Royal Bank of Scotland Group PLC (The)/media/Files/R/RBS-IR/credit-ratings/...Royal Bank of Scotland Group PLC (The) Major Rating Factors Strengths: •Material government support

Royal Bank of Scotland Group PLC(The)Primary Credit Analyst:Richard Barnes, London (44) 20-7176-7227; [email protected]

Secondary Contact:Alexandre Birry, London 44 (0) 20 7176 7108; [email protected]

Table Of Contents

Major Rating Factors

Rationale

Outlook

Profile: Strong And Diverse Franchises In Core Businesses

Support And Ownership: Extraordinary External Support From U.K.

Government

Strategy: Midway Through Turnaround Plan

Accounting: IFRS Reporter

Risk Profile And Management: Strengthened Framework

Profitability: Modest But Improving Underlying Performance

Capital: Solid Position Thanks To Government Support

July 12, 2011

www.standardandpoors.com/ratingsdirect 1

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Royal Bank of Scotland Group PLC (The)

Major Rating Factors

Strengths:

• Material government support through majority equity stake and asset

insurance.

• Diversified universal bank with strong franchises in core markets.

• Good progress to date against turnaround plan targets.

Counterparty Credit Rating

A/Stable/A-1

Weaknesses:

• Modest, though improving, profitability due to elevated losses on noncore assets.

• Execution risk in the remaining elements of the turnaround plan.

Rationale

The ratings on U.K.-incorporated The Royal Bank of Scotland Group PLC (RBS) incorporate Standard & Poor's

Ratings Services' view of both its stand-alone credit profile (SACP) and extraordinary external support. Specifically,

the long-term counterparty credit rating incorporates a two-notch uplift from the SACP, reflecting our view of RBS's

high systemic importance. The support provided by the U.K. government includes £45.5 billion of ordinary and B

shares, which equates to an 82% economic interest, and insurance under the Asset Protection Scheme (APS) in

respect of 17% of RBS's funded balance sheet (as at March 31, 2011).

RBS is currently mid-way through a five-year turnaround plan to address the weaknesses that necessitated its rescue

by the government. We consider that it has made good progress to date, but believe that it has much more to

achieve, and unfavorable economic or market developments could bring further challenges. A key aspect of the plan

was the creation of a noncore division to house assets and businesses that do not fit within RBS's revised risk

appetite and strategy. We believe the run-down of this noncore portfolio is critical to the targeted improvements in

the group's risk, funding, and earnings profiles. From £258 billion at year-end 2008, funded noncore assets had

fallen to £125 billion at March 31, 2011 through maturities, disposals, and impairments. The residual noncore

portfolio includes material exposure concentrations, such as commercial real estate in Ireland and the U.K., that

require close monitoring and will likely be difficult to sell or refinance.

The government's equity injections and the APS underpin RBS's capitalization through its restructuring period. The

core Tier 1 ratio stood at 11.2% at March 31, 2011, which included a benefit from the APS of 1.3 percentage

points. The risk-adjusted capital (RAC) ratios, which do not take into account the APS, were 6.7% before

diversification adjustments and 8.1% after at year-end 2010. By late 2012, when RBS intends to exit the APS, we

expect that its underlying capital position will have improved further through retained earnings and the continuing

reduction in noncore assets. The noncore run-down is also leading to a more sustainable funding and liquidity

position. The group loan-to-deposit ratio, for example, improved to 115% at March 31, 2011, and it was 96% for

the core businesses.

RBS maintains strong and diverse franchises in its core businesses, which are centered on the U.K., but also include

operations in other geographies. In aggregate, the performance of the core activities has been relatively robust, but

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outsized losses on noncore assets have been a significant drag on group earnings. However, it achieved a £1.9 billion

underlying profit in 2010 as noncore impairments moderated, and we expect a continuation of this trend to push

RBS's earnings closer to their potential.

Outlook

The stable outlook reflects our expectation that RBS will continue to make sufficient progress against its

restructuring targets to eliminate by year-end 2012 the current two-notch gap between the SACP and long-term

counterparty credit rating. An upgrade of the counterparty credit ratings is not likely while this gap remains.

An improvement in the SACP would require RBS to continue to strengthen capital generation through retained

earnings, manage down the noncore portfolio and the risk concentrations within it, and raise the pre-diversification

risk-adjusted capital ratio toward the 8% threshold. In the event that RBS falters in the achievement of any of these

key metrics, the likelihood of a negative action on the counterparty credit ratings will increase.

As for other U.K. financial institutions, we will assess any potential rating impact on RBS of regulatory changes such

as measures due to be recommended by the Independent Commission on Banking to address the sector's structure

and competitive dynamics.

Profile: Strong And Diverse Franchises In Core Businesses

We consider that RBS's core franchises have remained relatively resilient and diverse in the face of the market

volatility and adverse publicity it has faced since being rescued by the U.K. government in 2008. It is a leading

competitor in retail and commercial banking in the U.K., Ireland, and the north-eastern states of the U.S. The Global

Banking and Markets division (GBM) serves large global corporates and financial institutions and is active across a

range of products, with particular strengths in fixed income and debt capital markets. Global Transaction Services

ranks among the world's leading payment, cash management, and trade finance providers. Wealth is the leader in

U.K. private banking, primarily through the Coutts brand, and is also present in key international market centers. In

insurance, RBS is a leading provider of general insurance to U.K. retail customers, particularly in the motor market

and primarily through the Direct Line and Churchill brands.


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Chart 1

The noncore division holds businesses and asset portfolios that do not fit within RBS's new strategic plan. To a large

extent, this is because their risk profile exceeds RBS's revised appetite. However, some activities were included in the

noncore portfolio for other reasons, such as insufficient returns potential or because they operate in markets that

RBS no longer considers strategic.

As a condition of the European Commission's (EC) approval of the support provided by the U.K. government, RBS

agreed to divest four business units by year-end 2013. To date, two transactions have been completed (RBS Sempra

Commodities and Global Merchant Services), one has been agreed (the sale of 318 U.K. branches with related assets

and liabilities), and the other (the flotation or sale of the insurance division) is planned for the second half of 2012.

Our view of RBS's business profile takes into account these required disposals. The EC additionally imposed various

behavioral commitments on RBS, including a prohibition on share dividends and hybrid capital coupons for a

two-year period beginning April 30, 2010, unless there is a legal obligation to pay.

RBS is a U.K.-incorporated, nonoperational holding company. Its principal operating subsidiaries include

U.K.-incorporated The Royal Bank of Scotland PLC (A+/Stable/A-1), National Westminster Bank PLC

(A+/Stable/A-1), and Ulster Bank Ltd. (BBB+/Watch Neg/A-2), Ireland-incorporated Ulster Bank Ireland Ltd.

(BBB+/Watch Neg/A-2), Netherlands-incorporated Royal Bank of Scotland N.V. (A+/Stable/A-1), and

U.S.-incorporated Citizens Financial Group (not rated; core subsidiaries of Citizens are rated A-/Stable/A-2).

The U.K. government has established an Independent Commission on Banking (ICB) to consider structural and

competitive reforms of the industry. The ICB's initial proposals included a ring-fencing of banks' retail activities

within a separate legal entity. The ICB is consulting market participants on the details of its proposed policy and is

due to publish its final recommendations in September. They could have negative rating implications if they result in


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material constraints on funding and capital fungibility within groups and/or lead us to re-assess potential systemic

support for each entity (see "U.K. Independent Commission on Banking Interim Report: Structural Reforms Could

Have Divergent Ratings Impact," published on April 12, 2011).

Support And Ownership: Extraordinary External Support From U.K. Government

The ratings on RBS reflect our view of both its SACP and the availability of extraordinary external support from the

U.K. government. Specifically, the long-term counterparty credit rating incorporates a two-notch uplift from the

SACP, reflecting our view of RBS's high systemic importance within the U.K. The SACP takes into account all

existing government support. We consider that RBS is unlikely to require further extraordinary external support, but

believe that it would be provided, if required. We do not regard RBS as a government-related entity under our

criteria because it is a commercial institution with no formal public policy role.

The existing government support provided to RBS comprises £20 billion of ordinary shares, £25.5 billion of

nonvoting B shares, asset insurance under the APS, and up to £8 billion of contingent capital. RBS has also

participated in U.K. industrywide funding schemes, notably the issuance of government-guaranteed debt under the

Credit Guarantee Scheme and receipt of funding from the Bank of England under the Special Liquidity Scheme. At

June 30, 2011, the government owned 66.9% of RBS's ordinary shares and all of the B shares, which equated to an

economic interest of 82.2%. The government's day-to-day relationship with RBS is managed by U.K. Financial

Investments Ltd. (UKFI), which is wholly owned by HM Treasury. UKFI manages the government's stake in RBS on

a commercial basis, with the objective of selling the shares as soon as possible in a profitable and orderly manner. In

view of both the large size of the stake and RBS's current share price, we expect that the sale process will be

completed in several stages over an extended time period.

To date, government influence on RBS's day-to-day activities has not been material from a rating perspective. RBS

made lending commitments to the government in 2009-2010 regarding the availability of residential mortgages and

small business loans in the U.K. Alongside the other large U.K. banks, it was a party to an accord known as Project

Merlin in February 2011 that covers various issues including lending capacity to small businesses. In our view, these

agreements were broadly consistent with the lending volumes and other activities that RBS would itself wish to

undertake.

Strategy: Midway Through Turnaround Plan

RBS commenced a five-year turnaround plan at the beginning of 2009, which in our view is one of the most

comprehensive and challenging corporate restructuring programs ever undertaken. RBS's stated strategic aims are to

serve customers well; restore stand-alone financial strength; and rebuild sustainable value for shareholders, thereby

enabling the government to sell its shares profitably over time. It has set out milestones for each stage of the

turnaround plan and has met or exceeded them to date. We consider that it has much more to achieve to complete

the run-down of noncore assets, move earnings closer to their potential, and finalize the repositioning of the balance

sheet. We believe that RBS has established the foundations required for the successful delivery of the remainder of

the plan, but its achievement also depends on factors outside RBS's control, such as economic growth, market

conditions, and regulatory reforms.

RBS has set a number of financial targets over the turnaround period at both a group and divisional level (see table


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1 for group targets). It has made good progress to date in our opinion, but has further work to do on all fronts,

particularly the achievement of its return on equity (ROE) objective, which we view as relatively challenging under

Basel III.

Table 1

RBS's Reported Groupwide Financial Targets

2010 actual Q1 2011 actual 2013 target

Loan-to-deposit ratio (%) 117 115 ~100

Core Tier 1 ratio (%) 10.7 11.2 >8

Tier 1 leverage ratio (x) 16.8 17.4 <20

Short-term wholesale funding (bil. £) 157 168 <150

Liquidity reserves (bil. £) 155 151 ~150

Return on equity (%) 13.3* 15.1* >15

Cost-to-income ratio (%) 56* 56* <50*

*Core businesses only.

In the core businesses, RBS is looking to grow profitability by improving its customer focus, increasing cost

efficiency, and maintaining strong risk management and financial discipline. Customer numbers have been steady or

growing in the core businesses, despite the negative publicity in recent years, and RBS sees opportunities to grow its

market position further. The senior management team considers that RBS historically under-invested in business

development and did not sufficiently manage business-as-usual costs. It is consequently prioritizing efficiency gains

to release resources for investment in franchise development and customer service. Over time, RBS envisages

two-thirds of its earnings coming from retail and commercial activities and one-third from GBM. As for other

universal banks, GBM's contribution to core earnings was higher than this in 2010 and the first quarter of 2011 as

market conditions were generally more favorable for investment banking than for retail and commercial banking.

For the noncore division, the strategic priority is to shrink the asset base while minimizing losses and capital

dilution. This process is currently progressing ahead of schedule: for example, RBS now aims to reduce funded

noncore assets to £96 billion by year-end 2011 rather than its original target of £118 billion. By the time the

turnaround plan ends at year-end 2013, RBS is looking to manage down the noncore portfolio to between £20

billion and £40 billion (see chart 2). To date, just over half of the reduction was achieved by natural run-off as

assets matured and were repaid.


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Chart 2

Accounting: IFRS Reporter

RBS reports under International Financial Reporting Standards (IFRS). It commenced detailed quarterly reporting in

2009, which is unusual in the U.K. banking sector. Like many other IFRS reporters, its balance sheet would be

materially smaller under U.S. generally accepted accounting principles (GAAP), principally due to greater

recognition of counterparty netting agreements on derivative transactions. Of the £361 billion of derivative assets at

March 31, 2011, £290 billion was covered by counterparty netting agreements and a further £25 billion by cash

collateral.

RBS and its consortium partners completed the acquisition of ABN AMRO Holding N.V. (renamed RBS Holdings

N.V. on April 1, 2010) in October 2007, through an entity called RFS Holdings B.V. Prior to April 2010, RBS

owned 38% of RFS Holdings, but RFS Holdings was fully consolidated in RBS's statutory accounts because RBS

was deemed to have effective control. Our focus since the acquisition has been on RBS's pro forma results, which

included only those businesses that are economically owned by RBS. The process for the legal transfer of the

acquired businesses to the other consortium members was completed in April 2010, save for a relatively small

amount of assets within RBS Holdings N.V. that continue to be shared by consortium members and a small number

of businesses acquired by the Dutch State. As a result, RBS's statutory earnings from the second quarter of 2010

onwards have been much more representative of its underlying performance. With effect from the first quarter of

2011, RBS discontinued pro forma reporting.

The APS is treated as a single credit derivative contract in RBS's accounts, and changes in its fair value are

recognized through earnings. To date, RBS has incurred £2.0 billion cumulative charge on the APS due to a


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tightening of credit spreads on the reducing volume of covered assets. RBS excludes the fair-value gain or loss from

its underlying earnings measure, as do we. The assets covered by the APS remain on RBS's balance sheet and their

accounting treatment is unaffected.

Reflecting its significant losses in 2008-2009, RBS recognized £4.3 billion of tax loss carryforwards at year-end

2010, of which £3.8 billion related to the U.K. The U.K. losses can be carried forward indefinitely to be applied

against future profits. We deduct recognized tax loss carryforwards from our total adjusted capital measure, but

there is no such adjustment in RBS's regulatory capital ratios.

RBS fully recognizes its post-retirement pension and healthcare obligations on its balance sheet. There was a £2.3

billion net liability on a pro forma basis at March 31, 2011.

Like many peers, RBS reclassified various trading and available-for-sale assets (mostly asset-backed securities) in

2008-2009 to mitigate potential future volatility in earnings and equity. The £15.8 billion aggregate carrying value

of these assets at year-end 2010 exceeded the fair value by £1.4 billion. Due to the recovery in asset values, RBS's

pretax earnings for 2010 would have been £1.1 billion higher if the assets had not been reclassified.

Level 3 assets (those valued using models based on significant unobservable data) stood at £14.1 billion at March

31, 2011, or 2% of all fair valued assets.

At March 31, 2011, RBS's reported available-for-sale reserve was negative £2.1 billion net of tax, of which £863

million related to Spanish debt securities (mostly ABSs) and £476 million to Greek government bonds. The negative

reserve is not included in our capital measures nor in regulatory measures.

At March 31, 2011, RBS held £54.2 billion of its debt securities and subordinated liabilities at fair value, and had a

£1.9 billion cumulative gain from credit spread movements. This gain, net of tax, is excluded from our capital

measures, and is similarly excluded from the regulatory ratios. The gain or loss recorded in each reporting period is

also excluded from our core earnings measure.

Risk Profile And Management: Strengthened Framework

As a universal bank, credit, market, funding, liquidity, and operational risks are all material for RBS in our view.

Enterprise risk management

We categorize RBS's risk management practices as "adequate" under our criteria. We consider that RBS has

upgraded its control framework to address the issues that led to it requiring government support. We consider that it

will take time for these changes to be fully implemented and become firmly embedded, but we already observe

greater discipline around risk management and financial controls.

Credit risk

In comparison with peers', we consider the credit risk profile of RBS's assets to be relatively high, reflecting in

particular the lower quality assets and exposure concentrations held by the noncore division. The impairment charge

peaked in 2009 and, in our view, should decline further in 2011-2012 as noncore assets continue to season and

shrink in size. In absolute terms, however, the charge is set to remain elevated relative to peers', due in particular to

noncore commercial real estate (CRE) exposures in Ireland and the U.K. We expect the credit quality of core assets

to remain steady, but uncertainties persist in terms of the speed of economic recovery in RBS's core markets, the


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pace at which interest rates normalize, and developments in the eurozone.

The £125 billion of noncore assets at March 31, 2011 were dominated by the corporate and CRE sectors (see chart

3). The CRE exposures, particularly those in Ireland, have been the major driver of noncore impairments in recent

periods as RBS has increased the provision coverage of problem loans. We consider that RBS has made good

progress in reducing the size of the overall noncore portfolio and the number of risk concentrations within it. The

overall portfolio was 52% smaller than at year-end 2008, with the percentage reductions for each major asset class

ranging between 66% for market exposures to 43% for CRE (adjusted for a portfolio transfer from Ulster). The

slower run-down of CRE assets was expected and reflects both the longer maturity of these loans and the illiquid

secondary market for them. Looking forward, we expect that RBS might use the headroom created by declining

noncore impairments to accept higher disposal losses on less liquid noncore assets to remove them from its balance

sheet without overly diluting its earnings.

Chart 3

Excluding reverse repos and disposal groups, the core businesses held 80% of RBS's £513 billion gross customer

loans and advances at March 31, 2011. Geographically, 67% of core loans were in the U.K., with the U.S. (15%)

and the rest of Europe (14%) also notable exposures. From a sectoral perspective, the core businesses' lending is

reasonably well-diversified (see chart 4). The residential mortgages are primarily in the U.K., but there are also

sizable portfolios in Ireland and the U.S. Core U.K. and U.S. residential mortgages have performed relatively well,

but the Irish portfolio has suffered from the deteriorating economy and housing market. The average indexed

loan-to-value (LTV) of the U.K. portfolio was 58% at year-end 2010, but 12% of the portfolio had an LTV above

90%.


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Chart 4

Impairment losses remain significant but have shown a steady decline since their peak in mid-2009 as the charge on

noncore assets has reduced (see chart 5). Our base-case view is that this trend will be maintained in 2011-2012, but

there is scope for volatility arising from fragile economic conditions and the significant higher risk exposure

concentrations remaining in the noncore portfolio.


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Chart 5

Ulster's Irish loan book accounts for the majority of RBS's exposure to pressured eurozone countries and has been

the major contributor to its impairment losses in recent quarters. At March 31, 2011, Ulster's £52.0 billion of gross

customer lending (which included exposures in the U.K., mostly Northern Ireland) represented 10% of RBS's total

loan portfolio. Almost 30% of Ulster's loans were designated noncore, of which a huge proportion--76%--was

impaired or past due. Most of the noncore loans are to the depressed Irish CRE sector, particularly development

properties. Ireland's weak economy has also led to rising impairments on core lending. As a result, Ulster accounted

for two-thirds of RBS's groupwide impairment losses in the first quarter of 2011, which led to an increase in

provision cover to 46% of core impaired loans and 47% of noncore. We expect that Ulster's impairments will

remain high in 2011 before moderating in 2012 and beyond as the Irish economy slowly recovers and provision

coverage reaches the necessary level.

Reflecting the lower quality assets within the noncore portfolio, RBS's impaired and potential problem loans are

significant, standing at 8.0% of gross customer loans at March 31, 2011. This ratio was 4.1% for core loans and

23.0% for noncore. In our view, RBS has a well-established work-out department that should assist it in maximizing

recoveries from the higher risk exposures. Provisions covered 49% of the core businesses' impaired and potential

problem loans and 45% of noncore at March 31, 2011. The slightly higher coverage level on the core book reflects

the higher proportion of unsecured retail loans as well as latent loss provisions on performing assets.

In addition to its high impairment losses, RBS incurred £16.2 billion of write-downs in 2008-2009 on legacy

trading-related credit market exposures such as monolines and ABSs. The run rate fell to £388 million in 2010,

partly due to accounting reclassifications but mostly reflecting improved asset values and reductions in the


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underlying exposures. The net exposures to monolines and credit derivative product companies had declined to £1.3

billion and £0.7 billion, respectively, at March 31, 2011. Although we expect that future write-downs should be

manageable, a further material decline in asset values would clearly have an adverse impact.

The APS would mitigate impairment charges and write-downs on the covered assets in a severe economic downturn,

but the first loss piece is relatively large and RBS is likely to retain all of the losses in our base-case scenario.

Including derivatives, the APS covered £182 billion of assets at March 31, 2011, down from £282 billion at

year-end 2008, which was the effective date of the scheme. The covered assets were selected on the basis of their

impairment loss potential, liquidity, and capital intensity. RBS retains a first-loss piece of £60 billion, and 90% of

cumulative losses (net of cumulative recoveries) in excess of that sum would be met by the government. Net of

expected recoveries, cumulative losses on the covered assets stood at about £25 billion at March 31, 2011. We share

RBS's view that the first-loss piece is unlikely to be exceeded unless there is a significant economic downturn.

Nevertheless, we view the APS positively in terms of providing catastrophic loss protection on RBS's highest risk

assets. In return, RBS pays the government £700 million per year for the first three years of cover and £500 million

per year thereafter. The aggregate fee paid over the life of the APS must be at least £2.5 billion, which means that

RBS has no economic incentive to relinquish coverage before mid-2012. It intends to exit the APS in late 2012,

subject to regulatory approval.

Market risk

RBS's traded market risk activity is centered in GBM and the noncore division. It is managed through a range of

metrics and limits including value-at-risk (VaR), stress testing, and scenario and sensitivity analysis. The VaR model

uses a historical simulation approach based on two years of data, and the market volatility from 2008 therefore

dropped out of the dataset during 2010. Nevertheless, the group's average and maximum VaR increased in 2010

principally because the noncore division entered into offsetting trades to exit structured credit positions. These

offsetting positions were closed in October 2010. Concentrated credit exposures remain within the noncore division,

however, and improving credit indices caused noncore VaR to rise in early 2011.

Table 2

Value At Risk For Traded Portfolios (99% Confidence Interval, One-Day Holding Period)

(Mil. £) 2009 2010 Q1 2011

Average Maximum Average Maximum Average Maximum

Core 101.5 137.8 103.6 153.4 108.2 133.9

Noncore 86.3 162.1 105.7 169.4 113.9 128.6

Total 155.2 229.0 168.5 252.1 156.4 181.3

Nontrading risks are managed using similar metrics and limits.

Funding and liquidity risk

In our view, RBS's relatively high leverage and wholesale funding requirement following the ABN AMRO

transaction were key factors behind its need for government support. A primary objective of RBS's five-year

restructuring plan is to reduce its balance sheet to a sustainable size, and we consider that it has made good progress

to date. In our view, the completion of the wind-down of the noncore division is critical to the achievement of RBS's

funding targets for 2013.

With £420 billion of customer deposits (excluding repos, stock lending, and cash collateral) at March 31, 2011, RBS


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is a major deposit-taking bank. Its deposit base is also well diversified by geography and customer segment (see

chart 6). In October 2008, adverse publicity about RBS's financial condition led to a sizable deposit outflow, which

was quickly resolved by the first government capital injection.

Chart 6

RBS's deleveraging caused its loan-to-deposit ratio to fall to 115% at March 31, 2011 from 151% at year-end

2008. RBS's target for 2013 is about 100%, and this has already been achieved by the core businesses, which had a

loan-to-deposit ratio of 96% at March 31, 2011. The Basel III net stable funding ratio stood at 96%, a reduction

from 101% at year-end 2010 as the residual maturity of some government-guaranteed debt issues fell below one

year.

The run-down of noncore assets mitigates the level of RBS's required wholesale debt issuance. It plans to issue about

£20 billion of term funding in 2011 and completed about £15 billion in the first half, following £38 billion of term

issuance in 2010. In RBS's funding plan, 2010 and 2011 are the peak years for debt issuance as it seeks to lengthen

the term structure of its wholesale funding and re-finance its £40 billion of government-guaranteed debt, the vast

majority of which matures between October 2011 and June 2012. We consider that RBS has made good progress

against these objectives, but it remains dependent on reasonable liquidity and pricing in external funding markets to

achieve its aims. In addition to the government-guaranteed debt, RBS had borrowed £16.1 billion under Bank of

England facilities including the Special Liquidity Scheme at year-end 2010, but these balances are not used to fund

customer assets and are being repaid ahead of schedule.

RBS increased liquid assets to £151 billion at March 31, 2011, of which £116 billion comprised cash, central bank

balances, and government debt instruments. RBS intends to maintain the portfolio at about £150 billion but

re-balance the composition further toward government bonds that are eligible under the FSA's liquidity regime. RBS


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plans to maintain short-term wholesale funding below the £150 billion mark. Actual short-term wholesale funding

increased to £168 billion at March 31, 2011, or £145 billion excluding derivatives collateral, as the residual

maturity of some government-guaranteed issues fell below one year. We expect it to decline again once these

maturity concentrations have passed.

Operational risk

Like other banks, RBS faces a number of competition and regulatory enquiries. One case that was recently resolved

concerned the handling of customer complaints on payment protection insurance products. The U.K. banks lost a

court case on this matter in April 2011, and RBS has announced that its earnings for the second quarter of 2011 will

include a £850 million provision to cover the estimated cost of redress and related administration.

Profitability: Modest But Improving Underlying Performance

RBS's earnings continue to fall short of several peers' and its own potential, but are improving toward the ambitious

targets it has set for 2013. Having been significantly loss-making in 2008-2009, RBS restored underlying

profitability in 2010, a year earlier than we had expected. The core businesses have been solidly profitable during

this period, demonstrating the resilience of their franchises, but high impairments and write-downs on noncore

assets were a major drag on the group's overall performance. A moderation of these noncore losses has driven the

improvement in group earnings, and we expect this trend to continue over the remainder of the turnaround plan.

Table 3

Underlying And Reported Pro Forma Pretax Profit

(Mil. £) 2008 2009 2010 Q1 2011

Revenues 15,964 25,262 28,031 7,119

Operating expenses (16,683) (17,454) (16,865) (4,120)

Impairment charges and credit provisions (7,451) (13,898) (9,253) (1,946)

Underlying pre-tax profit (8,170) (6,090) 1,913 1,053

Gain/(loss) on own credit 1,232 (142) 174 (480)

Gain on redemption of own debt 0 3,790 553 0

Gain on business disposals 442 132 171 (23)

Gain on pensions curtailment 0 2,148 0 0

Integration and restructuring charge (1,357) (1,286) (1,032) (145)

Change in fair value of APS CDS 0 0 (1,550) (469)

UK payroll tax 0 (208) (99) (11)

Amortisation of purchased intangibles (443) (272) (369) (44)

Other 0 0 0 3

Reported pretax profit (8,296) (1,928) (239) (116)

Excluding various material nonoperational items, RBS recorded a £1.9 billion underlying pretax profit in the 2010

full-year and £1.1 billion in the first quarter of 2011 (see table 3). There was a £8.0 billion positive swing in

underlying annual earnings from 2009 to 2010 as write-downs and impairments on noncore assets moderated

significantly. Quarterly earnings trends confirm that the earnings dilution from the noncore division has eased, but

remains a material drag (see chart 7).


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Chart 7

The core businesses have maintained solid profitability through the turnaround period. Their underlying earnings

were 12% lower in 2010 relative to 2009 due principally to the industrywide slowdown in investment banking

revenues, increased impairments in Ulster, and higher bodily-injury claims across the U.K. insurance sector.

Offsetting these pressures was a strong rebound in retail and commercial banking earnings in the U.K. and U.S.

GBM contributed 45% of the core businesses' underlying pretax earnings in 2010, and this proportion should

moderate toward RBS's one-third target as operating conditions improve for the retail and commercial banking

businesses, particularly Ulster.

Table 4

Core Businesses' Operating Profit*

(Mil. £) 2009 2010 Q1 2011 2010 vs 2009 (% change)

U.K. Retail 229 1,372 508 499

U.K. Corporate 1,125 1,463 493 30

Wealth 420 304 80 (28)

Global Banking & Markets 5,758 3,364 1,098 (42)

Global Transaction Services 973 1,088 187 12

Ulster Bank (368) (761) (377) 107

U.S. Retail & Commercial (113) 306 80 (371)

RBS Insurance 58 -295 67 (609)


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Table 4

Core Businesses' Operating Profit* (cont.)

Central items 385 577 (43) 50

Total 8,467 7,418 2,093 (12)

*Excluding fair value of own debt.

Like peers, RBS has proactively repriced its assets and widened margins on new lending to mitigate pressure on

liability spreads. Accordingly, the net interest margin for the core businesses has increased from a low of 2.12% in

2009 to 2.26% in the first quarter of 2011. We see some further upside as repricing of corporate assets continues

and central banks begin to raise interest rates, but strong competition for deposits means that the group margin is

unlikely to increase significantly from the current level. RBS also expects improving cost efficiency to contribute to

strengthening earnings. It projects broadly flat core costs over the remainder of the restructuring plan, with savings

from disposals and efficiency programs being reinvested to support business development and volume growth. We

expect noncore costs to decline broadly in line with the asset base.

Capital: Solid Position Thanks To Government Support

In our view, RBS has a solid capital position thanks to the comprehensive support provided by the U.K. government.

We expect stronger retained earnings and continued balance sheet de-leveraging to support further improvements in

its core capital position, which would support its planned exit from the APS in late 2012. The eventual sale of the

government's holdings of ordinary shares and B shares should be a rating-neutral event because we expect them to

be sold to third parties rather than bought back by RBS, at least in the near-to-medium term.

The Basel II core Tier 1 and Tier 1 ratios stood at 11.2% and 13.5%, respectively, at March 31, 2011. The APS

boosted the core Tier 1 ratio by 131 bps and the Tier 1 ratio by 175 bps. For regulatory purposes, RBS's residual

first-loss piece is deducted from capital (split equally between core Tier 1 and Tier 2), the government's 90% share

of potential losses in excess of the first-loss piece is risk-weighted at 0%, and the 10% share retained by RBS is

risk-weighted as normal. The deductions from capital are capped at 8% of the insured risk-weighted assets (RWAs).

The cap is currently applicable, but might cease to be if losses incurred on the covered assets move closer to the

first-loss piece.

The B shares are eligible as core Tier 1 capital and we include them without limitation in our adjusted total equity

and total adjusted capital measures (see "Treatment Of B Shares And Asset Protection Scheme Fees In Standard &

Poor's Capital Ratios For U.K. Financial Institutions," published on April 9, 2010). The B shares rank alongside

ordinary shares in liquidation and the government has an option to convert them into ordinary shares, subject to a

75% cap on its holding of RBS's ordinary shares and voting rights. The purpose of this cap is to ensure that RBS

maintains its stock market listing. The government has additionally committed to purchase up to an additional £8

billion of B shares if RBS's core Tier 1 ratio falls below 5% and certain other conditions are met.

Our risk-adjusted capital (RAC) framework also indicates that RBS had a solid capital position at year-end 2010

(see table 5). The RAC ratios do not fully reflect RBS's capital position because they are based on its Pillar 3

disclosures, which exclude the cover provided by the APS. As noted above, we consider that losses on the covered

assets are unlikely to exceed the first-loss piece under our base-case economic expectations, but they would probably

do so under the stress scenario on which our RAC charges are based. The RAC framework is calibrated such that an

8% ratio both before and after diversification adjustments indicates that a bank should have sufficient capital to


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withstand an 'A' or substantial stress scenario in developed markets. By late 2012, when RBS intends to exit the

APS, we consider that the pre-diversification ratio will increase toward, but likely remain below, the 8% threshold.

The planned disposal of the insurance business in late 2012 may also support an improvement in the RAC ratios,

depending on the pricing of the transaction.

Table 5

Risk-Adjusted Capital Data

(Mil. £) Exposure* Basel II RWAAverage Basel II

RW (%)Standard & Poor's

RWAAverage Standard &

Poor's RW (%)

Credit risk

Government and central banks 150,955 4,038 2.7 5,606 3.7

Institutions 90,435 9,525 10.5 25,648 28.4

Corporate 441,104 228,913 51.9 372,678 84.5

Retail 232,348 95,488 41.1 125,106 53.8

Of which mortgage 136,987 35,675 26.0 41,919 30.6

Securitization 1,888 15,575 824.9 2,106 111.6

Other assets 159,260 95,238 59.8 83,241 52.3

Total credit risk 1,075,990 448,775 41.7 614,386 57.1

Market risk

Equity in the banking book¶ 2,934 5,188 198.3 21,664 738.4

Trading book market risk -- 80,100 -- 198,431 --

Total market risk -- 85,288 -- 220,095 --

Insurance risk

Total insurance risk -- -- -- 49,525 --

Operational risk

Total operational risk -- 37,100 -- 52,273 --

(Mil. £) Basel II RWAStandard & Poor's

RWA% of Standard & Poor's

RWA

Diversification adjustments

RWA before diversification 571,163 936,280 100

Total adjustments to RWA -- (168327) (17.9)

RWA after diversification 571,163 767,953 82.0

(Mil. £) Tier 1 capital Tier 1 ratio (%)Total adjusted

capitalStandard & Poor's RAC

ratio (%)

Capital ratio

Capital ratio beforeadjustments

60,124 10.5 62,411 6.7

Capital ratio afteradjustments§

60,124 10.5 62,411 8.1

*Exposure at default. ¤Securitisation Exposure includes the securitisation tranches deducted from capital in the regulatory framework. ¶Exposure and Standard & Poor's

risk-weighted assets for equity in the banking book include minority equity holdings in financial institutions. §Adjustments to Tier 1 ratio are additional regulatory

requirements (e.g. transitional floor or Pillar 2 add-ons). RWA--Risk-weighted assets. RW--Risk weight. RAC--Risk-adjusted capital. Sources: Company data as of Dec. 31,

2010, Standard & Poor's.

Due to the EC's prohibition on dividend payments, RBS may not make payments on ordinary shares, B shares, and

hybrid capital instruments during a two-year period beginning April 30, 2012, unless there is a legal obligation to


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pay. Payments have continued to be made on certain hybrid issues because coupons can be deferred only if the issuer

has insufficient distributable reserves or if payment would cause a breach of regulatory capital requirements. Our

total adjusted capital and adjusted total equity capital measures include only those hybrids for which coupon

payments are discretionary. If RBS's earnings continue to improve in line with expectations, we consider that

suspended hybrid capital coupons are likely to restart once the prohibition ends. In contrast, equity dividends may

be discouraged by the terms of a dividend access share (DAS) that was issued to the government alongside the B

shares and gives the government enhanced dividend rights if RBS pays a dividend on its ordinary shares. The DAS

falls away if RBS's share price exceeds a specified hurdle that has not been achieved to date.

In aggregate, RBS expects that Basel II.5 and Basel III will add between £88 billion and £100 billion to its regulatory

RWAs, of which about 40% relates to noncore assets. The final figure will depend on a number of variables, not

least the final form of the CRD4 measure that implements Basel III in the EU. RBS's RWA figures take into account

offsets such as the expected run-down of noncore assets and planned risk mitigations, and they also include a

RWA-equivalent amount for the capital deductions that will be required under Basel III. These required deductions

include items that are currently significant for RBS, including tax loss carryforwards, investments in insurance

activities, and unrealized losses on AFS securities. If RBS continues to deliver against its turnaround plan, these items

should be smaller in value when Basel III is implemented than they are currently.

Table 6

Royal Bank of Scotland Group PLC (The) Asset Quality, Funding, And Liquidity Ratios

--Year-ended Dec. 31--

(%) 2011* 2010 2009 2008 2007

Gross nonperforming assets/customer loans plus other realestate owned

7.9 7.3 6.1 2.7 1.5

Net nonperforming assets/customer loans plus other real estateowned

4.3 4.0 3.6 1.4 0.6

Loan loss reserves/gross nonperforming assets 46.9 47.1 43.4 49.6 59.9

Loan loss reserves/customer loans 3.7 3.4 2.7 1.3 0.9

New loan loss provisions/average customer loans 1.5 1.7 2.2 1.1 0.4

Net charge-offs/average customer loans 0.6 1.0 1.0 0.4 0.3

Customer deposits/funding base 49.7 50.3 45.3 42.5 39.6

Total loans/customer deposits 121.4 123.2 137.6 152.3 129.0

Total loans/customer deposits plus long-term funds 98.0 99.2 108.4 123.4 107.7

Customer loans (net)/assets (adjusted) 35.8 35.4 36.8 31.4 34.3

*Data as of March 31.

N.A.--Not available. N/A--Not applicable. N.M.--Not meaningful.

Table 7

Royal Bank of Scotland Group PLC (The) Loan Portfolio


(Mil. £) 2011* 2010 2009 2008 2007

Public Sector/Government 7,164.0 8,452.0 N/A 3,091.0 3,135.0

Residential real estate loans 148,598.0 146,501.0 N/A 80,967.0 73,834.0

Other consumer loans 35,844.0 37,472.0 N/A 26,979.0 28,123.0

Commercial real estate loans N/A N/A N/A 52,087.0 50,051.0

Commercial/corporate loans 285,496.0 292,364.0 N/A 86,762.0 80,092.0


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Table 7

Royal Bank of Scotland Group PLC (The) Loan Portfolio (cont.)

Total real estate loans N/A N/A N/A N/A 0.0

Leases 16,180.0 16,850.0 N/A 17,363.0 15,632.0

Foreign loans N/A N/A N/A 404,251.0 295,459.0

Other loans 26,909.0 26,370.0 569,827.0 29,700.0 17,385.0

Nonperforming loans not included in above N/A N/A N/A 0.0 0.0



Table 8

Royal Bank of Scotland Group PLC (The) Profitability Ratios


(%) 2011* 2010 2009 2008 2007

Net interest income/average earning assets 1.4 1.5 1.3 1.4 1.3

Net interest income/revenues 46.4 50.9 53.8 105.3 46.5

Fee income/revenues 19.4 21.5 23.6 42.6 26.4

Market-sensitive income/revenues 20.9 22.0 15.1 (68.5) 10.5

Personnel expense/revenues 32.6 32.1 36.0 51.0 35.1

Noninterest expenses/revenues 57.9 59.9 68.5 104.1 62.4

New loan loss provisions/revenues 27.3 33.2 55.1 46.0 7.9

Net operating income before loan loss provisions/loan loss provisions 154.1 120.7 57.2 (9.0) 476.8

Net operating income after loan loss provisions/revenues 14.8 6.9 (23.6) (50.1) 29.7

Pretax profit/revenues (1.5) (1.0) (9.4) (165.4) 33.6

Tax/pretax profit (388.1) (239.4) 14.3 8.0 19.1

Core earnings/revenues N/A 4.0 (26.0) (40.9) 23.9

Core earnings/average adjusted assets N/A 0.1 (0.4) (0.3) 0.5

Noninterest expenses/average adjusted assets 1.2 1.1 0.9 0.8 1.3

Core earnings/average risk-weighted assets N.M. N.M. N.M. (2.5) 1.4

Core earnings/average adjusted common equity N/A 4.0 (19.9) (21.9) 32.4

Pretax profit/average common equity (%) (1.0) (0.6) (5.2) (55.5) 22.1



Table 9

Royal Bank of Scotland Group PLC (The) Capital Ratios


(%) 2011* 2010 2009 2008 2007

Adjusted common equity/risk assets (%) N.M. N.M. N.M. N.M. 3.8

Tier 1 capital ratio 13.5 12.9 14.4 9.9 7.0

Adjusted total equity/adjusted assets 3.8 3.7 3.6 2.1 1.0

Adjusted total equity/managed assets 3.7 3.7 3.5 2.1 1.0

Adjusted total equity plus loan loss reserves (specific)/customer loans (gross) 13.9 13.5 12.1 7.9 3.8

Common dividend payout ratio 0.0 0.0 0.0 0.0 33.7




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Table 10

Royal Bank of Scotland Group PLC (The) Summary Balance Sheet


(Mil. £) 2011* 2010 2009 2008 2007

Assets

Cash and money market instruments 224,554.0 210,042.0 176,462.0 180,527.0 367,356.0

Securities 246,811.0 232,599.0 265,055.0 275,192.0 287,505.0

Trading securities (marked to market) 113,471.0 99,271.0 N/A 0.0 167,722.0

Nontrading securities 133,340.0 133,328.0 265,055.0 275,192.0 119,783.0

Mortgage-backed securities included above N/A N/A N/A 0.0 0.0

Loans to banks (net) N/A N/A N/A 0.0 0.0

Customer loans (gross) 520,191.0 528,009.0 569,827.0 701,200.0 563,711.0

Loan loss reserves 19,258.0 18,182.0 15,173.0 9,324.0 4,942.0

Customer loans (net) 500,933.0 509,827.0 554,654.0 691,876.0 558,769.0

Earning assets 931,965.0 913,636.0 959,796.0 1,145,089.0 1,204,332.0

Equity interests/participations (nonfinancial) N/A N/A N/A N/A N/A

Investments in unconsolidated subsidiaries (financial companies) N/A N/A N/A N/A N/A

Intangibles (nonservicing) 14,409.0 14,448.0 15,024.0 16,386.0 26,811.0

Interest-only strips N/A N/A N/A N/A N/A

Fixed assets 15,846.0 16,543.0 17,773.0 17,169.0 16,914.0

Derivatives credit amount 361,048.0 427,077.0 438,199.0 991,493.0 335,154.0

Accrued receivables N/A N/A N/A 0.0 0.0

All other assets 49,652.0 42,098.0 54,231.0 46,050.0 62,621.0

Total assets 1,413,253.0 1,452,634.0 1,522,481.0 2,218,693.0 1,655,130.0

Intangibles (nonservicing) 14,409.0 14,448.0 15,024.0 16,386.0 26,811.0

Minus insurance statutory funds N/A N/A N/A N/A N/A

Adjusted assets 1,398,844.0 1,438,186.0 1,507,457.0 2,202,307.0 1,628,319.0

Liabilities

Total deposits 492,303.0 494,537.0 529,893.0 638,586.0 578,613.0

Noncore deposits 63,829.0 65,938.0 115,642.0 178,268.0 141,624.0

Core/customer deposits 428,474.0 428,599.0 414,251.0 460,318.0 436,989.0

Acceptances N/A N/A N/A 0.0 0.0

Repurchase agreements 130,047.0 114,833.0 106,359.0 141,809.0 281,924.0

Other borrowings 239,196.0 242,138.0 277,908.0 303,129.0 244,200.0

Other other borrowings 217,878.0 220,413.0 252,561.0 269,188.0 220,697.0

Other credit reserves N/A N/A N/A N/A N/A

Other liabilities 472,634.0 521,283.0 528,399.0 1,061,117.0 487,414.0

Total liabilities 1,334,180.0 1,372,791.0 1,442,559.0 2,144,641.0 1,592,151.0

Total equity 79,073.0 79,843.0 79,922.0 74,052.0 62,979.0

Limited life preferred and quasi equity N/A N/A N/A 0.0 0.0

Preferred stock and other capital 8,031.0 8,031.0 7,805.0 23,091.0 14,704.0

Manditorily convertible securities N/A N/A N/A 0.0 0.0

Enhanced trust preferred N/A N/A N/A 0.0 0.0

Government-owned hybrids included in TAC without limit 25,101.0 25,101.0 25,101.0 N/A N/A


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Table 10

Royal Bank of Scotland Group PLC (The) Summary Balance Sheet (cont.)

Minority interest-equity 1,710.0 1,424.0 2,227.0 5,436.0 3,591.0

Common shareholders' equity 44,231.0 45,287.0 44,789.0 45,525.0 44,684.0

Share capital and surplus 33,980.0 33,926.0 30,751.0 24,984.0 12,510.0

Revaluation reserve (2,377.0) (2,177.0) (2,007.0) (4,437.0) 477.0

Retained profits 20,713.0 21,239.0 12,134.0 7,542.0 21,072.0

Other equity (25,101.0) (25,101.0) (25,101.0) N/A 0.0

Total liabilities and equity 1,413,253.0 1,452,634.0 1,522,481.0 2,218,693.0 1,655,130.0



Table 11

Royal Bank of Scotland Group PLC (The) Equity Reconciliation Table


(Mil. £) 2011* 2010 2009 2008 2007

Common shareholders' equity 44,231.0 45,287.0 44,789.0 45,525.0 44,684.0

Plus minority interest (equity) 1,710.0 1,424.0 2,227.0 5,436.0 3,591.0

Minus dividends (not yet distributed) N/A N/A N/A 0.0 (2,311.4)

Minus revaluation reserves 2,377.0 2,177.0 2,007.0 4,437.0 (477.0)

Minus nonservicing intangibles (14,409.0) (14,448.0) (15,024.0) (16,386.0) (26,811.0)

Minus interest-only strips (net) N/A N/A N/A N/A N/A

Minus tax loss carryforwards (4,200.0) (4,274.0) (5,134.0) 0.0 0.0

Minus postretirement benefit adjustment 0.0 0.0 0.0 0.0 0.0

Minus cumulative effect of credit-spread related revaluation of liabilities 863.0 1,182.0 1,057.0 N/A N/A

Minus other adjustments N/A N/A N/A 1,054.9 192.5

Adjusted common equity 28,846.0 28,984.0 27,808.0 37,957.1 18,483.1

Plus admissible preferred and hybrids 33,132.0 33,132.0 32,906.0 12,525.8 6,099.4

Total Adjusted Capital 61,978.0 62,116.0 60,714.0 50,482.9 24,582.5

Plus general reserves 0.0 0.0 0.0 0.0 0.0

Plus unrealized gains N/A N/A N/A 0.0 0.0

Minus equity in unconsolidated subsidiaries N/A N/A N/A N/A N/A

Minus capital of insurance subsidiaries (4,318.0) (4,280.0) (4,472.0) (4,044.0) (4,296.0)

Minus adjustment for securitized assets (4,820.0) (4,642.0) (2,706.0) (663.0) (3,906.0)

Adjusted total equity 52,840.0 53,194.0 53,536.0 45,775.9 16,380.5



Table 12

Royal Bank of Scotland Group PLC (The) Profit And Loss


(Mil. £) 2011* 2010 2009 2008 2007

Net interest income 3,302.0 14,200.0 13,567.0 15,939.0 12,382.0

Interest income 3,302.0 14,200.0 13,567.0 15,939.0 12,382.0

Interest expense 0.0 0.0 0.0 0.0 0.0


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Table 12

Royal Bank of Scotland Group PLC (The) Profit And Loss (cont.)

Operating noninterest income 3,819.0 13,679.0 11,643.0 (797.0) 14,267.0

Fees and commissions 1,382.0 5,983.0 5,948.0 6,448.0 7,024.0

Net brokerage commissions N/A N/A N/A 0.0 0.0

Trading gains 1,490.0 6,138.0 3,806.0 (8,962.0) 2,421.0

Other market-sensitive income N/A N/A N/A (1,407.0) 383.0

Net insurance income 237.0 345.0 909.0 1,792.0 1,454.0

Equity in earnings of unconsolidated subsidiaries N/A N/A N/A 10.0 0.0

Other noninterest income 710.0 1,213.0 980.0 1,322.0 2,985.0

Operating revenues 7,121.0 27,879.0 25,210.0 15,142.0 26,649.0

Noninterest expenses 4,121.0 16,710.0 17,266.0 15,766.0 16,618.0

Personnel expenses 2,320.0 8,956.0 9,081.0 7,726.0 9,345.0

Other general and administrative expense 1,421.0 5,992.0 6,312.0 6,249.0 5,576.0

Preprovision operating income 3,000.0 11,169.0 7,944.0 (624.0) 10,031.0

Credit loss provisions (net new) 1,947.0 9,256.0 13,899.0 6,962.0 2,104.0

Operating income after loss provisions 1,053.0 1,913.0 (5,955.0) (7,586.0) 7,927.0

Nonrecurring/special income 10.0 898.0 6,070.0 1,709.0 1,361.0

Nonrecurring/special expense 1,128.0 2,719.0 2,206.0 18,718.0 202.0

Amortization of intangibles 44.0 369.0 272.0 443.0 124.0

Impairment of intangibles N/A N/A N/A 0.0 0.0

Pretax profit (109.0) (277.0) (2,363.0) (25,038.0) 8,962.0

Tax expense/credit 423.0 663.0 (339.0) (1,995.0) 1,709.0

Net income (before minority interest) (532.0) (940.0) (2,024.0) (23,043.0) 7,253.0

Minority interest in consolidated subsidiaries (4.0) 61.0 648.0 412.0 184.0

Net income before extraordinaries (528.0) (1,001.0) (2,672.0) (23,455.0) 7,069.0

Net income after extraordinaries (528.0) (1,001.0) (2,672.0) (23,455.0) 7,069.0



Table 13

Royal Bank of Scotland Group PLC (The) Core Earnings Reconciliation Table


(Mil. £) 2011* 2010 2009 2008 2007

Net income (before minority interest) (532.0) (940.0) (2,024.0) (23,043.0) 7,253.0

Minus nonrecurring/special income (10.0) (898.0) (6,070.0) (1,709.0) (1,361.0)

Plus nonrecurring/special expense 1,128.0 2,719.0 2,206.0 18,718.0 202.0

Plus or minus tax impact of adjustments N/A 0.0 0.0 0.0 408.3

Plus amortization/impairment of goodwill/intangibles 44.0 369.0 272.0 443.0 124.0

Minus preferred dividends 0.0 (124.0) (935.0) (596.0) (246.0)

Plus or minus other earnings adjustments N/A N/A N/A 0.0 0.0

Core earnings N/A 1,126.0 (6,551.0) (6,187.0) 6,380.3




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Ratings Detail (As Of July 12, 2011)*

The Royal Bank of Scotland Group PLC

Counterparty Credit Rating A/Stable/A-1

Certificate Of Deposit A/A-1

Commercial Paper A-1

Junior Subordinated (3 Issues) BB

Junior Subordinated (1 Issue) BB+

Junior Subordinated (1 Issue) C

Preference Stock (3 Issues) BB

Preference Stock (3 Issues) BB-

Preference Stock (11 Issues) C

Preferred Stock (10 Issues) C

Senior Unsecured (13 Issues) A

Senior Unsecured (45 Issues) A+

Short-Term Debt (3 Issues) A-1

Subordinated (6 Issues) BBB

Subordinated (0 Issues) BBB+

Counterparty Credit Ratings History

19-Dec-2008 A/Stable/A-1

13-Oct-2008 A+/Stable/A-1

06-Oct-2008 A+/Negative/A-1

17-Jul-2007 AA-/Negative/A-1+

Sovereign Rating

United Kingdom (Unsolicited Ratings) AAA/Stable/A-1+

Related Entities

Citizens Bank of Pennsylvania

Issuer Credit Rating A-/Stable/A-2

Certificate Of Deposit

Local Currency A-/A-2

National Insurance & Guarantee Corp. Ltd. (Unsolicited Ratings)

Financial Strength Rating

Local Currency BBBpi/--/--

Issuer Credit Rating

Local Currency BBBpi/--/--

National Westminster Bank PLC

Issuer Credit Rating A+/Stable/A-1

Certificate Of Deposit A+/A-1

Commercial Paper

Foreign Currency A-1

Junior Subordinated (11 Issues) BB+

Preference Stock (2 Issues) BB

Senior Unsecured (1 Issue) A+

Short-Term Debt (1 Issue) A-1



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Ratings Detail (As Of July 12, 2011)*(cont.)

RBS Citizens N.A.

Issuer Credit Rating A-/Stable/A-2

Certificate Of Deposit

Local Currency A-/A-2

Subordinated (1 Issue) BBB+

Royal Bank of Scotland Mexico S.A.

Issuer Credit Rating

CaVal (Mexico) National Scale Rating mxAA/Stable/mxA-1+

The Royal Bank of Scotland PLC

Issuer Credit Rating A+/Stable/A-1

Certificate Of Deposit A+/A-1

Commercial Paper

Local Currency A-1

Junior Subordinated (14 Issues) BB+

Senior Unsecured (341 Issues) A+

Short-Term Debt (2 Issues) A-1


Ulster Bank Ireland Ltd.

Issuer Credit Rating BBB+/Negative/A-2

Certificate Of Deposit BBB+/A-2

Commercial Paper

Foreign Currency A-2

Senior Unsecured (1 Issue) BBB+

Short-Term Debt (1 Issue) A-2

Ulster Bank Ltd.

Issuer Credit Rating BBB+/Negative/A-2

Certificate Of Deposit BBB+/A-2

Senior Unsecured (1 Issue) BBB+

*Unless otherwise noted, all ratings in this report are global scale ratings. Standard & Poor's credit ratings on the global scale are comparable across countries. Standard

& Poor's credit ratings on a national scale are relative to obligors or obligations within that specific country.

Additional Contact:Financial Institutions Ratings Europe; [email protected]

Additional Contact:Financial Institutions Ratings Europe; [email protected]


878355 | 301216645


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Royal Bank of Scotland Group PLC (The)/media/Files/R/RBS-IR/credit-ratings/...Royal Bank of Scotland Group PLC (The) Major Rating Factors Strengths: •Material government support