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RBS’ £25bn 2012 UK property refi challenge
Thursday, February 23 2012 | 08:19 AM
|Royal Bank of Scotland has £25.6bn worth of UK commercial property loans which have matured or are due to mature this year across its combined core and non-core loan books, according to its annual results published this morning.
The aggregate global 12-month refinance challenge of RBS’ matured and maturing real estate loans is £34.19bn, reflecting 46.69% of the bank’s entire exposure.
The state-backed bank’s aggregate UK, including Northern Ireland, refinancing challenge is comprised of: £11.29bn in the core book, including £8.27bn in RBS’s UK Corporate division, and £3.03bn in its Ulster Bank subsidiary; and £14.31bn in the non-core book, comprised of £3.22bn in the UK Corporate division and £11.09bn in Ulster Bank.
The £25.6bn UK total, which includes a legacy build-up of defaulted property loans at maturity through non-repayment, reflects 34.2% of its total £74.8bn global real estate loan book at the end of 2011, which itself has fallen by 14% over the year.
The likely workout of these matured and maturing loans will be through a combination of strategies: matured and maturing loans in the core book will be worked out with borrowers with loans extensions agreed; matured and maturing loans in the non-core book will require the borrower to produce a business plan to RBS which, if accepted, could result in a loan extension, and if not could result in enforcement.
The proportion of legacy property loan matured in previous years which is combined in the £25.6bn UK and £34.19bn global total is not seperated in RBS’ results this morning.
RBS said in its results this morning: “The commercial real estate market is expected to remain challenging in key markets and new business will be accommodated from run-off of existing core exposure. As liquidity in the market remains tight, the group is focusing on re-financings and supporting its existing client base.”
The headline figure of real estate loans which are passed expiry, or up for renewal this year, is a reminder of the scale of the deleveraging work RBS still has to do.
But much was done last year.
RBS reduced its non-core global commercial real estate in the fourth quarter by £3.8bn, and by £11.1bn over the entire 2011, to £31.5bn, comprised of a combination of loan run-offs, write-downs, disposals and restructuring, and currency movements, offset by an uptick in increased drawdowns and extensions.
The state-backed bank’s aggregate core and non-core commercial real estate lending portfolio has fallen by 14% over 2011 to £74.8bn. This is comprised of:
-UK (excluding Northern Ireland): £28.65bn and £6.35bn in investment commercial and property, respectively, plus £1.19bn and £6.65bn in development commercial and property, respectively, totalling £42.72bn.
-Ireland (including Northern Ireland): £5.1bn and £1.1bn investment commercial and residential property, respectively, plus £2.59bn and £6.32bn in development commercial and property, respectively, totalling £15.19bn.
-Western Europe: £7.65bn and £1.05bn in investment commercial and residential, respectively, plus £9m and £52m in development commercial and property, respectively, totalling £8.76bn.
-US: £5.55bn and £1.28bn in investment commercial and residential, respectively, plus £69m and £46m in development commercial and property, respectively, totalling £6.94bn.
-Rest of the World: £785m and £35m, in investment commercial and residential, respectively, plus £141m and £284m in development commercial and property, respectively, totalling £1.25bn.
The above break-down amounts to an aggregate £74.85bn global real estate loan book which, by geography, splits: £42.72bn (57.07%) in the UK; £15.19bn (20.29%) in Ireland, including Northern Ireland; £8.76bn (11.70%) in Western Europe; £6.94bn (9.27%) in the US; and £1.25bn (1.66%) in the Rest of the World.
Of the total, the core real estate book is £40.56bn, down from £42.26bn at the end of 2010, and the non-core real estate book is £34.28bn, down from £47.65bn at the end of 2010.
RBS said in its annual results this morning: “In line with the group’s strategy, exposure to commercial real estate was reduced during 2011, affecting mainly the UK and Western Europe given that these regions account for the majority of the portfolio. Overall this portfolio decreased circa 25% in the two years to 31 December 2011. Most of the decrease is in non-core due to run-off and asset sales.
“With the exception of exposure in Spain and in Ireland, the group has minimal commercial real estate exposure to other eurozone periphery countries. Exposure in Spain is predominantly in the non-core portfolio and totals £2.3bn. The remainder of the Spanish portfolio has already been subject to material write-off and provision levels have been assessed based on re-appraised values.”
RBS’ total Spanish commercial real estate and construction was £2.85bn at the end of 2011.
The final quarter of last year comprised £1.8bn in loan run-offs, £1.1bn in disposals and restructuring, £600m in loan impairments, £400m in currency movements, set against an increase of £100m in drawdowns and extensions in non-core real estate loans.
These fourth quarter figures take the full 2011 equivalent positions to: £5.6bn in loan run-offs, £2.4bn in disposals and restructuring, £3.4bn in loan impairments, £400m in currency movements, set against an increase of £700m in drawdowns and extensions in non-core real estate loans.
Ulster Bank’s commercial real estate loan book reduced by £875m last year to £17.1bn, of which £12.3bn or 72% is non-core. The geographic split of the total Ulster Bank commercial real estate portfolio is broadly unchanged over the 12 months, with 26% in Northern Ireland, 63% in the Republic of Ireland and 11% in the UK.
Loan impairment charges in Ulster Bank have fallen marginally – from £630m at the end of 2010, to £609m at the end of last year. Ulster Bank Group’s non-performing loans increased by £3.5bn across core and non-core, driven by a 39% increase to £600m in residential mortgages and a 25% increase to £2.4bn in commercial real estate, reflecting deteriorating conditions in Ireland’s property market.
RBS said this morning in its results for the Ulster book: “The outlook remains challenging, with limited liquidity in the marketplace to support sales or refinancing. The decrease in asset valuations has placed pressure on the portfolio.”
RBS is in the process of implementing changes to the risk-weighted asset (RWA) requirements for commercial real estate portfolios, which is projected to increase RWA requirements by circa £20bn by the end of 2013, of which circa £10bn will apply in 2012. This will be achieved through the continued run-down and disposal of non-core assets and deleveraging in Global Banking Markets (GBM), the bank added.
In 2011, RBS recorded an operating profit of £1.89bn, while its core operating profit was £6.1bn and the core bank delivered a 10.5% return on equity.
RBS total assets have fell by 39% in the last three years – from a peak of £1.6trn to £977bn, with non-core having fallen by 64%, from £258bn at the start of 2009 to £94bn at the end of last year.
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