Investor Factbook

Investor Factbook 22 Feb 2017 24/02/17 Version 15 Key messages Our blueprint for lasting success Fundamentals of our strategy remain unchanged No.1 for customer service, trust Progress in dealing with legacy issues Our Ambition and advocacy Financial targets hit three years running – Our Purpose Serve customers well costs down, capital solid, lending and Serving Working Doing the Thinking income growth in core bank Our Values customers together right thing long term Further on costs, faster on digital Our Brands Strength Customer Simplifying Supporting Employee transformation to deliver a better Our Priorities and experience the bank sustainable engagement sustainability growth customer experience Employee CET1 ratio 13% No.1 for Cost:income Leading market engagement in Our long-term ≥ service, trust ratio <50% positions in upper quartile of RoTE 12% Targeting profitability in 2018, and achieving targets and advocacy every franchise Global Financial Services (GFS) norm 12%+ RoTE and sub-50% C:I ratio by 2020(1) Maintain bank Significantly Reduce Net 3% growth Improve employee Our 2017 CET1 ratio of 13% increase NPS operating in total PBB engagement Goals or maintain expenses by and CPB loans No.1 in chosen at least to customers customer £750m(2) segments Strong franchises with clear strategies and diversified income streams Market leading positions across FY 2016 Core Adjusted Income our strong customer brands Royal Bank of Scotland #1 Business(1) Joint #1 Commercial(2) RBSI - Isle of Man #2 Personal(3) 5% 6% Ulster Bank (8) #1 Personal NatWest #1 Business(9) UK Business Banking Joint #1 Commercial(2) #2 Business(1) Ulster - Northern Ireland (3) Commercial Banking #3 Personal 39% (4) #1 Personal NatWestMarkets 29% RBSI #1 Business & Commercial(5) Leading UK Corporate FX Provider(12) Private Banking #1 Gilts – EMEA FIs(13) #2 DCM – UK NatWest Markets Ulster - RoI (14) Corporates #3 Business(6) #8 DCM – Inv. UK Personal Banking #3 Commercial(7) (14) 3% Grade EU Corporates (4) #4 Personal 13% 6% RBSI - Channel Islands Top 3 Guernsey(10) Top 3 Jersey(11) (Please see back page for footnotes) Progress on our strategy aRefocused on our core franchise markets, with active a503 legal entities closed to date, a 45% reduction; IT systems operations ceased in 26 countries and applications reduced by 30% since 2013 aDe-risked the balance sheet, with legacy RWAs down over aAccelerated £4.2bn contribution into the defined benefit 75% from peak in Q1 2014 pension plan aOwnership structure normalised with a single class of aREILs reduced from £39.4bn (9.4% of gross loans) at Q4 2013 ordinary shares, via DAS repayment and conversion to £10.3bn (3.1%) at Q4 2016; excluding Capital Resolution and of B shares Ulster RoI, REILs are now at 1.5% aAround 20 material litigation and investigation matters concluded since January 2014, including resolving a number Further significant challenges include: of LIBOR/FX investigations and RMBS civil claims a International Private Banking sold; Citizens divested, Resolving remaining RMBS matters the largest US bank IPO in history Satisfying final EC State Aid obligations (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 this 1 document and in the “Risk Factors” on pages 433 to 464 of the Annual Report and Accounts 2016. These statements constitute forward looking statements, please see Forward Looking Statements. (2) Excluding litigation and conduct costs, restructuring costs, write down of goodwill and the 2016 VAT release of £227m.

Three core franchises generating stable and attractive returns Core Adjusted Return on Equity(1,2) 11% 11% Core Adjusted 4.1 4.2 (2) Operating Profit (£bn) 1.2 1.2 1.1 1.0 1.0 1.3 1.0(3) 0.8(3) 0.5 0.8 Q1 ‘15 Q2 ‘15 Q3 ‘15 Q4 ‘15 FY 2015 Q1 ‘16 Q2 ‘16 Q3 ‘16 Q4 ‘16 FY 2016 (1) RBS’s CET1 target is 13% but for the purposes of computing segmental return on equity (RoE), to better reflect the differential drivers of capital usage, segmental operating profit after tax and adjusted for preference dividends is divided by notional equity allocated at different rates of 11% (Commercial Banking and Ulster Bank RoI), 12% (RBS International) and 15% for all other segments, of the monthly average of segmental risk-weighted assets after capital deductions (RWAes). (2) Excluding own credit adjustments, gains/(losses) on redemption of own debt and strategic disposals. Excluding restructuring costs and litigation and conduct costs and goodwill. (3) Excluding the impact of the Bank Levy, which was £190m in Q4 2016 and £230m in Q4 2015. Note: Numbers may not cast due to rounding. Improving operating JAWS and balance sheet Net Loans and Advances REILs CET1 Ratio Adjusted operating costs £bn 10% £bn +480bps £bn 232 (74%) (0.75) 211 39.4 13.4% 13.0% 9.4 (1) 8.4 7.7 120 132 8.6% UK PBB 100 Commercial 10.3 91 Banking FY 2015 FY 2016 FY 2013 FY 2016 FY 2013 FY 2016 Target FY 2015 FY 2016 2017 Target (1) Excluding £227m VAT recovery Our business profile FY 2016 Core franchises Total other Total RBS UK Ulster Commercial Private RBS NatWest Total Core Capital Central Total (£bn) (1) items & PBB Bank RoI Banking Banking International Markets Franchises Resolution W&G Other (2) other (3) 5.3 0.6 3.4 0.7 0.4 1.5 11.8 (0.4) 0.8 0.1 0.5 12.4 Adj. Income Adj. Operating expenses(4) (3.0) (0.5) (1.9) (0.5) (0.2) (1.3) (7.4) (0.8) (0.4) 0.3 (0.8) (8.2) Impairment (losses) / releases (0.1) 0.1 (0.2) 0.0 (0.0) - (0.2) (0.3) (0.0) - (0.3) (0.5) Adj. op. profit(3,4) 2.2 0.2 1.3 0.1 0.2 0.2 4.2 (1.4) 0.4 0.5 (0.6) 3.7 Funded Assets (5) 155.6 24.0 150.5 18.5 23.4 100.9 472.9 27.6 25.8 25.4 78.8 551.7 Net L&A to Customers 132.1 18.9 100.1 12.2 8.8 17.4 289.5 12.8 20.6 0.1 33.5 323.0 Customer Deposits 145.8 16.1 97.9 26.6 25.2 8.4 320.0 9.5 24.2 0.2 33.9 353.9 RWAs 32.7 18.1 78.5 8.6 9.5 35.2 182.6 34.5 9.6 1.5 45.6 228.2 Loan:Deposit Ratio 91% 117% 102% 46% 35% n.m. 90% 135% 85% n.m. 99% 91% Adj. RoE (%)(3,4, 5) 27% 8% 8% 8% 14% 1% 11% n.m. n.m. n.m. n.m. 1.6% Adj. Cost:Income ratio (%)(3,4) 57% 80% 57% 78% 45% 87% 63% n.m. 47% n.m. n.m. 66% (1)‘Williams and Glyn’ refers to the business formerly intended to be divested as a separate legal entity and comprises RBS England and Wales branch-based businesses along with certain small and medium enterprises and corporate activities across the UK (2) Central items include unallocated costs and assets which principally comprise volatile items under IFRS (3) Excluding own credit adjustments, gains/(losses) on redemption of own debt and strategic disposals (4) Excluding restructuring costs and litigation and conduct costs and goodwill (5) RBS’s CET1 target is 13% but for the purposes of computing segmental return on equity (RoE), to better reflect the differential drivers of capital usage, segmental operating profit after tax and adjusted for preference dividends is divided by notional equity allocated at different rates of 11% (Commercial Banking and Ulster Bank RoI), 12% (RBS International) and 15% for all other segments, of the monthly average of segmental risk-weighted assets after capital deductions (RWAes) *Totals may not cast due to rounding. RBS reported an attributable loss of £7bn for 2016, see the 24th February Company Announcement for the full results 2

Financial Targets – 2017 and 2020 Net lending growth in PBB/CPB: 3%(1) in 2017; driven by S ignificant one-off issues resolved in 2016; 2017 expected to strong mortgage growth and selected Commercial segments be last peak year of one-offs costs Operating costs – reduction in operating costs by £750m(2) 2 020 targets – foundations to achieve 12+% ROTE; sub-50% in 2017, and £2bn over the next 4 years; majority achieved cost/income ratio against combined PBB, CPB and NWM franchises R educe Core RWAs by a gross £20bn by Q4 2018 Capital Resolution – reduce RWAs (ex Alawwal Bank stake(3)) to £15-20bn and wind-up at end Q4 2017 (1) Lending growth target is after including the impact of balance sheet reductions with the RWA reduction target across PBB, CPB and NWM are outlined in the outlook statement. (2) Cost saving target and progress in 2017 calculated using operating expenses excluding restructuring costs, litigation and conduct costs, write down of goodwill and 2016 VAT release and the operating costs of Williams & Glyn (3) Previously named Saudi Hollandi Bank. Four foundations to achieve 2020 targets 1. Resolve legacy issues and expense one-off costs 6,752 One-off cost Comment FY 2016 total litigation and conduct provisions £12.8bn Restructuring c.£2bn over 2017 to 2019 (excluding W&G); of which c.£1bn in 2017 costs Partially related to exiting head office properties with onerous lease terms Capital £2.0bn of lifetime disposal costs; of which £1.2bn taken by end 2016 1,918 Resolution M ajority of residual expected to be in 2017 1,253 1,105 disposal costs W&G £750m restructuring provision taken in respect of the 17 February 2017 RMBS Litigation PPI Other update on RBS’s remaining state aid obligation and other customer regulatory(1) redress Conduct Substantial number of issues progressed in 2016 costs 2017 expected to be peak of remaining legacy conduct costs (1) As per note 4 of the FY 2016 results 2. Accelerate income momentum 3. Achieve further significant cost efficiency NIM: Sharp improvement in 5 and 10 Adjusted operating costs (£bn) year swap rate reduces forward looking 8.4 headwinds from roll-off of existing 0.4 £3.1bn cost reduction achieved will equip the franchise for new structural hedging; SVR 12% of book 0.8 over 3 years to 2016; 2017 cost regulatory requirements and Volumes: 3% net lending growth target 1.3 reduction target of £750m provide opportunity to reduce for combined PBB/CPB in 2017 – expect Significant further cost efficiency back office support costs to continue to achieve market share gains across PBB and CPB through NWM adjusted costs expected in targeted customer segments digitisation, process simplification to reduce to ~£800m over the Net interest income: Volume benefit 6.1 and automation next four years, as we continue outweighs NIM pressure NatWest Markets are currently to take out organic costs and the Fees & commission: Headwinds from in the middle of a substantial currently expensed investment interchange alleviate from 2017 onwards investment programme which spend goes away by 2018 Revenues in NWM: Benefiting from (0.1) Excluding £227m VAT recovery market volatility and continued active Central items & other customer flows W&G Capital Resolution NWM PBB+CPB Note: Numbers may not cast due to rounding 4. Improve RWA efficiency across PBB, CPB and NWB Outlook – Medium Term: ( ) Core Bank RWAs £bn Target achieving our sub 50% cost:income ratio and 12%+ return targets in 2020 183 (20) on an unadjusted basis, one year later than originally planned 33 163 Expect to be able to grow volumes faster than market growth rates over the coming years underpinned by our ability to grow the PBB and CPB balance sheet 18 UK PBB Plan to reduce adjusted expenses in the order of £2bn in the next four years with Ulster Bank around two thirds of this applicable to the Core Bank Commercial 79 Private Banking Targeting a gross RWA reduction across 3 core franchises of at least £20bn RBS Int by Q4 2018 with some off-setting volume growth NWM 9 We continue to monitor the ongoing discussions around the potential further 10 tightening of regulatory capital rules and recognise that this could result in 35 RWA inflation in the medium term 2016 Target FY 2018 Target In view of the significant risks and uncertainties in the external economic, reduction (pre growth) political and regulatory environment, including uncertainties around the Target gross £20bn RWA reduction resolution of RMBS, the timing of returning excess capital to shareholders by end Q4 2018, with some through dividends or buybacks remains uncertain offsetting volume growth Note: Numbers may not cast due to rounding 3

Contacts Investor RBS Investor & Relations Online Media Relations App Visit www.rbs.com/ir for the latest Download our free iPad App with live news, annual reports and investor newsfeeds, video archives and fully seminars on our businesses searchable documents Our Investor Relations team is available to support your research Alexander Holcroft Matthew Richardson Sam Brigden-Rodgers/ Head of Equity Investor Relations Head of Debt Investor Relations Serpil Sancar PA to Head [email protected] [email protected] of Equity Investor Relations +44 20 7672 1758 +44 20 7678 1800 +44 20 7672 1758 For investors /analysts: For corporate access: Michael Tylman Sarah Lunn Leah McCreanor Sarah Bellamy Manager, Manager, Senior Manager, Manager, [email protected] [email protected] [email protected] [email protected] +44 20 7672 1958 +44 20 7672 1762 +44 20 7672 2351 +44 20 7672 1760 Forward Looking Statements Cautionary statement regarding forward-looking statements 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’, ‘commit’, ‘believe’, ‘should’, ‘intend’, ‘plan’, ‘could’, ‘probability’, ‘risk’, ‘Value-at-Risk (VaR)’, ‘target’, ‘goal’, ‘objective’, ‘may’, ‘endeavour’, ‘outlook’, ‘optimistic’, ‘prospects’ and similar expressions or variations on these expressions. In particular, this document includes forward-looking statements relating, but not limited to: future profitability and performance, including financial performance targets such as return on tangible equity; cost savings and targets, including cost:income ratios; litigation and government and regulatory investigations, including the timing and financial and other impacts thereof; structural reform and the implementation of the UK ring-fencing regime; the implementation of RBS’s transformation programme, including the further restructuring of the NatWest Markets business; the satisfaction of the Group’s residual EU State Aid obligations; the continuation of RBS’s balance sheet reduction programme, including the reduction of risk-weighted assets (RWAs) and the timing thereof; capital and strategic plans and targets; capital, liquidity and leverage ratios and requirements, including CET1 Ratio, RWA equivalents (RWAe), Pillar 2 and other regulatory buffer requirements, minimum requirement for own funds and eligible liabilities, and other funding plans; funding and credit risk profile; capitalisation; portfolios; net interest margin; customer loan and income growth; the level and extent of future impairments and write-downs, including with respect to goodwill; restructuring and remediation costs and charges; future pension contributions; RBS’s exposure to political risks, operational risk, conduct risk, cyber and IT risk and credit rating risk and to various types of market risks, including as interest rate risk, foreign exchange rate risk and commodity and equity price risk; customer experience including our Net Promotor Score (NPS); employee engagement and gender balance in leadership positions. Limitations inherent to forward-looking statements These statements are based on current plans, estimates, targets and projections, and are subject to significant inherent risks, uncertainties and other factors, both external and relating to the Group’s strategy or operations, which may result in the Group being unable to achieve the current targets, predictions, expectations and other anticipated outcomes expressed or implied by such forward-looking statements. In addition certain of these disclosures are dependent on choices relying on key model characteristics and assumptions and are subject to various limitations, including assumptions and estimates made by management. By their nature, certain of these disclosures are only estimates and, as a result, actual future gains and losses could differ materially from those that have been estimated. Accordingly, undue reliance should not be placed on these statements. Forward-looking statements speak only as of the date we make them and we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Group’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Important factors that could affect the actual outcome of the forward-looking statements We caution you that a large number of important factors could adversely affect our results or our ability to implement our strategy, cause us to fail to meet our targets, predictions, expectations and other anticipated outcomes or affect the accuracy of forward-looking statements we describe in this document including in the risk factors set out in the Group’s 2016 Annual Report and other uncertainties discussed in this document. These include the significant risks for RBS presented by the outcomes of the legal, regulatory and governmental actions and investigations that RBS is or may be subject to (including active civil and criminal investigations) and any resulting material adverse effect on RBS of unfavourable outcomes and the timing thereof (including where resolved by settlement); economic, regulatory and political risks, including as may result from the uncertainty arising from the EU Referendum; RBS’s ability to satisfy its residual EU State Aid obligations and the timing thereof; RBS’s ability to successfully implement the significant and complex restructuring required to be undertaken in order to implement the UK ring-fencing regime and related costs; RBS’s ability to successfully implement the various initiatives that are comprised in its transformation programme, particularly the proposed further restructuring of the NatWest Markets business, the balance sheet reduction programme and its significant cost-saving initiatives and whether RBS will be a viable, competitive, customer focused and profitable bank especially after its restructuring and the implementation of the UK ring-fencing regime; the exposure of RBS to cyber-attacks and its ability to defend against such attacks; RBS’s ability to achieve its capital and leverage requirements or targets which will depend in part on RBS’s success in reducing the size of its business and future profitability as well as developments which may impact its CET1 capital including additional litigation or conduct costs, additional pension contributions, further impairments or accounting changes; ineffective management of capital or changes to regulatory requirements relating to capital adequacy and liquidity or failure to pass mandatory stress tests; RBS’s ability to access sufficient sources of capital, liquidity and funding when required; changes in the credit ratings of RBS, RBS entities or the UK government; declining revenues resulting from lower customer retention and revenue generation in light of RBS’s strategic refocus on the UK; as well as increasing competition from new incumbents and disruptive technologies. In addition, there are other risks and uncertainties that could adversely affect our results, ability to implement our strategy, cause us to fail to meet our targets or the accuracy of forward-looking statements in this document. These include operational risks that are inherent to RBS’s business and will increase as a result of RBS’s significant restructuring initiatives being concurrently implemented; the potential negative impact on RBS’s business of global economic and financial market conditions and other global risks; the impact of a prolonged period of low interest rates or unanticipated turbulence in interest rates, yield curves, foreign currency exchange rates, credit spreads, bond prices, commodity prices, equity prices; basis, volatility and correlation risks; the extent of future write-downs and impairment charges caused by depressed asset valuations; deteriorations in borrower and counterparty credit quality; heightened regulatory and governmental scrutiny and the increasingly regulated environment in which RBS operates as well as divergences in regulatory requirements in the jurisdictions in which RBS operates; the risks relating to RBS’s IT systems or a failure to protect itself and its customers against cyber threats, reputational risks; risks relating to increased pension liabilities and the impact of pension risk on RBS’s capital position; risks relating to the failure to embed and maintain a robust conduct and risk culture across the organisation or if its risk management framework is ineffective; RBS’s ability to attract and retain qualified personnel; limitations on, or additional requirements imposed on, RBS’s activities as a result of HM Treasury’s investment in RBS; the value and effectiveness of any credit protection purchased by RBS; risks relating to the reliance on valuation, capital and stress test models and any inaccuracies resulting therefrom or failure to accurately reflect changes in the micro and macroeconomic environment in which RBS operates, risks relating to changes in applicable accounting policies or rules which may impact the preparation of RBS’s financial statements or adversely impact its capital position; the impact of the recovery and resolution framework and other prudential rules to which RBS is subject; the recoverability of deferred tax assets by the Group; and the success of RBS in managing the risks involved in the foregoing. The forward-looking statements contained in this document speak only as at the date hereof, and RBS does not assume or undertake any obligation or responsibility 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 solicit of any offer to buy any securities or financial instruments or any advice or recommendation with respect to such securities or other financial instruments. Footnotes from page 1: Market leading positions across our strong customer brands Note: Market share relates to the our geographic share in each region. This geographic share will be fully aligned to branding and legal entity as part of ring-fencing compliance. (1) Source Charterhouse Research 4 quarters ending Q4 2016, Main current account stock market share (business turnover of £0 - 2m) excluding Future W&G. (2) Source: Charterhouse Research 4 quarters ending Q4 2016 (business turnover of £2m-£1bn) excluding Future W&G. (3) Source: Main current account stock market share holding level - based on GfK FRS 6 months ending Dec 2016; excluding Future W&G. (4) Personal: Main current account – based on IPSOS 4 quarters MAT ending Q4 2016. (5) Source: Charterhouse Research NI main current account market share based on 4 quarters ending Q4 2016 (business turnover £0-£1bn). (6) PwC Business Banking Tracker 2016. Turnover <€2.5m. Named as main financial institution. (7) Source PwC Business Banking Tracker 2016. Turnover €2.5m+. Named as main financial institution. (8) Personal: IoM; Source GfK RBSI Group Market Share Dec 16 (Base size: IoM 500). (9) Business: IoM; Source GfK RBSI Group Market Share Dec 16 for businesses with a turnover of £0-2m (Base size: IoM 100). (10) Personal: Guernsey; Source GfK RBSI Group Market Share Dec 16 (Base size: Guernsey 501) and Business: Guernsey; Source GfK RBSI Group Market Share Dec 16 for businesses with a turnover of £0-2m (Base size: Guernsey 100). (11) 4 Personal: Jersey; Source GfK RBSI Group Market Share Dec 16 (Base size: Jersey 500) and Business: Jersey; Source GfK RBSI Group Market Share Dec 16 for businesses with a turnover of £0-2m (Base size: Jersey 100). (12) by Market Share and Overall Service Quality – Greenwich Associates, Global FX Services – UK Corporates 2015. (13) by Market Share – Greenwich Associates, European Fixed Income – Government Bonds 2016. (14) by deal value proceeds – Dealogic – 2016.