RBS 2013 Annual Report Download - page 189
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Business review Risk and balance sheet management
187
Risk coverage
The Group continued to strengthen its approach to risk management
amid a challenging and ever-changing external environment in 2013.
Areas of progress included:
• The completion of the phased roll-out of the Group's conduct risk
policies and of a more effective operating model, supported by the
development and delivery of awareness initiatives and targeted
training;
• The implementation of the enhanced country risk appetite
framework, including top-down risk appetite, and of enhanced
assurance processes;
• The introduction of a new integrated operating model for managing
regulatory developments, which combines divisional and functional
teams to leverage expertise more effectively; and
• Further strengthening of the Group’s credit risk management
framework.
The main risk types faced by the Group are presented below, together with a summary of the key areas of focus and how the Group managed these
risks in 2013. In preparing disclosures related to these risks, the Group has considered the recommendations of the Enhanced Disclosure Task Force
issued in October 2012. A summary of the recommendations and list of disclosures that meet these recommendations has been included on page 557.
Risk type Definition Features How the Group manages risk and the focus in 2013
Capital adequacy
risk
The risk that the Group has
insufficient capital.
Arises from: Inefficient management
of capital resources.
Character and impact: Characterised
typically by credit risk losses.
It has the potential to disrupt the
business if there is insufficient capital
to support business activities. It also
has the potential to cause the Group
to fail to meet regulatory
requirements. Group capital and
earnings may be affected, impairing
the activities of all divisions.
The Group’s Core Tier 1 ratio on a Basel 2.5 basis was
10.9% and on a fully loaded Basel III (FLB3) basis was
8.6% at 31 December 2013. The Group is targeting a
FLB3 Common Equity Tier 1 ratio of c.11% by the end of
2015 and 12% or above by the end of 2016. The timely
run-down of RCR and the successful divestment of
Citizens are key to the achievement of the Group’s capital
plans.
Refer to the Capital management section on pages 192 to
208 for further information.
Liquidity and
funding risk
The risk that the Group is
unable to meet its financial
liabilities as they fall due.
Arises from: The Group’s day-to-day
operations.
Character and impact: Dependent on
company-specific factors such as
maturity profile and composition of
sources and uses of funding, the
quality and size of the liquid asset
buffer as well as broader market
factors, such as wholesale market
conditions alongside depositor and
investor behaviour.
It has the potential to cause the Group
to fail to meet regulatory liquidity
requirements, become unable to
support normal banking activity or at
worst cease to be a going concern.
Adverse impact on customer and
investor confidence in the Group and
the wider financial system is also
possible.
Liquidity and funding metrics continued to strengthen with
short-term wholesale funding of £32.4 billion, covered
more than four times by a liquidity portfolio of £146.1
billion. Liquidity coverage and net stable funding ratios
also improved.
Refer to the Liquidity and funding risk section on pages
209 to 226 for further information.
*unaudited