RBS 2012 Annual Report Download - page 200

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Business review Risk and balance sheet management continued
Balance sheet analysis: Financial assets: Sector and geographic concentration continued
Key points continued
x The Group’s exposure to property and construction sector
decreased by £11 billion, principally in commercial real estate
lending. The majority of the Group’s Core property exposure is
within UK Corporate (73%). In relation to property exposure, the UK
Corporate and Ulster Bank divisions saw further deterioration in
asset quality during the year.
x Retail, wholesale and repairs sector decreased by £4 billion,
reflecting de-leveraging of customers in the retail sector.
x Manufacturing exposure reduced by £9 billion primarily reflecting
Non-Core reductions.
x Transport and storage includes the Group’s shipping exposures of
£11 billion which comprises asset-backed exposures to ocean-going
vessels. Conditions remained poor across the major shipping market
segments in 2012, with low charter rates and vessel values. A key
protection for the Group is the minimum security covenant. This
covenant is tested each quarter on an individual vessel basis to
ensure prompt remedial action is taken if values fall significantly
below agreed loan coverage ratios. There was an increase in the
number of clients suffering liquidity issues or failing to meet their
minimum security covenant and a commensurate rise in referrals to
the Watchlist and the GRG. At 31 December 2012, 20% of the
Group’s exposure to this sector was in Watchlist Red. The Group’s
exposure to the shipping sector (including shipping related
infrastructure) declined by 3.5% in 2012 as a result of amortisation
and foreign exchange movements. At 31 December 2012, £0.7
billion of loans were included in risk elements in lending with an
associated provision of £0.2 billion and impairment charge of £0.1
billion for 2012.
Within lending:
UK Retail increased its lending to homeowners by £4.1 billion, including
first-time buyers, reflecting the impact of the UK Government’s Funding
for Lending Scheme (FLS); unsecured lending balances fell.
UK Corporate lending decreased by £3.8 billion, reflecting a combination
of customer deleveraging with low business confidence and portfolio de-
risking, particularly in commercial real estate, which fell by £3.5 billion.
Non-Core continued to make significant progress on its balance sheet
strategy by reducing lending by £24 billion across all sectors, principally
property and construction, where commercial real estate lending
decreased by £9.4 billion, reflecting repayments and asset sales.
For further discussion on debt securities and derivatives, refer to pages
209 to 217 and 220 respectively.