RBS bad bank shifts £6.7bn of property debt

Royal Bank of Scotland revealed in its annual results this morning that £12.6bn of gross property loans remained within its “bad bank” division.

But the bank also said that it is running one year ahead of schedule in its target, set in January 2014,  to run down 85% of the Capital Resolution Group (RCR) book by the end of 2016.

When RCR was set up , charged with selling-off unwanted positions,  the bank said the unit had £19.3bn of real estate loans that it considered to be non-core meaning it has sold-off £6.7bn during 2014.

Of the remaining £12.6bn of loans that remain in the book, £11.1bn or 88% are impaired or not fully performing. The bank expects that it will only recoup £4.5bn of these £12.6bn of loans, given £8.1bn of provisions.

However, the division’s property performance last year was better than anticipated. Its impairments or losses on the sale of loans were £1.14bn less than it expected. It attributed this in part to favourable market conditions in Ireland where it was an active seller of non-performing loan portfolios.

Of the £12.6bn of loans RCR still  holds, £6.2bn were investment loans. Of these, £4.9bn or 79% are impaired. It is expected that the bank will recoup 55% of this value and it has set aside £2.8bn of provisions.

The remaining £6.4bn are development loans. These are much more distressed with £6.2bn or 97% being impaired with provisions of £5.3bn or 83%.

Despite the improvement in the Irish real estate market the real estate loans written by the bank’s Irish arm, Ulster Bank, are still the most distressed.

Of the £12.6bn of loans it is looking to dispose of £8.8bn or 70% were written by Ulster. Almost all of these – £8.7bn – are impaired and provisions of £7.1bn have been set aside, meaning only 19% is expected to be clawed back.

RCR, which is also responsible for disposing of unwanted positions for the bank aside from real estate, was set a target when it was formed to dispose of 55% to 70% of its assets by the end of 2015, and 85% over three years, by end of 2016. It now expects to complete 85% of disposals by the end of this year.

RBS is 81% owned by the UK government and is looking to get back on a stable footing ahead of an eventual privatisation.

It has been streamlining its international presence and today also announced the sale of $36.5bn of loan commitments in the US and Canada to Mizuho Bank.