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RBS Shrinks China Business, Sells Loan Book to CCB

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The Royal Bank of Scotland Group plcRBS is selling its China-based corporate loan portfolio to the China Construction Bank Corporation, Hong Kong Branch, or the CCB, in a bid to shed its banking operations in China. Notably, the parties entered into a definitive agreement related to the sale on Thursday.

As of Jul 31, 2015, the concerned loan portfolio comprised £594 million in loan commitments with drawn assets of £494 million. Such balance is equivalent to risk weighted assets of roughly £237 million as on the same date.

The Royal Bank of Scotland expects the sale to generate proceeds of £498 million from the portfolio, along with an estimated profit of £4 million. However, the final amount of cash consideration and the resultant profit is subject to the portfolio's balance as of the settlement date. All proceeds from the sale will be used for meeting general corporate needs.

The transaction is subject to consent from clients of The Royal Bank of Scotland. Nonetheless, the taxpayer-owned bank expects the sale to be "substantially completed" by fourth quarter of 2015.

CCB is the fifth largest bank in the world in terms of assets, operating through a network of more than 14,000 branches spread across China.

Of late, The Royal Bank of Scotland is undergoing aggressive restructuring to boost profitability and focus on building its domestic franchise in the U.K., before it heads toward full privatization in the near term. As a result, in Feb 2015, the company announced plans to exit its international investment banking business in 25 countries across Europe, Asia and the Middle East. Moreover, it aims to shrink the unit's asset base by 60%.

As part of its streamlining initiatives, the company is targeting full divestiture of its stake in the U.S. retail bank - Citizens Financial Group, Inc. CFG - by the end of this year. Also, the bank recently closed its trading business in Tokyo, while the international division of its private bank Coutts is currently in the process of being sold.

Is Full Privatization in the Cards Soon?

The Royal Bank of Scotland is likely to achieve complete privatization earlier than expected as the British government has initiated divestiture of its stake in the company. Last month, it raised £2.1 billion ($3.3 billion) from its first sale of 5.4% stake, which, however, came in at a loss of £1.1 billion. In fact, had the government sold its entire stake at the company's share price during the sale in August, it would have resulted in an estimated loss of over £15 billion for taxpayers.

Nonetheless, the government, currently holding 72.9% stake in the company, is determined to reduce its stake by at least three-fourths by 2020.

The Royal Bank of Scotland presently carries a Zacks Rank #3 (Hold).

Deutsche Bank AG DB and UBS Group AG UBS are better-ranked foreign banks, holding a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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