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The Royal Bank of Scotland Plc Annual Report and Accounts 2020 Strategic Report

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The Royal Bank of Scotland plc Annual Report and Accounts 2020 Strategic report Page Principal activities and operating segments Strategic report RBS plc serves customers across the UK with a range of retail and Presentation of information 2 commercial banking products and services. A wide range of personal Description of business 2 products are offered including current accounts, credit cards, personal Performance overview 2 loans, mortgages and wealth management services. The reportable Stakeholder engagement and s.172(1) statement 3 operating segments are as follows: Board of directors and secretary 5 Financial review 6 Retail Banking serves individuals and mass affluent customers in the UK. Risk and capital management 8 Report of the directors 65 Commercial Banking serves start-up, SME, commercial and corporate Statement of directors’ responsibilities 70 customers in the UK. Financial statements 71 Private Banking serves UK-connected high net worth individuals and Presentation of information their business interests. The Royal Bank of Scotland plc (‘RBS plc’) is a wholly-owned subsidiary of NatWest Holdings Limited (‘NWH Ltd’ or ‘the intermediate Central items & other comprises treasury activity on behalf of RBS plc holding company’). The term ‘NWH Group’ refers to NWH Ltd and its and also RBS plc’s service and functions activities. subsidiary and associated undertakings. NatWest Group plc (renamed from the Royal Bank of Scotland Group plc (‘RBSG plc’) on 22 July Performance overview 2020) is ‘the ultimate holding company’. The term ‘NatWest Group’ refers to NatWest Group plc and its subsidiary and associated Profit for 2020 was £366 million, compared with £660 million in 2019, undertakings. driven mainly by an increase in impairment losses due to the impact of the COVID-19 pandemic on the economic outlook. RBS plc publishes its financial statements in pounds sterling (‘£’ or ‘sterling’). The abbreviations ‘£m’ and ‘£bn’ represent millions and Total income in 2020 was £1,932 million, compared with £2,379 million thousands of millions of pounds sterling, respectively, and references in 2019, impacted by contraction of the yield curve, as well as lower to ‘pence’ represent pence in the United Kingdom (‘UK’). Reference to business activity and consumer spending resulting from government ‘dollars’ or ‘$’ are to United States of America (‘US’) dollars. The measures in response to COVID-19. The income trend in RBS plc abbreviations ‘$m’ and ‘$bn’ represent millions and thousands of remained downward in 2020 due to continued run-off of mortgage millions of dollars, respectively, and references to ‘cents’ represent portfolios in Retail Banking, with intermediary new lending being cents in the US. The abbreviation ‘€’ represents the ‘euro’, and the originated through the NatWest Bank business. abbreviations ‘€m’ and ‘€bn’ represent millions and thousands of millions of euros, respectively, and references to ‘cents’ represent The decrease in income was partially offset by a decrease in operating cents in the European Union (‘EU’). expenses which were £874 million, compared with £1,174 million in 2019, primarily due to a £334 million PPI conduct charge booked in To aid readability, this document retains references to EU legislative 2019 of which £100 million was released in 2020. and regulatory provisions in effect in the UK before 1 January 2021 that have now been implemented in UK domestic law. These The net impairment charge for 2020 was £690 million, compared with references should be read and construed as including references to £207 million in 2019, predominantly reflecting charges in the first half the applicable UK implementation measures with effect from 1 January of 2020 due to the uncertain economic outlook. 2021. An operating profit before tax of £366 million is mainly driven by £373 Description of business million profit before tax in Retail Banking, and a £52 million loss before The principal entities under NWH Ltd are National Westminster Bank tax in Commercial Banking. Plc (which wholly owns Ulster Bank Limited), The Royal Bank of Scotland plc and Ulster Bank Ireland DAC. The CET1 capital ratio increased in 2020 to 17.6% from 13.2% reflecting the attributable profit and transitional arrangements on expected credit losses, which offset the impact of the increased impairment losses. Total RWAs decreased in 2020 by £3.8 billion to £25.1 billion, reflecting a £2.9 billion decrease in Credit Risk RWAs as well as a £0.9 billion decrease in Operational Risk RWAs following the annual recalculation. The decrease in Credit Risk RWAs was largely driven by RCF repayments in Commercial Banking as well as reduced balances and improved risk metrics for unsecured lending in Retail Banking. RBS plc Annual Report and Accounts 2020 2 Stakeholder engagement and s.172(1) statement Stakeholder engagement and s.172(1) statement In February 2020 the Board approved its annual objectives and existing groups. It continues to provide a valuable mechanism for confirmed the Board’s key stakeholder groups, as set out in this colleagues to gain a greater understanding of the Board’s role and statement. provide feedback to directors. Two-way communication is crucial for During 2020 the Board undertook a variety of activities to engage with both colleagues and directors and embodies NatWest Group’s open stakeholders and bring their voice into the boardroom. Details are set and inclusive culture. out below, together with additional information on related engagement The CAP met four times in 2020 and all meetings were virtual. In activities undertaken within NatWest Group which impacted RBS plc. addition to two scheduled sessions, there were two ad hoc sessions This section of the Strategic Report describes how the directors have which supported additional listening and discussion with directors in had regard to the matters set out in section 172(1) (a) to (f), and forms light of the challenges related to COVID-19. the directors’ statement required under section 414CZA, of the Topics discussed in 2020 in addition to COVID-19 colleague and Companies Act 2006. customer support included embedding purpose, diversity and NatWest Group’s purpose is established by the NatWest Group plc inclusion, innovation, executive pay and sustainable banking. Board, promoted across NatWest Group and cascaded to subsidiaries At Board meetings the CAP Chair provided an update on issues including RBS plc. In February 2020, and following an extensive period discussed at the CAP, and raised specific questions for Board of stakeholder engagement, the NatWest Group plc Board approved a feedback. Afterwards, the CAP Chair shared the Board’s views and new purpose – “We champion potential, helping people, families and feedback with CAP members. Further information on the CAP can be businesses to thrive.” found in the NatWest Group plc 2020 Annual Report and Accounts. Various steps were taken during the year to embed NatWest Group’s Engaging colleagues purpose in Board discussions and decision-making, helping the Board Every year colleagues are asked to share their thoughts on what it’s to ensure different stakeholder needs were considered. The roles and like to work for NatWest Group via a colleague opinion survey. The responsibilities of the Board and its Committees were enhanced to results from the 2020 survey, which were considered by the Board in ensure a strong focus on purpose was built into their respective Terms October 2020, showed a further improvement in colleague sentiment of Reference. Board and Board Committee papers now include a and NatWest Group is now on or above the global financial services dedicated section which explains how the proposal or update aligns to and global high performing norms across all comparable survey NatWest Group’s purpose, which is complemented by a section categories. detailing stakeholder impacts. These features, embedded within the NatWest Group has continued to listen to colleagues throughout NatWest Group Board paper format, help to ensure that purpose and recent times, running ‘COVID-19’ pulse surveys and increasing stakeholders remain firmly at the centre of Board discussions. During dialogue with colleagues on equality and inclusion through a the 2020 Board evaluation, directors commented positively on how ‘Supporting Black, Asian and Minority Ethnic’ colleague survey. NatWest Group’s purpose guided Board discussions and decision- NatWest Group has also continued to take part in the Banking making during the pandemic. Standards Board’s (BSB) annual assessment of culture in UK banking. The majority of the Board’s planned direct engagement activity with In the 2020 BSB survey NatWest Group results overall have improved stakeholders was unfortunately cancelled in 2020, due to COVID-19 slightly. restrictions. Virtual alternatives were arranged where feasible, and Employee consultation directors were kept informed about stakeholder engagement activity Having ongoing discussion and engagement with a number of which was taking place at an operational level via regular and focused employee representatives such as trade unions and work councils is management reporting. Details are set out below. vital and NatWest Group regularly discusses developments and Customers updates on the progress of strategic plans with these groups. During the year, the Board received regular updates on customer Speak Up issues through reports from the Chief Executive Officer (CEO) and One of the ways colleagues can report concerns relating to wrong business
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