RBS 2010 Annual Report Download - page 150

Risk management: Credit risk continued
Global Restructuring Group continued
Depending on the case in question, GRG may employ a combination of
these options in order to achieve the best outcome. It may also consider
alternative approaches, either alone or together with the options listed
above.
The following are generally considered as options of last resort:
xEnforcement of security or otherwise taking control of assets: where
the Group holds underlying collateral or other security interest and is
entitled to enforce its rights, it may take ownership or control of the
assets. The Group’s preferred strategy is to consider other possible
options prior to exercising these rights.
xInsolvency: where there is no suitable restructuring option or the
business is no longer regarded as sustainable, insolvency will be
considered. Insolvency may be the only option that ensures that the
assets of the business are properly and efficiently distributed to
relevant creditors.
As discussed above, GRG will consider a range of possible restructuring
strategies. At the time of execution, the ultimate outcome of the strategy
adopted is unknown and highly dependent on the cooperation of the
borrower and the continued existence of a viable business. The
customer’s financial position, its anticipated future prospects and the
likely effect of the restructuring including any concessions are considered
by the GRG relationship manager to establish whether an impairment
provision is required, subject to divisional and Group governance.
During 2010, GRG completed corporate loan restructurings totalling £6.2
billion (exposures of more than £5 million) of which £2.7 billion were
classified as impaired. Of these restructurings £2.4 billion related to
commercial real estate and £2.1 billion to manufacturing. The incidence
of the main types of arrangements is analysed below:
%of loans
(by value)
Term extensions 54
Debt forgiveness 25
Debt for equity 23
Interest rate concessions and payment moratoriums 36
The total above exceeds 100% as an individual case can involve more
than one type of arrangement.
Transfer of restructured loans to the performing book follows assessment
by relationship managers in GRG. All cases are individually assessed;
when no further losses are expected the loan is returned to performing
status. Restructured loans that carry an impairment provision remain
classified as impaired. Of the £3.5 billion of corporate loans that were
transferred to the performing book with a concession during 2010, loans
amounting to £1.8 billion had a negotiated margin increase as
compensation for concessions granted.
Retail collections and recoveries
There are collections and recoveries functions in each of the consumer
businesses. Their role is to provide support and assistance to customers
who are currently experiencing difficulties in meeting their financial
obligations. Where possible, the aim of the collections and recoveries
teams is to return the customer to a satisfactory position, by working with
them to restructure their finances. If this is not possible, the team has the
objective of reducing the loss to the Group.
Forbearance*
The Group’s retail forbearance activities involve granting various contract
revisions not normally available, such as reduced repayments, payment
moratoriums and the roll up of arrears, principally to retail customers with
secured lending that are experiencing temporary financial difficulties.
Loans are identified for forbearance primarily as a result of contact from
the customer or payment arrears and it is only granted following an
assessment of the customer’s ability to pay. For those loans that are
classified as impaired, the Group’s objective is to minimise the loss on
these accounts; for currently performing loans the aim is to enable the
customer to continue to service the loan.
Forbearance lending for which an impairment loss provision has been
recognised remains classified as non-performing. Where the customer
met the loan terms prior to modification and where there is an expectation
that the customer will meet the revised terms, these loans are classified
as performing loans.
Retail loan forbearance arrangements during 2010 totalled £3.3 billion
(residential mortgages £3.1 billion), of which £1.0 billion were classified
as impaired. The incidence of the main types of retail forbearance is
analysed below.
%of loans
(by value)
Reduced repayments 59
Payment moratoriums 20
Roll up of arrears 19
Interest reductions 6
Term extensions 3
The total exceeds 100% as an individual case can involve more than one
type of arrangement.
Of the forbearance arrangements agreed in the performing book during
2010, less than 15% were impaired as at 31 December 2010.
*unaudited
RBS Group 2010148
Business review continued