Tuesday 27 September 2016

RBS and Lloyds banking 'most exposed' to real estate market

Stephen Morris

Published 07/07/2016 | 02:30

This week, three asset managers halted withdrawals from real-estate funds after investors rushed to redeem money amid Brexit uncertainty. Photo: Reuters
This week, three asset managers halted withdrawals from real-estate funds after investors rushed to redeem money amid Brexit uncertainty. Photo: Reuters

Royal Bank of Scotland Group and Lloyds Banking Group Plc are the two big UK lenders most exposed to the commercial real estate market, which poses a risk for banks after asset managers froze withdrawals from property funds, JPMorgan Chase & Co said.

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RBS has £25.2bn (€29.3bn) of lending to the sector, accounting for 66pc of its tangible net asset value, a measure of capital, and Lloyds has £18.1bn, or about 46pc of its TNAV, Raul Sinha, an analyst, said in a report.

While the risks for major banks are "manageable", small lenders could see greater losses because of higher loan-to-value ratios on their CRE debt.

"Downside risk from UK commercial property prices is likely to pressure domestic UK-exposed bank valuations," Mr Sinha wrote. "Major UK banks have broadly maintained their underwriting standards in recent years, with smaller banks and building societies including challenger banks having a relatively high proportion of more highly leveraged CRE loans."

This week, three asset managers halted withdrawals from real-estate funds after investors rushed to redeem money amid Brexit uncertainty. (Bloomberg)

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