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