05.03.10

Commercial property losses almost trebled last year as the Royal Bank of Scotland reported a full-year loss of £3.6bn for 2009

The bank, headed by former British Land chief executive Stephen Hester, last week said its bad loan impairments within its property portfolio rose to £3.7bn in 2009, from £1.3bn in 2008, as a result of falling property values.

Overall, its total impairments last year nearly doubled, from £7.4bn in 2008 to £13.9bn in 2009, but RBS said they “appear likely to have peaked”. It noted that fourth-quarter impairments were 5% lower than during the third quarter of 2009 and “risk elements in lending at year-end were unchanged compared with the end of September, at £35bn”.

Its commercial property lending portfolio totalled £85bn at 31 December 2009, an £11bn — or 12% — decrease during the year. The non-core portion of the portfolio totalled £38bn — or 44%.

The loan book is primarily divided between borrowers in the UK, western Europe, the Americas and the rest of the world, who owe RBS £55bn, £19.2bn, £6.5bn and £3.5bn respectively. By segment, the £85bn loan book is split between investment, which accounts for £60.2bn, commercial and residential development, which accounts for £22.3bn and “other”, which is around £2.5bn.

RBS said its average loan-to-value ratio had risen to 91% and the average interest cover ratio for its investment portfolio ranged between 1.6 and 1.64.

It said that speculative lending was less than 1% of the portfolio and the “group’s appetite for originating speculative commercial property lending is limited, and any such business requires exceptional approval under the credit approval framework”.

It added that the decrease in asset valuations has placed pressure on the portfolio, as more clients seek renegotiations of loan-to-value covenants ”in the context of granting structural enhancements or equity injections”.

RBS said: “While asset valuations stabilised during the latter part of 2009, the outlook remains challenging, with liquidity to support refinancing still reduced and high levels of concern regarding tenant failures. Wherever feasible, we work with clients to restructure loans, while achieving mutual benefits.”

Hester said: “We are one year into our five-year turnaround plan and have taken significant steps along the path to recovery. The strengths of our core business are becoming clearer, while the legacy of losses and exposures from the crisis is running off.

“RBS is being restructured and run to serve customers well, to be safe and stable, and to restore sustainable shareholder value for all. That is our legal duty and it is our intention and desire. It is also the only way taxpayers will recover the support they have given us.”

“In 2010, we will continue to focus on the recovery factors we can control, while effectively navigating the factors we cannot.

“The case for investment in our group will become simpler and clearer as our strategy and actions show continuing results.”

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Source: Property Week (www.propertyweek.co.uk)