RBS set to offload £34bn of UK commercial loans

  Royal Bank of Scotland, the UK’s largest property lender,  is set to offload £34bn of its £51bn of UK commercial property loans in a bid to reduce its exposure to the sector, EG can reveal.   While the move will take place in an orderly manner over the next three to five years, analysts have warned that a large reduction in the loan books of major property lenders could put more pressure on values.   In results last Friday, RBS said that £34bn of its £51bn UK property loan book will be transferred to the bank’s non-core division. These loans will be run down or sold off over the next three to five years, in line with RBS’s policy of shrinking its balance sheet.   This is likely to mean that many property  loans will not be refinanced when they come to maturity. They will be sold if the bank can realise a good price.   A source stressed that while many loans would not be renewed, RBS would seek to retain relationships with as many of its UK property borrowers as possible, and would not abandon the UK market.   While £34bn of loans will be run down or sold off, new business could be taken on, meaning that the overall loan book will not shrink by £34bn. “The non-core division relates to assets, not clients,” the source said.   “If, for instance, there is a borrower with three loans, two of them might be transferred to the non-core division, and the third renewed. If there is a loan that was at a loan-to-value of 65% and is now 95%, by definition the bank is not going to want to renew that and it will go in the non-core bucket.”   The source added that the bank would not seek to reduce its exposure while the market remained highly illiquid, and would be willing to extend loans in the short term to ensure an orderly rundown, with the government’s asset protection scheme assisting the process.   “It is unlikely that banks will be allowed to sell aggressively, but [loan book reduction] will still probably result in above-average supply,” said Bart Gysens, analyst at Morgan Stanley. “As a result, we think there is a risk that UK property values face another leg down.”   RBS also plans to withdraw from most overseas lending, and said in its results that it will look to shrink its £100bn overall property exposure by around 40%.   It added that 13% of its loan book was now in default, a rise of 6% from the end of last year, and that it expected the default rate to get worse.   michael.phillips@rbi.co.uk