#1Barclays Global Financial Services Conference Bruce Van Saun, Group Finance Director The Royal Bank of Scotland Group 10 September 2012 XRBS The Royal Bank of Scotland Group#2Important Information Certain sections in this document contain 'forward-looking statements' as that term is defined in the United States Private Securities Litigation Reform Act of 1995, such as statements that include the words 'expect', 'estimate', 'project', 'anticipate', 'believes', 'should', 'intend', 'plan', 'could', 'probability', 'risk', 'Value-at-Risk (VaR)', 'target', 'goal', 'objective', 'will', 'endeavour', 'outlook', 'optimistic', 'prospects' and similar expressions or variations on such expressions. In particular, this document includes forward-looking statements relating, but not limited to: the Group's restructuring plans, including Non-Core and cost reduction plans, divestments, capitalisation, portfolios, net interest margin, capital ratios, liquidity, risk weighted assets (RWAs), return on equity (ROE), profitability, cost:income ratios, leverage and loan:deposit ratios, funding and risk profile; discretionary coupon and dividend payments; certain ring-fencing proposals; sustainability targets; the Group's future financial performance; the level and extent of future impairments and write-downs, including sovereign debt impairments; the protection provided by the Asset Protection Scheme (APS); and the Group's potential exposures to various types of market risks, such as interest rate risk, foreign exchange rate risk and commodity and equity price risk. These statements are based on current plans, estimates and projections, and are subject to inherent risks, uncertainties and other factors which could cause actual results to differ materially from the future results expressed or implied by such forward-looking statements. For example, certain market risk disclosures are dependent on choices about key model characteristics and assumptions and are subject to various limitations. By their nature, certain of the market risk disclosures are only estimates and, as a result, actual future gains and losses could differ materially from those that have been estimated. Other factors that could cause actual results to differ materially from those estimated by the forward-looking statements contained in this document include, but are not limited to: the global economic and financial market conditions and other geopolitical risks, and their impact on the financial industry in general and on the Group in particular;; the ability to implement strategic plans on a timely basis, or at all, including the disposal of certain Non-Core assets and assets and businesses required as part of the State Aid restructuring plan; organisational restructuring, including any adverse consequences of a failure to transfer, or delay in transferring, certain business assets and liabilities from RBS N.V. to RBS; the ability to access sufficient sources of liquidity and funding; deteriorations in borrower and counterparty credit quality; litigation and regulatory investigations including investigations relating to the setting of LIBOR and other interest rates; costs or exposures borne by the Group arising out of the origination or sale of mortgages or mortgage-backed securities in the United States; the extent of future write-downs and impairment charges caused by depressed asset valuations; the value and effectiveness of any credit protection purchased by the Group; unanticipated turbulence in interest rates, yield curves, foreign currency exchange rates, credit spreads, bond prices, commodity prices, equity prices and basis, volatility and correlation risks; changes in the credit ratings of the Group; ineffective management of capital or changes to capital adequacy or liquidity requirements; changes to the valuation of financial instruments recorded at fair value; competition and consolidation in the banking sector; the ability of the Group to attract or retain senior management or other key employees; regulatory or legal changes (including those requiring any restructuring of the Group's operations) in the United Kingdom, the United States and other countries in which the Group operates or a change in United Kingdom Government policy; changes to regulatory requirements relating to capital and liquidity; changes to the monetary and interest rate policies of central banks and other governmental and regulatory bodies; changes in UK and foreign laws, regulations, accounting standards and taxes, including changes in regulatory capital regulations and liquidity requirements; the implementation of recommendations made by the Independent Commission on Banking (ICB) and their potential implications; impairments of goodwill; pension fund shortfalls; general operational risks; HM Treasury exercising influence over the operations of the Group; insurance claims; reputational risk; the ability to access the contingent capital arrangements with HM Treasury; the participation of the Group in the APS and the effect of the APS on the Group's financial and capital position; the conversion of the B Shares in accordance with their terms; limitations on, or additional requirements imposed on, the Group's activities as a result of HM Treasury's investment in the Group; and the success of the Group in managing the risks involved in the foregoing. The forward-looking statements contained in this document speak only as of the date of this announcement, and the Group does not undertake to update any forward-looking statement to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. The information, statements and opinions contained in this document do not constitute a public offer under any applicable legislation or an offer to sell or solicitation of any offer to buy any securities or financial instruments or any advice or recommendation with respect to such securities or other financial instruments. **RBS Group 1#3Agenda **RBS Group RBSG Vision & Strategy Financial performance and trends Resilient franchises Balance sheet, capital and regulation Summary and conclusions. 2#4Quick reminder Our objectives and strategy - Objectives To serve customers well ■To restore the Bank to a sustainable and conservative risk profile ■ To rebuild value for all shareholders These priorities are interconnected and mutually supporting Strategy The new RBS is built upon customer-driven businesses with substantial competitive strengths in their respective markets. Each unit is being reshaped to provide improved and enduring performance and to meet new external challenges ■Businesses are managed to add value in their own right and to provide a stronger, more balanced and valuable whole through cross-business linkages ■In parallel, RBS legacy risk positions are being worked down and risk profile transformed, in part via Non-Core division The principles of the RBS plan are working well *RBS Group 3#5A quick reminder - Implementing our strategy Core Bank The focus for sustainable value creation Built around customer driven franchises ■Comprehensive business restructuring. ■ Substantial efficiency and resource changes Adapting to future banking climate (regulation, liquidity etc) Non-Core Bank The primary driver of risk reduction Businesses that do not meet our Strategic Tests, including both stressed and nonstressed assets ■Radical financial restructuring Route to balance sheet and funding strength Reduction of management stretch Cross-cutting initiatives. ■ Strategic change from "pursuit of growth", to "sustainability, stability and customer focus ■Culture and management change ■Fundamental risk "revolution" (macro, concentrations, management, governance) *RBS Group 4#6Progress to date key financial metrics. - - Group Key performance indicators Balance sheet & risk (Group): Loan deposit ratio (net of provisions) Worst point H112 Medium-term Target Short-term wholesale funding Liquidity portfolio* Core Tier 1 Capital ratio Leverage ratio 6 Value drivers (Core): Return on Equity (ROE)' 11 Cost income ratio 1 154% 104% c100% 3 £297bn £62bn <10% TPAS 3 £90bn £156bn >1.5x STWF 5 4% 11.1% >10% 7 28.7x 15.6x <18x 8 (31%) 10.2% >12% 10 97% 61% <55% ■Strong capital, liquidity and funding metrics. ■ Prioritising: - Safety and soundness of the Group - Improvement in LDR, reduction in wholesale funding 1 As at October 2008 2Amount of unsecured wholesale funding under 1 year including bank deposits <1 year excluding derivatives collateral. 3 As of December 2008 4 Eligible assets held for contingent liquidity purposes including cash, government issued securities and other securities eligible with central banks. 5 As of 1 January 2008. 6 Funded tangible assets divided by Tier 1 Capital. As of June 2008. 8 Group return on tangible equity for 2008 9 Indicative: Core attributable profit taxed at 28% on attributable core average tangible equity (c75% of Group tangible equity based on RWAs). 10 2008. 11 Adjusted cost:income ratio net of insurance claims. **RBS Group 5#7Progress to date business reshaping - A shift toward Retail & Commercial Banking Operating Profit by Business Line, % 20071 Retail & Commercial 64% GBM 36% Q2122 Markets 18% Retail & Commercial 82% Revenue by Geography, % Attractive mix of UK / Non-UK 20073 H1124 Non-UK 45% UK 55% Target Markets c20% Retail & Commercial c80% Target Non-UK 41% Non-UK c40% UK UK 59% c60% 1 RBS Group. 2 Core business ex Direct Line Group. 3 RBS Group Statutory Revenue ex Insurance. 4 Core Revenue ex Insurance. *RBS Group CO#8Progress to date - more prudent leverage and capital position. £bn 1,563 (246) Balance sheet reduction already achieved – c.£635bn (186) (266) 929 64 Additional targeted reduction (~85) Worst Point ABN AMRO Non-Core assets to reduction 2009-H112 Core M&IB reduction 2007-H112 Other H112 Non-Core & MIB2 Core Tier 1 ratio, % APS benefit 4.0 FY08 consortium partners Core Tier 1 rebuilt 11.1 10.7 -0.8 1.2 FY10 H112 Key points ■ Have executed one of the largest deleveragings while maintaining strong capital position ■Non-Core reduction ahead of plan; losses to date lower than expected M&IB restructure in anticipation of regulatory change; focused on delivering acceptable returns 1 Statutory funded assets at 31 December 2007. 2 Includes c£32bn remaining in Non-Core, c. £40bn in Markets and c.£12bn in International Banking. **RBS Group 7#9Key milestones - steps on the road to normality Jan: SLS fully repaid Non-Core targeted £60bn-65bn funded assets by year end Q1: MIB structure confirmed May: Last CGS funding matures Plan to IPO Direct Line Group Q1 Q2 Q3 Q4 Apr: £500m debt issuance by DLG completed Apr: 1 for 10 ordinary share consolidation proposed May: Resumption of preference share dividends announced APS coverage from minimum fee expires Plan for Santander sale to close ■Hopeful of FSA approval to exit APS in Q4 ■Direct Line Group IPO on track, markets permitting Branch sale to Santander complex, now re-planning for 2013 Completed **RBS Group 8#10Agenda **RBS Group RBSG Vision & Strategy Financial performance and trends Resilient franchises Balance sheet, capital and regulation Summary and conclusions. 9#11Group revenues - managing the headwinds Signs of NIM stabilisation.... Group / R&C NIM, % R&C with pockets of volume growth... Lending volume growth, $/£bn Group 3.05 2.99 2.94 2.90 2.91 2.94 36.2 37.0 2.03 1.97 1.84 1.84 1.89 1.95 10.3 10.7 4.7 4.9 Q1 Q2 Q3 Q4 Q1 Q2 2011 2012 **RBS Group Q112 Q212 US Commercial UK Invoice & Asset finance UK Manufacturing Combined with revenue initiatives to leverage the Group Focus on greater cross-sell across the R&C customer base Reducing higher cost funding to support NIM New Wealth sales platform in situ to deliver more tailored products and service ■ Enhanced product suite access for International Banking clients ■ UK Retail product simplification, effective pricing, increased mobile banking products 10#12Costs reduction programme continues - Greater annualised cost savings... £bn 3.3 2.5 2.7 £bn 3.5 and lower cost of programme implementation 3.9 3.2 3.1 Original strategic 2010 view 2011 view of 2013 of 2013 2013 annualised plan saving Original 2011 2013 strategic plan expectation Cost evolution, 2008 - 2011 £bn 17.81 3.0 15.5 1.1 1.6 1.2 FY08 Rebased Cost reduction programme Non-Core reduction & disposals Cost inflation Investment spend & other FY11 1 Excluding non-repeating credits **RBS Group 11#13Costs a comparatively efficient base - RBS cost:income ratio versus peers RBS Core 1 Cost:income ratio, % 2009 RBS Group 1 66 52 2010 2011 56 56 54 62 669 59 Peers² Top quartile 52 54 57 Median 57 56 62 Bottom quartile 60 60 62 67 Average 56 58 61 1 Excluding Direct Line Group. 2 Peer group adjusted for exceptional items. Peer banks include Barclays, Lloyds Banking Group, HSBC, SocGen, BNP Paribas, UniCredit, Citi, JP Morgan Chase & Co, Santander, Bank of America, Deutsche Bank and Wells Fargo. **RBS Group 12#14Credit metrics - continuing to improve Impairments ex Ireland down 45% Group coverage levels continue to increase Group ex Ulster Bank Ulster Bank 2 3 £bn Provision coverage REIL Group ex Ulster Bank as % of L&A 1 Ulster Bank as % of L&A¹ 9.5% 80 £bn 7.6% 49% 49% 49% 51% 51% 60% 4.4% 50% 2.0 1.2% 0.9% 60 0.9% 40% 1.5 42.4 42.7 40.8 39.8 39.7 40 30% 1.0 20% 20 0.5 10% 0.0 0 0% Q210 Q211 Q212 Q211 Q311 Q411 Q112 Q212 ■Group impairments ex Ulster Bank down 45%; trending to normalised levels. Irish impairments remain elevated; cautious on outlook ■Group provision levels continue to increase while non-performing loans fall 1 Gross loans to customers excluding reverse repos, including disposal groups. 2 Provision balance as a percentage of REIL. 3 REIL = Risk elements in lending. **RBS Group 13#15Credit metrics Ulster Bank is appropriately provisioned - Ulster Bank non-performing loans are appropriately covered 2 And in line with comparative peers Provision % Coverage 3 H112 group provision coverage, % 58 56 46 REIL 7.5 60 4.5 47 4.0 60 3.1 2.6 48 1.9 1.9 1.2 CRE- - CRE Invt. Corporate Mortgages Devt. - Other Allied Irish Bank Ulster Bank Bank of Ireland ■■ Ulster Bank Group provision coverage of 56%; 53% Core, 57% Non-Core. ■ Coverage level in line with closest peers ■Most stressed book - CRE development - provisioned at 60% Expect further rise in REILS, remain cautious on outlook 1 REIL = Risk elements in lending. 2 Balance sheet provision against exposure. 3 Provision balance as a percentage of REIL. **RBS Group 14#16Agenda **RBS Group RBSG Vision & Strategy Financial performance and trends Resilient franchises Balance sheet, capital and regulation Summary and conclusions. 15#17UK Businesses - market leading franchises. Growing UK deposit balances RBS UK Retail & UK Corporate combined customer deposits (£bn) UK Market¹ household & corporate deposits (£bn) Good blended RoE currently H1'12 RoE +18% +8% 1,600 UK Retail 23.5% 250 234 1,385 198 1.285 1,400 200 UK Corporate 16.5% 1,200 150 1,000 Blended UK R&C 19.2% FY09 H112 FY09 H112 Increased lending to UK customers UK Retail & UK Corporate combined gross L&A (£bn) UK Retail: +4% 230 220 215 210 200 223 Driven by market leading franchises #22 for UK Current Accounts 11.7m³ savings accounts 11% mortgage market share UK Corporate: #15 SME Bank # 16 Corporate Bank c1.2m³ customers FY09 H112 1 Source: Bank of England, includes UK Private Non-Financial Corporate and UK Household deposits held. 2 GfK NOP Financial Research Survey (FRS) 6 months ending January 2012, market share of all current accounts, 28,811 adults interviewed, UK Retail includes RBS, NatWest and Coutts. 3 June 2012. 4 H112 new business market share. Stock share 8%. 5 RBSG 26% main bank market share. Chaterhouse Business Banking Survey YEQ4 2011; based on 16,613 interviews with businesses in Great Britain turning over up to £25m pa. 6 pH Group (Experian). **RBS Group 16#18US R&C - a a valuable franchise Earnings rebound continues - targeting 12% + ROE US R&C ROE 8.4% 6.3% 12%+ FY11 actual H112 actual Improved funding cost Loan growth Fee income growth Expenses RWAS Medium- term target A compelling franchise 12th largest bank in the US; extensive Branch, ATM, online, and mobile networks ■Self funded with strong asset quality, credit. ratings and capital ratios. ■ Key contributor to Group's geographic and business mix diversity Experienced leadership team embedded ■Capable of strong cash and capital generation 1 Source JP Morgan, as at 17/08/12. *RBS Group Focused delivery on strategic priorities ■ Significant progress in rebalancing Consumer/ Commercial Banking mix Investment in franchise to deepen value proposition and customer relationships ■Improving NIM from pricing and strategic restructuring Cost discipline engrained, walk to 60% cost/ income ratio established 17#19Wholesale Banking restructure update Business restructure Pro-active response to market developments / headwinds Reduce asset and capital usage to improve balance sheet strength, funding profile and ROE Focus on strongest businesses and exit loss-makers Seek cost synergies Enhance connectivity with other divisions Executing well across all elements Resilient trading performance, in line with peers² % Change H112 vs H111 Funded assets³ Revenues -4 -11 -17 RBS4 RBS Peer Average Peer Average Markets resource management IB resource management TPA5 (£bn) FTE (000)6 LDR (%) 5, 7 FTE (000)6 362 15.8 109 313 13.9 302 12.5 103 102 5.6 5.4 4.8 Jun 11 Dec 11 Jun 12 Jun 11 Dec 11 Jun 12 Jun 11 Dec 11 Jun 12 Jun 11 Dec 11 Jun 12 Third party assets down 17% y-o-y FTE reductions across ongoing businesses. Further reductions expected in H212, mostly in Support Balance sheet discipline - down 23% y-o-y Self-funded business Simpler operating model driving FTE reductions across Front Office and Support 1 Cash Equities, Corporate Finance and ECM. 2 RBS figures based on Markets, peer average includes Barclays, BOAML, Credit Suisse and UBS; RBS estimates. 3 Funded assets excluding derivatives. 4 Excluding run-off 5 Third party assets. Ongoing businesses only. 6 Full time equivalents. 7 Loan Deposit ratio excluding repos and conduits. RBS Group 18#20Non-Core assets - good progress in reduction £bn 85 95 Un-drawn commitments Funded assets 2009-2013 2009-H112 36 21 258 12 201 7 7 FX (10)-(20) (10) Rollovers 20-30 18 & drawings Impairments (20)-(30)1 (20) 186 Asset sales (90)-(100) (80) Run-off (110)-(130) (94) 138 5 c. 32 94 72 60-65 c.40 Target Progress to date 2008 2009 2010 2011 H112 2012E 2013E 1 Excludes FY08 impairments. *RBS Group Funded asset reduction continues apace, down 72% (£186bn) since inception. ■Revised year end funded asset target lower, to £60bn-65bn ■Impairments continue to trend to bottom of guidance range ■Disposals have been capital accretive to date 19#21Non-Core - 2013 'rump' make-up £bn 2013 rump of c.£40bn TPAs is forecast 40 2013 rump assets Corporate 44% CRE Retail 34% 5% 7% Markets Other1 10% 2013 by asset class 2013 Non-Core 'rump' estimated at c.£40bn, including: Corporate and other assets of low yield but generally good credit quality. CRE of c.£15bn, c.60-65% in longer-term work-out Natural run-off pace for rump is c.50% by 2016 CRE portfolio make-up, H112 H1 2012 CRE portfolio attributes: Exposure dominated by Investment lending 50% of book classed as REIL, provisioned at 45% Ulster Bank Development provisioned at 60% Well balanced by geography; 2/3 non-Ireland, UK biased to London and South-East 1 includes SME lending. 2 Includes US and Row. *RBS Group £30bn £30bn % 35 UK Investment 70 34 Ireland Devt Ireland Devt non Ireland W. Europe 25 25 Other2 5 Lending Type Geography 20 20#22Agenda **RBS Group RBSG Vision & Strategy Financial performance and trends Resilient franchises Balance sheet, capital and regulation Summary and conclusions. 21#23Balance sheet - significant improvement. Deposits vs. wholesale funding, £bn Core bank deposits 1 Wholesale funding2 Short-term wholesale funding reduced by £235bn 432 402 394 414 342 FY09 H110 213 H112 Liquidity portfolio bolstered, £bn 90 FY08 73% 156 H112 297 (79%) 62 FY08 H112 Term wholesale funding maturities H112, £bn³ 36 33 23 <1 yr 1-3yr 3-5yr 54 >5yr 1 Excludes Non-Core deposits, repurchase agreements and stock lending. 2 Excludes repurchase agreements, includes subordinated liabilities. 3 Debt securities and subordinated liabilities excluding bank deposits and repurchase agreements. RBS Group 22#24The Group's risk profile is significantly better De minimis peripheral government bond exposure Peripheral government bond exposure, £bn 3.9 Commercial Real Estate Exposure² Non-Core Core £98bn £87bn £75bn £69bn £51bn £42bn £41bn £39bn 0.4 £47bn £45bn £34bn 0.0 £30bn FY09 FY11 H112 FY09 FY10 FY11 H112 Non-Core market risk greatly reduced Single name credit concentrations Corporate SNC Exposures Over Risk Appetite ³, £bn Exotic Credit Book Daily P&L Moves, £m 60 40 20 20 0 -20 -40 -60 2008 2009 2010 2011 69 Number of companies 385 39 28 241 188 FY09 FY10 1 Wholesale funding < 1 year to maturity excluding derivatives collateral. 2 Lending excluding RRM and contingent obligations. Data shown as published at each period. 3 Data collection methodology pre 2012. *RBS Group FY11 23 23#25The capital journey RWAS Capital Management Headwinds Mitigation/Tailwinds > 10% 11.1 [0.8 ■Credit model changes. Basel III/CRD IV Non-Core run-down 10.3 Reduction in / removal of APS cover Restructure of Markets business ■Earnings generation H1 2012 Target APS Cover *RBS Group Targeting year end 2012 & 2013 CT1 at 10% or above post APS exit and regulatory impacts ■Currently estimating fully loaded Basel 3 CT1 at 31 December 2013 of 9.0-9.5% 24#26Regulation and Challenges. Regulation CRE Slotting IC B Basel III/CRD IV Industry-wide Conduct **RBS Group Status ■FSA revised industry guidance published RWA uplift of c.£20bn by end '13 Further clarity from White Paper ■Flexibility incrementally positive Initial implementation seems likely to be delayed ■Industry investigation ongoing into SME swaps mis-selling/LIBOR setting RBS Actions ■In process of implementing changes ■c.£10bn RWA impact likely in 2012 c.£5bn already taken Final report and legislative detail still to come ■Working towards full implementation by 2019 Awaiting confirmation of implementation date Mitigating actions underway Co-operating with relevant authorities on LIBOR SME swaps: Reached agreement on approach with FSA - Independent review process starting £50m provision taken in H112 25#27Agenda **RBS Group RBSG Vision & Strategy Financial performance and trends Resilient franchises Balance sheet, capital and regulation Summary and conclusions. 26#28Summary and conclusions. External Economic and market backdrop likely to remain challenging for some time, keeping customer activity subdued But the factors necessary for economic recovery are being addressed ■Regulatory change remains intense, the end state is clarifying, although key. uncertainties remain RBS Progress RBS change and recovery programme has made substantial progress The 'safety and soundness' agenda continues to go well Core businesses are resilient, gathering underlying strength, but remain economy dependent H2 APS exit and Direct Line Group IPO the next milestones **RBS Group 27#29Questions? R RBS The Royal Bank of Scotland Group