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RBS poised to jettison unprofitable clients, sell loan books

Friday, March 10, 2017 - 14:32

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Royal Bank of Scotland Group Plc is preparing to sell loan books and cut lending to some Western European corporate clients as part of plans to bolster its balance sheet and improve returns.

[LONDON] Royal Bank of Scotland Group Plc is preparing to sell loan books and cut lending to some Western European corporate clients as part of plans to bolster its balance sheet and improve returns.

The UK government-owned lender may divest commercial real estate loans in chunks of £300 million (S$516.6 million) to £400 million to help reach its target to reduce risk-weighted assets by 20 billion pounds, Alison Rose, head of commercial and private banking, said in an interview. The bank will also reduce lending facilities for some clients.

"We're sizing the capital appropriately for making the right returns," Ms Rose said. For some customers "that's going to be really difficult; in which case we'll make the tough decision that we're not going to deploy the capital. They have multiple banks, so they can get their capital from them."

Major European lenders from Barclays Plc to Deutsche Bank AG are shedding unwanted assets and winnowing unprofitable clients as they push to boost returns amid shrinking profit margins and tougher capital requirements. Nine years after the financial crisis RBS is yet to post an annual profit and is still 70 per cent owned by British taxpayers. The company, which failed stress tests from the Bank of England in December, has a new capital plan to boost its resilience.

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"You can see different banks having to make different choices around their capital footprint," Ms Rose said. Capital is "a scarce resource that's expensive for banks. You've got to deploy it in way that drives value for customers and shareholders."

Once the biggest bank in the world before it was rescued by British taxpayers with a £45.5 billion capital injection, RBS has shed more than a trillion pounds of assets as it focuses on consumer and commercial banking in the UK and Ireland. The bank said in annual results last month it would cut £20 billion of risk-weighted assets from core businesses by the end of 2018. The lender has said it will probably lose as much as £300 million of yearly pretax income from the disposal.

Clients that could see their borrowing facilities cut include companies that previously used RBS's global transaction services business, which the lender shuttered last year to focus its cash management and payments operations on its home market. Some of those relationships only made economic sense for the bank when paired with fees for transaction services, according to Ms Rose.

"The returns now for those clients maybe look terrible because there's too much capital," Ms Rose said. There's a "number of clients where we're just not making returns so we'll mutually exit. They're sophisticated and it's a very pragmatic business conversation."

While RBS is looking to cut lending in some areas, it plans to invest where it can make better returns, such as in mortgages or loans to small- and medium-sized companies. The bank said it's seeking 3 per cent growth in net lending at its personal and business banking and commercial and private-banking divisions this year.

As the bank seeks to remove £750 million of operating expenses this year, Ms Rose said some jobs will go at her division. The Edinburgh-based lender is also investing in technology to remove inefficiencies and started a digital direct lending platform called Esme Loans last month.

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