Banks lenient on LTV breaches

Banks are not calling in loans that have simply breached their loan-to-value ratios and are instead focusing on restructuring, continued investment or equity injection as possible solutions. That is one of the key conclusions of a research report by adviser BNP Paribas Real Estate, formerly AtisReal.

The report is based on interviews with senior professionals from banks including RBS, Alliance & Leicester, Allied Irish Bank, Bank of Scotland, Hypo Real Estate and Northern Rock on their attitude towards defaults, LTV breaches, and the future of property loans within banks.

Some 75% of the respondents looked at LTV breaches on a case-by-case basis, with almost 50% saying that an LTV breach was not reason enough to call in a loan and falls in LTV accounting for less than 15% of loans being called in. A further 17% said that they would waive the breach or take no action, with 15% re-negotiating or restructuring the loan terms.

On the subject of lending, the banks admitted there had been no change to risk assessment procedures since the downturn began as these were well-established and they were confident in their accuracy and effectiveness. However, many did acknowledge that this may be down to the fact that there had been little or no new lending thus procedures were not being scrutinised.

On the recapitalisation of the banks, a third of those interviewed felt that government intervention was a positive action and some seeing it as necessary to avoid collapse. However, over 80% said that this had no effect on their approach to breached loans.

There were mixed views about when to expect the property market to come back with most looking for recovery in the next two years, with the most pessimistic views suggesting a wait until 2013.