RBS 2011 Annual Report Download - page 140

138 RBS Group 2011
Risk management: Credit risk continued
Problem debt management continued
The wholesale restructured loan data presented in the tables below include only those arrangements that achieved legal completion during 2011 and
that individually exceed respective thresholds set at divisional level, which range from nil to £10 million. This population captures approximately 71% of
that proportion of the wholesale portfolio that is either on Watchlist or under GRG stewardship. Within this population, restructurings amounting to £8.6
billion achieved legal completion during 2011. A further £14.7 billion was in the process of being completed at year end (these loans are not included in
the tables below). Of the loans that were subject to restructuring during 2011 by the divisions, 82% remained in the performing book at 31 December
2011. Of those restructured within the GRG during the year, 17% had been returned to satisfactory by year end.
The asset quality of the restructured loans, the sectors affected and provision coverage are as follows:
Wholesale restructurings by sector AQ1-AQ9 (1)
£m
AQ10 (2)
£m
AQ10 (2)
provision
coverage
%
2011
Property 1,980 2,600 18
Transport 686 694 11
Non-bank financial institutions 228 420 65
Retail and leisure 503 148 24
Other 1,078 251 28
Total 4,475 4,113 22
Notes:
(1) Probability of default less than 100%.
(2) Probability of default is 100%.
The incidence of the main types of restructuring is analysed below:
Wholesale restructurings by type of arrangement Loans by value
%
2011
Variation in margin 12
Payment holidays and loan rescheduling 87
Forgiveness of all or part of the outstanding debt 31
Other 8
Note:
(1) The total above exceeds 100% as an individual case can involve more than one type of arrangement.
Provisioning for impaired loans
Any one of the above types of restructuring may result in the value of the
outstanding debt exceeding the present value of the estimated future
cash flows from the restructured loan resulting in the recognition of an
impairment loss. Restructurings that include forgiveness of all or part of
the outstanding debt account for the majority of such cases.
The customer’s financial position, anticipated prospects and the likely
effect of the restructuring, including any concessions granted, are
considered in order to establish whether an impairment provision is
required.
Provisions on exposures greater than £1 million are individually assessed
by the GRG. Exposures smaller than £1 million are deemed not to be
individually significant and are assessed collectively by the originating
division.
In the case of non-performing loans that are restructured, the loan
impairment provision assessment (based on management’s best
estimate of the incurred loss) almost invariably takes place prior to the
restructuring. The quantum of the loan impairment provision may change
once the terms of the restructuring are known, resulting in an additional
provision charge or a release of the provision in the period the
restructuring takes place.
Refer to Impairment loss provision methodology on pages 202 and 203.
Business review Risk and balance sheet management continued