RBS 2013 Annual Report Download - page 247
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Business review Risk and balance sheet management
245
Retail
Collections
Collections functions in each of the Group’s retail businesses provide
support and assistance to customers who are experiencing difficulties in
meeting their obligations to the Group. Such customers may miss a
payment on their loan or borrow more than their agreed limit, or contact
the Group themselves asking for help. Dedicated support teams are also
in place to identify and help customers who have not yet missed a
payment but may be facing financial difficulty.
The collections function may use a range of tools to initiate contact with
the customer, establish the cause of their financial difficulty and support
them where possible. In the process, they may consider granting the
customer forbearance.
Additionally, in the UK and Ireland, support is provided to customers with
unsecured loans who establish a repayment plan with the Group through
a debt advice agency or a self-help tool. Such “breathing space”
suspends collections activity for a 30-day period to allow time for the
repayment plan to be put in place. Arrears continue to accrue for
customer loans granted breathing space.
If collections strategies are unsuccessful the relationship is transferred to
the recoveries team. For further details on recoveries, refer to page 250.
Retail forbearance
Definition
Forbearance takes place when a concession is made on the contractual
terms of a loan in response to a customer's financial difficulties. In UK
Retail and Ulster Bank, a broader definition of forbearance is used that
includes mortgages where a customer has made a change to contractual
terms, when their payments status is up-to-date and they are not
necessarily evidencing signs of financial difficulty. Forbearance is granted
on a permanent, or temporary, basis following an assessment of the
customer's individual circumstances and ability to pay. For UK Retail and
Ulster Bank, the disclosure covers changes in contractual terms dating
back to January 2008 and early 2009 respectively.
Identification
Customers who contact the bank directly because of financial difficulties,
or who are already in payment arrears, may be granted forbearance. In
the course of assisting customers, more than one forbearance treatment
may be granted.
Types of retail forbearance
Forbearance is granted principally to customers with mortgages and less
extensively to customers with unsecured loans.
Mortgage portfolios
Forbearance options include, but are not limited to, payment
concessions, capitalisations of arrears, term extensions and temporary
conversions to interest only.
• Payment concessions - 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. Ulster Bank and RBS Citizens also offer payment
concessions in the form of discounted interest rates that involve the
forgiveness of some interest (further details below).
• Capitalisation of arrears - The customer repays the arrears over the
remaining term of the mortgage and returns to an up-to-date
position.
• Term extensions - The maturity date of the loan is extended.
• Interest only conversions - The loan converts from principal and
interest repayment to interest only repayment on a temporary basis
(Ulster Bank only).
In UK Retail, interest only conversions have not been used to support
customers in financial difficulty since 2009, and from 2012 have only
been permitted on a very exceptional basis for residential mortgage
customers who are up to date on payments. As a result interest only
loans with permanent changes to terms are historical stock. In Ulster
Bank, interest only conversions are offered to customers under financial
stress and solely on a temporary basis.
In response to the economic difficulties in the Republic of Ireland, Ulster
Bank has developed additional forbearance options. These payment
concessions support customers over an extended period of time and
include instances where some interest is forgiven by granting interest rate
discounts for a 3-5 year period.
Similarly RBS Citizens participates in the US government mandated
Home Affordable Modification Program as well as its own proprietary
programme. Both feature a combination of term extensions,
capitalisations of arrears, interest rate reductions and conversions from
interest only to amortising. These tend to be permanent changes to
contractual terms. In order to qualify for either of the programmes,
customers must meet government-specified or internal criteria designed
to evidence financial difficulty but demonstrate a willingness to pay.