RBS 2011 Annual Report Download - page 155

RBS Group 2011 153
Breakdown of portfolio by asset quality (AQ) band
AQ1-AQ2 AQ3-AQ4 AQ5-AQ6 AQ7-AQ8 AQ9 AQ10 Total
2011 £m £m £m £m £m £m £m
Core 1,094 6,714 19,054 6,254 3,111 4,338 40,565
Non-Core 680 1,287 5,951 3,893 2,385 20,085 34,281
Total 1,774 8,001 25,005 10,147 5,496 24,423 74,846
2010
Core 1,055 7,087 20,588 7,829 2,171 3,532 42,262
Non-Core 1,003 2,694 11,249 7,608 4,105 18,489 45,148
Total 2,058 9,781 31,837 15,437 6,276 22,021 87,410
Key points
xApproximately 13% of the commercial real estate exposure is within the AQ1-AQ4 bands. This includes unsecured lending to property companies
and real estate investment trusts. The high proportion of the exposure in the AQ10 band is driven by Ulster Bank Group (Core and Non-Core) and
GBM (Non-Core).
xOf the total portfolio of £74.8 billion at 31 December 2011, £34.7 billion (2010 - £45.1 billion) is managed within the Group’s standard credit
processes and £5.9 billion (2010 - £9.2 billion) is receiving varying degrees of heightened credit management under the Group Watchlist process
(this includes all Watchlist Amber cases and Watchlist Red cases managed outside the Global Restructuring Group (GRG)). A further £34.3 billion
(2010 - £33.1 billion) is managed within the GRG and includes both Watchlist and non-performing exposures. The increase in the portfolio
managed by the GRG is driven by Ulster Bank Group (Core and Non-Core).
The table below analyses commercial real estate lending by loan-to-value (LTV). Due to market conditions in Ireland and to a lesser extent in the UK,
there is a shortage of market based data. In the absence of external valuations, the Group deploys a range of alternative approaches including internal
expert judgement and indexation.
Ulster Bank Rest of the Group Group
LTVs AQ1-AQ9
£m
AQ10
£m
AQ1-AQ9
£m
AQ10
£m
AQ1-AQ9
£m
AQ10
£m
2011
<= 50% 81 28 7,091 332 7,172 360
>50% and <= 70% 642 121 14,105 984 14,747 1,105
> 70% and <= 90% 788 293 10,042 1,191 10,830 1,484
>90% and <= 100% 541 483 2,616 1,679 3,157 2,162
>100% and <= 110% 261 322 1,524 1,928 1,785 2,250
> 110% and <= 130% 893 1,143 698 1,039 1,591 2,182
>130% 1,468 10,004 672 2,994 2,140 12,998
Total with LTVs 4,674 12,394 36,748 10,147 41,422 22,541
Other (1) 7 38 8,994 1,844 9,001 1,882
Total 4,681 12,432 45,742 11,991 50,423 24,423
Total portfolio average LTV (2) 140% 259% 69% 129% 77% 201%
Notes:
(1) Other performing loans of £9.0 billion include unsecured lending to commercial real estate clients, such as major UK homebuilders. The credit quality of these exposures is consistent with that of the
performing portfolio overall. Other non-performing loans of £1.9 billion are subject to the Group’s standard provisioning policies.
(2) Weighted average by exposure.
Key points
xNearly 85% of the commercial real estate portfolio with LTV > 100%
is within Ulster Bank Group (Core and Non-Core) and GBM (Non-
Core). A majority of portfolios are managed within the GRG and are
subject to monthly reviews. Significant levels of provisions have
been taken against these portfolios; provisions as a percentage of
risk elements in lending for the Ulster Bank Group commercial real
estate portfolio were 53% at 31 December 2011 (2010 - 44%). The
reported LTV levels are based on gross loan values. The weighted
average LTV for AQ10 excluding Ulster Bank is 129%.
xThe average interest coverage ratios (ICR) for UK Corporate (Core
and Non-Core) and GBM (Non-Core) investment properties are
2.37x and 1.25x respectively. The US Retail & Commercial portfolio
is managed on the basis of debt service coverage, which includes
scheduled principal amortisation. The average debt service interest
coverage for this portfolio on this basis was 1.24x at 31 December
2011. There are a number of different approaches used within the
Group and across the industry to calculate ICR. Ratios for different
portfolio types, and organisations may not therefore be comparable.