Commercial Property Poses $61 Billion Headache for U.K. Banks

British lenders are bracing for a hit from commercial real estate loans as mall developer Intu Properties Plc becomes the first such firm to ask for emergency relief following the coronavirus outbreak.

Barclays Plc, HSBC Holdings Plc, Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc had 49.3 billion pounds ($61 billion) in outstanding U.K. commercial real estate loans at the end of last year, according to public filings.

Commercial Property Poses $61 Billion Headache for U.K. Banks

Most retail and leisure sites have been deserted since the U.K. was put into lockdown in March. Commercial landlords are banned from evicting tenants who fail to pay until the end of September, threatening a cash crunch for property owners as third-quarter rent comes due.

Intu, which owns some of the country’s largest shopping centers, has said it will fall into administration unless lenders relax their terms. Barclays, HSBC, Bank of America Corp. and Credit Suisse Group AG provided a 600 million-pound revolving credit facility to the London-listed firm. Intu has about 4.5 billion pounds of debt overall, most of which is secured against its properties.

Here’s a rundown of how much Britain’s biggest banks are exposed to commercial real estate.

HSBC Holdings

Property debt is one of the largest chunks of HSBC’s corporate loan book, making up about a fifth of its lending. At the end of last year, the bank had $21.9 billion of real estate loans in its U.K. corporate and commercial lending book. About $948 million was classed as stage 3, which the bank defines as “in default or otherwise credit-impaired.” A further $3 billion pounds of borrowings were at stage 2, meaning the bank had seen a “significant increase in credit risk.”

Lloyds Banking Group

The U.K.-focused bank has almost 14 billion pounds tied up in its direct real estate business, about 60% of which involves commercial properties, according to its 2019 annual report. Lloyds, which makes most of its loans in residential property, has already flagged potential impairments linked to the wider economic impact of the pandemic.

Barclays

Barclays had about 9 billion pounds exposed to commercial real estate at the end of 2019, a slight rise on the prior year. Just 2.8% of these loans were stage 3, or credit impaired. Barclays made its biggest quarterly provision in a decade in April to prepare for the economic fallout from Covid-19.


Royal Bank of Scotland

The government-owned lender had 14.7 billion pounds of U.K. commercial real estate exposure in its 2019 annual report. These loans were made to firms investing in or developing properties, RBS said in the report. About 5.4 billion pounds of the total is tied up in retail properties including stores on shopping streets, shopping centers, restaurants, bars and gyms -- although these sums are dwarfed by the bank’s exposure to housing loans, which face their own coronavirus challenges.

©2020 Bloomberg L.P.

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