility, customer or portfolio level.
Exposure - a claim, contingent claim or position which carries a risk of
financial loss.
Exposure at default (EAD) - an estimate of the extent to which the bank
will be exposed under a specific facility, in the event of the default of a
counterparty.
FICO score - a credit score calculated using proprietary software
developed by the Fair Isaac Corporation in the US from a consumer's
credit profile. The scores range between 300 and 850 and are used in
credit decisions made by banks and other providers of credit.
Financial Conduct Authority (FCA) - the statutory body responsible for
conduct of business regulation and supervision of UK authorised firms
from 1 April 2013. The FCA also has responsibility for the prudential
regulation of firms that do not fall within the PRAs scope.
Financial Services Compensation Scheme (FSCS) - the UK's statutory
fund of last resort for customers of authorised financial services firms. It
pays compensation if a firm is unable to meet its obligations. The FSCS
funds compensation for customers by raising management expenses
levies and compensation levies on the financial services industry.
First/second lien - a lien is a charge such as a mortgage held by one
party, over property owned by a second party, as security for payment of
some debt, obligation, or duty owed by that second party. The holder of a
first lien takes precedence over all other encumbrances on that property
i.e. second and subsequent liens.
Forbearance - forbearance takes place when a concession is made on
the contractual terms of a loan in response to a customers financial
difficulties.
Forward contract - a contract to buy (or sell) a specified amount of a
physical or financial commodity, at an agreed price, at an agreed future
date.
Fully loaded Basel III basis - capital ratios based on the rules that will
apply at the end of the Basel III transition period.
507
Glossary of terms
Futures contract - a contract which provides for the future delivery (or
acceptance of delivery) of some type of financial instrument or commodity
under terms established at the outset. Futures differ from forward
contracts in that they are traded on recognised exchanges and rarely
result in actual delivery; most contracts are closed out prior to maturity by
acquisition of an offsetting position.
Interest rate swap - a contract under which two counterparties agree to

exchange periodic interest payments on a predetermined monetary
principal, the notional amount.
G10 - the Group of Ten comprises the eleven industrial countries

(Belgium, Canada, France, Germany, Italy, Japan, the Netherlands,
Sweden, Switzerland, the United Kingdom and the United States) that
have agreed to participate in the International Monetary Funds (IMFs)
General Arrangements to Borrow.
Internal Capital Adequacy Assessment Process (ICAAP) - the Groups

own assessment, as part of Basel II requirements, of its risks, how it
intends to mitigate those risks and how much current and future capital is
necessary having considered other mitigating factors.
Government Sponsored Enterprises (GSEs) - a group of financial

services corporations created by the US Congress. Their function is to
improve the efficiency of capital markets and to overcome statutory and
other market imperfections which otherwise prevent funds from moving
easily from suppliers of funds to areas of high loan demand. They include
the Federal Home Loan Mortgage Corporation and the Federal National
Mortgage Association.
Gross yield - the interest rate earned on average interest-earning assets
i.e. interest income divided by average interest-earning assets.
Haircut - a downward adjustment to collateral value to reflect its nature,
any currency or maturity mismatches between a credit risk mitigant and
the underlying exposure to which it is being applied.
Hedge funds - pooled investment vehicles that are not widely available to
the public; their assets are managed by professional asset managers
who participate in the performance of the fund.
Interest spread - the difference between the gross yield and the interest
rate paid on average interest-bearing liabilities.
Internal funding of trading business - the internal funding of the trading

book comprises net banking book financial liabilities that fund financial
assets in the Groups trading portfolios. Interest payable on these
financial liabilities is charged to the trading book.
International Accounting Standards Board (IASB) - the independent
standard-setting body of the IFRS Foundation. Its members are
responsible for the development and publication of International Financial
Reporting Standards (IFRSs) and for approving Interpretations of IFRS
as developed by the IFRS Interpretations Committee.
International Swaps and Derivatives Association (ISDA) master
agreement - a standardised contract developed by ISDA for bilateral
derivatives transactions. The contract grants legal rights of set-off for
derivative transactions with the same counterparty.
Investment grade - generally represents a risk profile similar to a rating of
BBB-/Baa3 or better, as defined by independent rating agencies.
Key management - members of the RBS Executive Committee.
Impaired loans - all loans for which an impairment provision has been
established; for collectively assessed loans, impairment loss provisions
are not allocated to individual loans and the entire portfolio is included in
impaired loans.
Latent loss provisions - loan impairment provisions held against

impairments in the performing loan portfolio that have been incurred as a
result of events occurring before the balance sheet date but which have
not been identified as impaired at the balance sheet date.
Impairment allowance - see Loan impairment provisions.

Impairment losses - (a) for impaired financial assets measured at
amortised cost, impairment losses - the difference between carrying
value and the present value of estimated future cash flows discounted at
the asset's original effective interest rate - are recognised in profit or loss
and the carrying amount of the financial asset reduced by establishing a
provision (allowance) (b) for impaired available-for-sale financial assets,
the cumulative loss that had been recognised directly in equity is
removed from equity and recognised in profit or loss as an impairment
loss.
Individual liquidity guidance (ILG) - guidance from the PRA on a firm's
required quantity of liquidity resources and funding profile.
Individually assessed loan impairment provisions - impairment loss
provisions for individually significant impaired loans assessed on a caseby-case basis, taking into account the financial condition of the
counterparty and any guarantor and the realisable value of any collateral
held.
Level 1 - level 1 fair value measurements are derived from quoted prices
(unadjusted) in active markets for identical assets or liabilities that the
entity can access at the measurement date.
Level 2 - level 2 fair value measurements use inputs, other than quoted
prices included within level 1, that are observable for the asset or liability,
either directly or indirectly.
Level 3 - level 3 fair value measurements use one or more unobservable
inputs for the asset or liability.
Leverage ratio - a measure prescribed under Basel III. It is the ratio of
Tier 1 capital to total exposures. Total exposures include on-balance
sheet items, off-balance sheet items and derivatives, and generally follow
the accounting measure of exposure.
508
Glossary of terms
Leveraged finance - funding (leveraged finance) provided to a business

resulting in an overall level of debt in relation to cash flow that exceeds
that which would be considered usual for the business or for the industry
in which it operates. Leveraged finance is commonly employed to
achieve a specific, often temporary, objective: to make an acquisition, to
effect a buy-out or to repurchase shares.
Liquidity and funding risk - the risk that the Group is unable to meet its
financial liabilities when they fall due.
Liquidity coverage ratio (LCR) - the ratio of the stock of high quality liquid
assets to expected net cash outflows over the following 30 days. High
quality liquid assets should be unencumbered, liquid in markets during a
time of stress and, ideally, central bank eligible.
Loan:deposit ratio - the ratio of loans and advances to customers net of
provision for impairment losses and excluding reverse repurchase
agreements to customer deposits excluding repurchase agreements.
Loan impairment provisions - loan impairment provisions are established
to recognise incurred impairment losses on a portfolio of loans classified
as loans and receivables and carried at amortised cost. It has three
components: individually assessed loan impairment provisions,
collectively assessed loan impairment provisions and latent loss
provisions.
Monoline insurers (monolines) - entities that specialise in providing credit

protection against the notional and interest cash flows due to the holders
of debt instruments in the event of default. This protection is typically in
the form of derivatives such as credit default swaps.
Mortgage-backed securities - asset-backed securities for which the
underlying asset portfolios are loans secured on property. See
Residential mortgage backed securities and Commercial mortgage
backed securities.
Mortgage servicing rights - the rights of a mortgage servicer to collect
mortgage payments and forward them, after deducting a fee, to the
mortgage lender.
Negative equity mortgages - mortgages where the value of the property
mortgaged is less than the outstanding balance on the loan.
Net interest income - the difference between interest receivable on
financial assets classified as loans and receivables or available-for-sale
and interest payable on financial liabilities carried at amortised cost.
Net interest margin - net interest income as a percentage of average
interest-earning assets.
Loan-to-value ratio - the amount of a secured loan as a percentage of the

appraised value of the security e.g. the outstanding amount of a
mortgage loan as a percentage of the property's value.
Net stable funding ratio (NSFR) - the ratio of available stable funding to
required stable funding over a one year time horizon, assuming a
stressed scenario. Available stable funding includes items such as equity
capital, preferred stock with a maturity of over one year and liabilities with
an assessed maturity of over one year.
London Interbank Offered Rate (LIBOR) - the benchmark interest rate at

which banks can borrow funds from other banks in the London interbank
market.
Non-performing loans - loans classified as Risk elements in lending and

potential problem loans. They have a 100% probability of default and
have been assigned an AQ10 internal credit grade.
Loss given default (LGD) - an estimate of the amount that will not be
recovered by the Group in the event of default, plus the cost of debt
collection activities and the delay in cash recovery.
Operational risk - the risk of loss resulting from inadequate or failed

processes, people, systems or from external events.
Market risk - the risk of loss arising from fluctuations in interest rates,
credit spreads, foreign currency rates, equity prices, commodity prices
and other risk-related factors such as market volatilities that may lead to
a reduction in earnings, economic value or both.
Option - an option is a contract that gives the holder the right but not the
obligation to buy (or sell) a specified amount of the underlying physical or
financial commodity, at a specific price, at an agreed date or over an
agreed period. Options can be exchange-traded or traded over-thecounter.
Master netting agreement - an agreement between two counterparties

that have multiple derivative contracts with each other that provides for
the net settlement of all contracts through a single payment, in a single
currency, in the event of default on, or termination of, any one contract.
Over-the-counter (OTC) derivatives - derivatives with tailored terms and

conditions negotiated bilaterally, in contrast to exchange traded
derivatives that have standardised terms and conditions.
Maximum distributable amount (MDA) - a restriction on distributions

which may be made by a bank which does not meet the combined buffer
requirements as set out in the PRA Supervisory Statement SS6/14
Implementing CRD IV: capital buffers.
Medium term notes (MTNs) - debt securities usually with a maturity of five
to ten years, but the term may be less than one year or as long as 50
years. They can be issued on a fixed or floating coupon basis or with an
exotic coupon; with a fixed maturity date (non-callable) or with embedded
call or put options or early repayment triggers. MTNs are generally issued
as senior unsecured debt.
Own credit adjustment (OCA) - the effect of the Groups own credit
standing on the fair value of financial liabilities.
Past due - a financial asset such as a loan is past due when the
counterparty has failed to make a payment when contractually due.
Pillar 1 - the part of Basel II that sets out the process by which regulatory
capital requirements should be calculated for credit, market and
operational risk.
509
Glossary of terms
Pillar 2 - Pillar 2 is intended to ensure that firms have adequate capital to

support all the relevant risks in their business and is divided into capital
held against risks not captured or not fully captured by the Pillar 1
regulations (Pillar 2A) and risks to which a firm may become exposed
over a forward-looking planning horizon (Pillar 2B). Capital held under
Pillar 2A, in addition to the Pillar 1 requirements, is the minimum level of
regulatory capital a bank should maintain at all times to cover adequately
the risks to which it is or might be exposed, and to comply with the overall
financial adequacy rules. Pillar 2B is a capital buffer which helps to
ensure that a bank can continue to meet minimum requirements during a
stressed period, and is determined by the PRA evaluating the risks to
which the firm may become exposed (e.g. due to changes to the
economic environment) during the supervisory review and evaluation
process. All firms will be subject to a PRA buffer assessment and the
PRA will set a PRA buffer only if it judges that the CRD IV buffers are
inadequate for a particular firm given its vulnerability in a stress scenario,
or where the PRA has identified risk management and governance
failings, which the CRD IV buffers are not intended to address.
Pillar 3 - the part of Basel II that sets out the information banks must
disclose about their risks, the amount of capital required to absorb them,
and their approach to risk management. The aim is to strengthen market
discipline.
Position risk requirement - a capital requirement applied to a position
treated under BIPRU 7 (Market risk) as part of the calculation of the
market risk capital requirement.
Potential future exposure - is a measure of counterparty risk/credit risk. It
is calculated by evaluating existing trades done against the possible
market prices in future during the lifetime of the transactions.
Potential problem loans (PPL) - loans for which an impairment event has
taken place but no impairment loss is expected. This category is used for
advances which are not past due 90 days or revolving credit facilities
where identification as 90 days overdue is not feasible.
Private equity investments - equity investments in operating companies
not quoted on a public exchange. Capital for private equity investment is
raised from retail or institutional investors and used to fund investment
strategies such as leveraged buyouts, venture capital, growth capital,
distressed investments and mezzanine capital.
Probability of default (PD) - the likelihood that a customer will fail to make
full and timely repayment of credit obligations over a one year time
horizon.
Prudential Regulation Authority (PRA) - the statutory body responsible,
from 1 April 2013, for the prudential supervision of banks, building
societies, insurers and a small number of significant investment firms in
the UK. The PRA is a subsidiary of the Bank of England.
Regular way purchase or sale - a purchase or sale of a financial asset
under a contract whose terms require delivery of the asset within the time
frame established generally by regulation or convention in the
marketplace concerned.
Regulatory capital - the amount of capital that the Group holds,
determined in accordance with rules established by the PRA for the
consolidated Group and by local regulators for individual Group
companies.
Repurchase agreement (Repo) - see Sale and repurchase agreements.

Residential mortgage - a loan to purchase a residential property where
the property forms collateral for the loan. The borrower gives the lender a
lien against the property and the lender can foreclose on the property if
the borrower does not repay the loan per the agreed terms. Also known
as a home loan.
Residential mortgage backed securities (RMBS) - asset-backed
securities for which the underlying asset portfolios are residential
mortgages. RBS RMBS classifications, including prime, non-conforming
and sub-prime, reflect the characteristics of the underlying mortgage
portfolios. RMBS are classified as prime RMBS where the loans have low
default risk and are made to borrowers with good credit records and
reliable payment histories and there is full documentation. Nonconforming RMBS include US Alt-A RMBS, together with RMBS-in
jurisdictions other than the US where the underlying mortgages are not
classified as either prime or sub-prime. Classification of RMBS as
subprime or Alt-A is based on Fair Isaac Corporation scores (FICO), level
of documentation and loan-to-value ratios of the underlying mortgage
loans. US RMBS are classified as sub-prime if the mortgage portfolio
comprises loans with FICO scores between 500 and 650 with full or
limited documentation. Mortgages in Alt-A RMBS portfolios have FICO
scores of 640 to 720, limited documentation and an original LTV of 70%
to 100%. In other jurisdictions, RMBS are classified as sub-prime if the
mortgage portfolio comprises loans with one or more high risk
characteristics such as: unreliable or poor payment histories; high loanto-value ratios; high debt-to-income ratio; the loan is not secured on the
borrower's primary residence; or a history of delinquencies or late
payments on the loan.
Retail loans - loans made to individuals rather than institutions. The loans
may be for car purchases, home purchases, medical care, home repair,
holidays and other consumer uses.
Return on equity - profit attributable to ordinary and B shareholders
divided by average shareholders equity as a percentage.
Reverse repurchase agreement (Reverse repo) - see Sale and
repurchase agreements.
Risk appetite - an expression of the maximum level of risk that the Group
is prepared to accept to deliver its business objectives.
Risk asset ratio (RAR) - total regulatory capital as a percentage of riskweighted assets.
Risk elements in lending (REIL) - impaired loans and accruing loans
which are contractually overdue 90 days or more as to principal or
interest.
Risk-weighted assets (RWAs) - assets adjusted for their associated risks
using weightings established in accordance with the Basel Capital Accord
as implemented by the PRA. Certain assets are not weighted but
deducted from capital.
Sale and repurchase agreements - in a sale and repurchase agreement
one party, the seller, sells a financial asset to another party, the buyer, at
the same time the seller agrees to reacquire and the buyer to resell the
asset at a later date. From the seller's perspective such agreements are
repurchase agreements (repos) and from the buyer's reverse repurchase
agreements (reverse repos).
510
Glossary of terms
Securitisation - a process by which assets or cash flows are transformed

into transferable securities. The underlying assets or cash flows are
transferred by the originator or an intermediary, typically an investment
bank, to a structured entity which issues securities to investors. Asset
securitisations involve issuing debt securities (asset-backed securities)
that are backed by the cash flows of income-generating assets (ranging
from credit card receivables to residential mortgage loans).
Settlement balances - payables and receivables that result from
purchases and sales of financial instruments recognised on trade date.
Asset settlement balances are amounts owed to the Group in respect of
sales and liability settlement balances are amounts owed by the Group in
respect of purchases.
Sovereign exposures - exposures to governments, ministries,
departments of governments and central banks.
Standardised approach - a method used to calculate credit risk capital
requirements under Pillar 1 of Basel II. In this approach the risk weights
used in the capital calculation are determined by regulators. For
operational risk, capital requirements are determined by multiplying three
years historical gross income by a percentage determined by the
regulator. The percentage ranges from 12 to 18%, depending on the type
of underlying business being considered.
Standstill - is an agreement, usually for a specified period of time, not to
enforce the Banks rights as a result of a customer breaching the terms
and conditions of their facilities. This is a concession to the customer. A
standstill is most commonly used in a complex restructuring of a
companys debts, where a group of creditors agree to delay enforcement
action to give the company time to gather information and formulate a
strategy with a view to establishing a formal restructuring.
Stress testing - a technique used to evaluate the potential effects on an
institutions financial condition of an exceptional but plausible event
and/or movement in a set of financial variables.
Stressed value-at-risk (SVaR) - a VaR measure using historical data from
a one year period of stressed market conditions. For the purposes of
calculating regulatory SVaR, a time horizon of ten trading days is
assumed at a confidence level of 99%. See also Value-at-risk below.
Structured credit portfolio (SCP) - a portfolio of certain of the Groups
illiquid assets - principally CDO super senior positions, negative basis
trades and monoline exposures - held within Non-Core division.
Structured entity (SE) - an entity that has been designed such that voting
or similar rights are not the dominant factor in deciding who controls the
entity, for example when any voting rights relate to administrative tasks
only and the relevant activities are directed by means of contractual
arrangements. SEs are usually established for a specific, limited purpose,
they do not carry out a business or trade and typically have no
employees. They take a variety of legal forms - trusts, partnerships and
companies - and fulfil many different functions.
Structured notes - securities that pay a return linked to the value or level
of a specified asset or index. Structured notes can be linked to equities,
interest rates, funds, commodities and foreign currency.
Subordinated liabilities - liabilities which, in the event of insolvency or
liquidation of the issuer, are subordinated to the claims of depositors and
other creditors of the issuer.
Super senior CDO - the most senior class of instrument issued by a CDO
vehicle. They benefit from the subordination of all other instruments,
including AAA rated securities, issued by the CDO vehicle.
Supervisory slotting approach - a method of calculating regulatory capital,
specifically for lending exposures in project finance and income
producing real estate, where the PD estimates do not meet the minimum
IRB standards. Under this approach, the bank classifies exposures from
1 to 5, where 1 is strong and 5 is default. Specific risk-weights are
assigned to each classification.
Tier 1 capital - a component of regulatory capital, comprising common
equity tier 1 and additional tier 1. Additional tier 1 capital includes eligible
non-common equity capital securities and any related share premium.
Under Basel II, Tier 1 capital comprises Core Tier 1 capital plus other Tier
1 securities in issue, less certain regulatory deductions.
Tier 1 capital ratio - a component of regulatory capital, comprising eligible
capital securities and any related share premium. Under Basel II,
qualifying subordinated debt and other Tier 2 securities in issue, eligible
collective impairment allowances, unrealised gains arising on the fair
valuation of equity instruments held as available-for-sale, less certain
regulatory deductions.
Tier 2 capital - qualifying subordinated debt and other Tier 2 securities in
issue, eligible collective impairment allowances, unrealised available-forsale equity gains and revaluation reserves less certain regulatory
deductions.
Total loss absorbing capacity (TLAC) - an FSB proposal for global
systemically important banks to have a sufficient amount of specific types
of liabilities which can be used to absorb losses and recapitalise a bank
in resolution. These proposals are intended to facilitate an orderly
resolution that minimises any impact on financial stability, ensures the
continuity of critical functions, and avoids exposing taxpayers to loss.
Unaudited - financial information that has not been subjected to the audit
procedures undertaken by the Group's auditors to enable them to
express an opinion on the Group's financial statements.
US Federal Agencies - are independent bodies established by the US
Government for specific purposes such as the management of natural
resources, financial oversight or national security. A number of agencies,
including, the Government National Mortgage Association, issue or
guarantee publicly traded debt securities.
Value-at-risk (VaR) - a technique that produces estimates of the potential
loss in the market value of a portfolio over a specified time period at a
given confidence level.
Wholesale funding - wholesale funding comprises Deposits by banks,
Debt securities in issue and Subordinated liabilities.
Write-down - a reduction in the carrying value of an asset to record a
decline in its fair value or value in use.
Wrong-way risk - the risk of loss when the risk factors driving the
exposure to a counterparty or customer are positively correlated with the
creditworthiness of that counterparty i.e. the size of the exposure
increases at the same time as the risk of the counterparty or customer
being unable to meet that obligation, increases.
511
EDTF recommendations
The Enhanced Disclosure Taskforce (EDTF), established by the Financial Stability Board, published its report Enhancing the Risk Disclosures of Banks
in October 2012. The report suggests improvements to address the quality, comparability and transparency of risk disclosures in areas of risk
governance, capital adequacy, liquidity and funding, credit risk and market risk.
RBS implemented the majority of the EDTF recommendations in its 2012 Annual Report and Accounts and Pillar 3 Report, and the remainder in its 2013
reports. All EDTF recommendations are also reflected in the 2014 reports.
The table below sets out the EDTF recommendations and the related locations in the 2014 Annual Report and Accounts and Pillar 3 Report.
Risk type
General
1
2
3
4
Risk governance and risk 5

management
strategies/business model
6
7
8
Recommendation
Present all risk information together. Where this is not practicable, provide
an index.
Risk terminology, risk measures and key parameter values used.
Top and emerging risks.
Key future regulatory ratios.
Summarise risk management organisation, processes and key functions.
Risk culture and risk appetite.
Key risks arising from business models and activities.

Stress testing.
Capital adequacy and risk- 9 Pillar 1 minimal capital requirements.

weighted assets
10 Composition of capital and reconciliation between accounting and regulatory
balance sheet.
11 Regulatory capital flow statement.
12 Capital planning and management.
13 Risk-weighted assets (RWAs) and business activities.
14 Capital requirements and RWAs.
15
Liquidity
Funding
16
17
18
19
20
21
Market risk
Credit risk
22
23
24
25
26
27
28
29
30
Other risks
31
32
Page reference
Report &
Accounts
Pillar 3
1,36-37,62-70,166-167,
168-334,474-492,504,512
167-334,504,512
37,174-175
2,11,171-172,196-197,
202,204, 217-218,220
64-68,176-179,185,186,
188,192,194,197-203,
217-219
64-68,180-183,186,189,
192,194,196,202,217,233,
303,324,331,333
12-13,170-173
196-197,199-203,218-220,
310-314,322,332
162,190,196-197
196-197,206-208,212-213,
214-215
208
196-205
3,14,127,170,211-213
127,170,196-197,
202-205, 206-213
210,212-213,246,251-273,
Credit risk in the banking book for major portfolios.
275-278,290-292
RWA flow statements.
210-211
Back-testing of models.
200,307-308, 315
Liquid assets and their management.
217-220
Encumbered assets.
228-230,423
223-227,393-395,
Contractual maturity of assets, liabilities and off-balance sheet commitments.
428-429
172,217-218, 221-225,
Funding strategy including key sources.
228-230
Linkages the balance sheet and market risk portfolios.
301-302
Significant trading and non-trading market risk factors.
304-314,316-318
305-307,316, 380-381,
Model limitations, assumptions and validation procedures
387-388
Stress testing and scenario analysis.
310,318,320
215,237,238, 246,260,
Credit risk exposures, including linkage to balance sheet.
275-278,281-292,326-327
243-245,258-259,
Policies for impaired loans and forbearance.
353-354,359
Flow statements for impaired loans and allowance for loan losses.
288-296
Counterparty credit risk that arises from derivatives transactions.
257,285-287
243,257-258, 254,
Credit risk mitigation.
261,265, 269,271,
275-278, 285,325-326
36,170-175,184-194,
Other risk types.
323-334,417-492
4,36,43,53,62,65-67,71,
Discussion of publicly known risk events.
73,124,171,175, 185,188,
190,192,194, 430-439
512
Index
Accounting
Accounting developments
Accounting policies
Critical accounting policies
Approval of accounts
Asset-backed securities
Audit Committee
Letter from the Chairman of the Group Audit Committee
360
349
357
344,450
283
57
58
Chairman
Chairmans statement
6
43
30, 105, 147, 442
Commercial Banking
26, 105, 137, 442
26, 105, 136, 442
Competition
107
344
348
342
345
343
361
Auditors
Auditors remuneration
Independent auditors report
372
336
Available-for-sale financial assets

Accounting policies
353
375
Consolidated financial statements

Consolidated cash flow statement
Consolidated income statement
Consolidated statement of changes in equity
Consolidated statement of comprehensive income
Average balance sheet
117
428
Balance sheet
Business review
Consolidated
Parent company
158
344
450
Compliance report
Risk management
The Board and its committees
94
34
233
43
Board Risk Committee report

Letter from the Chairman of the Board Risk Committee
62
64
Business review
106
407
Capital adequacy
Capital ratios
Capital resources
162, 171
162, 171, 207
426

Capital management
Country risk
Credit risk
Market risk
Other risks
Risk appetite
Risk coverage
Risk governance
Cash flow statement
Business review
Consolidated
Parent company
Parent company notes
Central functions/items
275
196
324
232
217
299
331
181
171
177
161
348
440, 441
452
457, 458
106, 146, 442
28, 105, 143, 442
Debt securities
281
399
456
Deposits
Customer accounts
Deposits by banks
375
375
Derivatives
285
375
105
Directors
Biographies
Interests in shares
Remuneration report
Remuneration policy
Service contracts and exit payment policy
43
86
73
76
96
80
407
Disposal groups
407
Dividends
History
498
513
Index
374
Earnings per share

Business review
112
374
Employees
Business review
Headcount
128
364
363
97
366
Net interest income

Business review
116
361
Non-Core
104, 126, 127, 128, 155, 442
124
363
Parent company
Balance sheet
Cash flow statement
Income statement
Statement of changes in equity
Notes
450
452
453
451
453
453

410
358
76
Pensions
Accounting policies
Pension risk
350
357
367
300, 331
73
429
Financial summary
460
Forbearance
467
503
Glossary of terms
505
Impairment
Accounting policies
Business review
471
Operating expenses
Business review
Financial Services Compensation Scheme
Group Performance and Remuneration Committee

Directors remuneration policy
Letter from the Chair of the Group Performance and
Remuneration Committee
Material contracts
123
362
353
357
375
454
Goodwill
375
375
Non-interest income
Business review
Financial instruments
Accounting policies
Going concern
Loans and advances

99
358
402

353
114
359
395
Income statement
Business review
Consolidated
Parent company
112
342
453
Intangible assets
Accounting policies
Segmental analysis of goodwill
351
446
402
Interest Rate Hedging Products

358
363
Litigation, investigations and reviews
430
24, 105, 129, 442

100, 449
466
104
Principal risks and uncertainties

Risk factors
Principal subsidiaries
Private Banking
Provisions
Accounting policies
RBS Capital Resolution (RCR)
Related parties
108, 474
456
26, 105, 140, 442
352
462
395, 410
31, 105, 150, 442
449
514
Index

Segmental reporting
Business review
Services and Functions
Strategic report
466
288
127, 152, 210
126
105
442
32
Accounting policies
357
364
Share capital
417
Analysis of ordinary shareholders
Annual General Meeting
495
494
494
Short-term borrowings
469
Statement of changes in equity

Consolidated
Parent company
345
451

Consolidated
Parent company
343
453
102
414
457
Supervision
470
Sustainability
Letter from the Chairman of the Sustainable Banking Committee
Strategic Report
Tax
Accounting policies
Business review
Notes on the consolidated accounts - deferred tax
71
72
38
352
114
358
373
412
24, 105, 130, 442
Ulster Bank
24, 105, 133, 442
Value-at-risk (VaR)
304
366
515
Important addresses
Principal offices
Registrar
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ
Telephone: +44 (0)870 702 0135
Facsimile: +44 (0)870 703 6009
Website: www.investorcentre.co.uk/contactus

PO Box 1000 Gogarburn Edinburgh EH12 1HQ
Telephone: +44 (0)131 626 0000
ADR Depositary Bank

BNY Mellon Shareowner Services
PO Box 30170
College Station, TX 77842-3170
Telephone: +1 888 269 2377 (US callers)
Telephone: +1 201 680 6825 (International)
Email: shrrelations@cpushareownerservices.com
Website: www.mybnymdr.com
Corporate Governance and Secretariat
PO Box 1000
Gogarburn Edinburgh EH12 1HQ
Telephone: +44 (0)131 556 8555
Facsimile: +44 (0)131 626 3081
Investor Relations
280 Bishopsgate
London EC2M 4RB
Telephone: +44 (0)207 672 1758
Facsimile: +44 (0)207 672 1801
Email: investor.relations@rbs.com
Registered office
36 St Andrew Square
Edinburgh EH2 2YB
Telephone: +44 (0)131 556 8555
Registered in Scotland No. SC45551

PO Box 1000 Gogarburn Edinburgh EH12 1HQ
280 Bishopsgate London EC2M 4RB
National Westminster Bank Plc
135 Bishopsgate London EC2M 3UR
Citizens Financial Group, Inc.
One Citizens Plaza Providence RI 02903 USA
Ulster Bank
11-16 Donegall Square East Belfast BT1 5UB
George's Quay Dublin 2
RBS Holdings USA Inc.
600 Washington Blvd
Stamford CT
06901 USA
Coutts Group
440 Strand London WC2R 0QS
The Royal Bank of Scotland International Limited
Royal Bank House 71 Bath Street
St Helier Jersey Channel Islands JE4 8PJ
RBS Holdings N.V.
Gustav Mahlerlaan 350
1082 ME Amsterdam
PO Box 12925
The Netherlands
Website
rbs.com
516

Annual Report 2014

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Annual Report and Accounts 2014

RBS is a UK-based banking and financial services

Approval of Strategic Report

Operating profit (1)

Loan:deposit ratio (3)

Common Equity Tier 1 ratio (2)

Profit before tax

Short-term wholesale funding

Total revenue by region 2014

Total income by franchise 2014

Cost:income ratio - adjusted (7)

Net interest margin

RBS reported an attributable loss of

domestic businesses together with significant

Return on equity (%)

Net interest margin (%)

Cost:income ratio (%)

Loan:deposit ratio (%)

Risk-weighted assets (bn)

Return on equity (%)

Net interest margin (%)

Cost:income ratio (%)

Loan:deposit ratio (%)

Risk-weighted assets (bn)

Return on equity (%)

Cost:income ratio (%)

Risk-weighted assets (bn)

Statutory operating profit before tax,

Share (DAS) and paid an initial dividend

Within the overall strategic shape outlined for

CIB will reduce its geographical footprint to

reflected an accounting write-down of

arose principally in Ulster Bank and in the

Notes: (1) During the period of CIB restructuring.

Our progress in 2014

Our progress in 2014

Gross new lending

GPL system redesign

RBS and NatWest

Launch of Citizens IPO

Our 2015 targets

Our mobile app

Move towards a capital

Improve net promoter score in

Reduce costs by a further

Deliver lending growth in

Raise employee engagement

Notes: (1) During the period of CIB restructuring.

The bank has delivered a good operating

The need to continue to rebuild capital

In particular, I would like to thank Nathan

As announced previously I will be leaving

I would like to thank my colleagues on the

It has been a privilege to serve as Chairman

Chief Executives review

Last year we identified the areas we needed

Our 2014 performance shows a strategy

We said we would reduce waste and

As well as a review of our current performance

Notes: (1) During the period of CIB restructuring.