Financing the energy sector
RBS is predominantly a deposit and lending bank.We take money in deposits and other sources and lend it in the form of loans. For the energy sector, as with other sectors, we provide loans and other banking services (such as overdraft and money transmission services) but we do not usually ‘invest’ in energy companies or take ownership stakes in them. The money we have lent to the energy sector is continually being repaid and re-lent.
The majority of our lending to the energy sector is in the form of general corporate lending, which isn’t usually tied to any specific use or project. When we provide general corporate lending, the client can make use of it in a variety of ways (for example by investing in their facilities or operations, purchasing other businesses or paying other costs). Much like the provision of a loan to a personal customer, a bank is restricted under these circumstances in stipulating how the loan is used, provided the client meets its requirements for the credit risks they represent.
In 2016, 1.4% of our total lending went to the energy sector*. However, RBS has continued to reduce its fossil fuel lending exposures. For information on our lending prior to this date, please refer to our previous energy financing reports using the links below.
* In 2016, RBS changed its measure of credit risk exposure from Credit Risk Assets (CRA) to Current Exposure. Although the figures provided above are prepared on a like-for-like basis, this data is not directly comparable with data published in prior years.
We also offer structured finance for specific energy projects in the UK, Ireland and Western Europe, where we know what the funds will be used for. These include wind farms, power stations and solar installations. This type of lending is usually done as part of a group of banks who all lend to the same project. The repayment terms of the loan tend to be more closely defined, usually involving a source of cash-flow identified at the outset (e.g. earnings from the sale of electricity), and the repayment period is generally longer, over 10 years in some cases. During 2016, lending to renewable energy projects made up 85% of our structured financing. We provided more finance to wind projects (49%) than any other type of renewable energy.
RBS has a range of policies and procedures in place for the Power, Oil & Gas, and Mining & Metals sectors to ensure we assess the environmental, social and ethical risks associated with specific clients and projects. Where clients or projects don’t meet our criteria, we will withdraw our support. This means we will not, for example, provide funding to undiversified thermal coal mining companies.