RBS's Common Equity Tier 1 (“CET1”) capital ratio under the hypothetical adverse scenario was 4.6%. After the impact of Management actions, the ratio was 5.2%. These results were above the 4.5% post-stress minimum ratio threshold set by the BoE.
Commenting on the result, Ewen Stevenson, Chief Financial Officer, said “We have made good progress during 2014 in both strengthening our capital ratios and reducing higher risk exposures. However, we recognise that there is still much work to be done to improve the resilience of our balance sheet. Having regard for further potential conduct and litigation settlements and redress, we remain on track to reach our CET1 capital ratio targets of 11% by end 2015 and at least 12% by end 2016.”
Table 1: RBS, BoE modelled stress test result overview
Note 1: Management actions only assume additional cost savings and do not include assumptions on AT1 issuance.
Note 2: Tier 1 and Total capital ratios are shown on a PRA-transitional basis. Leverage ratio is based on end-point CRR Tier 1 capital.
RBS continues to make strong progress in improving its regulatory CET1 capital ratio on a CRR end-point basis. RBS’s CET1 capital ratio improved by 220 basis points to 10.8% as at 30 September 2014, up from 8.6% as at 31 December 2013.
Alongside this progress, we have also materially reduced our sensitivity to stress losses during 2014. Actions include:
- The on-going reduction of RBS Capital Resolution (“RCR”), with funded assets down by 38% in the first nine months of 2014;
- The on-going reduction in our US asset-backed product trading franchise with RWAs down £12bn in the first nine months of 2014. We plan to have exited the business by end Q1 2015;
- The disposal of a €9bn pool of higher risk legacy available for sale European mortgage-backed securities; and
- Continued progress in reducing our risk elements in lending. These exposures have declined from 9.4% of gross loans at end 2013, to 7.4% by end Q3 2014, representing a 23% reduction.
During Q4 2014 and 2015, in addition to other capital management and balance sheet strengthening actions, we expect to continue the run-down of RCR and our sell-down of Citizens Financial Group. We also plan to issue around £2bn of CRDIV compliant Additional Tier I capital instruments with an expected trigger of 7%.