RBS 2011 Annual Report Download - page 141

RBS Group 2011 139
Recoveries and active insolvency management
The ultimate outcome of a restructuring strategy is unknown at the time of
execution. It is highly dependent on the cooperation of the borrower and
the continued existence of a viable business. The following are generally
considered to be options of last resort:
xEnforcement of security or otherwise taking control of assets - where
the Group holds 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.
Retail customers
Early problem recognition and collections
There are collections functions in each of the retail businesses. Their role
is to provide support and assistance to customers who are experiencing
difficulties in meeting their financial obligations to the Group. Evidence of
such difficulties includes, for example, a missed payment on their loan, or
abalance that is in excess of the agreed credit limit. Additionally, in UK
Retail and Ulster Bank, a dedicated support team aims to identify and
help customers who may be facing financial difficulty but who are current
with their payments.
Within collections, a range of tools is deployed to initiate contact with the
customer, establish the cause of their financial difficulty and, where
possible, return the customer to a satisfactory position using, where
appropriate, forbearance strategies. If these strategies are unsuccessful,
the customer is transferred to the recoveries team.
Recoveries
The goal of the recoveries function is to collect the total amount
outstanding and reduce the loss to the Group by maximising the level of
cash recovery whilst treating customers fairly. A range of treatment
options are available within recoveries, including litigation procedures for
secured assets. In UK Retail and Ulster Bank, no repossession
procedures are initiated until at least six months following the emergence
of arrears. Additionally, certain forbearance options are made available to
customers within recoveries.
Forbearance
Within the Group’s retail businesses, forbearance generally occurs when
the business, for reasons relating to the actual or potential financial stress
of a borrower, grants a permanent or temporary concession to that
borrower. Forbearance is granted following an assessment of the
customer’s ability to pay. It is granted principally to customers with
mortgages. Granting of forbearance to unsecured customers is less
extensive.
Identification of forbearance
Mortgages are identified for forbearance treatment following initial contact
from the customer, in the event of payment arrears or when the customer
is transferred to collections or recoveries.
Types of retail forbearance
Anumber of forbearance options are utilised by the Group’s retail
businesses. These include, but are not limited to, reduced repayments,
payment holidays, capitalisations of arrears, term extensions and
conversions to interest only. Within UK Retail, interest only conversions
are generally made available only to those customers who are current on
payments and have a defined repayment source.
The principal types of forbearance granted in RBS Citizens’ mortgage
portfolio are the US government mandated HAMP (Home Affordable
Modification Program) and Citizens’ proprietary modification programme.
Both programmes typically feature a combination of term extensions,
capitalisations of arrears, temporary interest rate reductions and
conversions from interest only to amortising. These tend to be permanent
changes to contractual terms. Borrowers seeking a modification must
meet government specified qualifications for HAMP and internal
qualifications for Citizens’ modification programme. Both are designed to
evidence that the borrower is in financial difficulty as well as
demonstrating willingness to pay.
For those loans classified as non-performing, the Group’s objective in
granting forbearance is to minimise the loss on these accounts and
wherever possible, return the customer to the performing book. For those
loans that are performing, the aim is to enable the customers to continue
to service the loan.
The mortgage forbearance population is reviewed regularly to ensure that
customers are meeting the agreed terms of the arrangement. Key metrics
have been developed to record the proportion of customers who fail to
meet the agreed terms over time as well as the proportion of customers
who return to a performing state with no arrears.