RBS & Lloyds most exposed to commercial property

RBS building

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

Bloomberg News reports that RBS has $33bn of lending to the sector, accounting for 66% of its tangible net asset value, a measure of capital, and Lloyds has $23.4bn, or about 46% of its TNAV, Raul Sinha, an analyst, said in a report dated July 5. 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 U.K. commercial property prices is likely to pressure domestic U.K.-exposed bank valuations,” Sinha wrote. “Major U.K. 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 as concern grows about the future of the British economy. The pound has dropped to a 31-year low less than two weeks after the nation voted to leave the European Union. The Bank of England said Tuesday it was “closely monitoring” valuations in the commercial real-estate market and moved to ease banks’ capital requirements.

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RBS, Lloyds Most Exposed to Commercial Property, JPMorgan Says

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