RBS 2012 Annual Report Download - page 181

RBS GROUP 2012
179
Unsecured portfolios
For unsecured portfolios in UK Retail and Ulster Bank, forbearance
treatments comprise either debt consolidation loans provided to
customers subject to collections activity who do not meet the Group’s
standard underwriting criteria, longer-term financial hardship plans, or
repayment arrangements to facilitate the repayment of overdraft
excesses. Additionally, support is provided to customers experiencing
financial difficulties through breathing space initiatives on all unsecured
products, including credit cards, whereby the Group suspends
collections activity for a 30-day period to allow customers to establish a
debt repayment plan. Arrears continue to accrue for customer loans
benefiting from breathing space.
x For unsecured portfolios in UK Retail, £162 million of balances
(1.1% of the total unsecured balances) were subject to
forbearance at 2012 year end.
x For unsecured portfolios in Ulster Bank, £20 million (3.4% by
value) of the population was subject to forbearance at 31
December 2012.
Within RBS Citizens, granting of forbearance is significantly less
extensive for non real-estate portfolios, as it is predominantly restricted
to the granting of short-term (1-3 months) loan extensions to
customers to alleviate the financial burden caused by temporary
hardship. Such extensions are offered only if a customer has
demonstrated a capacity and willingness to pay following the extension
term. The number and frequency of extensions available to a given
customer are limited per customer. Additionally, in the case of loans
secured by vehicles and credit cards, RBS Citizens may offer
temporary interest rate modifications, but no principal reduction. RBS
Citizens may also provide forbearance to student loan borrowers
consistent with the policy guidelines of the US Office of the Comptroller
of the Currency.
Provisioning for retail customers
Provisions are assessed in accordance with the Group’s provisioning
policies.
The majority of retail forbearance takes place in the performing book
and, for the purposes of the latent loss provisions, these constitute a
separate risk pool. They are subject to higher provisioning rates than
the remainder of the performing book. These rates are reviewed
regularly in both divisions. Once forbearance is granted, the account
continues to be assessed separately for latent provisioning for 24
months (UK Retail only) or until the forbearance period expires. After
that point, the account is no longer separately identified for latent
provisioning. In the non-performing portfolio, assets are grouped into
homogeneous portfolios sharing similar credit characteristics according
to the asset type. Further characteristics such as LTVs, arrears status
and default vintage are also considered when assessing recoverable
amount and calculating the related provision requirement. Whilst non-
performing forbearance retail loans do not form a separate risk pool,
the LGD models used to calculate the collective impairment provision
will be affected by agreements made under forbearance
arrangements.
In RBS Citizens, consumer loans subject to forbearance are
segmented from the rest of the non-forborne population and assessed
individually for impairment loan throughout their lives until the accounts
are repaid or fully written-off. The amount of recorded impairment
depends upon whether the loan is collateral dependent. If the loans
are considered collateral dependent, the excess of the loan’s carrying
amount over the fair value of the collateral is the impairment amount. If
the loan is not deemed collateral dependent, the excess of the loans’
carrying amount over the present value of expected future cash flows
is the impairment amount. Any confirmed losses are charged off
immediately.
Impairment loss provision methodology
A financial asset or portfolio of financial assets is impaired and an
impairment loss incurred if there is objective evidence that an event or
events since initial recognition of the asset has adversely affected the
amount or timing of future cash flows from the asset.
For retail loans, which are segmented into collective, homogenous
portfolios, time-based measures, such as days past due, are typically
used as evidence of impairment. For these portfolios, the Group
recognises an impairment at 90 days past due.
For corporate portfolios, given their complexity and nature, the Group
relies not only on time-based measures, but also on management
judgement to identify evidence of impairment. Other factors considered
may include: significant financial difficulty of the borrower; a breach of
contract; a loan restructuring; a probable bankruptcy; and any
observable data indicating a measurable decrease in estimated future
cash flows.