Royal Bank of Scotland N.V. Annual Report and Accounts 2017 Annual report and accounts Page Chairman's statement 1 Financial review 2 Presentation of information 2 Description of business 2 Summary consolidated income statement 3 Consolidated balance sheet 4 Capital and risk management 5 Corporate governance 35 Financial statements Consolidated income statement 46 Consolidated statement of comprehensive income 46 Consolidated balance sheet 47 Consolidated statement of changes in equity 48 Consolidated cash flow statement 49 Accounting policies 50 Notes on the consolidated accounts 59 Company financial statements RBS N.V. (Parent Company) 89 Other information 102 Additional information 110 RBS N.V. Annual Report and Accounts 2017 Chairman’s statement In 2017 RBS N.V. (the Group) continued to de-risk its balance Results of operations in 2017 sheet in close consultation with the Group’s regulators. Total Operating loss before tax was €115 million compared with a profit assets reduced to €6.1 billion at the end of 2017 compared with of €92 million in 2016. Total income decreased and expenses €8.3 billion at the end of 2016. In 2017 the Group did not increased in line with the wind-down. The Group’s 2017 results originate new transactions with clients and local banking licences included a number of non-recurring items, including foreign were handed back in a number of countries. Our presence exchange losses reported in income of €163 million compared outside the Netherlands and the UK decreased materially as a with €7 million in 2016, following the repatriation of the proceeds result of the wind-down. from the disposal of foreign operations. Expenses in 2016 included an amount received due to the favourable outcome of a As of 1 January 2017 the Group is classified as a ‘Less legacy litigation case. Significant Institution’. Consequently, De Nederlandsche Bank (DNB) has become the primary regulator for the Group from the Capital and RWA same date. The Group continues to be well capitalised. Total equity as at 31 December 2017 was €2.9 billion, a decrease of €0.2 billion The de-risking and wind-down of the Group is part of the Royal compared with 31 December 2016. At 31 December 2017, the Bank of Scotland Group plc’s (RBS Group) business Group’s Total capital ratio was 25.9% with Common Equity Tier 1 restructuring, as announced in February 2015. The (CET1) and Tier 1 ratios of 24.9%. reorganisation agenda of the RBS Group and the Group are fully aligned. The Group’s total risk-weighted assets were €11.1 billion at 31 December 2017 (2016 - €13.4 billion) of which €7.4 billion (2016 - Idzard van Eeghen, who served on the Managing Board for more €9.2 billion) related to Alawwal Bank, which is proportionally than three years, two years as the Chairman, stepped down on 1 consolidated due to the Group’s 40% equity participation. November 2017. He leaves with our thanks for his dedication and commitment to the Group during that time. On behalf of the Managing Board, I would like to thank all the RBS Group employees who have executed the wind-down and Outlook (1) supported the management of the Group during 2017. In 2017, the RBS Group’s NatWest Markets franchise (NatWest Markets) announced its plan to repurpose the Group’s existing banking licence in the Netherlands. This proposed approach should minimise disruption to the business and allow it to continue to serve customers in the event of any loss of EU passporting after the UK's departure from the EU. NatWest Markets and RBS N.V. are working together to ensure the banking licence is maintained and the entity is made Harm Bots operationally ready. In parallel, work continues to decrease the Chairman of the Managing Board of RBS N.V. RBS N.V. legacy assets and liabilities further. Amsterdam, 24 April 2018 Note: (1) The targets, 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 the Risk factors section on pages 112 to 127 and Forward-looking statements on pages 128 and 129. RBS N.V. Annual Report and Accounts 2017 1 Financial review Presentation of information Description of business In the Report and Accounts and unless specified otherwise, the Introduction term ‘bank’ means The Royal Bank of Scotland N.V., the ‘Group’ The main businesses of RBS N.V., a licensed bank, are lending or ‘RBS N.V.’ means the bank and its subsidiaries, and 'RBS and financial instruments transactions with corporate and Holdings' means RBS Holdings N.V.. RBS Holdings N.V. is the financial institutions. parent company of RBS N.V.. RBSH Group is RBS Holdings and its consolidated subsidiaries and associated companies. The On 1 January 2017, due to the balance sheet reduction, the Royal Bank of Scotland Group plc (RBSG) is the ultimate holding Group’s regulation in the Netherlands, and supervisions company of RBSH Group. RBS Group refers to RBSG and its responsibilities, transferred from the European Central Bank consolidated subsidiaries and associated companies. RBS plc (ECB), under the Single Supervisory Mechanism (a joint refers to The Royal Bank of Scotland plc. Supervisory Team comprising of ECB and De Nederlandsche Bank (DNB), which conducted the day to day prudential Governance and management are conducted on an overall basis supervision oversight), back to DNB. within RBSH Group. Therefore the discussions in this document that refer to RBSH Group also apply to RBS N.V.. The Netherlands Authority for the Financial Markets, Autoriteit Financiële Markten (AFM), is responsible for the conduct The terms 'Consortium' and 'Consortium Members' refer to supervision. RBSG, Stichting Administratiekantoor Beheer Financiële Instellingen (the Dutch State, successor to Fortis) and Banco International Financial Reporting Standards Santander S.A. (Santander) who jointly acquired RBS Holdings Unless otherwise indicated, the financial information contained in on 17 October 2007 through RFS Holdings B.V. (RFS Holdings). this Annual Report has been prepared in accordance with Since 31 December 2010, RBSG's shareholding in RFS Holdings International Financial Reporting Standards (IFRS) as adopted by has been 97.72%. the European Union (EU) and IFRS as issued by the International Accounting Standard Board (IASB). RFS Holdings is controlled by RBSG, which is incorporated in the UK and registered at 36 St Andrew Square, Edinburgh, Scotland. India business The consolidated financial statements of RBSH Group are The India business which was sold at its book value to the Royal included in the consolidated financial statements of RBS Group. Bank of Scotland plc in February 2017 is classified as a disposal group at 31 December 2016 and its assets and liabilities presented in aggregate in accordance with IFRS 5. The India The Royal Bank business is also presented as a discontinued operation and of Scotland Banco The Dutch comparatives have been re-presented accordingly. Group plc Santander State* (“RBS Group or RBSG”) S.A. Glossary 1.25% 97.72% 1.03% A glossary of terms is included on pages 131 to 136. RFS Holdings` B.V. 100% RBS Holdings N.V.(“RBSH”) 100% RBS N.V. *interest is held by Stichting Administratiekantoor Beheer Financiële Instellingen. RBS N.V. Annual Report and Accounts 2017 2 Financial review Summary consolidated income statement 2017 2016 2015 €m €m €m Net interest income (1) (70) (106) Fees and commissions receivable 19 7 6 Fees and commissions payable (2) (2) (9) Income from trading activities (156) 92 8 Foreign exchange gains and losses related to net investment hedges reclassified to income following disposals of foreign operations (1) (163) (7) (2) Other operating income 242 30 264 Non-interest income (60) 120 267 Total income (61) 50 161 Operating expenses (57) 33 (138) (Loss)/profit before impairment releases/(losses) (118) 83 23 Impairment releases/(losses) 3 9 (105) Operating (loss)/profit before tax (115) 92 (82) Tax credit/(charge) 24 (36) 30 (Loss)/profit from continuing operations (91) 56 (52) (Loss)/profit from discontinued operations, net of tax (1) (33) 46 (Loss)/profit for the year (92) 23 (6) Attributable to: Controlling interests (92) 23 (6) Note: (1) Reclassified foreign exchange gains and losses are recognised on the repatriation of the proceeds of disposals. Such income includes gains and losses in respect of disposals in prior periods. 2017 compared with 2016 Other operating income increased by €212 million to €242 million, Operating loss before tax was €115 million compared with an compared with €30 million in 2016. This included an increase in operating profit of €92 million in 2016. This decrease was due to the share in profits from associated companies, up €47 million to lower total income which decreased by €111 million to a loss of €101 million, compared with €54 million in 2016, all from Alawwal €61 million, higher operating expenses of €57 million compared Bank; an increase in the fair value of financial instruments with a credit of €33 million in 2016 and lower impairment releases designated at fair value through profit and loss of €67 million, to of €3 million compared with €9 million in 2016. €70 million; and an increase in other income of €66 million to €53 million compared with a loss of €13 million in 2016, due primarily Loss attributable to controlling interests was €92 million to a revaluation of insurance reserves which resulted in a realised compared with a profit of €23 million in 2016. Loss from profit of €40 million. discontinued operations was €1 million compared with €33 million in 2016. Operating expenses increased by €90 million to €57 million compared with a credit of €33 million in 2016.