Mike Phillips
Royal Bank of Scotland is to drastically cut back its commercial property lending business.
Chief executive Stephen Hester confirmed on Thursday that the bank would be “reducing its exposure to commercial property” when he announced a record £24bn loss for the bank.
The former British Land chief, who joined RBS in November, revealed that the bank had a £97bn commercial property loan book, up from £79bn in 2007. The UK accounts for £52bn.
Around £9bn of RBS’s UK exposure is through investment in commercial mortgage-backed securities, and lending undertaken by its investment banking division.
The real estate activities of this division, which has a total global property loan book of £25bn, have been deemed “non-core” and will be either run down or sold off over the next three to five years.
“The performance of our commercial property book remains under close watch,” said Hester. “Average loan-to-value ratios in the UK portfolio are 68% and less than 5% of the portfolio has loan-to-values greater than 85%.”
The overall property loan portfolio has a loan-to-value ratio of 84%.
The bank has written down only £1bn of the UK loan book over the past six months. But Hester hinted that many of the loans are destined to be sequestered in the government’s asset protection scheme.
This is far less than the £4.5bn property loss Lloyds Banking Group, which will also use the asset protection scheme, was expected to announce on Friday.
Those losses stem from Lloyds’ acquisition of HBOS, which was completed in January.
The scheme is designed to free up cash for new lending. RBS has allocated £32bn of new cash for corporate lending over the next two years.
