Lloyds Banking Group has reduced its UK “bad book” by £2.5bn in the first six months of this year through consensual agreements with customers, loans sales and asset disposals.
In its half year results released today it said the portfolio “continues to reduce significantly ahead of expectations” and that, subject to rounding, that the UK book managed by the Richard Dakin’s Business Support Unit now stands at only £4bn.
It does however have a further £4.365bn of loans outstanding in Ireland, of which £4.128bn are impaired. Over the period the bank reduced its exposure in the Emerald Isle by £1.147bn, although its impairment provision for Irish real estate increased from 64.3% from 56.8%.
Although Irish commercial property values are recovering – offices rose 22.7% over the last year, according to IPD’s quarterly index – Lloyds attributed the increased provision to the “continued deterioration in Ireland commercial real estate”.
The first six months of the year saw the part state-owned bank sell three non-performing loan portfolios: the €526m Project Aberdonia, to Marathon Asset Management, the £536m Project Avon to Cerberus Capital Management and a loan held against the government’s abandoned Fire Control Centres to Kennedy Wilson Europe for £93.5m.
The Business Support Unit’s book also still includes around £700m of performing but non-core small, regional loans; around £320m of debt with Rocco Forte Hotels, some £1.1bn with Nick Leslau and Mike Brown’s Secure Income REIT as well as loans to housebuilders Gladedale and Keepmoat and leisure firm De Vere, which are in the process of being sold.
As a result of the deleveraging the BSU team of around 200 is expected to steadily reduce in number by the end of the year with many of the staff due to move to the new lending team.
The progress that is being made on the bank’s deleveraging is expected to boost its new lending and it is forecasting that this year its total originations of commercial real estate loans will exceed 2013’s figure of £6.9bn.