Hard-hit online lender CAN Capital makes executive changes

The biggest online lender to small businesses in the US has pulled down the shutters and put its top managers on a leave of absence, in the latest blow to an industry grappling with mounting fears over credit quality. Atlanta-based CAN Capital said on Tuesday that it had replaced a trio of senior executives, after […]

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BoE stress tests: all you need to know

The Bank of England has released the results of its latest round of its annual banking stress tests and its semi-annual financial stability report this morning. Used to measure the resilience of a bank’s balance sheet in adverse scenarios, the stress tests measured the impact of a severe slowdown in Chinese growth, a global recession […]

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Zoopla wins back customers from online property rival

Zoopla chief executive Alex Chesterman has branded rival OnTheMarket “a failed experiment”, and said that his property site was winning back customers at a record rate. OnTheMarket was set up last year, aiming to compete with Zoopla and Rightmove, the UK’s two biggest property portals. It allowed estate agents to list their properties more cheaply […]

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Asia markets tentative ahead of Opec meeting

Wednesday 2.30am GMT Overview Markets across Asia were treading cautiously on Wednesday, following mild overnight gains for Wall Street, a weakening of the US dollar and as investors turned their attention to a meeting between Opec members later today. What to watch Oil prices are in focus ahead of Wednesday’s Opec meeting in Vienna. The […]

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Banks, Financial

RBS emerges as biggest failure in tough UK bank stress tests

Royal Bank of Scotland has emerged as the biggest failure in the UK’s annual stress tests, forcing the state-controlled lender to present regulators with a new plan to bolster its capital position by at least £2bn. Barclays and Standard Chartered also failed to meet some of their minimum hurdles in the toughest stress scenario ever […]

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Categorized | Property

Commercial property loans in spotlight

Posted on November 29, 2012

An area of acute concern for the Financial Policy Committee is lenders’ reluctance to admit to the losses they are likely to make on commercial real estate, which accounts for about half of all corporate lending.

Andrew Haldane, FPC member and the Bank of England’s executive director for financial stability, said on Thursday: “Our recommendation has been with an eye, in particular, to the commercial property market.”

    Commercial real estate loans are particularly susceptible to losses because of high loan-to-value ratios. A fifth of outstanding debt is on properties worth less than what companies owe the banks. Many loans need to be refinanced and more than a third are already subject to forbearance, leaving banks exposed if credit conditions were to tighten.

    Andrew Bailey, who is on the FPC and heads bank supervision at the Financial Services Authority, has expressed concerns. He told the FT in October that banks’ methods for assessing risks posed by commercial property loans were “bogus”.

    Mr Haldane said a portfolio-by-portfolio examination of British banks’ loans held on commercial property overseas had raised additional fears. “Six months ago, we said it was already the case then that there was some degree of underproviding on commercial property loans,” he said. “And having looked at some portfolios outside of the UK, we think that the extent of that provisioning might be greater still.”

    Mr Bailey said last month that transactions in the sector were so large and so idiosyncratic it was all but impossible to build models to determine whether an individual loan would default and what the losses might be.

    Banking supervisors have told banks they plan to change the rules for determining how much capital they will have to hold against the sector. Rather than rely on their own models, banks must use “slotting”, in which loans are assigned to categories with specific capital requirements attached. A final version of the categories is expected next year.