Royal Bank of Scotland is to be restructured to create an internal “bad bank”, rather than being split up, following a Treasury report recommendation.
The RBS capital resolution group will manage the running down of high-risk assets, which are projected to total £38bn by the end of the year.
This includes £8.4bn non-core corporate real estate loans, £1.8bn core property loans and £4.6bn of Ulster Bank bad debt, which is primarily CRE lending.
In its interim management statement for the third quarter, the bank said its goal is to remove 55-70% of these assets over the next two years, which will accelerate and increase losses on the loans.
The report also said that the bank will “adopt a much more conservative risk appetite” for lending to property companies.
It found that lending to real estate companies accounted for almost 25% of the UK corporate division’s loan book at the half year, but more than 40% of its losses in the same period.
Looking at its results, the bank said its non-core loan impairments increased by £104m due to higher charges on commercial real estate loans in the Ulster Bank-originated book, partly offset by continued portfolio run-off.
