RBS 2012 Annual Report Download - page 178

Early problem identification and problem debt management: Wholesale renegotiations continued
Retail customers
Collections and recoveries
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
a balance 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, aim to
support them where possible including the use of a range of forbearance
options. If these strategies are unsuccessful, the customer is transferred
to the recoveries team.
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 while treating customers fairly. A range of treatment
options are available within recoveries, including litigation. In UK Retail
and Ulster Bank, no repossession procedures are initiated until at least
six months following the emergence of arrears. In Ulster Bank, new
regulations further prohibit taking legal action for an extended period.
Additionally, certain forbearance options are made available to customers
within recoveries.
Retail 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
Customers 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
A number of forbearance options are utilised by the Group’s retail
businesses. These include, but are not limited to, payment concessions,
capitalisations of arrears over the remaining term of the mortgage,
extension to the mortgage term and temporary conversions to interest
only.
In payment concession arrangements a temporary reduction in, or
elimination of, the periodic (usually monthly) loan repayment is agreed
with the customer. At the end of the concessionary period, forborne
principal and accrued interest outstanding is scheduled for repayment
over an agreed period.
For UK Retail, interest only conversions have not been used as a tool to
support customers in financial stress since 2009. Following a change to
policy in 2012, switching to interest only is no longer permitted for
residential mortgage customers who are up to date on payments. For
Ulster Bank, interest only conversions are only offered to customers in
financial stress on a temporary basis.
As a result of the economic difficulties in the Republic of Ireland market
and responding to regulatory intervention in the Irish mortgage market,
Ulster Bank has developed additional treatment options to support
customers in overcoming financial difficulties, over an extended period of
time.
The principal types of forbearance granted in RBS Citizens’ mortgage
portfolio are the US government mandated HAMP (Home Affordable
Modification Program) and RBS 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 RBS Citizens’ modification programme.
Both are designed to evidence that the borrower is in financial difficulty as
well as demonstrating willingness to pay.
For forbearance loans that are performing, the aim is to enable the
customer to continue to service the loan. For forbearance loans classified
as non-performing only those for which capitalisation of arrears has been
agreed can qualify for return to the performing book. Transfer of such
loans takes place currently once the customer has met the revised
payment terms for at least six months and is expected to continue to do
so.
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.
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Business review Risk and balance sheet management continued