Dear Mr Nolan

The Royal Bank of Scotland Group plc

Form 20-F filed February 28, 2019

File No 001-10306

 

Thank you for your letter of 22 May 2019. Our responses to your comments are set out below. References to “the Company” and to “RBSG” are to The Royal Bank of Scotland Group plc; “the Group” means the Company and its subsidiaries.

 

We have sought to provide the disclosures that will appear in our future Form 20-F filings as we believe this is helpful in clarifying our response.

 

Form 20-F filed February 28, 2019

 

Non-GAAP financial information, page 2

 

1.   We note your disclosure that “this document contains a number of non-GAAP (or non-IFRS) financial measures.” Please revise future filings to present a reconciliation for each non-GAAP measure presented to clearly disclose the most directly comparable GAAP (or IFRS) measure reconciled to the non-GAAP measure or tell us where this information is presented. Please refer to Item 10(e)(1)(i)(B) of Regulation S-K for guidance.

We set out below a table presenting a list of the eleven non-GAAP (or IFRS) financial measures within our Form 20-F filed for the year ended 31 December 2018, filed on 28 February 2019 (the “2018 Form 20-F”). This will aid the reader in easily locating such measures and their related reconciliation to the nearest GAAP measure.

We will provide this table in future filings. Additionally, we will monitor each reconciliation to consider where we can enhance or clarify our disclosure to maximise understanding for the reader. We will continue to assess whether the set of non-GAAP measures reflects our performance measures.

For three of these non-GAAP measures we propose to include enhanced reconciliations in our future filings; these are shown within the Appendix. They relate to the following non-GAAP measures:

·                     Return on tangible equity

·                     Loan:deposit ratio

·                     Impact of transfers (business segments)

 

Measures defined by our regulator (eg CET 1 or RWA) are not identified, but we do explain where we modify these measures.

 

   Note: ratios refer to measures derived from unadjusted GAAP measures

Historically, we presented a management view income statement. This included adjusted total income, operating expenses and operating profit; these metrics were then used in our business commentary. From 2018 we removed the management view income statement and reduced the use of adjusted measures. We continue to report our expenses (as per the table) on a disaggregated basis to help readers understand our cost drivers, and treat these as non-GAAP measures accordingly.

Note 14, Impairments, page 188

 

1.       We note your disclosure of the general write off policies for loans individually evaluated and collectively evaluated. Please tell us in detail and revise future filings to clarify which loans are individually evaluated and which loans are collectively evaluated. To the extent it is not observable, clarify the magnitude of write offs in loans/portfolios that are collectively evaluated. Additionally, please provide an estimate of the average amount of time it takes to write off a loan for each portfolio collectively evaluated as compared to simply disclosing the ending time parameter.

We set out below the portfolio summary – segment analysis with additional splits to show the individual and collective elements of our impairments. A table in this format was originally presented on p135 of our 2018 Form 20-F filing. We filed a Form 6-K on 30 April 2019 to update our 2018 Form 20-F to reflect a change of business segments and the table below is based on the updated table in such Form 6-K. We have added to this portfolio summary an indication of whether the impairment (and write offs) relate to individually or collectively assessed loans. We will provide this disclosure in future filings.

We will, additionally, enhance our accounting policy note on our use of individual and collective assessment. All our stage 1 and stage 2 provisions are collective.

 

 

 

Note: footnotes from the table are not repeated.

Separately, you asked us to provide an estimate of the actual time taken, on average, to write off loans within our collective portfolios. We set out this below.

Note: average time is the number of months from the loan being marked as defaulted

We understand that you do not require us to modify our future filings in respect of the table above. We do set out within our accounting policy, on p188, the write off policies applied within the Group. We would also consider additional disclosure to explain material experience variances, or to draw attention to factors leading to significant changes in our reported levels of impairment if relevant.

Thank you for your comments. We appreciate feedback that allows us to improve our reporting and that enables readers to better understand our disclosures. If you have further questions on our responses we would be very happy to address them.

Yours sincerely

 

/s/ Katie Murray

Katie Murray

Chief Financial Officer

 

Appendix

 

The enhanced reconciliations for three non-GAAP measures, that we propose to provide in our future filings, have been included below. The data used is December 2018 for illustrative purposes and the page references are to the 2018 Form 20-F.

 

Return of tangible equity – below is the RBS and segment ROE calculation:  

RBS Group ROE calculation:

 

Segment ROE calculation:

 

Definition -  For the purposes of computing segmental return on equity (ROE), to better reflect the differential drivers of capital usage, segmental operating profit after tax and adjusted for preference share dividends is divided by average notional equity allocated at different rates of 14% (Ulster Bank RoI), 11% (Commercial Banking), 13.5% (Private Banking - 14% prior to Q1 2018), 16% (RBS International - 12% prior to November 2017) and 15% for all other segments, of the monthly average of segmental risk-weighted assets incorporating the effect of capital deductions (RWAes). Return on equity is calculated using profit for the period attributable to ordinary shareholders.

 

The numbers in red are not  disclosed in Form 20-F.

 

Loan:deposit ratio

 

Definition – Loan: deposit ratio is net customer loans held at amortised cost divided by total customer deposits.

 

Impact of transfers (business segments)