ULSTER BANK WILL have £9 billion of high-risk or non-performing assets managed within a new ‘bad bank’ following a UK Government review of its parent company the Royal Bank of Scotland.
The UK taxpayer rescued RBS will create an internal ‘bad bank’ to run down a total of £38 billion of high-risk assets and accelerate its return to the private sector.
RBS will also undertake a comprehensive review of Ulster Bank to “identify a sustainable business model for supporting the Northern Irish and Irish economies” which will report in February 2014.
The review says that analysts do not expect Ulster Bank’s cores business to break-even until 2015 at the earliest, and even from this point to generate only single-digit returns.
This has been driven by ongoing loan losses despite the transfer of £18 billion of low-quality lending to RBS’s non-core division.
Ulster Bank’s impairment charge represents 3.1 per cent of gross assets, which is ten times the loss rate suffered in the UK retail division and was substantially larger than Ulster’s income.
Impairment charges reflect the decline in potential profits from unrealised assets.
Bad bank
RBS hopes to remove all of the toxic assets, equivalent to $61 billion or €45 billion euros, from its balance sheet over the next three years, the bank said in a statement as it announced also a third-quarter net loss of £828 million.
The lender, 81 per cent owned by the British government after the world’s biggest banking bailout in the wake of the 2008 financial crisis, said it had decided against creating an external ‘bad bank’ owing to the risk and expense involved.
“Our goal is to remove between 55 per cent and 70 per cent of these assets over the next two years,” RBS chief executive Ross McEwan said in the statement.
Additional reporting by © – AFP
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