RBS re-grades some business accounts

Robert Lefroy, editor, Business Money commented: "The news that Royal Bank of Scotland is to shift £240bn of assets from across the bank into a 'non-core' division is no surprise and we should welcome the distinction between business the bank has to judge profitable, and non-profitable.

"We have seen some very un-business-like comment from the Federation of Small Business but reading between the lines of the bank's memo to senior managers, what is taking place is, in fact, better than might be expected in most cases.

"Specific mention is made of property loans at 2% margins and I suspect that, in reality, many, if not most, of them are technically in breach of loan-to-value covenants in today's depressed market. In the interests of both customer and bank the loans are not being called: there is little point pitching repossessed commercial property into a dead market and the lesser evil is to live with the loan being correctly serviced but a 2% margin does not represent a robust risk/reward pricing should anything additional be requested.

"Business banking current accounts are amongst the profitable products the high street banks offer: dead loans at a 2% margin, and technically in default, legacies of the intense commercial mortgage boom of not so long ago, are not. In between there is a host of permutations involving associated private accounts, other business loans of a more profitable persuasion, and asset finance business, all of which might keep an otherwise non-core loan in the core portfolio.

"Federation of Small Business comment has its customary strident, but not wholly credible, tenor. Customers are not being 'hoodwinked' and RBS is sticking to the deal it struck.

"Stand alone commercial mortgage business requires very little servicing. All the RBS is saying that should the customer initiate any further developments with a non-core relationship, then the bank will seek to re-price the deal to reflect market conditions. RBS is a business just like the members of the Federation and commercial rules apply to everybody.

"By doing this RBS will be restored to health and become far better placed to fund the needs of its business customers in future."