Royal Bank of Scotland shed one-third of its gross lending to commercial real estate held in its internal bad bank, RBS Capital Resolution (RCR), over 2014 through repayments, disposals and write-offs, leaving just to £12.6bn remaining.
In its annual results published this morning, RBS reported a 35% reduction, equating to a £6.7bn fall, in its gross exposure to commercial real estate (CRE) – from £19.3bn, as accounted for in the former “non-core” business segment, to £12.6bn.
This is comprised of £6.2bn in investment loans and £6.4bn in developments loans across two business segments, Real Estate Finance (REF) and Ulster Bank, both of which now fall within RCR.
Over 2014, RCR shed £4.8bn in gross CRE non-performing loans (NPL) – from £16.0bn to £11.2bn. Of the remaining £11.2bn of CRE NPLs, £5.2bn worth of loans have a carrying LTV above 100% and a further £3.2bn has minimal security with an anticipated recovery rate of less than 10%.
RCR’s performing loan exposures fell by £1.9bn to £1.4bn, of which, £176m are above 100% LTV. Geographically, 67% of the £12.6bn RCR portfolio is held in Ireland, 22% in the UK, 10% in Western Europe and 1% in the US and the rest of world.
The RCR portfolio represents 29% of the RBS’ £43.3bn CRE portfolio, which overall fell by £9.3bn over 2014.
Net of provisions and derivatives, RCR’s exposure to commercial real estate is now £6.1bn. This is comprised of £4.2bn in REF and £2.1bn in Ulster Bank.
REF’s net NPL and performing loan exposures fell from £9.5bn to £4.2bn over 2014. This £5.3bn decline in net CRE exposures in REF was the result of, inter alia, £2.3bn in repayments and £2.9bn in loan and asset disposals.
By loan performance, this breaks down was as follows:
- a £2.2bn fall in non-performing loans (NPL), from £4.2bn to £2.0bn; and
- a £3.1bn fall in performing loans, from £5.3bn to £2.2bn.
By geography, this £4.2bn in net combined NPL and performing loan exposures is comprised of £2.5bn in UK real estate loans, £0.4bn in German real estate loans, £0.5bn in Spanish real estate loans and £0.8bn in rest of the world loans, excluding Ireland, which accounted for separately in the Ulster Bank subsidiary.
Ulster Bank’s gross commercial real estate loans fell by £5.4bn – from £14.3bn to £8.8bn to the end of 2014. The £8.8bn is comprised of £3.0bn in investment loans and £5.8bn in development loans.
RBS is expected to continue de-leveraging this year through additional loan portfolio sales, driven by strong demand and yield compression, in particular in Ireland. Last year, due to such favourable market conditions, RBS was able to release £3.6bn in impairment charges, offsetting £2.4bn in new impairment charges over the year.
Net of provisions and derivatives, RCR’s remaining Ulster Bank £2.1bn in CRE exposures is comprised of £1.2bn in CRE investment loans and £0.7bn in CRE development loans.