RBS 2013 Annual Report Download - page 251
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Business review Risk and balance sheet management
249
Key points
UK Retail
• At 31 December 2013, forbearance balances where the forbearance
treatment was provided in the last 24 months amounted to £2.0
billion. This represented a 14% reduction in the year.
• The flow of new forbearance of £380 million in the fourth quarter of
2013 continued on a downward trend compared with an average of
£456 million in the preceding four quarters. The full year flow for
2013 was £1.7 billion, a 15% reduction on the 2012 flow.
• 5.5% of total mortgage assets (£5.4 billion) were subject to a
forbearance arrangement agreed since January 2008. This
represented an increase from 4.9% on 2012 (£4.8 billion). The rise
was driven by an extension of the reporting definition to include
legacy conversions to interest only repayment in cases where
customers were previously on a combination of repayment types.
Excluding this change in definition, forbearance stock remained
stable.
• Approximately 84% of forbearance loans (2012 - 83%) were up to
date with payments compared with approximately 97% of assets not
subject to forbearance activity.
• The majority (90%) of UK Retail forbearance is permanent in nature
(term extensions, capitalisation of arrears, historic conversions to
interest only). Temporary forbearance comprises payment
concessions such as reduced or deferred payments with such
arrangements typically agreed for a period of three to six months.
• The most frequently occurring forbearance types were term
extensions (43% of forbearance loans at 31 December 2013),
interest only conversions (31%) and capitalisations of arrears (16%).
The growth of interest only stock reflected the extended definition
referred to above. The underlying level of transfers was negligible
and the remaining stock was the result of legacy policy. Conversions
to interest only have only been permitted on a very exceptional basis
since the fourth quarter of 2012 and have not been permitted for
customers in financial difficulty since 2009.
• The impairment provision cover on forbearance loans remained
significantly higher than that on assets not subject to forbearance.
Ulster Bank
• At 31 December 2013, 14.6% of total mortgage assets (£2.8 billion)
were subject to a forbearance arrangement (agreed since early
2009), an increase from 10.4% (£2.0 billion) at 31 December 2012.
This reflected Ulster Bank’s proactive strategies to contact
customers in financial difficulty to offer assistance.
• Although the forbearance stock increased by 40% during the year,
the number of customers approaching Ulster Bank for assistance for
the first time remained broadly stable. This can be attributed to more
mortgages being put on to longer-term arrangements, and therefore
not exiting forbearance.
• The majority of forbearance arrangements were less than 90 days in
arrears (72%).
• The mix of forbearance treatments in Ulster Bank changed with an
increase in longer-term solutions. A total of 28% of forbearance
loans were subject to a permanent arrangement at 31 December
2013 (2012 - 15%). Capitalisations represented 17% and term
extensions represented 11% of the forbearance portfolio at 31
December 2013, increasing from 6% and 9% respectively.
• The remaining forbearance loans were temporary concessions
accounting for 72%. Short to medium-term concessions are offered
for periods of three months to five years and incorporate different
levels of repayment based on the customer’s ability to pay.
• Temporary interest only arrangements decreased during 2013 to
18% of forbearance loans at 31 December 2013 (2012 - 46%). This
reflected Ulster Bank’s strategy to transition customers in financial
difficulty to long-term arrangements.
• Payment concessions represented the remaining 54%, comprising:
deals where payments amortised the outstanding balance (41%); a
diminishing portfolio of deals that negatively amortised (10%); and
payment holidays (3%).
• The impairment provision cover on forbearance loans remained
significantly higher than that on assets not subject to forbearance.