RBS 2013 Annual Report Download - page 248
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Business review Risk and balance sheet management
246
Credit risk continued
Early problem identification and problem debt management continued
Unsecured portfolios
For unsecured portfolios in UK Retail and Ulster Bank, forbearance
entails reduced or deferred payments. Arrangements to facilitate the
repayment of overdraft excesses or loan arrears can be agreed
dependent on affordability. Where repayment arrangements are not
affordable debt consolidation loans can be provided to customers in
collections.
In RBS Citizens, granting of forbearance is predominantly restricted to
short-term (1-3 months) loan extensions 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. The
number and frequency of extensions granted to a customer are limited.
Additionally, for loans secured by vehicles and credit cards, RBS Citizens
may offer temporary interest rate modifications, but no principal
reductions. Forbearance may also be offered to student loan customers
consistent with the policy guidelines of the US Office of the Comptroller of
the Currency.
• For unsecured portfolios in UK Retail, £121 million of balances (1%
of the total unsecured balances) were subject to forbearance at
2013 year end.
• For unsecured portfolios in Ulster Bank, £16 million (3.8% by value)
of the population was subject to forbearance at 31 December 2013.
• For unsecured portfolios in RBS Citizens, £135 million (1.7% of the
unsecured balances) were subject to forbearance at 2013 year end
(includes auto and recreational vehicle marine portfolios and
excludes small business loans as these are included as part of
wholesale reporting).
Monitoring of forbearance
Forbearance loans may be performing or non-performing. The granting of
forbearance does not change the delinquency status of the loan unless
the arrangement involves a capitalisation of all existing arrears of
principal and interest, in which case the loan becomes up-to-date.
Loans granted forbearance are included in the non-performing book:
when 90 days past due; or if the forbearance arrangement is a payment
concession that involves a reduction in contractually required cash flows
i.e. the forgiveness of interest. Such loans are classified as impaired. In
RBS Citizens, all loans subject to forbearance are included in the non-
performing book.
There are instances when loans subject to forbearance are transferred
from the non-performing book to the performing book. In UK Retail, when
arrears are capitalised, a loan is transferred to the performing book once
the borrower has met the revised payment terms for at least six months
and is expected to continue to do so. In addition, a small portfolio of loans
past due 90 days are managed by UK Retail’s collections function.
Loans in this portfolio may also be transferred to the performing book if
the customer makes payments that reduce arrears below 90 days.
In Ulster Bank, if a customer makes payments that reduce loan arrears
below 90 days, the loan is transferred to the performing book. In addition,
where a customer meets the original payment terms for six months and is
expected to continue to do so, capitalisation may be agreed. In these
cases the loan is also transferred to the performing book.
Mortgages granted forbearance are reviewed regularly to ensure that
customers are meeting the agreed terms. Key metrics have been
developed to record the proportion of loans that fail to meet the agreed
terms over time, as well as the proportion of loans that return to
performing with no arrears. Retail forbearance loans can be modified
more than once.
Twelve month default rates are calculated for all mortgage forbearance
types. In 2013, the average twelve month default rates were 8% for UK
Retail, 18% for Ulster Bank and 13% for RBS Citizens.