Royal Bank of Scotland (RBS) reduced its commercial real estate loan book by around 36 percent during 2015, according to the bank’s full-year results published this morning (26 February).
Total lending on commercial and residential real estate fell to £27.63 billion from £43.32 billion at the end of 2014. The bank said that it had increased the quality of its core loan book, primarily through the sale of commercial real estate and infrastructure portfolios in its Commercial Banking division as well as a buy-to-let portfolio in its Ulster Bank division.
The results breakdown of the £27.63 billion showed that RBS had a total of £18.18 billion of exposure to commercial property investment lending by the end of 2015, down from £25.88 billion at the end of the previous year. The 2015 total was split between £16.62 billion in the UK, £627 million in the Republic of Ireland, £614 million in the rest of Western Europe, £263 million in the US and £59 million in the rest of the world.
The bank also had £4.48 billion of residential investment exposure, down from £6.93 billion at the close of 2014.
CRE development lending exposure stood at £942 million at the end of 2015, down from £2.32 billion in 2014. Residential development exposure was just over £4 billion, down from £8.18 billion at the end of 2014.
RBS said that overall CRE lending fell due to asset sales, repayments and write-offs. Further divestments from its internal bad bank, RBS Capital Resolution (RCR), of £2.8 billion and Williams & Glyn of £3.3 billion, left the CRE portfolio concentrated in the UK and Ireland.
“CRE occupier market fundamentals have improved gradually over the last year as a result of stable economic growth,” the bank said. “Areas of weakness remain in secondary, regional retail and provincial office locations but, overall, vacancy rates are declining and rental values are showing signs of growth across a wide range of geographies and sub-sectors.
“The strongest rental growth to date has been in and around London, but it is now spreading to the wider south-east of England area and key regional centres. Over 2015, CRE investment activity was marginally down on the record levels seen in 2014, despite a very strong start in the first half of the year. There was continued demand from overseas investors who accounted for 50 percent of the total value of all UK commercial property acquisitions in 2015.”
By credit risk, 2015’s CRE book had £11.7 billion of sub-50 percent loan-to-value CRE debt, of which £126 million was non-performing. That compares to £9.8 billion in 2014, of which £263 million was non-performing.
Debt with an LTV of between 70 and 90 percent fell from £2.7 billion in 2014 to £1.9 billion, of which £647 million was non-performing.
In RBS’s Commercial Banking unit, a slight increase in gross commercial real estate loans and advances was recorded during 2015, from £16.6 billion to £16.7 billion. Last year’s growth in the Commercial Banking division’s CRE loan book is in contrast to the £2.3 billion decrease during 2014.
Within the RCR ‘bad bank’, gross loans and advances in the Real Estate Finance segment reduced from £4.1 billion to £1.4 billion during the year. Of that total, £900 million related to the UK, while £300 million related to Spain and £100 million to Germany.
In its Ulster Bank segment of RCR, CRE investment funded assets dropped from £1.2 billion to £200 million and CRE development funded assets from £700 million to zero. Overall, risk-weighted assets were down within RCR for Real Estate Finance by £3.5 billion and Ulster Bank by £900 billion.
Ulster Bank had gross loans and advances to customers of €900 million investment CRE, down from €1.3 billion in 2014, which had come down from €4.4 billion in 2013. CRE development loans stood at €300 million, stable from last year, when it had fallen from €700 million in 2013. Mortgages stood at €18.8 billion, down from €19.6 billion in 2014. However, gross new mortgage lending increased 53% to £500 million in 2015.
Within its UK personal and business banking unit, there was £29 billion of gross mortgage lending during 2015, up 29 percent versus 2014.