Contents

Page

Forward-looking statements

2

Introduction

4

Presentation of information

4

Condensed consolidated income statement (unaudited) 

6

Condensed consolidated balance sheet (unaudited) 

7

Highlights

8

Segmental income statement reconciliations

17

Analysis of results

20

Segment performance

30

Statutory results

Condensed consolidated income statement (unaudited) 

68

Condensed consolidated statement of comprehensive income (unaudited) 

69

Condensed consolidated balance sheet (unaudited) 

70

Condensed consolidated statement of changes in equity (unaudited) 

71

Condensed consolidated cash flow (unaudited) 

73

Notes

74

Risk factors

114

Statement of directors’ responsibilities

117

Additional information

Share information

118

Other financial data

119

Appendix 1 – Capital and risk management

Signature page

●

‘Adjusted’ measures of financial performance, principally operating profit, operating expenses, total income and other performance measures before: own credit adjustments; gain or loss on redemption of own debt; strategic disposals, restructuring costs and litigation and conduct costs;

●

Certain performance ratios based on the adjusted performance measures described above, including the adjusted cost:income ratio (calculated using adjusted operating income and costs), adjusted return on equity ratio (calculated using adjusted operating profit) and the 2017 cost saving progress and targets (calculated using operating expenses excluding litigation and conduct costs, restructuring costs, the operating costs of Williams & Glyn and the VAT recoveries);

●

Personal & Business Banking (PBB) franchise results, combining the reportable segments of UK Personal & Business Banking (UK PBB) and Ulster Bank RoI, Commercial & Private Banking (CPB) franchise results, combining the reportable segments of Commercial Banking, Private Banking and RBS International (RBSI) and ‘core businesses’ results combining PBB, CPB and NatWest Markets results which are presented to provide investors with a summary of the Group’s business performance.

●

Reconciliations of these non-GAAP measures to the closest equivalent GAAP measure are presented throughout this document and on pages 17 to 19.

●

4 August 2017 - the redemption on 3 December 2017 of the Non-cumulative Sterling Preference Shares Series 1 (ADS ISIN: XS0121856859). The redemption of these debt accounted Preference Shares is to be paid out of the distributable reserves of RBSG and will reduce subordinated liabilities by approximately £15 million;

●

7 August 2017 - the redemption on 4 September 2017 of series F (ADS CUSIP: 780097804 ADS ISIN: US7800978048), series H (ADS CUSIP: 780097879; ADS ISIN: US7800978790), and series L (ADS CUSIP: 780097788; ADS ISIN: US7800977883) Non-cumulative Dollar Preference Shares and the redemption on 3 December 2017 of the Non-cumulative Series 1 Dollar Preference Shares (ADS CUSIP: 780097AE1; ADS ISIN: US780097AE13). The redemption of these debt accounted Preference Shares is to be paid out of the distributable reserves of RBSG and will reduce subordinated liabilities by approximately £0.93 billion (sterling equivalent); and

●

7 August 2017 - the redemption on 5 October 2017 of the outstanding CAD600,000,000 Fixed/Floating Undated Callable StepUp Tier 1 Notes (the "CAD Tier 1 Notes") (ISIN: CA780097AT83 / CUSIP: 780097AT8 / Common Code: 032385311) and the outstanding $1,600,000,000 Fixed Rate/Floating Rate Preferred Capital Securities (the "USD Capital Securities") (ISIN: US780097AS09 /XS0323865047 / CUSIP: 780097AS0 / Common Code: 32386504). The redemption of these securities will reduce the additional paid-in equity of RBSG by approximately £0.43 billion (sterling equivalent).

Half year ended

30 June

30 June

2017 

2016 

£m 

£m 

Interest receivable

5,462 

5,692 

Interest payable

(990)

(1,359)

Net interest income (1) 

4,472 

4,333 

Fees and commissions receivable

1,666 

1,676 

Fees and commissions payable

(448)

(392)

Income from trading activities

884 

(17)

Loss on redemption of own debt

(7)

(130)

Other operating income

352 

594 

Non-interest income

2,447 

1,731 

Total income

6,919 

6,064 

Staff costs

(2,447)

(2,695)

Premises and equipment

(678)

(652)

Other administrative expenses

(1,208)

(2,139)

Depreciation and amortisation

(511)

(354)

Write down of other intangible assets

(8)

(89)

Operating expenses

(4,852)

(5,929)

Profit before impairment losses

2,067 

135 

Impairment losses

(116)

(409)

Operating profit/(loss) before tax

1,951 

(274)

Tax charge

(727)

(340)

Profit/(loss) for the period

1,224 

(614)

Attributable to:

Non-controlling interests

29 

30 

Preference share and other dividends

256 

208 

Dividend access share

- 

1,193 

Ordinary shareholders

939 

(2,045)

1,224 

(614)

Earnings/(loss) per ordinary share (EPS)

Basic earnings/(loss) per ordinary share (2)

7.9p

(17.6p)

(1)

Negative interest on loans and advances is classed as interest payable. Negative interest on customer deposits classed as interest receivable. HY 2016 has been

re-presented accordingly.

(2)

There is no dilutive impact in any period.

30 June

31 December

2017

2016 

£m 

£m

Assets

Cash and balances at central banks

86,807 

74,250 

Net loans and advances to banks

20,685 

17,278 

Reverse repurchase agreements and stock borrowing

14,847 

12,860 

Loans and advances to banks

35,532 

30,138 

Net loans and advances to customers

326,059 

323,023 

Reverse repurchase agreements and stock borrowing

25,183 

28,927 

Loans and advances to customers

351,242 

351,950 

Debt securities

86,169 

72,522 

Equity shares

518 

703 

Settlement balances

12,091 

5,526 

Derivatives

193,531 

246,981 

Intangible assets

6,467 

6,480 

Property, plant and equipment

4,823 

4,590 

Deferred tax

1,677 

1,803 

Prepayments, accrued income and other assets

3,797 

3,713 

Total assets

782,654 

798,656 

Liabilities

Bank deposits

38,965 

33,317 

Repurchase agreements and stock lending

5,183 

5,239 

Deposits by banks

44,148 

38,556 

Customer deposits

359,882 

353,872 

Repurchase agreements and stock lending

37,855 

27,096 

Customer accounts

397,737 

380,968 

Debt securities in issue

31,997 

27,245 

Settlement balances

11,379 

3,645 

Short positions

29,862 

22,077 

Derivatives

184,161 

236,475 

Provisions for liabilities and charges

11,227 

12,836 

Accruals and other liabilities

6,603 

7,006 

Retirement benefit liabilities

182 

363 

Deferred tax

585 

662 

Subordinated liabilities

14,724 

19,419 

Total liabilities

732,605 

749,252 

Equity

Non-controlling interests

844 

795 

Owners’ equity*

  Called up share capital

11,876 

11,823 

  Reserves

37,329 

36,786 

Total equity

50,049 

49,404 

Total liabilities and equity

782,654 

798,656 

*Owners’ equity attributable to:

Ordinary shareholders

42,149 

41,462 

Other equity owners

7,056 

7,147 

49,205 

48,609 

●

Core businesses income increased by £305 million, or 5.1% compared with H1 2016. Adjusted core businesses income increased by £496 million⁽¹⁾, or 8.6%, compared with H1 2016. NatWest Markets income increased by 14% to £932 million and adjusted income⁽¹⁾ by 43.9% to £980 million, navigating markets well compared to a more difficult H1 2016. Across PBB and CPB income increased by 3.7% and adjusted income by 3.8%⁽¹⁾ supported by increased lending;

●

Core businesses operating expenses reduced by £185 million or 4.4% compared with H1 2016. Adjusted core businesses operating expenses reduced by £151 million⁽¹⁾, or 4.2%, compared with H1 2016. This represents 25% (31% on an adjusted basis) of our overall cost reduction⁽²⁾ in H1 2017 and we retain our expectation that around half of the full year reduction will be across the core businesses. The cost:income ratio⁽⁶⁾ improved from 97.7% to 69.8% and the adjusted cost:income ratio^(1,6) across the core businesses improved from 61.6% to 54.3%; and

●

Across the core business RWAs reduced by £12.6 billion⁽¹⁾ to £177.2 billion in H1 2017. Excluding volume growth, RWAs reduced by £8.6 billion in H1 2017 and we remain committed to achieving a reduction of at least £20 billion by the end of 2018.

●

Capital Resolution RWAs reduced by £7.9 billion in H1 2017 to £26.6 billion and, excluding RBS’s stake in Alawwal Bank (£7.4 billion at 30 June 2017), are now in the £15-£20 billion range we guided to for the end of 2017;

●

In H1 2017, settlement was reached with the Federal Housing Finance Agency (FHFA) in the US and we also incurred a further provision in relation to settling the 2008 rights issue shareholder litigation; and

●

On 26 July, it was announced that an alternative remedies package, in respect of RBS’s remaining State Aid obligation regarding Williams & Glyn, has now been agreed in principle between HM Treasury (HMT) and the EC Commissioner responsible for competition.

●

RBS reported a profit attributable to ordinary shareholders of £939 million for H1 2017 compared with an attributable  loss of £2,045 million in H1 2016 which included payment of the final Dividend Access Share (DAS) dividend of £1,193 million. 

●

Income of £6,919 million was £855 million, or 14.1%, higher than in H1 2016 reflecting strong income growth across the PBB, CPB and NatWest Markets businesses and a £154 million gain in respect of IFRS volatility, compared with a loss of £668 million in H1 2016.  Adjusted income of £6,843 million⁽⁴⁾ was £1,294 million, or 23.3%, higher than H1 2016.

●

The net interest margin (NIM) was stable on H1 2016 at 2.18%. A 9 basis point reduction across PBB and CPB, associated with asset margin pressure and higher liquidity requirements, has been broadly offset by the benefit of a reduction in low yielding Capital Resolution and centrally held assets, down from 12% of total interest earning assets to 5%.

●

Operating expenses reduced by £1,077 million, or 18.2%. Excluding VAT recoveries of £51 million in H1 2017 and £227 million in H1 2016, adjusted operating expenses⁽⁶⁾  reduced by £494 million, or 11.7%, compared with H1 2016. The cost:income ratio⁽⁶⁾ improved from 97.7% to 69.8%. The adjusted cost:income ratio^(4,5,6) for H1 2017 was 53.1% compared with 71.4% in H1 2016.

●

Restructuring costs were £790 million in H1 2017, an increase of £160 million compared with H1 2016, and included a charge of £217 million relating to the reduction of our property portfolio.

●

Litigation and conduct costs of £396 million include a £151 million charge in respect of the settlement with the FHFA and a £25 million charge relating to the settlement of the UK 2008 rights issue shareholder litigation.

●

A net impairment loss of £116 million, 7 basis points of gross customer loans, compared with a loss of £409 million in H1 2016, with the reduction principally reflecting a £264 million shipping impairment in H1 2016. REIL represented 2.8% of gross customer loans compared with 3.5% at 30 June 2016 and 2.9% at 31 March 2017.

●

A gain of £156 million was recognised in relation to the disposal of RBS’s stake in Vocalink.

●

PBB and CPB net loans and advances have increased by 4.1% on an annualised basis in H1 2017 principally driven by mortgage growth within UK PBB.

●

H1 2017 lending growth has been achieved while remaining within our risk appetite. Personal mortgage lending represented 49% of net loans and advances, compared with 47% as at 31 December 2016, whilst personal unsecured and commercial real estate were flat over the first half at 4% and 8% respectively. Overall LTV across our mortgage portfolio was stable at 58%.  

●

Across our three customer facing businesses, PBB, CPB and NatWest Markets, operating profit of £2,102 million⁽¹⁾ was £706 million, or 50.6%, higher than H1 2016. Adjusted operating profit of £2,678⁽¹⁾ million was £608 million, or 29.4%, higher than H1 2016.

●

UK PBB operating profit of £1,097 million was £564 million, or 105.8% higher than H1 2016. Adjusted operating profit of £1,270 million⁽¹⁾ was £205 million, or 19.2%, higher than H1 2016. Total income of £2,755 million was £140 million, or 5.4%, higher driven by increased lending, with net loans and advances 9.9% higher at £138.5 billion.    

●

Ulster Bank RoI operating profit of £11 million was £3 million, or 37.5%, higher than in H1 2016 principally reflecting lower operating expenses. Adjusted profit of £90 million⁽¹⁾ was £32 million, or 26.2%, lower than H1 2016 principally reflecting a lower net impairment release and reduced income on free funds. 

●

Commercial Banking operating profit of £660 million was £48 million, or 7.8%, higher than H1 2016, primarily reflecting reduced expenses associated with lower headcount and an intangible asset write-down in H1 2016. Adjusted operating profit of £781 million⁽¹⁾ was £118 million, or 17.8%, higher than H1 2016. In addition income was £51 million, or 3.0%, higher at £1,750 million driven by customer deposit growth and re-pricing benefits across lending and deposits.

●

Private Banking operating profit of £82 million was £31 million, or 60.8%, higher than H1 2016, driven by a £46 million, or 16.5%, reduction in operating expenses principally reflecting cost reduction initiatives. Adjusted operating profit of £96 million⁽¹⁾  was £23 million, or 31.5%, higher than H1 2016.

●

RBS International operating profit of £96 million reduced by £7 million, or 6.6%, compared with H1 2016, driven by a £23 million, or 32.4%, increase in operating expenses principally reflecting increased regulatory costs in relation to ring-fencing. RBS international adjusted operating profit of £100 million⁽¹⁾ reduced by £6 million, or 5.7%, compared with H1 2016.

●

NatWest Markets operating profit of £156 million compared with £89 million in H1 2016. An adjusted operating profit⁽¹⁾ of £341 million compared with £41 million in H1 2016. Total income of £932 million was £114 million, or 13.9%, higher than in H1 2016. Adjusted income  of £980 million⁽¹⁾ was £299 million, or 43.9%, higher than H1 2016.

●

Capital Resolution operating loss of £563 million was £350 million lower that in H1 2016, principally due to a net impairment release compared with a loss in H1 2016 and lower adjusted operating expenses^(1). Operating expenses increased by £61 million to £539 million, principally reflecting increased restructuring costs and litigation and conduct costs. Adjusted operating loss of £135 million⁽¹⁾ was £848 million lower than H1 2016 principally reflecting materially lower disposal losses and impairment charges in H1 2017 and a £282 million, or 68.0%, reduction in adjusted operating expenses to £133 million. RWAs of £26.6 billion were £15.7 billion, or 37.1%, lower than H1 2016.

●

Williams & Glyn operating profit increased by £82 million to £234 million driven by reduced operating expenses, reflecting a substantial reduction in headcount.  Adjusted operating profit increased by £37 million⁽¹⁾, or 18.8%, to £234 million driven by a £39 million, or 19.8%.

●

Central items operating profit of £178 million compared with a loss of £909 million in H1 2016. Adjusted operating profit  of £284 million⁽¹⁾, compared with a loss of £128 million in H1 2016, and included a £51 million VAT recovery (H1 2016 - £227 million) a £154 million gain in respect of IFRS volatility (H1 2016 - £668 million loss).

●

A profit attributable to ordinary shareholders £680 million compared with a loss of £1,077 million in Q2 2016 and a profit of £259 million in Q1 2017. The Q2 2016 loss included litigation and conduct costs of £1,284 million.  

●

An operating profit of £1,238 million compared with an operating loss of £695 million in Q2 2016 and an operating profit of £713 million in Q1 2017. An adjusted operating profit of £1,690 million⁽³⁾ was £974 million higher than Q2 2016 and was £319 million above Q1 2017 principally reflecting an IFRS volatility gain of £172 million, compared with a loss of £18 million in Q1 2017.

●

Across our three customer facing businesses, PBB, CPB and NatWest Markets, operating profit of £1,181 million was £798 million higher than Q2 2016. Adjusted operating profit ⁽of £1,352 million⁽¹⁾ was £305 million, or 29.1%, higher than Q2 2016.

●

Q2 2017 NIM of 2.13% was 8 basis points lower than Q2 2016 principally reflecting the impact of asset margin pressure and mix impacts across the core businesses. Compared with Q1 2017, NIM reduced by 11 basis points to 2.13%, with the majority of the reduction driven by a conscious build-up in liquidity as we manage for litigation and conduct costs, including FHFA, and accelerate MREL and other wholesale funding plans into H1 2017. In addition, conditions in the UK mortgage market have become more competitive, contributing to a 9 basis point reduction in UK PBB NIM.

●

Net loans and advances across PBB and CPB increased by £1.8 billion in the quarter to £277.7 ⁽⁷⁾  billion driven by mortgage growth in UK PBB.

●

The CET1 ratio remains ahead of our 13% target at 14.8%, a 140 basis point increase on Q4 2016 driven by a £12.8 billion reduction in RWAs and the £939 million attributable profit.

●

RWAs decreased by £12.8 billion compared with Q4 2016 principally reflecting £7.9 billion of disposals and run-off in Capital Resolution and planned RWA reductions in the core businesses. Excluding volume growth, core RWAs reduced by £8.6 billion comprising £0.7 billion in PBB, £4.4 billion in CPB and £3.5 billion in NatWest Markets.

●

During H1 2017, RBS has issued a Sterling equivalent of £3.6 billion (€1.5 billion and $3.0 billion) of senior holding company (RBSG) debt which it expects to be eligible to meet its ‘Minimum Requirement for Own Funds and Eligible Liabilities’ (MREL). Total estimated ‘Loss Absorbing Capital’ (LAC) is now £54.9 billion, or 25.5% of RWAs. In addition, RBS successfully completed its first covered bond issuance in over five years comprising €1.25 billion 7 year and £1.25 billion three year tranches.

●

During H1 2017, RBS successfully redeemed £4.1 billion Sterling equivalent of legacy capital securities through calls and repurchase. RBS has decided not to exercise the current call option on the non-cumulative US Dollar preference share series U and Euro Preference Shares Series 3. RBS has instead prioritised calling nine other legacy Tier 1 instruments with higher economic benefit. Further details are available in the Capital, liquidity and funding risk section on page 2.

●

Leverage ratio was stable on Q4 2016 at 5.1%.

●

Risk elements in lending (REIL) of £9.3 billion were £1.0 billion lower than 31 December 2016 and represented 2.8% of gross customer loans, compared with 3.1% at 31 December 2016 and 3.5% as at 30 June 2016. Excluding REIL in Capital Resolution and Ulster Bank RoI, REIL were £4.0 billion or 1.3% of the respective gross customer loans.

●

As at 30 June 2017, there has been no material change to the surplus ratio of assets to liabilities in the Main Scheme of The Royal Bank of Scotland Group Pension Fund which at 31 December was c.115% under IAS valuation principles.

●

RBS has continued to utilise the Bank of England’s Term Funding Scheme with £9 billion drawn since 31 December 2016, taking total RBS participation to £14 billion as at 30 June 2017.

●

On 15 June 2017, Moody’s announced that they had upgraded their senior debt rating of The Royal Bank of Scotland Group plc (RBS Group) by one notch to Baa3 from Ba1. As a result, all three ratings agencies have now given RBS Group an investment grade senior debt rating.

●

RBS continued to deliver strong support for both household and business customers. Within UK PBB, gross new mortgage lending was £14.5 billion, with market share of new mortgages at approximately 12% supporting growth in stock share to approximately 9.1%, up from 8.8% at 31 December 2016. Positive momentum continued across business banking lending with net balances up 4%, excluding transfers of £0.6 billion from Commercial Banking as at 30 June 2017, compared with H1 2016.  

●

RBS continued to enhance the capability of its mobile app, with a corresponding increase in customer usage. We now have 5.0 million customers regularly using the app, up 19% on FY 2016. In the final month of H1 2017 customers logged into the app an average of 58 times a second and sent close to ten million payments. RBS remains the only UK bank to allow customers to use the app to withdraw money from a cash machine without needing to carry a debit card, with customers now using the ‘Get Cash’ service over 200,000 times a month.

●

We continued to improve our product and service delivery channels to support our lending and income growth targets. In mortgages, while in the past a mortgage renewal would have required an appointment at a branch or a phone call, Royal Bank and NatWest customers can now renew online in a matter of minutes, with close to 19,000 customers renewing online in H1 2017. In addition, for new customers we have piloted a paperless mortgage process which has cut the time taken to issue a firm offer in half, to around ten days.

●

During H1 2017, RBS launched NatWest Invest, our new digital investment service, which offers NatWest personal and private customers the opportunity to select their own investment online, from a range of five personal portfolio funds.

●

NatWest Markets has reviewed ways to minimise disruption to the business and continue to serve its customers well in the event of any loss of EU passporting. Should the outcome of the current EU separation negotiations make it necessary, NatWest Markets is ensuring our existing RBS N.V. banking licence in the Netherlands is operationally ready.

(1)

Refer to the income statement reconciliations on page 17.

(2)

Total operating expenses excluding restructuring costs (H1 2017 - £790 million and H1 2016 - £630 million), litigation and conduct costs (H1 2017 - £396 million and H1 2016 - £1,315 million) and VAT recoveries (H1 2017 - £51 million and H1 2016 - £227 million).

(3)

Operating profit before tax excluding own credit adjustments (H1 2017 - £73 million loss; Q2 2017 - £44 million loss; H1 2016 - £450 million gain; Q1 2017 - £29 million loss; Q2 2016 - £194 million gain), redemption of own debt (H1 2017 - £7 million loss; Q2 2017 - £9 million loss; H1 2016 - £130 million loss; Q1 2017 - £2 million gain; Q2 2016 - £130 million loss), strategic disposals (H1 2017 - £156 million gain; Q2 2017 - £156 million gain; H1 2016 - £195 million gain; Q1 2017 - nil; Q2 2016 - £201 million gain), restructuring costs (H1 2017 - £790 million; Q2 2017 - £213 million; H1 2016 - £630 million; Q1 2017 - £577 million; Q2 2016 - £392 million), and litigation and conduct costs (H1 2017 - £396 million; Q2 2017 - £342 million; H1 2016 - £1,315 million; Q1 2017 - £54 million; Q2 2016 - £1,284 million).

(4)

Total income excluding own credit adjustments (H1 2017 - £73 million loss; Q2 2017 - £44 million loss; H1 2016 - £450 million gain; Q1 2017 - £29 million loss; Q2 2016 - £194 million gain), redemption of own debt (H1 2017 - £7 million loss; Q2 2017 - £9 million loss; H1 2016 - £130 million loss; Q1 2017 - £2 million gain; Q2 2016 - £130 million loss) and strategic disposals (H1 2017 - £156 million gain; Q2 2017 - £156 million gain; H1 2016 - £195 million gain; Q1 2017 - nil; Q2 2016 - £201 million gain)

(5)

Total operating expenses excluding restructuring costs (H1 2017 - £790 million; Q2 2017 - £213 million; H1 2016 - £630 million; Q1 2017 - £577 million; Q2 2016 - £392 million), and litigation and conduct costs (H1 2017 - £396 million; Q2 2017 - £342 million; H1 2016 - £1,315 million; Q1 2017 - £54 million; Q2 2016 - £1,284 million).

(6)

Operating lease depreciation included in income (H1 2017 - £72 million; Q2 2017 - £36 million, H1 2016 - £76 million; Q1 2017 - £36 million and Q2 2016 - £38 million).

(7)

Refer to the segmental performance section on pages 30 to 31.

Q2 2016

Q1 2017

Q2 2017

Personal Banking

NatWest (England & Wales)⁽¹⁾

12

15

13

Royal Bank of Scotland (Scotland)⁽¹⁾

(7)

(13)

(21)

Ulster Bank (Northern Ireland)⁽²⁾

(16)

(15)

(8)

Ulster Bank (Republic of Ireland)⁽²⁾

(11)

(8)

(5)

Business Banking

NatWest (England & Wales)⁽³⁾

4

(3)

(8)

Royal Bank of Scotland (Scotland)⁽³⁾

(4)

(7)

(12)

Business & Commercial

Ulster Bank (Northern Ireland)⁽⁴⁾

3

(6)

(5)

Ulster Bank (Republic of Ireland)⁽⁵⁾

N/A

N/A

13

Commercial Banking⁽⁶⁾

18

21

22

Q2 2016

Q1 2017

Q2 2017

Customer trust⁽⁷⁾

NatWest (England & Wales)

48

55

58

Royal Bank of Scotland (Scotland)

23

28

27

(1)

Source: GfK FRS 6 month rolling data. Latest base sizes: NatWest (England & Wales) (3365) Royal Bank of Scotland (Scotland) (510). Based on the question: "How likely is it that you would recommend (brand) to a relative, friend or colleague in the next 12 months for current account banking?“ Base: Claimed main banked current account customers.

(2)

Source: Coyne Research 12 month rolling data. Latest base sizes: Ulster Bank NI (309) Ulster Bank RoI (273) Question: “Please indicate to what extent you would be likely to recommend (brand) to your friends or family using a scale of 0 to 10 where 0 is not at all likely and 10 is extremely likely”.   

(3)

Source: Charterhouse Research Business Banking Survey, YE Q2 2017.  Based on interviews with businesses with an annual turnover up to £2 million. Latest base sizes: NatWest England & Wales (1228), RBS Scotland (401). Question: “How likely would you be to recommend (bank)”. Base: Claimed main bank. Data weighted by region and turnover to be representative of businesses in Great Britain.

(4)

Source: Charterhouse Research Business Banking Survey, YE Q2 2017.  Based on interviews with businesses with an annual turnover up to £1 billion. Base size: 383. Question: “How likely would you be to recommend (bank)”. Base: Claimed main bank. Data weighted by region and turnover to be representative of businesses in Northern Ireland.

(5)

Source: Red C SME survey based on interviews with businesses with an estimated annual turnover of €2-25m (6-monthly study only).  Latest sample size: Ulster Bank (252).

(6)

Source: Charterhouse Research Business Banking Survey, YE Q2 2017.  Commercial £2m+ in GB (RBSG sample size, excluding don’t knows: 913).  Question: “How likely would you be to recommend (bank)”. Base: Claimed main bank. Data weighted by region and turnover to be representative of businesses in Great Britain.

(7)

Source: Populus. Latest quarter’s data. Measured as a net of those that trust RBS/NatWest to do the right thing, less those that do not. Latest base sizes: NatWest,

England & Wales (942), RBS Scotland (206).

●

Following a resolution at the parent company’s 2017 Annual General Meeting, on 15 June 2017 we announced completion of the legal capital reduction process to cancel the share premium account and capital redemption reserve whose combined balances were £30.3 billion. As a result, the parent company’s retained earnings increased by an equal amount. There has been no change in the interests of ordinary and preference shareholders.

●

RBS continues to work towards the implementation of IFRS 9 on 1 January 2018.  In terms of shareholders equity, RBS’s current estimate of the opening balance sheet adjustment, if applied on 1 July 2017, is to increase credit impairment provisions by £0.5 billion before tax.  Separately, there is an increase in asset values of £1.0 billion before tax in respect of changes on classification and measurement.  This results in a net increase in shareholders equity, after tax, of £0.4 billion.  As at end Q2 2017, this would have equated to an increase in tangible net asset value per share of approximately 3 pence per share

●

In terms of CET1 capital, under the current rules, the increase in credit impairment provisions is fully offset by a reduction in the regulatory expected loss deduction, so is anticipated  to have no CET1 capital impact.  The increase in asset values of £1.0 billion noted above is partially offset by tax and an expected additional prudential valuation deduction driving an overall increase in CET1 capital of some £0.6 billion.  As at end Q2 2017, this would have equated to an increase in the CET1 ratio of approximately 30 basis points.

●

RBS will continue to calibrate and refine its models and methodologies during 2017 and 2018 which may impact IFRS 9 at adoption on 1 January 2018; changes will also follow from disposals, changes in the portfolio composition, economic or credit conditions. For further information on the implementation of IFRS 9 refer to pages 397 to 401 of the 2016 Annual Report on Form 20-F.

Strategy goal

2017 target

Q2 2017 Progress

Strength and sustainability

Maintain bank CET1 ratio of 13%

CET1 ratio of 14.8%; up 70 basis points from Q1 2017 and 140 basis points from Q4 2016

Customer experience

Significantly increase NPS or maintain No.1 in chosen customer segments

Our Commercial Banking franchise remains a clear market leader. We still have significant work to do to improve customer experience across some of our other businesses and brands

Simplifying the bank

Reduce operating expenses by at least £750 million ⁽²⁾

Operating expenses down £494 ⁽³⁾ million, or 11.7%, excluding VAT recoveries; 66% of the total full year target

Supporting growth

Net 3% growth on total PBB and CPB loans to customers

Net customer loans in PBB and CPB are up 4.1% on an annualised basis for the year to date; 69% of the total full year target

Employee engagement

Improve employee engagement

Employee engagement improved by 4 points in H1 2017

(1)

The expectations and trends discussed in this section represent management’s current expectations and are subject to change, including as a result of the factors described in this document and in the “Risk Factors” on pages 509 to 578 of the 2016 Annual Report on form 20-F. These statements constitute forward-looking statements; refer to Forward-looking statements in this announcement.

(2)

Cost saving target and progress 2017 calculated using operating expenses excluding restructuring costs, litigation and conduct costs, write down of goodwill and VAT recoveries.

(3)

Total operating expenses excluding restructuring costs (H1 2017 - £790 million and H1 2016 - £630 million), litigation and conduct costs (H1 2017 - £396 million and H1 2016 - £1,315 million) and VAT recoveries (H1 2017 - £51 million and H1 2016 - £227 million).

●

On 26 July, RBS announced that it had been informed by HM Treasury (HMT) that, following the consultation process carried out by the European Commission (EC) and a market testing exercise carried out by HMT, an alternative remedies package has now been agreed in principle between HMT and the EC Commissioner responsible for competition.     

●

This revised package is focused on the following two remedies to promote competition in the market for banking services to small and medium enterprises (“SMEs”) in the UK.

○

A £425 million Capability and Innovation Fund, to be administered by an independent body, that will grant funding to a range of competitors in the UK banking and financial technology sectors; and

○

An Incentivised Switching Scheme which will provide £275 million of funding for eligible challenger banks to help them incentivise SME customers of the business previously described as Williams & Glyn to switch their accounts and loans from RBS paid in the form of “dowries” to the receiving bank. An additional £75 million will be made available by RBS to cover customers’ costs of switching.

●

This revised package will be submitted to the EC’s College of Commissioners for approval and if agreed will form the basis of a new term sheet in relation to RBS’s remaining State Aid commitments. It is expected to come into effect during H2 2017, upon which RBS will no longer be obliged to achieve separation and divestment of the business previously described as Williams & Glyn by 31 December 2017.

●

A £750 million provision was recognised in RBS’s 2016 Annual Results in relation to the previously proposed package of measures. An incremental charge of £50 million has been recognised in Q2 2017 in relation to the revised package and its implementation costs, taking the total provision to £800 million.

●

RBS will incur running costs for the duration of the scheme, which are estimated at around £35 million and will be substantially incurred before the end of 2019. Furthermore, under the terms of the revised package, should the uptake within the Incentivised Switching Scheme not be sufficient, RBS could be required to make a further contribution, capped at £50 million.

●

We retain the 2017 full year financial guidance and medium term financial outlook we provided in the 2016 Annual Results document. In addition, and subject to providing substantially for remaining significant legacy issues in 2017, our expectation remains that we will be profitable in 2018.

●

Excluding RBS’s stake in Alawwal Bank, we now expect that Capital Resolution RWAs will be at the lower end of our previous £15-£20 billion guidance for end 2017. We anticipate that Capital Resolution disposal losses will be substantially higher in H2 2017, at around £0.7 billion.

●

In Q3 2017 we expect to recognise a debt sale gain of approximately £160 million in UK PBB.

PBB

CPB

Central

Ulster

Commercial

Private

RBS

NatWest

Capital

Williams

 items &

Total

UK PBB

Bank RoI

Banking

Banking

International

Markets

Resolution

& Glyn

other  

RBS

Half year ended 30 June 2017

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

Income statement

Total income - statutory

2,755 

293 

1,750 

321 

195 

932 

(102)

417 

358 

6,919 

Own credit adjustments

- 

3 

- 

- 

- 

48 

22 

- 

- 

73 

Loss on redemption of own debt

- 

- 

- 

- 

- 

- 

- 

- 

7 

7 

Strategic disposals

- 

- 

- 

- 

- 

- 

- 

- 

(156)

(156)

Total income - adjusted

2,755 

296 

1,750 

321 

195 

980 

(80)

417 

209 

6,843 

Operating expenses - statutory

(1,586)

(293)

(996)

(232)

(94)

(775)

(539)

(158)

(179)

(4,852)

Restructuring costs  - direct

23 

24 

40 

- 

- 

30 

130 

- 

543 

790 

Restructuring costs  - indirect

137 

19 

77 

14 

4 

73 

4 

- 

(328)

- 

Litigation and conduct costs

13 

33 

4 

- 

- 

34 

272 

- 

40 

396 

Operating expenses - adjusted

(1,413)

(217)

(875)

(218)

(90)

(638)

(133)

(158)

76 

(3,666)

Impairment (losses)/releases

(72)

11 

(94)

(7)

(5)

(1)

78 

(25)

(1)

(116)

Operating profit/(loss) - statutory

1,097 

11 

660 

82 

96 

156 

(563)

234 

178 

1,951 

Operating profit/(loss) - adjusted

1,270 

90 

781 

96 

100 

341 

(135)

234 

284 

3,061 

Additional information

Return on equity (1) 

27.8%

0.8%

8.2%

7.7%

13.1%

2.3%

nm

22.2%

nm

5.6%

Return on equity     - adjusted (1,2) 

32.4%

6.8%

10.1%

9.3%

13.7%

7.2%

nm

22.2%

nm

11.5%

Cost:income ratio (3) 

57.6%

100.0%

55.1%

72.3%

48.2%

83.2%

nm

37.9%

nm

69.8%

Cost:income ratio - adjusted (2,3) 

51.3%

73.3%

47.9%

67.9%

46.2%

65.1%

nm

37.9%

nm

53.1%

Half year ended 30 June 2016

Income statement

Total income - statutory

2,615 

293 

1,699 

331 

185 

818 

(172)

411 

(116)

6,064 

Own credit adjustments

- 

(3)

- 

- 

- 

(137)

(184)

- 

(126)

(450)

Loss on redemption of own debt

- 

- 

- 

- 

- 

- 

- 

- 

130 

130 

Strategic disposals

- 

- 

- 

- 

- 

- 

51 

- 

(246)

(195)

Total income - adjusted

2,615 

290 

1,699 

331 

185 

681 

(305)

411 

(358)

5,549 

Operating expenses - statutory

(2,042)

(312)

(984)

(278)

(71)

(729)

(478)

(242)

(793)

(5,929)

Restructuring costs  - direct

51 

24 

1 

1 

1 

10 

12 

45 

485 

630 

Restructuring costs  - indirect

60 

1 

40 

19 

2 

23 

25 

- 

(170)

- 

Litigation and conduct costs

421 

92 

10 

2 

- 

56 

26 

- 

708 

1,315 

Operating expenses - adjusted

(1,510)

(195)

(933)

(256)

(68)

(640)

(415)

(197)

230 

(3,984)

Impairment (losses)/releases

(40)

27 

(103)

(2)

(11)

- 

(263)

(17)

- 

(409)

Operating profit/(loss) - statutory

533 

8 

612 

51 

103 

89 

(913)

152 

(909)

(274)

Operating profit/(loss) - adjusted

1,065 

122 

663 

73 

106 

41 

(983)

197 

(128)

1,156 

Additional information

Return on equity (1) 

11.9%

0.6%

8.1%

5.1%

15.4%

0.8%

nm

14.3%

nm

(10.3%)

Return on equity  - adjusted (1,2) 

25.5%

9.3%

8.9%

7.6%

15.9%

(0.5%)

nm

18.6%

nm

(3.2%)

Cost:income ratio (3) 

78.1%

106.5%

56.1%

84.0%

38.4%

89.1%

nm

58.9%

nm

97.7%

Cost:income ratio - adjusted (2,3) 

57.7%

67.2%

53.0%

77.3%

36.8%

94.0%

nm

47.9%

nm

71.4%

PBB

CPB

Central

Ulster

Commercial

Private

RBS

NatWest

Capital

Williams

 items &

Total

UK PBB

Bank RoI

Banking

Banking

International

Markets

Resolution

& Glyn

other  

RBS

Quarter ended 30 June 2017

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

Income statement

Total income - statutory

1,378 

148 

885 

161 

97 

444 

(43)

211 

426 

3,707 

Own credit adjustments

- 

2 

- 

- 

- 

28 

15 

- 

(1)

44 

Loss on redemption of own debt

- 

- 

- 

- 

- 

- 

- 

- 

9 

9 

Strategic disposals

- 

- 

- 

- 

- 

- 

- 

- 

(156)

(156)

Total income  - adjusted

1,378 

150 

885 

161 

97 

472 

(28)

211 

278 

3,604 

Operating expenses - statutory

(735)

(151)

(446)

(108)

(48)

(355)

(378)

(74)

(104)

(2,399)

Restructuring costs  - direct

3 

5 

1 

- 

- 

10 

60 

- 

134 

213 

Restructuring costs  - indirect

26 

4 

17 

3 

1 

25 

(12)

- 

(64)

- 

Litigation and conduct costs

9 

33 

1 

- 

- 

3 

266 

- 

30 

342 

Operating expenses - adjusted

(697)

(109)

(427)

(105)

(47)

(317)

(64)

(74)

(4)

(1,844)

Impairment (losses)/releases

(40)

(13)

(33)

(4)

2 

(1)

33 

(14)

- 

(70)

Operating profit/(loss) - statutory

603 

(16)

406 

49 

51 

88 

(388)

123 

322 

1,238 

Operating profit/(loss) - adjusted

641 

28 

425 

52 

52 

154 

(59)

123 

274 

1,690 

Additional information

Return on equity (1) 

30.8%

(2.4%)

10.7%

9.6%

14.0%

2.9%

nm

23.5%

nm

8.0%

Return on equity  - adjusted (1,2) 

32.8%

4.3%

11.4%

10.3%

14.3%

6.6%

nm

23.5%

nm

12.9%

Cost:income ratio (3) 

53.3%

102.0%

48.3%

67.1%

49.5%

80.0%

nm

35.1%

nm

64.4%

Cost :ncome ratio - adjusted (2,3) 

50.6%

72.7%

46.1%

65.2%

48.5%

67.2%

nm

35.1%

nm

50.7%

Quarter ended 31 March 2017

Income statement

Total income - statutory

1,377 

145 

865 

160 

98 

488 

(59)

206 

(68)

3,212 

Own credit adjustments

- 

1 

- 

- 

- 

20 

7 

- 

1 

29 

Gain on redemption of own debt

- 

- 

- 

- 

- 

- 

- 

- 

(2)

(2)

Total income  - adjusted

1,377 

146 

865 

160 

98 

508 

(52)

206 

(69)

3,239 

Operating expenses - statutory

(851)

(142)

(550)

(124)

(46)

(420)

(161)

(84)

(75)

(2,453)

Restructuring costs  - direct

20 

19 

39 

- 

- 

20 

70 

- 

409 

577 

Restructuring costs  - indirect

111 

15 

60 

11 

3 

48 

16 

- 

(264)

- 

Litigation and conduct costs

4 

- 

3 

- 

- 

31 

6 

- 

10 

54 

Operating expenses - adjusted

(716)

(108)

(448)

(113)

(43)

(321)

(69)

(84)

80 

(1,822)

Impairment (losses)/releases

(32)

24 

(61)

(3)

(7)

- 

45 

(11)

(1)

(46)

Operating profit/(loss) - statutory

494 

27 

254 

33 

45 

68 

(175)

111 

(144)

713 

Operating profit/(loss) - adjusted

629 

62 

356 

44 

48 

187 

(76)

111 

10 

1,371 

Additional information

Return on equity (1) 

24.8%

4.0%

5.7%

6.0%

12.0%

1.7%

nm

20.9%

nm

3.1%

Return on equity  - adjusted (1,2) 

32.0%

9.3%

8.9%

8.6%

13.0%

7.9%

nm

20.9%

nm

9.7%

Cost:income ratio (3) 

61.8%

97.9%

62.0%

77.5%

46.9%

86.1%

nm

40.8%

nm

76.1%

Cost:income ratio - adjusted (2,3) 

52.0%

74.0%

49.7%

70.6%

43.9%

63.2%

nm

40.8%

nm

55.8%

PBB

CPB

Central

Ulster

Commercial

Private

RBS

NatWest

Capital

Williams

 items &

Total

UK PBB

Bank RoI

Banking

Banking

International

Markets

Resolution

& Glyn

other  

RBS

Quarter ended 30 June 2016

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

Income statement

Total income - statutory

1,340 

135 

846 

166 

95 

477 

(325)

206 

60 

3,000 

Own credit adjustments

- 

- 

- 

- 

- 

(73)

(76)

- 

(45)

(194)

Loss on redemption of own debt

- 

- 

- 

- 

- 

- 

- 

- 

130 

130 

Strategic disposals

- 

- 

- 

- 

- 

- 

45 

- 

(246)

(201)

Total income  - adjusted

1,340 

135 

846 

166 

95 

404 

(356)

206 

(101)

2,735 

Operating expenses - statutory

(1,292)

(202)

(546)

(125)

(35)

(368)

(220)

(124)

(597)

(3,509)

Restructuring costs - direct

38 

18 

- 

- 

1 

10 

5 

25 

295 

392 

Restructuring costs - indirect

51 

1 

41 

4 

1 

11 

16 

- 

(125)

- 

Litigation and conduct costs

421 

92 

8 

2 

- 

38 

16 

- 

707 

1,284 

Operating expenses - adjusted

(782)

(91)

(497)

(119)

(33)

(309)

(183)

(99)

280 

(1,833)

Impairment (losses)/releases

(24)

14 

(89)

- 

(9)

- 

(67)

(11)

- 

(186)

Operating profit/(loss) - statutory

24 

(53)

211 

41 

51 

109 

(612)

71 

(537)

(695)

Operating profit/(loss) - adjusted

534 

58 

260 

47 

53 

95 

(606)

96 

179 

716 

Additional information

Return on equity (1) 

(0.4%)

(8.2%)

4.9%

8.6%

15.0%

4.3%

nm

13.3%

nm