RBS 2013 Annual Report Download - page 267
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Business review Risk and balance sheet management
265
Ulster Bank Group (Core and Non-Core)
Overview
At 31 December 2013, Ulster Bank Group accounted for 10% of the
Group’s total gross loans to customers (2012 and 2011 - 10%) and 8% of
the Group’s Core gross loans to customers (2012 and 2011 - 8%) Ulster
Bank’s financial performance continued to be impacted by the
challenging economic climate in Ireland, with impairments remaining
elevated in the wholesale bank as a result of limited liquidity in the
economy which continues to depress the property market and domestic
spending. Additionally, in the fourth quarter of 2013 the Group announced
a recovery strategy for loans transferring to RCR. This resulted in a
significant increase in provisions as the move from a through the cycle
strategy to a 3 year deleverage, reduced expected realisations.
The impairment charge of £4,793 million for 2013 (2012 - £2,340 million;
2011 - £3,717 million) was driven by a combination of new defaulting
customers and higher provisions on existing defaulted cases due
primarily to the above mentioned RCR strategy. Provisions as a
percentage of risk elements in lending increased to 76% in 2013, from
57% in 2012, predominantly as a result of this change in strategy,
combined with the deterioration in the value of the Non-Core commercial
real estate development portfolio.
Core
The impairment charge for the year of £1,774 million (2012 - £1,364
million; 2011 - £1,384 million) reflected the difficult economic climate in
Ireland, and most particularly the RCR deleverage strategy across the
corporate portfolios. The mortgage portfolio improved notably in 2013,
accounting for £235 million (13%) of the total 2013 impairment charge
(2012 - £646 million; 2011 - £570 million) due to lower debt flows driven
by improved collections performance and stabilising residential property
prices.
Non-Core
The impairment charge for the year was £3,019 million (2012 - £976
million; 2011 - £2,333 million), with the commercial real estate sector
accounting for £2,674 million (89%) of the total 2013 impairment charge,
again reflecting the RCR strategy.
The table below analyses Ulster Bank Group’s loans, REIL, impairments
and related credit metrics by sector.
Credit metrics
REIL Provisions Provisions
Gross as a % of as a % of as a % of Impairment Amounts
loans REIL Provisions gross loans REIL gross loans charge (1) written-off
Sector analysis £m £m £m % % % £m £m
2013
Core
Mortgages 19,034 3,235 1,725 17.0 53 9.1 235 34
Commercial real estate
- investment 3,419 2,288 1,151 66.9 50 33.7 593 51
- development 718 472 331 65.7 70 46.1 153 4
Other corporate 7,039 2,277 1,984 32.3 87 28.2 771 149
Other lending 1,236 194 187 15.7 96 15.1 22 39
31,446 8,466 5,378 26.9 64 17.1 1,774 277
Non-Core
Commercial real estate
- investment 3,211 3,006 2,162 93.6 72 67.3 837 53
- development 6,915 6,757 6,158 97.7 91 89.1 1,837 370
Other corporate 1,479 1,209 1,069 81.7 88 72.3 345 6
11,605 10,972 9,389 94.5 86 80.9 3,019 429
Ulster Bank Group
Mortgages 19,034 3,235 1,725 17.0 53 9.1 235 34
Commercial real estate
- investment 6,630 5,294 3,313 79.8 63 50.0 1,430 104
- development 7,633 7,229 6,489 94.7 90 85.0 1,990 374
Other corporate 8,518 3,486 3,053 40.9 88 35.8 1,116 155
Other lending 1,236 194 187 15.7 96 15.1 22 39
43,051 19,438 14,767 45.2 76 34.3 4,793 706
Note:
(1) Of which £3.2 billion was due to RCR and the related change of strategy.
*unaudited