RBS, the UK’s biggest commercial property lender, has become that the first bank to join the government’s asset protection scheme, which was unveiled this morning.
It will offload £325bn of assets, which includes corporate and leveraged loans, commercial and residential property loans and structured credit assets, into the scheme.
The bank will bear losses up to £19.5bn, but after that, 90% of losses relating to assets in the scheme will be born by the government.
The Treasury this morning said that participation in the scheme was conditional on the applicants committing to ‘increase lending to credit-worthy borrowers’, and that participants would be subject to monthly checks that they have increased lending.
RBS said that the scheme would allow it to lend £25bn to UK home owners and businesses in the next year - £9bn would be allocated to mortgage lending, and £16bn to corporate lending.
However, in its end of year results, the bank also said that it would reduce its exposure to commercial property.
It said that the performance of its £52bn commercial loans book remained ‘under close watch’, with average loan to value ratios in the UK portfolio at 68%, and less than 5% of the portfolio exceeding 85% loan to values.
Stephen Hester, chief executive of RBS, said: ‘Participation in this scheme would assist us in reducing risk for shareholders whilst providing greater support for UK customers via increased lending. It would provide increased certainty to the market by limiting potential losses on a significant proportion of our balance sheet.’
The asset protection scheme will only apply to losses incurred on or after 1 January and will cover assets for a minimum of five years.
As well as corporate and leveraged loans, eligible assets include commercial and residential property loans and structured credit assets including residential mortgage backed securities (RMBS) and commercial mortgage backed securities (CMBS), collateralised debt obligations (CDO), and collateralised loan obligations (CLO).
RBS, which this morning confirmed a £24.1bn loss - the biggest in UK history – will pay a participation fee of £6.5bn to the Treasury, which it said it would fund through the issuance on B shares which would constitute Core Tier 1 capital.
RBS said: ‘The agreement with the treasury will, when completed, allow RBS to secure asset protection that enhances its financial strength and provides improved stability for its customers and depositors, and also enhances RBS’s ability to lend into the UK market.’