Banks

www.fitchratings.com 9 September 2011

UK

The Royal Bank of Scotland Group plc Full Rating Report

Key Rating Drivers IDRs Driven by Support: The Royal Bank of Scotland Group plc’s (RBSG) Long-Term IDR is

at its Support Rating Floor (SRF). In Fitch Ratings’ opinion, the systemic importance of RBSG

means that there is an extremely high probability of continued support for the group from the

UK authorities, if needed. Support has been provided via RBSG.

VR Improving: RBSG’s Viability Rating (VR) is assessed on a standalone basis and reflects its

strong franchises, reasonable capitalisation and good progress on transforming its balance

sheet, resulting in improved funding and liquidity. However, the VR also captures the risks

associated with the bank’s still considerable non-core assets, negative profitability, downside

risks to asset quality and strategic constraints arising from being state-controlled.

Delayed Return to Profitability: RBSG’s operating performance in non-core and core

(excluding Global Business and Markets (GBM) divisions is generally improving but is affected

by revenue volatility in the core GBM business. GBM had weak H111 performance due to

reduced risk positions. Return to profitability was further delayed by GBP850m payment

protection insurance (PPI) charges and GBP842m loss on the restructuring of Greek

government bonds incurred in H111.

Progress on Non-Core Deleveraging: Non-core assets more than halved to GBP113bn

(excluding derivatives) between end-2008 and end-H111, contributing to an improved operating

result. Reducing the remaining non-core portfolio is still pivotal to RBSG’s strategic plan, and

the pace of further deleveraging will depend on economic conditions. However, time pressure

for further deleveraging has reduced as the group’s funding profile has improved, allowing for a

degree of flexibility in the work-out of the non-core book.

Asset Quality Stabilising: Asset-quality problems appear to have peaked, but significant

downside risks still exist, given the uncertain operating environment and continuing problems in

the bank’s Irish portfolio. Single-name and sector concentrations built up through legacy

weaker risk management, particularly commercial property, remain a concern.

Funding and Liquidity Improved: Wholesale funding has been reduced through deleveraging

and an increase in deposits. Maturities have been extended, while short-term refinancing risks

were reduced through successful issuance in 2010 and H111. The liquidity portfolio fully

covered short-term wholesale funding (excluding derivative collateral) at end-H111.

Capital Reasonable: Although reasonable, Fitch expects regulatory capital ratios to be eroded

modestly in the short term. However, Fitch believes the group is relatively well positioned to

absorb additional regulatory requirements, assuming a return to sustainable profitability in 2012.

Execution Risks Still Material: Fitch believes that RBSG is well positioned to pursue its

strategic plan. Notable progress has already been made in reshaping the balance sheet,

embracing a stronger risk culture and improving risk-management tools. However, execution

risks, while reduced, are still material given the scale of the task, macroeconomic uncertainties,

regulatory challenges and potential government interference.

What Could Trigger a Rating Action Downward Pressure on SRF: Downward pressure on the SRF and IDRs could arise from

growing political will in the UK to reduce implicit state support for SIFIs. At the same time an

upgrade of RBSG’s VR would be driven by further success in implementing the group’s

strategic plan, an improving operating environment and a return to sustainable profitability.

Ratings

Foreign Currency

Long-Term IDR AA- Short-Term IDR F1+ Individual Rating C Viability Rating bbb Support Rating 1 Support Rating Floor AA-

Sovereign Risk Long-Term Foreign-Currency IDR AAA Long-Term Local-Currency IDR AAA

The Royal Bank of Scotland plc Long-Term IDR AA- Short-Term IDR F1+ Individual Rating C Viability Rating bbb Support Rating 1 Support Rating Floor AA-

Outlooks

Foreign-Currency Long-Term IDRs Stable Sovereign Long-Term Foreign-Currency IDR

Stable

Sovereign Long-Term Local-Currency IDR

Stable

Financial Data

The Royal Bank of Scotland Group plc

(statutory results)

(GBPm) 30 Jun

11 31 Dec

10

Total assets (GBPbn) 1,446.0 1,453.6 Published equity (GBPbn) 76.2 76.9 Operating profit (GBPm) -983 -1,191 Published net income (GBPm)

-1,408 -1,666

Comprehensive income (GBPm)

-471 -671

Tier 1 ratio (%) 13.5 12.9

Related Research

Major UK Banks: Semi-Annual Review and Outlook (April 2011)

Analysts

Svetlana Petrischeva +44 20 3530 1182 svetlana.petrischeva@fitchratings.com Cynthia Chan +44 20 3530 1072 cynthia.chan@fitchratings.com

Banks

The Royal Bank of Scotland Group plc

September 2011 2

Profile

RBSG is a diversified financial services group with a long history. Its business is anchored in

the UK, where the group operates through two clearing banks, RBS and National Westminster

Bank Plc (NatWest, an RBS subsidiary). RBSG has significant commercial banking operations

in Ireland (through Ulster Bank Ltd; Ulster) and the United States (through Citizens Financial

Group Inc.; Citizens).

Following the acquisition of ABN AMRO Bank N.V. (ABN AMRO) in 2007, RBSG became the

largest recipient of UK state aid during the financial crisis. RBSG is now majority government-

owned (83%), and is the only participant in the UK Asset Protection Scheme (APS).

The restructuring of ABN AMRO was substantially completed in accordance with the

agreement between the RBSG, the Dutch state and Santander Group by end-Q110. RBS

Holding NV (RBSH, the holding company of ABN AMRO) is now 98% owned by RBSG and has

one direct subsidiary, The Royal Bank of Scotland N.V., (RBSNV), a fully operational bank. In

April 2011, RBSG announced the proposed transfers of a substantial part of business activities

of RBSNV to RBS. Description of RBSG’s divisions and the background on its receipt of UK

state aid can be found in Appendix 1 and Appendix 2.

Notable Progress in Implementing Strategic Restructuring Plan

RBSG’s restructuring plan, set out in 2009, aims to reduce risks and improve the group’s

liquidity and funding profile. The group targets a 15% or higher return on equity (ROE), an 8%

minimum core Tier 1 ratio (currently under review in light of new regulations), a 100%

loans/deposits ratio, a core cost/income ratio of below 50% and a GBP500bn gross reduction in

“funded” assets by end-2013 compared with end-2008.

Fitch believes the restructuring plan to be largely achievable. Management has made notable

progress in executing the strategic plan. In particular, non-core assets have more than halved

since 2008. The non-core division is on track to reduce its assets to less than GBP100bn by

end-2011, which would further improve RBSG’s funding and liquidity and facilitate a return to

sustainable profitability. However, besides general macroeconomic and market uncertainty,

Fitch believes that the group faces the following execution challenges:

Managing down the remaining GBP113bn non-core portfolio: RBSG disposed of some of

the riskier but also more liquid positions in the portfolio. However, the portfolio has become

more concentrated on less liquid commercial real-estate (CRE) exposures, which will take time

to work out. The timing of deleveraging depends on market conditions, and is thus uncertain.

Higher regulatory standards: UK banks face regulatory challenges in areas of financial

stability (Basel III), resolvability (the proposals by the UK Independent Commission on Banking

(ICB)) and in conduct matters (such as PPI). At a minimum, new regulation is likely to constrain

ROE improvements. Fitch believes that the ICB’s proposal to ring-fence UK retail operations,

while still lacking a sufficient level of detail, could potentially have more serious implications for

RBSG’s funding and risk profile.

EU divestiture programme: While on track, this is an unwelcome distraction for management.

Political interference: Still a risk, although direct interference so far, has been limited largely

to UK lending commitments, which RBS exceeded for the period March 2010 to February 2011.

Staffing: Retaining and attracting high-calibre staff is a challenging task amid the business

restructuring and political noise, especially on remuneration.

New culture: Despite notable progress in embracing a stronger risk culture and improved risk

infrastructure, it will take years for the new culture to be fully embedded in the organisation.

Related Criteria

Global Financial Institutions Rating Criteria (August 2011)

83% economic ownership by UK government

Broad client and product diversification

Strong franchise in UK

Strategy focused on client-driven businesses, lower risk profile and more traditional funding and balance sheet structure

Execution risk reduced but still material

Managing down large non-core asset pool pivotal to strategic plan

Banks

The Royal Bank of Scotland Group plc

September 2011 3

Performance

Figure 1

Pro Forma Income Statement

(GBPm) H111 H110 2010 2009 2008

Net interest income 6,535 7,218 14,200 13,567 15,764 Non-interest income, incl. 9,265 10,068 18,462 16,000 3,603 Net fee and commission income 2,759 2,946 5,983 5,948 6,434 Non-core credit market losses

a -68 -98 -31 -5,161 -7,739

Other income (loss) from trading 2,762 3,825 6,169 9,160 -1,345 Insurance net premium income 2,239 2,567 5,128 5,266 5,709 Other operating income 1,573 828 1,213 787 544 Total revenue 15,800 17,286 32,662 29,567 19,367 Attributable to core GBM 3,930 4,771 7,912 11,058 2,357 Attributable to core excluding GBM 10,406 10,742 21,786 20,879 20,042 Attributable to non-core 1,464 1,773 2,964 -2,370 -3,032 Operating expenses -8,013 -8,533 -16,710 -17,401 -16,188 Insurance net claims -1,705 -2,459 -4,783 -4,357 -3,917 Pre-impairment operating profit 6,082 6,294 11,169 7,809 -738 Impairment losses -4,211 -5,162 -9,256 -13,899 -7,432 Attributable to core GBM -13 -196 -151 -640 -522 Attributable to core excluding GBM -1,712 -1,872 -3,629 -4,038 -1,974 Attributable to non-core -2,486 -3,094 -5,476 -9,221 -4,936 Operating (loss)/profit 1,871 1,132 1,913 -6,090 -8,170 Attributable to core GBM 1,544 2,248 3,364 5,758 -2,153 Attributable to core excluding GBM 2,225 1,767 4,054 2,709 5,334 Attributable to non-core -1,898 -2,883 -5,505 -14,557 -11,351 Payment Protection Insurance costs -850 - - - - Sovereign debt impairment

b -842 - - - -

Integration and restructuring costs -353 -422 -1,032 -1,286 -1,357 Bonus tax -22 -69 -99 -208 - Amortisation of purchased intangibles -100 -150 -369 -272 -443 FV changes of own debt -141 450 174 -142 1,232 FV changes of APS CDS -637 - -1,550 - - Gain on redemption of own debt and pensions curtailment

255 553 553 5,938 -

Strategic disposals 27 -358 171 132 442 Tax -645 -932 -663 339 1,280 Write-down of goodwill and intangibles, net of tax - - -10 -363 -16,196 Profit/(loss) from discontinued operations, net of tax 31 -706 -28 -72 -86 Minority interest -19 635 -61 -648 -412 Preference share dividends - -124 -124 -935 -596 Net (loss)/profit attributable to shareholders -1,425 9 -1,125 -3,607 -24,306 a Included in trading income

b Including GBP109m Interest rate hedge adjustments on impaired available-for-sale Greek government bonds

Source: RBSG

Improving Core Profits Excluding GBM; Reducing Non-Core Losses

RBSG’s recent operating performance is generally improving in the non-core and core

(excluding GBM) divisions. However, performance is affected by revenue volatility in the core

GBM business, which contributed 25% of group revenue in H111 (2010: 24%; 2009: 37%).

About 68% of core GBM revenue in H111 came from trading income (2010: 63%; 2009: 71%).

Group revenue increased 10% in 2010 despite a 28% reduction in core GBM revenue, but was

down 9% in H111 (against H110). Net interest income increased 5% in 2010, benefiting from

an improved net interest margin (NIM), but decreased 9% in H111 as a result of the reduction

in non-core assets and resumed NIM pressure. Weak core GBM trading revenue had a

negative impact on non-interest income in both 2010 and H111. However, GBP5.1bn reduction

in credit-market write-downs from the non-core division benefited non-interest income in 2010.

Operating costs (excluding restructuring costs, amortisation of intangible assets and bonus tax)

declined both in 2010 and H111 (against H110) as a result of restructuring measures.

Impairment losses also fell, with 2010 impairments down 33% and H111 impairments down

18% (against H110). Impairment charges reduced in both core and non-core and across the

majority of divisions, with the exception of Ulster and Global Transaction Services (GTS).

Financial targets on track (in some cases ahead of schedule), but will remain sensitive to changes in global economic recovery and market conditions

Both core (excluding GBM) and non-core contributing to improvement in operating result

Exceptional and non-operating charges turned operating profits into net losses in 2010 and H111

GBM revenue likely to be weak in H211 and to continue to cause volatility in the income statement

Non-core losses reduced but still the main drag on earnings over the medium term

Presentation of Accounts RBSG’s statutory results since 2007 include the full consolidation of RBSH, while the interests of Santander and Fortis, and its successor the Dutch state, are included in minority interests.

The group also prepared pro-forma results for 2007-2010 that included only businesses that were retained by RBSG. The group no longer prepares pro-forma results as 2011 is the first full year following the completion of the restructuring of the ABN AMRO acquired businesses.

The analysis in this report is based on the pro-forma figures for 2008-2010; the attached spreadsheets are based on the statutory results.

Banks

The Royal Bank of Scotland Group plc

September 2011 4

Despite increased impairment charges in Ulster’s non-core book, the non-core business was

the main driver behind improved operating profit. The losses in the non-core division narrowed

by GBP9bn in 2010 and GBP1bn in H111 (against H110) as a result of reduced credit-market

write-downs, reduced total impairment charges and the substantially reduced asset base.

In the core business, GBM underperformed in 2010 relative to an exceptional 2009, had a good

start to the year in Q111 but had a 59% reduction in operating profit in Q211 (against Q111) as

RBSG reduced its market risk positions. GBM operating profit decreased by 31% in H111

(against H110). Excluding GBM, core operating profits were up 50% in 2010 and 26% in H111

(against H110; see Appendix 3 for divisional performance). UK retail and corporate delivered

strong results in both 2010 and H111. RBS Insurance was loss-making in 2010 but returned to

profit in Q111 and doubled its operating profit qoq in Q211.

US retail and commercial (R&C) returned to profit in 2010 and improving trends continued in

H111. GTS reported improved operating profit in 2010, while the performance in H111 (against

H110) was affected by the sale of Global Merchant Services in Q310 and a single name

impairment charge. Ulster suffered a significant deterioration in performance in 2010 and Q111,

but the operating loss narrowed in Q211.

Significant non-operating and exceptional items continue to turn RBSG’s operating profits into

net losses. In H111 RBSG booked GBP850m PPI charge and GBP842m loss on the

restructuring of Greek government bonds (including recycling of GBP733m cumulative losses

from available for sale reserves and GBP109m in interest rate hedge adjustments). In addition,

fair value (FV) changes to own debt and APS contributed to income volatility in 2010 and H111.

RBSG accounts for the APS as derivative which means that improvements in credit spreads

and the reduction in covered assets result in charges to the income statement.

Although there are still significant headwinds for the group, due to the uncertain economic

environment and market volatility, Fitch believes that the chances of a return to sustained

profitability have increased, especially as non-core assets have been substantially reduced.

Fitch believes that RBSG’s short-term performance will feature the following:

Continuing pressure on NIM: Liability margin pressure is unlikely to ease until interest rates

rise, while asset margin will need to see a stronger economic recovery, and demand for credit

in RBSG’s core markets to improve. NIM is also negatively affected by the need to keep a

significant amount of liquidity during a period of turbulence in funding markets.

Reducing operating costs: Efficiency will improve as the benefits of the integration of RBSNV

feed through the income statement. The run-down of non-core assets creates further scope for

cost-cutting. However, restructuring costs will remain a feature in the near term.

Reduced core impairment charges: Assuming positive credit trends continue, impairment

charges will continue to decrease. However, significant Irish and CRE exposures and core

portfolio vulnerabilities to fragile UK recovery create significant downside risks to any forecast.

Progress in UK and US R&C: Modest growth, operational leverage and improvement in

impairments should benefit profitability assuming sustainable economic recovery.

Weak/volatile performance of GBM: Markets remain unpredictable amid unresolved euro-

zone crises. GBM’s performance is likely to remain weak in H211 and volatile thereafter.

Reduced and more predictable non-core losses: In light of the reduced size of the portfolio,

impairments and write-downs should fall. Losses on disposal may still be significant. However,

with the level of deleveraging already achieved, the time pressure for further de-leveraging has

diminished, allowing for a degree of flexibility in the work-out of the non-core book. Fitch

believes that non-core losses will still be the main drag on earnings over the next few years.

Banks

The Royal Bank of Scotland Group plc

September 2011 5

Risk Management

Fitch believes that RBSG’s management has made significant progress in addressing

deficiencies in risk management. However, embedding the stronger risk culture, reducing

concentrations and upgrading systems, will take several years to complete.

Credit Risk – Stabilising But Irish and CRE Exposures Remain a Concern

Geographically, RBSG’s credit loan book is concentrated in UK (66%), US (14%), and Ireland

(9%). Personal lending accounted for 32% of gross loans (including reverse repos) at end-

Q111, and is heavily biased towards residential mortgages. In the UK, relatively low loan/value

ratios (LTVs; end-H111 average 59%), less aggressive risk appetite leading up to the crisis and

low interest rates support asset quality in the mortgage portfolio. In the US and Ireland, arrears

have risen more sharply, and a significant portion of these mortgages are riskier and have

higher LTVs. At Ulster, the average LTV was 75% at end-H111, and 39% of mortgages had

LTVs above 90%. At Citizens, the average LTV was 75% at end-H111, and home equity loans

(about USD24bn at end-H111) accounted for about 31% of the loan book.

Figure 2

Customer Loans by Industry (GBPbn) H111 (%) 2010 (%) 2009 (%)

Residential mortgages 150 26 147 26 141 23 Other personal lending 35 6 37 7 42 7 Property/construction 99 17 102 18 114 19 Finance 53 9 55 10 60 10 Government 8 1 8 1 8 1 Manufacturing 30 5 32 6 45 7 Services 114 20 118 20 134 22 Reverse repos 56 10 53 9 41 7 Other 21 4 22 4 26 4 Gross loans 566 100 573 100 611 100

Source: RBSG, Fitch

Although the corporate portfolio is fairly well diversified by borrower, some single-name and

portfolio concentrations have arisen from the ABN AMRO acquisition. There is also a very

significant sector concentration in CRE.

The CRE lending portfolio totalled GBP85bn at end-H111 (end-2010: GBP90bn), with half

being managed by the non-core division. The CRE portfolio is concentrated in UK (55%,

excluding Northern Ireland), Northern Ireland and the Republic of Ireland (combined 19%),

Western Europe (15%) and the US (9%) The development portion of the portfolio accounted for

GBP19bn, or 23% of the total. However, 49% of this was in Ireland (Northern and the Republic),

which is experiencing a significant property market dislocation. Fitch expects CRE market

conditions to remain challenging in RBSG’s key geographies, while the prospects of the

reduction in CRE exposure to be hampered by the lack of market liquidity, especially in Ireland.

Impaired Loans – Likely to Have Peaked

RBSG reports “risk elements in lending” (REIL, which include impaired loans as well as

unimpaired loans 90 days past due) and “potential problem loans” (PPL). REIL increased by

GBP3.6bn in 2010, GBP2.4bn in Q111 and GBP1.4bn in Q211, predominantly due to

continuing asset-quality problems at Ulster (2010: GBP4.6bn increase in REIL; Q111:

GBP2.2bn; Q211: GBP1.0bn), while PPL decreased from GBP924m at end-2009 to GBP481m

at end-H111. Coverage ratios improved slightly across the portfolio as a whole, improved at a

faster rate in non-core, and deteriorated in core in 2010, reflecting asset-value changes.

Ulster’s REIL was 32% of gross loans at end-H111, and was 51% covered by provisions.

Having deteriorated very sharply in 2009, asset quality showed signs of stabilisation in 2010

and H111. Customer loans in the ‘B’ range and below (AQ7-AQ10) were flat at end-2010

versus end-2009 at 23%. In the UK, there are some signs of improvement in the R&C book,

Figure 3

Asset Quality (GBPbn) H111 Q111 2010 2009

Impaired loans

39.6 38.1 35.7 31.8

REIL 42.4 41.0 38.6 35.0 REIL and PPL

42.8 41.6 39.2 35.9

(%) REIL/gross loans

8.3 7.9 7.3 6.1

Core 4.2 4.1 3.7 2.8 Non-core 26.1 23.0 20.7 15.1 REIL and PPL/gross loans

8.4 8.0 7.4 6.2

Provisions/REIL

49 47 47 44

Core 50 49 51 56 Non-core 48 45 44 37

Source: RBSG

Stabilising credit quality indicators

Credit-market exposures significantly reduced

Credit risk remains elevatedstill high due to portfolio concentrations and fragile key economies

Commercial real estate and Ulster createing significant downside risk

Peripheral Eurozone exposure is primarily though Ulster’s loan book

APS providesing a cushion to cover potential losses under extreme economic stress (not currently anticipated)

Market risk positions reduced significantly reduced in Q211

Operational risk heightened by restructuring plans

Banks

The Royal Bank of Scotland Group plc

September 2011 6

especially within the retail unsecured portfolio, although the pace of further improvement

depends on the fragile economic recovery and is vulnerable to UK government austerity

measures and monetary tightening. Asset quality in US R&C is also stabilising, although further

improvement in the Citizens retail book depends on the recovery of the US job market and

stabilisation of real-estate values. Although GBM’s asset quality appears to be improving, Fitch

believes it to be vulnerable to problems with single-name concentrations, meaning that

impairment charges could be lumpy.

Ulster’s GBP52bn loan portfolio consists predominately of CRE loans and residential

mortgages (35% and 42% respectively at end-H111), leaving RBSG vulnerable to further

deterioration in the fragile Irish economy and the distressed Irish property market. Fitch

believes that Ulster may still have to increase the level of provisioning in its CRE and mortgage

exposures; however, the rate of impairment is going to be significantly less.

Fitch believes that the level of impaired loans at group level is likely to have peaked. However,

risk remains high due to portfolio concentrations and fragile key economies. There is still

significant downside risk from Ulster and CRE exposures; however, it should be manageable,

in light of the level of provisions already taken.

Peripheral Eurozone Exposure – Mostly Through Irish Loan Portfolio

RBSG’s exposure to debt and derivatives in peripheral Eurozone countries was a very high

GBP76bn at end-H111 (see Figure 4). However, about 54% of this amount was through loan

exposure to corporate and personal customers in the Republic of Ireland (ROI) where problems

have already been well recognised and significant impairments taken, and restructuring

measures are under way.

Figure 4 Peripheral Eurozone Exposure at End-H111 (GBPbn) ROI Spain Italy Greece Portugal Total

Lending 43.5 8.5 3.6 0.5 0.7 56.7 HFT debt securities (net) 0.5 -0.8 2.0 0.3 0.0 1.9 AFS and LAR securities 0.5 7.2 1.8 0.7 0.2 10.5 Derivatives and reverse repo 2.3 2.0 2.2 0.2 0.4 7.1 Total debt and derivatives 46.8 16.9 9.6 1.7 1.3 76.2 of which to central and local government 0.2 -0.9 2.9 1.0 0.1 3.3 of which to central banks 1.8 0.0 0.1 0.0 0.0 1.9 of which to other banks and FIs 2.7 9.6 3.2 0.2 0.5 16.1

HFT – Held for trading; AFS – available for sale; LAR – Loans and receivables Source: RBSG

Sovereign exposure to the peripheral Eurozone region was manageable at GBP3.2bn,

including a GBP0.9bn short position in Spain, GBP2.9bn exposure to Italy and GBP1bn

exposure to the Greek sovereign (consisting of GBP733m in impaired AFS bonds and

GBP248m in HFT debt securities).

RBSG took a relatively conservative approach to impairing its exposure to Greek sovereign

bonds by impairing about half of the nominal exposure, well above the level of agreed

economic loss at 21%, although consistent with the market value of the exposure at the

reporting date. RBSG’s sovereign exposure to Ireland, Italy, Portugal and Spain was not

considered impaired at end-H111.

RBSG also had GBP1.8bn exposure to the Central Bank of Ireland, primarily through a cash

placement by Ulster. Exposure to banks and financial institutions in the region was a large

GBP16.1bn but consisted predominantly of Spanish covered bonds and collateralised reverse

repo and derivatives exposures.

APS – Now a Liability

APS-covered assets declined significantly to GBP168bn at end-H111 from GBP195bn at end-

Banks

The Royal Bank of Scotland Group plc

September 2011 7

2010 (end-2009: GBP231bn), primarily as a result of the run-off and early repayments. The

non-core division held about half of APS-covered assets at end-H111. The net triggered

amount under the APS was GBP30bn at end-H111, or half of the first-loss piece of GBP60bn.

Fitch believes it is unlikely that the first-loss piece will be exceeded. However, should this

extreme scenario materialise, the APS would offer significant downside protection.

However, this protection comes at a significant cost (GBP700m fees per year) and causes

income volatility. Cumulative APS derivative charges were GBP2.2bn at end-H111. The APS

derivative asset of GBP550m at end-2010 decreased to a liability of GBP87m at end-H111.

Fitch expects RBSG to consider exiting the APS after the minimum cumulative GBP2.5bn fee is

paid (expected in H211) and subject to favourable market conditions and regulatory approval.

Other Earning Assets – Significantly De-Risked

RBSG holds a sizable portfolio of debt securities (GBP244bn at end-H111, up from GBP217bn

at end-2010) that is split almost equally between AFS and HFT. Only around 3% of debt

securities are level 3, where valuation uses at least one input not based on observable market

data. The composition of the portfolio is typical of a large bank (H111: 57% central and local

governments; 31% asset-backed securities (ABS); 8% financial institutions; and 4% corporate

issuers). About 76% of government debt securities are ‘AAA’ rated.

The ABS portfolio (GBP75bn at end-H111) includes residential mortgage-backed securities

(RMBS), commercial mortgage-backed securities (CMBS), collateralised debt obligations

(CDOs), and collateralised loan obligations (CLOs; see Figure 5). About 88% of ABS securities

are rated ‘A’ and above, with only 8% rated non-investment grade or unrated. About 47% of the

ABS portfolio at end-H111 was in RMBS either guaranteed or sponsored by G10 governments

(mostly US and Dutch).

The equities portfolio (GBP25bn at end-H111) is primarily held in the trading book, with only

8% of the portfolio accounted for as AFS and level 3 securities accounting for 5% of the

portfolio.

RBSG made significant progress in reducing its riskier credit-market exposures, such as some

riskier ABS classes, exposure to monolines, credit derivative product companies (CDPCs), and

credit valuation adjustment (CVA; see Figure 6). The sum of these exposures more than halved

from end-2008.

The GBM business means that RBSG is a significant participant in the derivative markets –

mainly interest-rate swaps. Taking into account master netting agreements and cash collateral,

the net exposure was 75% of Tier 1 capital at end-H111.

Market Risks – Reduced Significantly in Q211

RBSG manages market risk in its trading and non-trading portfolios on a centralised basis

using value-at-risk (VaR), stress testing, sensitivity and scenario analyses and other

frameworks for limit-setting purposes. The group is in the process of implementing a system of

dynamic limit setting that takes into account the changes in the liquidity of the securities.

RBSG’s VaR model uses one day time horizon, 99% confidence level (changed from 95% in

June 2009) and utilises historical data from the previous two years. A significant effort was

made in 2009-2010 to improve the accuracy of the model. The Financial Services Authority’s

(FSA) green model status (i.e., with four or fewer back-testing exceptions in a 12-month period)

was maintained throughout 2010.

The VaR disclosure is broken down into trading and non-trading as well as core and non-core

(see Appendix 5). RBSG’s market risk exposure arises mainly from its trading activities, which

now emphasise client flow business. Non-trading VaR relates to reclassified assets, money-

market business and the management of treasury funds. RBSG excluded the structured credit

Figure 5

Sub-prime

RMBS

2%

CDOs

5%

Other

ABS

9%

CLOs

7%

CMBS

6%

Prime

RMBS

9%

ABS Portfolio at End-H111

Source: RBSG, Fitch

G10

government

RMBS

47%

Covered bond

11%

Non-conforming

RMBS

4%

Figure 6 Credit Market Exposures (GBPbn) H111 2008

H111 vs. 2008 (%)

US subprime RMBS

0.1 0.4 -68.4

US non-conform. RMBS

0.8 1.1 -23.6

US CMBS 1.4 1.1 19.3 ABS CDO and CLO

3.4 6.3 -46.1

CVA 4.6 9.0 -49.4 Monoline 1.3 4.8 -73.9 CDPCs 0.7 3.5 -80.9 Total 12.2 26.2 -53.4 % CT1 capital

25.4 77.0

Source: RBSG

Banks

The Royal Bank of Scotland Group plc

September 2011 8

portfolio and LAR from the calculation of non-trading VaR in 2010, which had the effect of

significantly reducing reported non-trading VaR. Core and non-core businesses make about

equal contributions to the trading VAR, while non-trading VAR is mostly attributable to the core

business.

Credit spreads are the largest components of both trading and non-trading risks, although

credit spreads component of trading VAR reduced significantly in H111. The sale of RBS

Sempra Commodities in 2010 resulted in the decrease of commodities trading VaR. Both

trading and non-trading VaR statistics in H111 had a positive effect from the exclusion of the

period of extreme volatility from the two year time series used in the calculation.

Trading VaR increased in Q310 due to the unwinding of complex structured positions in the

non-core business, highlighting execution risks associated with the run-down of the non-core

book. However, the position was reduced when the sale of assets was completed in October

2010. Trading VaR was relatively stable in Q111 but decreased significantly in Q211 as GBM

responded to a volatile and risk-averse environment by managing down its risk positions.

Average trading VaR increased by 1% in Q111 and halved in Q211, while maximum trading

VaR decreased 5% in Q111 and 35% in Q211.

Non-trading maximum VaR reduced in 2010 as a result of the implementation of relative price-

based mapping and the sale of illiquid AFS securities in the US mortgage business, but almost

doubled in Q111 (primarily due to a change in the time series used for the Dutch RMBS). It

returned to normal levels in Q211 as volatile market data continued to drop out of the time

series.

Operational Risks – Remain Heightened

As a universal bank, RBSG is subject to substantial operational risk and numerous reviews and

investigations by authorities in numerous jurisdictions and business areas. Fitch believes that

operational risks are heightened at RBSG due to the disruption to staff and processes caused

by the restructuring plan, the run-down of non-core assets and the unwinding of complex

market positions. The operation of the APS subjects RBSG to additional operational risks, as

does the large-scale transfer of assets and liabilities from RBSNV to RBS.

RBSG uses the standardised approach to calculate operational risk regulatory capital, but is

considering adopting the advanced measurement approach.

Funding, Liquidity and Capital

Funding and Liquidity: Benefit from Reshaped Balance Sheet

RBSG has made notable progress in reshaping its balance sheet and improving the quality of

its funding and liquidity profile (see Figure 8).

Fitch expects RBSG to achieve its 2013 target of a 100% loans/deposits ratio through the

continuous run-down of the wholesale funded non-core assets and modest deposit growth. The

loans/deposits ratio (excluding repos) improved to 114% at end-H111, largely through de-

Figure 7 Market Risk Indicators RBSG

(‘bbb-’)

Barclays

(‘aa−’)

JPM

(‘aa−’)

Deutsche

(‘aa−’)

BNP Paribas

(‘aa−’)

Q211 2010 Q211 2010 Q211 2010 Q211 2010 Q211 2010

Investment banking/net revenue (%) 18.8 24.8 36.5 42.0 27.3 25.5 46.5 61.1 16.3 17.4 Net derivatives/reported Tier 1 (%) 75 109 79 79 52 56 116 133 n.a. n.a. High VaR/reported Tier 1 (%) 0.20 0.42 0.19 0.20 0.09 0.13 0.21 0.30 n.a. 0.11

Notes: High VaR takes the firm-reported total high trading VaR (scales that up to a 99% confidence level and for 1 day). Historical periods used in bank VaR models vary: Barclays – two years; RBSG – 500 days; JPM, Deutsche and BNP Paribas – 1 year. For BNPP, net derivatives and interim high VaR are not disclosed. For Barclays and Deutsche, half-year VaR figures were used. Investment banking revenue excludes fair value of own debt, where possible Source: Fitch, company annual reports

Notable progress in re-shaping funding and liquidity profile

Short-term refinancing risks significantly reduced due to successful issuance in 2010 and H111

Capital at solid levels following government recapitalisation programmes

EBA stress test passed with 6.3% Core Tier 1 ratio under two modelled two year adverse scenario

Relatively well positioned to absorb CRD3/4 impact on capital assuming return to sustainable profitability

Contingent capital providing comfort for catastrophe scenario

Banks

The Royal Bank of Scotland Group plc

September 2011 9

leveraging, and was already 96% excluding non-core business. Although RBSG is still reliant

on wholesale funding for a large portion of its balance sheet, the funding structure is now

reasonably consistent with the bank’s business model and asset structure. RBSG has

significantly extended the maturity profile of its wholesale funding. Management estimated the

net stable funding ratio (according to Basel III guidance) at 97% at end-H111 (end-2010: 101%).

Figure 8 Funding Mix (GBPbn) H111 (%) 2010 (%) 2009 (%) 2008 (%)

Interbank 72 8 66 8 116 13 179 16 Debt securities 214 25 218 26 246 27 269 25 Commercial paper 22 3 26 3 44 5 70 6 Certificates of deposits 35 4 38 4 58 6 74 7 Medium-term notes 132 15 131 15 126 14 109 10 Securitisations 17 2 19 2 18 2 17 2 Covered bonds 7 1 4 0 0 0 0 0 Subordinated debt 26 3 27 3 32 3 44 4 Wholesale funding 312 36 311 36 394 43 492 45 Customer deposits 429 50 429 50 414 45 460 42 Customer repos 89 10 82 10 68 7 58 5 Bank repos 35 4 33 4 38 4 84 8 Total funding

a 865 100 855 100 914 100 1,094 100

Net loans/deposits (excl. repos) (%) 114 117 166 151 a Excludes derivatives and trading balances

Source: RBSG, Fitch

During the crisis, RBSG issued a significant amount of debt under the UK Government’s Credit

Guarantee Scheme (CGS), which will mature in Q112 and requires refinancing. RBSG had

about GBP41bn of debt issued under the CGS at end-2010 (end-2009: GBP45bn), with most

significant maturities being in Q411 (GBP19bn) and Q112 (GBP16bn). Although funding

markets remain disrupted by the continuing Eurozone sovereign-debt crisis, RBSG’s short-term

refinancing risks have reduced significantly as a result of successful issuance in 2010 and

H111.

RBSG has been successfully accessing the funding markets with GBP38bn of term debt

issuance in 2010 (exceeding its GBP20 to GPP25bn target for the year) and pre-funded a

significant portion of its full year GBP23bn issuance target for 2011 by issuing GBP18bn in

H111. Utilisation of central bank funding was reduced to GBP19bn at end-Q111 from GBP26bn

at end-2010 and GBP48bn at end-2009.

RBSG had GBP155bn of available liquidity at end-H111 (versus GBP150bn long term target),

which fully covered its short term wholesale funding (excluding derivative collateral) of

GBP148bn. The liquidity portfolio is high quality and held predominantly in cash (38%),

government securities (41%), and unencumbered collateral (21%). The securities portfolio

included GBP35bn of FSA-eligible government bond portfolio.

RBSG’s senior debt is generally raised at operating-company level, and only a very small

amount of debt is outstanding at group level. A holding-company liquidity policy requires the

maintenance of sufficient resources to cover the next 12 months of cash outflows. There is no

double leverage, and the double leverage ratio is projected to be stable at about 90% in 2012.

Capital: Relatively Well Positioned to Absorb Regulatory Losses

RBSG’s budgets an internal capital buffer of at least 0.5% above the individual capital guidance

set by the FSA and other regulators. However, there is some flexibility in the subsidiary capital

policy. The majority of RBSG uses the advanced internal ratings-based approach for

calculating risk-weighted assets (RWAs) for credit risk. Exposures held at RBSNV moved from

the Basel I to Basel II approach at end-H110. Citizens will migrate in line with the final rules

regarding Basel II implementation in the US.

Figure 9

0% 50% 100%

H111

2009

2008

<1 year 1-5 years >5 years

Wholesale Funding

Maturitiesª

a Excluding interbank deposits

Source: RBSG, Fitch

Banks

The Royal Bank of Scotland Group plc

September 2011 10

Fitch believes RBSG’s capital position to be solid following government recapitalisation

programmes. RBSG repurchased GBP3.4bn of Tier 1 and GBP2.4bn of Tier 2 securities in

2010, realising a net Core Tier 1 (CT 1) benefit of around GBP1.2bn. An additional GBP0.8bn

of CT 1 capital was generated in 2010 as holders of preference shares exercised their right to

convert to ordinary shares (triggered by RBSG not calling the instruments). However, 2010 loss

outweighed the positive effect of the repurchase of subordinated securities and the bank’s CT 1

ratio deteriorated slightly to 10.7% at end-2010 on both a statutory and pro forma basis (see

Figure 10). Despite reported net losses for H111 the CT 1 ratio strengthened to 11.1% at end-

H111. This was achieved as a result of 7% reduction in RWAs as RBSG managed down

market risk positions in GBM and continued to run down non-core assets.

In July 2011, RBSG passed the stress tests undertaken by the European Banking Authority

(EBA) with core Tier 1 ratio of 6.3% under the modelled two-year adverse scenario (above 5%

minimum requirement) and without the need to draw on its GBP8bn contingent capital facility or

receive payments under APS. Although the result was the worst among UK tested banks, Fitch

notes that EBA used a static balance-sheet approach in its stress test and did not allow for the

mitigating effect of actions already taken to reduce some of the riskier exposures and further

balance-sheet transformation planned by the group.

Fitch expects capital ratios to deteriorate in the coming years due to the growth in R&C and the

need to absorb additional regulatory capital requirements. Management estimates GBP25bn-

30bn inflation in RWAs in 2011 arising from the implementation of the Capital Requirements

Directive (CRD) 3 and Basel 2.5 changes (market risk and re-securitisations). Management

estimates the total impact of CRD 3/4 implementation on RWAs at GPB88bn-100bn, with the

corresponding reduction in CT 1 ratio of about 1.3 percentage points (pp). Moreover, the

deduction of deferred tax assets and insurance subsidiary capital under Basel III would have a

significant impact on the RBSG’s regulatory capital position. However, the planned disposal of

the insurance business will mitigate some of this effect.

Fitch believes that, although the run off of non-core assets will partially mitigate the uplift in

RWAs (due to CRD 3/4 and the growth in R&C business), potential losses on disposal could

offset the capital relief benefit. The potential exit from the APS would result in further inflation of

RWAs (the APS provided capital relief for GBP95bn of RWAs at end-H111 and benefited the

core Tier 1 ratio by 1.3pp). This would require regulatory approval and would be subject to

RBSG meeting its capital requirements. Although RBSG is relatively well positioned to absorb

the CRD 3/4 impact on capital ratios, a return to sustainable profitability and positive internal

capital generation are needed for capital ratios to improve.

Fitch views positively the GBP8bn contingent capital from the UK government. The facility

provides catastrophe insurance, although Fitch believes that it is unlikely that the facility will be

used, especially as it has a low trigger point (5% CT 1 ratio). However, the terms of the facility

include restrictions on payments on RBSG’s hybrid instruments should its CT 1 ratio fall below

6%. The ratings of RBSG’s hybrids securities reflect the European Commission-required two-

year coupon deferral (expected to be lifted in 2012) or the existence of “must pay” features.

Figure 10 Pro Forma Capital Ratios (GBPbn) H111 2010 2009

Credit 366.1 383.0 410.4

Counterparty 66.1 68.1 56.5 Market 58.6 80.0 65.0 Operational 37.9 37.1 33.9 Total pre-APS RWAs

528.7 568.2 565.8

APS relief -95.2 -105.6 -127.6 Total RWAs 433.5 462.6 438.2 CT 1 capital 48.0 49.3 48.2 CT 1 ratio (%)

11.1 10.7 11.0

Tier 1 capital 58.4 59.8 62.9 Tier 1 ratio (%)

13.5 12.9 14.4

Source: RBSG

Banks

The Royal Bank of Scotland Group plc

September 2011 11

Appendix 1: Organisational Structure

RBSG’s customer-focused divisions are supported by a business-services division that

provides technology, account management, money transmission, property and other services,

through a single platform. The group’s activities are now organised into nine business divisions.

UK Retail: The group offers a full range of services through the RBS and NatWest brands,

utilising the UK’s largest branch and ATM network as well as telephone and internet channels.

UK Corporate: The largest provider of banking services to the UK SME, commercial and

corporate sector, with an SME market share ranging between 25%-30%.

Wealth: RBSG provides private banking and investment services through several channels

and brands: Coutts & Co, Adam & Company in UK; RBS Coutts internationally and offshore

businesses, RBS International, NatWest Offshore, and Isle of Man Bank.

GBM: GBM provides debt and equity finance (origination, trading, distribution and structuring of

a broad range of asset classes), risk management and investment services to financial

institutions and large businesses in the UK and globally (39 countries). It is organised along six

main business lines: rates flow trading; money markets; currencies and commodities; equities;

credit and mortgage markets and portfolio management and origination. RBSG ranked 10th

among global debt capital markets book-runners in 2010.

Global Transaction Services (GTS): GTS provides global payments, cash and liquidity

management, trade finance, and card services across 128 countries. US institutional fixed-

income activities are carried out through RBS Securities.

Ulster Bank: Ulster Bank is the group’s main European operation and provides a wide range of

retail and wholesale financial services in the Republic of Ireland and Northern Ireland, and is

the third-largest player in these combined markets.

US R&C: In the US, RBSG’s prime vehicle is Citizens, a US bank holding company operating

through Citizens Bank, Charter One and RBS Citizens brands in retail and corporate banking

markets. Over many years, Citizens has grown rapidly (through acquisitions and organically) to

create a strong franchise throughout 12 north-eastern and mid-western states, and is the 10th-

largest US bank by deposits.

RBS Insurance: This division sells and underwrites retail and SME insurance policies directly,

over the telephone and the internet, as well as through a network of brokers and intermediaries.

Its main brands are Direct Line Insurance, Churchill, Privilege, Green Flag and NIG. In the UK,

the group is the leading car insurer and the number two non-motor insurer.

Non-Core: GBP258bn of assets (excluding derivatives, or 30% of group pro-forma RWAs at

end-2008) were transferred in H109 to this newly-created division. The plan was to reduce risk

in a capital efficient manner and taking into account the earnings volatility. Assets included

businesses and higher risk asset portfolios, such as monolines, CDPCs, CDOs, ABS,

leveraged finance exposures, and some CRE. Other divisions contributed loan books no longer

considered strategic. Assets have more than halved since 2008, but reduction in RWAs was

only 27% primarily due to increase in risk weights. The main asset reduction was in corporate

exposure (including leveraged finance) and markets, while CRE was reduced at a lower pace.

Figure 11

1%

4%11%

3%

26%

30%8%

2%

15%

24%

2%

7%

10%

4%

27%

2%

9%

15%

UK retail UK corporate Wealth

GBM GTS US R&C

Ulster Other Non-core

RWAs by DivisionExternal -H111, Internal - FY08

Source: RBSG, Fitch

Figure 12 Non-Core Assets

(GBPbn) H111 FY08

H111 vs.

FY08

CRE 37 63 -42 Incl. Ulster 13 9 4 Corporate 50 112 -55 SME 3 6 -55 Retail 8 21 -62 Other 2 9 -74 Markets 13 47 -73 Total (excl. der.) 113 258 -56 Total (incl. der.) 135 343 -61 RWAs 125 171 -27

Source: RBSG

Banks

The Royal Bank of Scotland Group plc

September 2011 12

Appendix 2: Background to UK State Aid

In October 2008, the UK government initiated a bank recapitalisation programme as part of its

actions to stabilise the UK banking sector. The government became the majority shareholder

(58%) in RBSG following a very low take-up of the group’s GBP15bn share placing and open

offer in November 2008, which the state had underwritten. Subsequently, the holding increased

to 70.3% when RBSG replaced the government’s GBP5bn preference shares (also acquired in

November 2008) with new ordinary shares.

In terms of economic rights, state ownership is now about 83% after an additional GBP25.5bn

capital was injected as part of the APS agreement and the conversion of privately held

preference shares in H110. The GBP25.5bn capital injection was in the form of B shares, which

do not carry voting rights but rank pari passu with ordinary shares, have enhanced dividend

rights, are convertible into ordinary shares and are included in core Tier 1 capital. The

government capped its ordinary share-holding, and therefore voting, rights at 75%. UK

Financial Investments (UKFI) manages the government’s investments in RBSG and other UK

financial institutions.

Asset Protection Scheme

The APS announced in February 2009 was refined in November 2009 and involved GBP243bn

(as at end-Q309) of assets being covered by the state-backed insurance scheme. The first loss

to be absorbed by RBSG is GBP60bn. The government will be responsible for 90% of net

losses thereafter. This insurance scheme is designed such that RBSG absorbs all the expected

losses in a base-case economic scenario and only requires the second loss government cover

in the event of a substantial further deepening of the recession.

The group pays an annual fee of GBP700m for three years to 2011 and GBP500m thereafter,

although it can terminate the scheme at any time subject to the FSA’s requirements being met

and a break fee. APS covered 12% of on-balance-sheet assets and 18% of RWAs at end-H111.

Covered assets include most of the market turmoil exposures (monolines, ABS and leveraged

finance), higher-risk unsecured exposures, assets in work-out or restructuring units and higher-

risk mortgages (high LTV and certain specialist).

Contingent Capital

The APS and the recapitalisations were agreed with the FSA following a stress test that

required RBSG to maintain a core Tier 1 ratio above 4%. RBSG needed a GBP8bn contingent

capital facility from the government to meet this requirement. The government will provide

GBP8bn of contingent capital for five years should RBSG’s core Tier 1 ratio fall below 5%. A

4% annual fee is payable on this facility. RBSG can terminate the facility with FSA consent.

European Commission State Aid Requirements

To comply with European Commission state aid requirements, RBSG agreed to divest a

number of businesses over a four-year period from December 2009: RBS England and Wales

and NatWest Scotland branch-based businesses, RBS Insurance, Global Merchant Services

(GMS within GTS) and its interest in the RBS Sempra Commodities joint venture. In addition,

GBM division cannot rank higher than number five in global all debt league tables for three

years. The European Commission has also applied “burden sharing” to hybrid instruments, and

requires that RBSG does not make discretionary payments of coupons or dividends for two

years unless a legal obligation exists.

GMS and RBS Sempra have now effectively been disposed of. On 4 August 2010, the group

announced its agreement to sell 318 branches and associated assets and liabilities to

Santander UK plc for a premium of GBP350m to net assets at closing. The separation and

transfer process is under way and Fitch expects the transaction to be completed in H212. The

disposal of RBS Insurance (trade sale or flotation) is targeted for 2H12. Branch-based

businesses and RBS Insurance together accounted for about GBP32bn in assets, GBP12bn in

RWAs and GBP5bn in capital at end-H111 and contributed GBP391m of operating profit in

H111.

Figure 13

0

40

80

120

160

UK r

eta

il

UK

corp

ora

te

GBM

Uls

ter

Non-c

ore

Oth

er

APS Non-APS

APS: Divisional RWA at

End-H111

(GBPbn)

Source: RBSG, Fitch

Banks

The Royal Bank of Scotland Group plc

September 2011 13

Appendix 3: Operating Performance

Figure 14 Divisional Performance (Pro Forma)

(GBPm) Q211 Q111 Q410 Q310 Q210 Q110 2010 2009 2008

Revenue UK retail 1,419 1,380 1,490 1,433 1,298 1,279 5,500 5,087 5,122 UK corporate 966 1,021 983 986 987 939 3,895 3,582 3,737 Wealth 297 281 271 264 266 255 1,056 1,109 1,059 Global transaction services 560 542 638 668 648 607 2,561 2,487 2,431 Ulster Bank 222 220 243 244 247 241 975 1,034 1,039 US retail & commercial 715 694 698 751 777 720 2,946 2,724 2,587 Global banking and markets, incl. 1,550 2,380 1,587 1,554 1,947 2,824 7,912 11,058 2,357 Rates - money markets -41 -74 -65 38 4 88 65 1,714 1,641 Rates - flow 357 733 413 402 471 699 1,985 3,142 1,386 Currencies and commodities 234 224 178 218 179 295 870 1,277 1,539 Credit and mortgage markets 437 885 433 349 474 959 2,215 2,255 -3,435 Portfolio management and origination 329 337 445 349 581 469 1,844 1,196 858 Equities 234 275 183 198 238 314 933 1,474 368 RBS insurance 1,046 1,070 1,112 1,124 1,143 1,137 4,516 4,614 4,430 Central items 14 -41 116 23 -6 204 337 242 -363 Total core revenue 6,789 7,547 7,138 7,047 7,307 8,206 29,698 31,937 22,399 Non-core revenue 978 486 321 870 856 917 2,964 -2,370 -3,032 Total revenue 7,767 8,033 7,459 7,917 8,163 9,123 32,662 29,567 19,367 Impairment losses UK retail 208 194 222 251 300 387 1,160 1,679 1,019 UK corporate 218 105 219 158 198 186 761 927 319 Wealth 3 5 6 1 7 4 18 33 16 Global transaction services 54 20 3 3 3 - 9 39 54 Ulster Bank 269 461 376 286 281 218 1,161 649 106 US retail and commercial 66 110 105 125 144 143 517 702 437 Global banking and markets 37 -24 -5 -40 164 32 151 640 522 RBS insurance -- - - - - - - 8 42 Central items -2 1 4 -2 - 1 3 1 -19 Total core impairment losses 853 872 930 782 1,097 971 3,780 4,678 2,496 Non-core impairment losses 1,411 1,075 1,211 1,171 1,390 1,704 5,476 9,221 4,936 Total impairment losses 2,264 1,947 2,141 1,953 2,487 2,675 9,256 13,899 7,432 Operating (loss)/profit

a

UK retail 523 508 558 398 276 140 1,372 229 723 UK corporate 345 493 333 422 390 318 1,463 1,125 1,781 Wealth 74 80 87 74 81 62 304 420 348 GTS 164 187 267 309 279 233 1,088 973 1,002 Ulster Bank -189 -377 -271 -176 -177 -137 -761 -368 218 US retail and commercial 127 80 64 73 129 40 306 -113 528 GBM 446 1,098 527 589 750 1,498 3,364 5,758 -2,153 RBS insurance 139 67 -9 -33 -203 -50 -295 58 584 Central items 47 -43 115 76 49 337 577 385 150 Core operating (loss)/profit 1,676 2,093 1,671 1,732 1,574 2,441 7,418 8,467 3,181 Non-core operating (loss)/profit -858 -1,040 -1,616 -1,006 -1,324 -1,559 -5,505 -14,557 -11,351 Total operating (loss)/profit 818 1,053 55 726 250 882 1,913 -6,090 -8,170 a Before exceptional items

Source: RBSG

Banks

The Royal Bank of Scotland Group plc

September 2011 14

Appendix 4: Non-Core Assets

Figure 15 Non-core Gross Customer Loans by Division and Sectora

(GBPbn) Q211 Q111 Q410 Q310 Q210 Q110 Q409 Q408

UK retail 1.8 1.9 2.0 2.2 2.3 2.4 2.6 3.3 Mortgages 1.5 1.6 1.6 1.7 1.8 1.8 1.9 2.2 Personal 0.3 0.3 0.4 0.5 0.5 0.6 0.7 1.1 Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 UK corporate 21.6 23.1 27.0 28.5 30.4 32.7 34.9 38.1 Manufacturing and infrastructure 0.3 0.2 0.3 0.3 0.4 0.4 0.3 0.3 Property and construction 7.2 8.0 11.4 12.1 12.9 13.2 14.1 11.3 Transport 5.0 5.1 5.4 5.6 5.9 5.8 Banks and financial institutions 0.9 0.8 0.8 0.9 0.7 1.0 Lombard 1.4 1.5 1.7 1.9 2.4 2.7 2.9 3.7 Invoice finance 0.0 0.0 0.0 0.0 0.0 0.4 0.4 0.7 Other 6.8 7.5 7.4 7.7 8.1 9.2 17.2 22.1 Ulster Bank 15.3 15.3 15.0 15.5 15.7 17.0 16.7 17.7 Mortgages 0.0 0.0 0.0 0.0 5.6 6.1 6.0 6.5 CRE 8.8 CRE investment 4.1 3.9 4.0 4.3 2.6 2.8 2.1 CRE development 9.0 8.9 8.4 8.4 5.4 5.7 6.3 Other corporate 1.8 2.0 2.2 2.0 1.2 1.3 1.3 1.1 Other EMEA 0.4 0.5 0.4 0.8 0.9 1.1 1.0 1.3 US retail & commercial 7.3 7.9 8.6 9.2 10.3 11.1 11.0 15.6 Auto and consumer 2.2 2.4 2.6 2.7 3.0 3.2 3.2 4.2 Cards 0.1 0.1 0.1 0.1 0.2 0.2 0.5 0.7 SBO/home equity 2.7 2.9 3.2 3.3 3.6 3.7 3.7 5.2 Residential mortgages 0.7 0.7 0.7 0.8 0.9 1.2 0.8 1.1 Commercial real estate 1.2 1.4 1.5 1.7 1.9 2.0 1.9 3.0 Commercial and other 0.4 0.4 0.5 0.6 0.7 0.8 0.9 1.4 Global banking & markets 48.4 52.9 55.7 64.5 67.4 77.8 81.7 104.8 Manufacturing and infrastructure 8.5 8.9 8.7 10.6 13.4 17.2 17.5 Property and construction 18.6 19.1 19.6 22.9 21.6 23.4 25.7 Transport 4.2 4.5 5.5 5.6 5.3 6.0 5.8 Telecoms, media and technology 0.8 1.1 0.9 1.1 2.0 3.4 3.2 Banks and financials 8.8 11.1 12.0 13.8 15.7 16.1 16.0 Other 7.5 8.2 9.0 10.5 9.4 11.7 13.5 Other 0.3 -0.3 -0.1 -0.7 -0.4 -0.9 0.4 5.2 Wealth 0.3 0.4 0.4 0.7 0.9 2.4 2.6 3.6 Global transaction services 0.3 0.2 0.3 0.5 0.6 0.8 0.8 1.4 RBS insurance 0.0 0.1 0.2 0.2 0.2 0.2 0.2 0.2 Central items -0.3 -1.0 -1.0 -2.1 -2.1 -4.3 -3.2 0.0 Gross loans 94.7 100.8 108.2 119.2 125.7 140.1 147.3 184.7 a Excluding reverse repurchase agreements

Source: RBSG

Banks

The Royal Bank of Scotland Group plc

September 2011 15

Appendix 5: Market Risk Indicators

Figure 16 Trading Risk

(GBPm) Q211 Q111 Q410 Q310 Q210 Q110 2010 2009

Trading positions maximum VaR Interest rate 75.7 79.2 83 74.3 60.4 64.2 83 112.8 Credit spread 95 151.1 196.1 243.2 203.2 191.5 243.2 231.2 Currency 14.2 18 25.6 26.2 28 24.7 28 35.8 Equity 17.3 14.5 15.2 17.9 12 17.3 17.9 23.2 Commodity 1.6 0.7 18.1 15.7 15.8 14.0 18.1 32.1 Total 117.9 181.3 191.5 252.1 210.5 204.7 252.1 229 Core 86 133.9 121 153.4 129 145.4 153.4 137.8 Non-core 110.1 128.6 119.7 169.4 108.1 98.8 169.4 162.1

Source: RBSG

Figure 17 Non-Trading Positions Maximum VaRa Excl. loans and receivables Incl. loans and receivables

Q211 Q111 Q410 Q310 Q110 2010 2009 Q310 Q210 Q110

Interest rate 9.2 10.8 10.8 20.5 13.3 20.5 26.3 24.2 11.2 13.6 Credit spread 24.2 39.3 21.8 26.4 101.2 101.2 131.5 139.3 155.1 227.2 Currency 3.3 1.8 3.7 6.1 4.9 7.6 7 6.1 7.6 4.9 Equity 2.4 3.1 4.6 1.7 3.5 4.6 5.8 0.5 0.8 3.4 Total 22.5 41.6 21.3 29.1 98 98 126.9 126.5 156.4 216.2 Core 24.6 38.9 21.3 29.3 98.1 98.1 126.9 58.2 77.8 145.7 Non-core 4.3 3.4 4.1 2 3.6 4.1 16.9 85.3 94.7 79.6 a Excluding structured credit portfolio

Source: RBSG

Banks

The Royal Bank of Scotland Group plc

September 2011 16

Appendix 6

Figure 18 Peer Comparison

RBSG

(‘bbb-’)

Barclays

(‘aa-’)

JPM

(‘aa-’)

Deutsche

(‘aa-’)

BNP Paribas

(‘aa-’)

H111 2010 H111 2010 H111 2010 H111 2010 H111 2010

Reported equity (USD) 112,563 109,627 87,744 84,329 175,079 168,306 74,691 72,498 110,409 100,082 Profitability (%) Operating profit/average assets -0.14 -0.07 0.48 0.37 1.49 1.21 0.52 0.35 0.72 0.59 Operating profit/average equity -2.83 -1.55 13.15 10.49 17.92 14.66 18.89 14.79 18.66 17.08 Cost/income 69.63 69.31 64.49 64.32 62.89 59.59 70.49 76.38 58.85 60.56 Loan and securities impairment charge/pre-impairment profits

124.15 114.77 33.96 50.93 18.21 40.1 14.85 16.97 24.34 27.81

Net interest margin 1.00 1.47 0.92 0.92 2.69 3.04 1.06 0.99 1.32 1.29 Capitalisation (%) Equity/assets 4.85 4.86 3.66 3.65 7.79 7.95 2.79 2.64 3.98 3.79 Equity/tangible assets 4.91 4.76 3.68 3.55 8.03 8.21 2.82 2.67 4.01 3.51 Fitch core capital/RWA 7.24 6.69 10.20 9.46 9.09 8.54 9.08 7.65 9.55 9.06 Regulatory core Tier 1 ratio 11.1 10.7 11.0 10.8 10.1 9.8 10.2 8.7 9.6 9.2 Regulatory tier 1 ratio 13.5 12.9 13.5 13.5 12.4 12.1 14.00 12.3 11.9 11.4 Net loans/assets 37.74 38.20 29.61 28.73 29.43 31.20 21.34 21.40 34.77 34.27 Asset quality and risk (%) Impaired loans/total gross loans 7.48 6.73 5.19 5.52 2.86 3.13 1.92 1.52 n.a. 6.06 Gross loan growth -1.72 -23.77 3.28 1.84 0.08 9.77 -3.32 57.97 -2.20 0.87 Reserves/impaired loans 48.71 46.78 49.34 51.11 144.61 148.62 45.64 66.45 n.a. 63.35 LIC/average loans 1.78 1.48 0.82 1.27 1.06 2.37 0.42 0.42 0.50 0.72 Liquidity and funding (%) Loans/deposits 114.20 117.00 118.38 124.00 65.77 74.48 72.51 77.14 120.94 125.56

Source: Fitch, company annual reports

Banks

The Royal Bank of Scotland Group plc

September 2011 17

The Royal Bank of Scotland Group plcIncome Statement

Year End Year End As % of Year End As % of Year End As % of Year End As % of

USDm GBPm Earning GBPm Earning GBPm Earning GBPm Earning

Unaudited Unaudited Assets Unqualified Assets Unqualified Assets Unqualified Assets

1. Interest Income on Loans 15,149.7 9,464.0 0.71 19,480.0 1.46 22,186.0 1.42 37,150.0 1.60

2. Other Interest Income 2,146.6 1,341.0 0.10 3,296.0 0.25 4,125.0 0.26 5,040.0 0.22

3. Dividend Income n.a. n.a. - n.a. - n.a. - n.a. -

4. Gross Interest and Dividend Income 17,296.3 10,805.0 0.81 22,776.0 1.71 26,311.0 1.68 42,190.0 1.82

5. Interest Expense on Customer Deposits 2,695.7 1,684.0 0.13 3,721.0 0.28 4,761.0 0.30 13,642.0 0.59

6. Other Interest Expense 4,150.8 2,593.0 0.20 4,846.0 0.36 8,162.0 0.52 13,066.0 0.56

7. Total Interest Expense 6,846.5 4,277.0 0.32 8,567.0 0.64 12,923.0 0.83 26,708.0 1.15

8. Net Interest Income 10,449.8 6,528.0 0.49 14,209.0 1.07 13,388.0 0.86 15,482.0 0.67

9. Net Gains (Losses) on Trading and Derivatives 3,172.7 1,982.0 0.15 4,517.0 0.34 3,761.0 0.24 -9,025.0 -0.39

10. Net Gains (Losses) on Other Securities n.a. n.a. - n.a. - n.a. - n.a. -

11. Net Gains (Losses) on Assets at FV through Income Statement n.a. n.a. - n.a. - n.a. - n.a. -

12. Net Insurance Income 854.8 534.0 0.04 345.0 0.03 909.0 0.06 1,792.0 0.08

13. Net Fees and Commissions 4,416.5 2,759.0 0.21 5,982.0 0.45 5,948.0 0.38 6,411.0 0.28

14. Other Operating Income 2,559.6 1,599.0 0.12 1,230.0 0.09 822.0 0.05 1,176.0 0.05

15. Total Non-Interest Operating Income 11,003.7 6,874.0 0.52 12,074.0 0.91 11,440.0 0.73 354.0 0.02

16. Personnel Expenses 7,377.9 4,609.0 0.35 9,671.0 0.72 9,993.0 0.64 8,898.0 0.38

17. Other Operating Expenses 7,560.4 4,723.0 0.36 8,547.0 0.64 9,209.0 0.59 9,256.0 0.40

18. Total Non-Interest Expenses 14,938.4 9,332.0 0.70 18,218.0 1.37 19,202.0 1.23 18,154.0 0.78

19. Equity-accounted Profit/ Loss - Operating n.a. n.a. - n.a. - n.a. - n.a. -

20. Pre-Impairment Operating Profit 6,515.1 4,070.0 0.31 8,065.0 0.60 5,626.0 0.36 -2,318.0 -0.10

21. Loan Impairment Charge 8,088.7 5,053.0 0.38 9,256.0 0.69 13,899.0 0.89 7,439.0 0.32

22. Securities and Other Credit Impairment Charges n.a. n.a. - n.a. - n.a. - n.a. -

23. Operating Profit -1,573.6 -983.0 -0.07 -1,191.0 -0.09 -8,273.0 -0.53 -9,757.0 -0.42

24. Equity-accounted Profit/ Loss - Non-operating n.a. n.a. - n.a. - n.a. - n.a. -

25. Non-recurring Income 408.2 255.0 0.02 553.0 0.04 3,790.0 0.24 0.0 0.00

26. Non-recurring Expense n.a. n.a. - 10.0 0.00 363.0 0.02 16,911.0 0.73

27. Change in Fair Value of Own Debt -105.7 -66.0 0.00 249.0 0.02 51.0 0.00 977.0 0.04

28. Other Non-operating Income and Expenses n.a. n.a. - n.a. - 2,148.0 0.14 n.a. -

29. Pre-tax Profit -1,271.0 -794.0 -0.06 -399.0 -0.03 -2,647.0 -0.17 -25,691.0 -1.11

30. Tax expense 1,032.5 645.0 0.05 634.0 0.05 -429.0 -0.03 -2,167.0 -0.09

31. Profit/Loss from Discontinued Operations 49.6 31.0 0.00 -633.0 -0.05 -105.0 -0.01 -11,018.0 -0.47

32. Net Income -2,253.9 -1,408.0 -0.11 -1,666.0 -0.12 -2,323.0 -0.15 -34,542.0 -1.49

33. Change in Value of AFS Investments 2,191.5 1,369.0 0.10 -389.0 -0.03 2,016.0 0.13 -7,406.0 -0.32

34. Revaluation of Fixed Assets n.a. n.a. - 0.0 0.00 0.0 0.00 0.0 0.00

35. Currency Translation Differences -481.8 -301.0 -0.02 81.0 0.01 -3,300.0 -0.21 15,425.0 0.66

36. Remaining OCI Gains/(losses) -209.7 -131.0 -0.01 1,303.0 0.10 -2,551.0 -0.16 -957.0 -0.04

37. Fitch Comprehensive Income -754.0 -471.0 -0.04 -671.0 -0.05 -6,158.0 -0.39 -27,480.0 -1.18

38. Memo: Profit Allocation to Non-controlling Interests 27.2 17.0 0.00 -665.0 -0.05 349.0 0.02 -10,832.0 -0.47

39. Memo: Net Income after Allocation to Non-controlling Interests -2,281.1 -1,425.0 -0.11 -1,125.0 -0.08 -3,607.0 -0.23 -24,306.0 -1.05

40. Memo: Common Dividends Relating to the Period 0.0 0.0 0.00 0.0 0.00 0.0 0.00 2,312.0 0.10

41. Memo: Preferred Dividends Related to the Period n.a. n.a. - n.a. - n.a. - n.a. -

Exchange rate

30 Jun 2011

USD1 = GBP0.62470

31 Dec 2010

USD1 = GBP0.63880

31 Dec 2009

USD1 = GBP0.61748

31 Dec 2008

USD1 = GBP0.68597

Banks

The Royal Bank of Scotland Group plc

September 2011 18

The Royal Bank of Scotland Group plcBalance Sheet

Year End Year End As % of Year End As % of Year End As % of Year End As % of

USDm GBPm Assets GBPm Assets GBPm Assets GBPm Assets

Assets

A. Loans

1. Residential Mortgage Loans 239,969.6 149,909.0 10.37 146,501.0 10.08 140,907.0 8.31 139,391.0 5.80

2. Other Mortgage Loans 158,469.7 98,996.0 6.85 102,138.0 7.03 114,186.0 6.73 123,526.0 5.14

3. Other Consumer/ Retail Loans 56,752.0 35,453.0 2.45 37,472.0 2.58 41,671.0 2.46 51,070.0 2.13

4. Corporate & Commercial Loans 360,092.8 224,950.0 15.56 233,583.0 16.07 405,493.0 23.90 525,942.0 21.90

5. Other Loans 91,328.6 57,053.0 3.95 53,621.0 3.69 43,262.0 2.55 45,682.0 1.90

6. Less: Reserves for Impaired Loans/ NPLs 33,019.0 20,627.0 1.43 18,055.0 1.24 17,126.0 1.01 10,889.0 0.45

7. Net Loans 873,593.7 545,734.0 37.74 555,260.0 38.20 728,393.0 42.94 874,722.0 36.42

8. Gross Loans 906,612.8 566,361.0 39.17 573,315.0 39.44 745,519.0 43.94 885,611.0 36.88

9. Memo: Impaired Loans included above 67,792.5 42,350.0 2.93 38,598.0 2.66 38,249.0 2.25 21,261.0 0.89

10. Memo: Loans at Fair Value included above n.a. n.a. - n.a. - n.a. - n.a. -

B. Other Earning Assets

1. Loans and Advances to Banks 85,053.6 53,133.0 3.67 57,911.0 3.98 56,656.0 3.34 79,426.0 3.31

2. Reverse Repos and Cash Collateral 67,189.1 41,973.0 2.90 42,607.0 2.93 35,097.0 2.07 58,771.0 2.45

3. Trading Securities and at FV through Income 226,195.0 141,304.0 9.77 119,470.0 8.22 130,720.0 7.71 140,863.0 5.87

4. Derivatives 632,098.6 394,872.0 27.31 427,077.0 29.38 441,454.0 26.02 992,559.0 41.33

5. Available for Sale Securities 193,207.9 120,697.0 8.35 113,129.0 7.78 146,191.0 8.62 140,031.0 5.83

6. Held to Maturity Securities 10,557.1 6,595.0 0.46 7,079.0 0.49 9,871.0 0.58 12,985.0 0.54

7. At-equity Investments in Associates n.a. n.a. - n.a. - n.a. - n.a. -

8. Other Securities n.a. n.a. - n.a. - n.a. - n.a. -

9. Total Securities 1,129,247.6 705,441.0 48.79 709,362.0 48.80 763,333.0 44.99 1,345,209.0 56.01

10. Memo: Government Securities included Above 223,829.0 139,826.0 9.67 123,940.0 8.53 146,857.0 8.66 105,779.0 4.40

11. Memo: Total Securities Pledged n.a. n.a. - n.a. - n.a. - n.a. -

12. Investments in Property n.a. n.a. - n.a. - 4,883.0 0.29 3,868.0 0.16

13. Insurance Assets n.a. n.a. - n.a. - n.a. - n.a. -

14. Other Earning Assets 39,324.5 24,566.0 1.70 11,605.0 0.80 12,033.0 0.71 17,832.0 0.74

15. Total Earning Assets 2,127,219.5 1,328,874.0 91.90 1,334,138.0 91.78 1,565,298.0 92.27 2,321,057.0 96.64

C. Non-Earning Assets

1. Cash and Due From Banks 103,011.0 64,351.0 4.45 57,014.0 3.92 52,261.0 3.08 12,400.0 0.52

2. Memo: Mandatory Reserves included above n.a. n.a. - n.a. - n.a. - n.a. -

3. Foreclosed Real Estate n.a. n.a. - n.a. - n.a. - n.a. -

4. Fixed Assets 27,784.5 17,357.0 1.20 16,543.0 1.14 14,514.0 0.86 15,081.0 0.63

5. Goodwill n.a. n.a. - n.a. - 14,264.0 0.84 15,562.0 0.65

6. Other Intangibles 23,358.4 14,592.0 1.01 14,448.0 0.99 3,583.0 0.21 4,487.0 0.19

7. Current Tax Assets n.a. n.a. - n.a. - n.a. - n.a. -

8. Deferred Tax Assets 9,996.8 6,245.0 0.43 6,373.0 0.44 7,039.0 0.41 7,082.0 0.29

9. Discontinued Operations 5,453.8 3,407.0 0.24 12,484.0 0.86 18,542.0 1.09 1,581.0 0.07

10. Other Assets 17,837.4 11,143.0 0.77 12,576.0 0.87 20,985.0 1.24 24,402.0 1.02

11. Total Assets 2,314,661.4 1,445,969.0 100.00 1,453,576.0 100.00 1,696,486.0 100.00 2,401,652.0 100.00

Liabilities and Equity

D. Interest-Bearing Liabilities

1. Customer Deposits - Current 828,437.7 517,525.0 35.79 510,693.0 35.13 614,202.0 36.20 639,512.0 26.63

2. Customer Deposits - Savings n.a. n.a. - n.a. - n.a. - n.a. -

3. Customer Deposits - Term n.a. n.a. - n.a. - n.a. - n.a. -

4. Total Customer Deposits 828,437.7 517,525.0 35.79 510,693.0 35.13 614,202.0 36.20 639,512.0 26.63

5. Deposits from Banks 171,208.6 106,954.0 7.40 98,790.0 6.80 142,144.0 8.38 258,044.0 10.74

6. Repos and Cash Collateral n.a. n.a. - n.a. - n.a. - n.a. -

7. Other Deposits and Short-term Borrowings 169,817.5 106,085.0 7.34 94,048.0 6.47 136,901.0 8.07 174,507.0 7.27

8. Total Deposits, Money Market and Short-term Funding 1,169,463.7 730,564.0 50.52 703,531.0 48.40 893,247.0 52.65 1,072,063.0 44.64

9. Senior Debt Maturing after 1 Year 172,422.0 107,712.0 7.45 124,324.0 8.55 130,667.0 7.70 125,782.0 5.24

10. Subordinated Borrowing 35,966.1 22,468.0 1.55 23,210.0 1.60 32,761.0 1.93 41,859.0 1.74

11. Other Funding n.a. n.a. - n.a. - n.a. - n.a. -

12. Total Long Term Funding 208,388.0 130,180.0 9.00 147,534.0 10.15 163,428.0 9.63 167,641.0 6.98

13. Derivatives 620,792.4 387,809.0 26.82 423,967.0 29.17 424,141.0 25.00 971,364.0 40.45

14. Trading Liabilities 126,478.3 79,011.0 5.46 54,109.0 3.72 50,876.0 3.00 54,277.0 2.26

15. Total Funding 2,125,122.5 1,327,564.0 91.81 1,329,141.0 91.44 1,531,692.0 90.29 2,265,345.0 94.32

E. Non-Interest Bearing Liabilities

1. Fair Value Portion of Debt n.a. n.a. - n.a. - n.a. - n.a. -

2. Credit impairment reserves n.a. n.a. - n.a. - n.a. - n.a. -

3. Reserves for Pensions and Other 3,584.1 2,239.0 0.15 2,288.0 0.16 2,963.0 0.17 2,032.0 0.08

4. Current Tax Liabilities n.a. n.a. - n.a. - n.a. - 585.0 0.02

5. Deferred Tax Liabilities 3,348.8 2,092.0 0.14 2,142.0 0.15 2,811.0 0.17 4,165.0 0.17

6. Other Deferred Liabilities n.a. n.a. - n.a. - n.a. - 7,640.0 0.32

7. Discontinued Operations 5,181.7 3,237.0 0.22 9,428.0 0.65 18,890.0 1.11 n.a. -

8. Insurance Liabilities 10,704.3 6,687.0 0.46 6,794.0 0.47 10,281.0 0.61 9,976.0 0.42

9. Other Liabilities 38,522.5 24,065.0 1.66 23,089.0 1.59 30,327.0 1.79 24,116.0 1.00

10. Total Liabilities 2,186,463.9 1,365,884.0 94.46 1,372,882.0 94.45 1,596,964.0 94.13 2,313,859.0 96.34

F. Hybrid Capital

1. Pref. Shares and Hybrid Capital accounted for as Debt 6,151.8 3,843.0 0.27 3,843.0 0.26 4,891.0 0.29 7,295.0 0.30

2. Pref. Shares and Hybrid Capital accounted for as Equity 9,753.5 6,093.0 0.42 6,229.0 0.43 11,587.0 0.68 16,743.0 0.70

G. Equity

1. Common Equity 106,124.5 66,296.0 4.58 67,508.0 4.64 65,330.0 3.85 41,839.0 1.74

2. Non-controlling Interest 1,507.9 942.0 0.07 1,163.0 0.08 16,231.0 0.96 19,798.0 0.82

3. Securities Revaluation Reserves -1,642.4 -1,026.0 -0.07 -2,037.0 -0.14 -1,755.0 -0.10 -3,561.0 -0.15

4. Foreign Exchange Revaluation Reserves 7,738.1 4,834.0 0.33 5,138.0 0.35 4,528.0 0.27 6,385.0 0.27

5. Fixed Asset Revaluations and Other Accumulated OCI -1,435.9 -897.0 -0.06 -1,150.0 -0.08 -1,290.0 -0.08 -706.0 -0.03

6. Total Equity 112,292.3 70,149.0 4.85 70,622.0 4.86 83,044.0 4.90 63,755.0 2.65

7. Total Liabilities and Equity 2,314,661.4 1,445,969.0 100.00 1,453,576.0 100.00 1,696,486.0 100.00 2,401,652.0 100.00

8. Memo: Fitch Core Capital 50,243.3 31,387.0 2.17 31,158.0 2.14 23,916.0 1.41 10,985.0 0.46

9. Memo: Fitch Eligible Capital 58,195.9 36,355.0 2.51 36,194.0 2.49 32,155.0 1.90 23,004.0 0.65

Exchange rate

30 Jun 2011

USD1 = GBP0.62470

31 Dec 2010

USD1 = GBP0.63880

31 Dec 2009

USD1 = GBP0.61748

31 Dec 2008

USD1 = GBP0.68597

Banks

The Royal Bank of Scotland Group plc

September 2011 19

The Royal Bank of Scotland Group plcSummary Analytics

30 Jun 2011 31 Dec 2010 31 Dec 2009 31 Dec 2008

Year End Year End Year End Year End

A. Interest Ratios

1. Interest Income on Loans/ Average Gross Loans 3.31 3.11 3.12 5.20

2. Interest Expense on Customer Deposits/ Average Customer Deposits 0.66 0.71 1.01 2.80

3. Interest Income/ Average Earning Assets 1.65 2.35 2.52 3.21

4. Interest Expense/ Average Interest-bearing Liabilities 0.66 0.96 1.12 2.06

5. Net Interest Income/ Average Earning Assets 1.00 1.47 1.28 1.18

6. Net Int. Inc Less Loan Impairment Charges/ Av. Earning Assets 0.23 0.51 -0.05 0.61

7. Net Interest Inc Less Preferred Stock Dividend/ Average Earning Assets 1.00 1.47 1.28 1.18

B. Other Operating Profitability Ratios

1. Non-Interest Income/ Gross Revenues 51.29 45.94 46.08 2.24

2. Non-Interest Expense/ Gross Revenues 69.63 69.31 77.34 114.64

3. Non-Interest Expense/ Average Assets 1.31 1.09 0.95 0.89

4. Pre-impairment Op. Profit/ Average Equity 11.70 10.49 9.82 -3.96

5. Pre-impairment Op. Profit/ Average Total Assets 0.57 0.48 0.28 -0.11

6. Loans and securities impairment charges/ Pre-impairment Op. Profit 124.15 114.77 247.05 -320.92

7. Operating Profit/ Average Equity -2.83 -1.55 -14.44 -16.67

8. Operating Profit/ Average Total Assets -0.14 -0.07 -0.41 -0.48

9. Taxes/ Pre-tax Profit -81.23 -158.90 16.21 8.43

10. Pre-Impairment Operating Profit / Risk Weighted Assets 1.89 1.73 1.04 -0.33

11. Operating Profit / Risk Weighted Assets -0.46 -0.26 -1.53 -1.40

C. Other Profitability Ratios

1. Net Income/ Average Total Equity -4.05 -2.17 -4.05 -59.00

2. Net Income/ Average Total Assets -0.20 -0.10 -0.11 -1.69

3. Fitch Comprehensive Income/ Average Total Equity -1.35 -0.87 -10.75 -46.94

4. Fitch Comprehensive Income/ Average Total Assets -0.07 -0.04 -0.30 -1.35

5. Net Income/ Av. Total Assets plus Av. Managed Securitized Assets n.a. n.a. n.a. n.a.

6. Net Income/ Risk Weighted Assets -0.65 -0.36 -0.43 -4.96

7. Fitch Comprehensive Income/ Risk Weighted Assets -0.22 -0.14 -1.14 -3.95

D. Capitalization

1. Fitch Core Capital/Weighted Risks 7.24 6.69 4.42 1.58

2. Fitch Eligible Capital/ Weighted Risks 8.39 7.78 5.94 3.31

3. Tangible Common Equity/ Tangible Assets 3.62 3.65 3.59 1.64

4. Tier 1 Regulatory Capital Ratio 13.50 12.90 14.10 10.00

5. Total Regulatory Capital Ratio 14.40 14.00 16.10 14.10

6. Core Tier 1 Regulatory Capital Ratio 11.10 10.70 11.00 6.60

7. Equity/ Total Assets 4.85 4.86 4.90 2.65

8. Cash Dividends Paid & Declared/ Net Income 0.00 0.00 0.00 -6.69

9. Cash Dividend Paid & Declared/ Fitch Comprehensive Income 0.00 0.00 0.00 -8.41

10. Cash Dividends & Share Repurchase/Net Income n.a. n.a. n.a. n.a.

11. Net Income - Cash Dividends/ Total Equity -4.05 -2.36 -2.80 -57.81

E. Loan Quality

1. Growth of Total Assets -0.52 -14.32 -29.36 26.37

2. Growth of Gross Loans -1.21 -23.10 -15.82 5.97

3. Impaired Loans(NPLs)/ Gross Loans 7.48 6.73 5.13 2.40

4. Reserves for Impaired Loans/ Gross loans 3.64 3.15 2.30 1.23

5. Reserves for Impaired Loans/ Impaired Loans 48.71 46.78 44.78 51.22

6. Impaired Loans less Reserves for Imp Loans/ Equity 30.97 29.09 25.44 16.27

7. Loan Impairment Charges/ Average Gross Loans 1.78 1.48 1.96 1.04

8. Net Charge-offs/ Average Gross Loans 0.29 0.90 0.87 0.40

9. Impaired Loans + Foreclosed Assets/ Gross Loans + Foreclosed Assets 7.48 6.73 5.13 2.40

F. Funding

1. Loans/ Customer Deposits 109.44 112.26 121.38 138.48

2. Interbank Assets/ Interbank Liabilities 49.68 58.62 39.86 30.78

3. Customer Deposits/ Total Funding excl Derivatives 55.07 56.42 55.46 49.42

Banks

The Royal Bank of Scotland Group plc

September 2011 20

The Royal Bank of Scotland Group plcReference Data

Year End Year End As % of Year End As % of Year End As % of Year End As % of

USDm GBPm Assets GBPm Assets GBPm Assets GBPm Assets

A. Off-Balance Sheet Items

1. Managed Securitized Assets Reported Off-Balance Sheet n.a. n.a. - n.a. - n.a. - n.a. -

2. Other off-balance sheet exposure to securitizations n.a. n.a. - n.a. - n.a. - n.a. -

3. Guarantees 46,090.9 28,793.0 1.99 31,070.0 2.14 36,579.0 2.16 49,262.0 2.05

4. Acceptances and documentary credits reported off-balance sheet n.a. n.a. - n.a. - n.a. - n.a. -

5. Committed Credit Lines 400,653.1 250,288.0 17.31 266,822.0 18.36 289,135.0 17.04 352,398.0 14.67

6. Other Contingent Liabilities 25,028.0 15,635.0 1.08 16,408.0 1.13 16,893.0 1.00 31,601.0 1.32

7. Total Business Volume 2,786,433.5 1,740,685.0 120.38 1,767,876.0 121.62 2,039,093.0 120.20 2,834,913.0 118.04

8. Memo: Total Weighted Risks 693,933.1 433,500.0 29.98 465,500.0 32.02 541,000.0 31.89 695,800.0 28.97

9. Fitch Adjustments to Weighted Risks. n.a. n.a. - n.a. - n.a. - n.a. -

10. Fitch Adjusted Weighted Risks 693,933.1 433,500.0 29.98 465,500.0 32.02 541,000.0 31.89 695,800.0 28.97

B. Average Balance Sheet

Average Loans 914,285.7 571,154.3 39.50 625,441.4 43.03 710,726.0 41.89 714,790.0 29.76

Average Earning Assets 2,112,893.1 1,319,924.3 91.28 967,313.0 66.55 1,043,587.0 61.51 1,312,648.0 54.66

Average Assets 2,301,263.5 1,437,599.3 99.42 1,672,204.0 115.04 2,023,480.0 119.27 2,040,685.0 84.97

Average Managed Securitized Assets (OBS) n.a. n.a. - n.a. - n.a. - n.a. -

Average Interest-Bearing Liabilities 2,107,560.4 1,316,593.0 91.05 894,153.0 61.51 1,149,802.0 67.78 1,298,960.0 54.09

Average Common equity 107,236.0 66,990.3 4.63 66,870.6 4.60 52,641.6 3.10 48,876.3 2.04

Average Equity 112,298.7 70,153.0 4.85 76,906.0 5.29 57,303.0 3.38 58,544.0 2.44

Average Customer Deposits 825,529.1 515,708.0 35.67 526,122.4 36.20 472,207.0 27.83 487,081.0 20.28

C. Maturities

Asset Maturities:

Loans & Advances < 3 months n.a. n.a. - n.a. - n.a. - n.a. -

Loans & Advances 3 - 12 Months n.a. n.a. - n.a. - 227,745.0 13.42 338,751.0 14.10

Loans and Advances 1 - 5 Years n.a. n.a. - n.a. - 500,648.0 29.51 535,971.0 22.32

Loans & Advances > 5 years n.a. n.a. - n.a. - n.a. - n.a. -

Debt Securities < 3 Months n.a. n.a. - n.a. - n.a. - n.a. -

Debt Securities 3 - 12 Months n.a. n.a. - n.a. - 69,197.0 4.08 69,912.0 2.91

Debt Securities 1 - 5 Years n.a. n.a. - n.a. - 198,057.0 11.67 197,637.0 8.23

Debt Securities > 5 Years n.a. n.a. - n.a. - n.a. - n.a. -

Interbank < 3 Months n.a. n.a. - n.a. - n.a. - n.a. -

Interbank 3 - 12 Months n.a. n.a. - n.a. - 89,622.0 5.28 133,565.0 5.56

Interbank 1 - 5 Years n.a. n.a. - n.a. - 2,131.0 0.13 4,632.0 0.19

Interbank > 5 Years n.a. n.a. - n.a. - n.a. - n.a. -

Liability Maturities:

Retail Deposits < 3 months n.a. n.a. - n.a. - n.a. - n.a. -

Retail Deposits 3 - 12 Months n.a. n.a. - n.a. - 586,628.0 34.58 611,047.0 25.44

Retail Deposits 1 - 5 Years n.a. n.a. - n.a. - 27,574.0 1.63 28,465.0 1.19

Retail Deposits > 5 Years n.a. n.a. - n.a. - n.a. - n.a. -

Other Deposits < 3 Months n.a. n.a. - n.a. - n.a. - n.a. -

Other Deposits 3 - 12 Months n.a. n.a. - n.a. - n.a. - n.a. -

Other Deposits 1 - 5 Years n.a. n.a. - n.a. - n.a. - n.a. -

Other Deposits > 5 Years n.a. n.a. - n.a. - n.a. - n.a. -

Interbank < 3 Months n.a. n.a. - n.a. - n.a. - n.a. -

Interbank 3 - 12 Months n.a. n.a. - n.a. - 135,641.0 8.00 248,896.0 10.36

Interbank 1 - 5 Years n.a. n.a. - n.a. - 6,503.0 0.38 9,148.0 0.38

Interbank > 5 Years n.a. n.a. - n.a. - n.a. - n.a. -

Senior Debt Maturing < 3 months n.a. n.a. - n.a. - n.a. - n.a. -

Senior Debt Maturing 3-12 Months 169,817.5 106,085.0 7.34 94,048.0 6.47 136,901.0 8.07 174,507.0 7.27

Senior Debt Maturing 1- 5 Years 92,066.6 57,514.0 3.98 71,955.0 4.95 70,437.0 4.15 125,782.0 5.24

Senior Debt Maturing > 5 Years 80,355.4 50,198.0 3.47 52,369.0 3.60 38,991.0 2.30 n.a. -

Total Senior Debt on Balance Sheet 342,239.5 213,797.0 14.79 218,372.0 15.02 246,329.0 14.52 300,289.0 12.50

Fair Value Portion of Senior Debt n.a. n.a. - n.a. - n.a. - n.a. -

Covered Bonds n.a. n.a. - n.a. - n.a. - n.a. -

Subordinated Debt Maturing < 3 months n.a. n.a. - n.a. - n.a. - n.a. -

Subordinated Debt Maturing 3-12 Months n.a. n.a. - n.a. - n.a. - n.a. -

Subordinated Debt Maturing 1- 5 Year n.a. n.a. - n.a. - n.a. - n.a. -

Subordinated Debt Maturing > 5 Years n.a. n.a. - n.a. - n.a. - n.a. -

Total Subordinated Debt on Balance Sheet 35,966.1 22,468.0 1.55 23,210.0 1.60 32,761.0 1.93 41,859.0 1.74

Fair Value Portion of Subordinated Debt n.a. n.a. - n.a. - n.a. - n.a. -

D. Equity Reconciliation

1. Equity 112,292.3 70,149.0 4.85 70,622.0 4.86 83,044.0 4.90 63,755.0 2.65

2. Add: Pref. Shares and Hybrid Capital accounted for as Equity 9,753.5 6,093.0 0.42 6,229.0 0.43 11,587.0 0.68 16,743.0 0.70

3. Add: Other Adjustments n.a. n.a. - n.a. - n.a. - n.a. -

4. Published Equity 122,045.8 76,242.0 5.27 76,851.0 5.29 94,631.0 5.58 80,498.0 3.35

E. Fitch Eligible Capital Reconciliation

1. Total Equity as reported (including non-controlling interests) 112,292.3 70,149.0 4.85 70,622.0 4.86 83,044.0 4.90 63,755.0 2.65

2. Fair value effect incl in own debt/borrowings at fv on the B/S- CC only -4,392.5 -2,744.0 -0.19 -2,950.0 -0.20 -2,798.0 -0.16 -2,823.0 -0.12

3. Non-loss-absorbing non-controlling interests 1,507.9 942.0 0.07 1,163.0 0.08 16,231.0 0.96 19,798.0 0.82

4. Goodwill 0.0 0.0 0.00 0.0 0.00 14,264.0 0.84 15,562.0 0.65

5. Other intangibles 23,358.4 14,592.0 1.01 14,448.0 0.99 3,583.0 0.21 4,487.0 0.19

6. Deferred tax assets deduction 6,211.0 3,880.0 0.27 3,849.0 0.26 5,134.0 0.30 4,730.0 0.20

7. Net asset value of insurance subsidiaries 6,684.8 4,176.0 0.29 3,962.0 0.27 4,200.0 0.25 4,044.0 0.17

8. First loss tranches of off-balance sheet securitizations 19,894.3 12,428.0 0.86 13,092.0 0.90 12,918.0 0.76 1,326.0 0.06

9. Fitch Core Capital 50,243.3 31,387.0 2.17 31,158.0 2.14 23,916.0 1.41 10,985.0 0.46

10. Eligible weighted Hybrid capital 7,952.6 4,968.0 0.34 5,036.0 0.35 8,239.0 0.49 4,707.8 0.20

11. Government held Hybrid Capital 0.0 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00

12. Fitch Eligible Capital 58,195.9 36,355.0 2.51 36,194.0 2.49 32,155.0 1.90 15,692.8 0.65

Exchange Rate

30 Jun 2011

USD1 = GBP0.62470

31 Dec 2010

USD1 = GBP0.63880

31 Dec 2009

USD1 = GBP0.61748

31 Dec 2008

USD1 = GBP0.68597

Banks

The Royal Bank of Scotland Group plc

September 2011 21

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