RBS cuts loans to clean energy, snubbing Brown's goal

Royal Bank of Scotland Group Plc, historically the biggest commercial lender for renewable energy projects, has scaled back loans to the industry since the U.K. government bailed out the company in 2008.

The Edinburgh-based institution that received the world's most expensive bank bailout was lead arranger on six loans worth $499 million in 2009, tumbling out of the top 10 lenders. In each of the three previous years, it extended at least $2 billion, according to a Bloomberg New Energy Finance study.

"The government of course will get pilloried for it -- you say you're a green government, you're running the banks, and they're not lending enough," Keith Pilbeam, professor of financial economics at London's City University, said in a telephone interview.

Prime Minister Gordon Brown, who must call an election by June, has made the environment a centerpiece of his campaign and has pressed RBS to step up lending to businesses and homeowners since the start of the credit crisis. The bank said it has had to shrink its balance sheet to reduce its exposure to risk.

"Our response to the financial crisis and its impact on RBS has meant a significant reduction in the scale and risk we carry on our balance sheet," RBS spokeswoman Lisa Irvine said. "The amount of new project finance deals we have signed internationally for all types of energy project -- including oil and gas and renewables -- has reduced as a result."

State vs Private

Government-backed lenders dislodged publicly-traded Credit Agricole SA, Dexia SA and UniCredit SpA from the list of the 10 largest funders of companies building solar, wind and other renewable energy projects, New Energy Finance said in its annual study of the industry released today.

The Brazilian National Bank of Economic and Social Development, or BNDES, topped the league table for a second year, arranging $2.8 billion of loans, followed by Banco Santander SA, Spain's biggest bank, with $1.79 billion. The European Investment Bank, HSH Nordbank AG controlled by two German regional governments, Germany's KfW Group and the Inter- American Development Bank were all in the top 10.

"There was a shortage of debt finance from the commercial banks in 2009 because they were nursing balance sheets hit by the financial crisis," said Angus McCrone, senior analyst at New Energy Finance. "A lot of the slack has been taken up by the public sector banks."

RBS in 20th Place

Commercial lenders in the top 10 included Banco Bilbao Vizcaya Argentaria SA and Caja Madrid, of Spain, Paris-based BNP Paribas SA and Banco Espirito Santo SA of Portugal. RBS, including its ABN Amro unit, plunged to 20th, with loans to wind power projects in the U.S., Ireland, Spain and Italy, and an ethanol deal in Brazil, according to New Energy Finance data.

While the decline in RBS lending "isn't good news" for clean energy, "it reflects more sensible banking," said Pilbeam of City University. "Green energy finance is an area where the returns are uncertain compared to normal lending, so it might be a general tightening up due to risk management."

RBS globally reduced outstanding loans to 596 billion pounds ($908 billion) at the end of December, from 731 billion pounds a year earlier, the bank said on Feb. 25. RBS declined to provide annual lending figures, noting it ranked in the top five banks for renewable finance between 2005 and 2008.

Brown has tried to burnish his environmental credentials in recent weeks by attracting wind turbine companies including Mitsubishi Heavy Industries Ltd. and Clipper Windpower Plc to build factories in Britain.

"We have to move faster on renewables, on cutting carbon emissions in our buildings and homes, faster in developing low carbon industries and technologies," Brown said Dec. 4. "We are determined to be a world leader in doing that, creating the jobs for the future."

Clean Loans

RBS and its units arranged loans to renewable energy companies worth more than $11 billion from 2004 through 2009, according to New Energy Finance. That's the most by any commercial bank and topped only be BNDES. Opposition lawmakers in the U.K. criticized the decline.

"It should be an embarrassment for the government," said Simon Hughes, spokesman on energy for the Liberal Democrats, the country's third-largest party. "Government-owned banks ought to invest in a way that's consistent with government policy."

Treasury View

Parliament's Environmental Audit Committee last week interviewed officials at the Treasury and its U.K. Financial Investments division, which manages the state's shareholding in RBS and other banks. Lowri Khan, director of financial stability at the Treasury, said the government takes an "arms-length" approach to managing the banks and that it would be a "challenge" to set lending policies.

"The evidence we received last week really seemed to make clear that the Treasury was washing its hands of any responsibility to encourage the state-owned banks to operate any kind of environmental policy," said Tim Yeo, a lawmaker from the Conservative opposition who leads the panel. "They could at least draw the attention of the board to the areas of policy which are relevant, including renewables."

Robin Budenberg, chief executive of UKFI, told Yeo's committee that the group's focus is to maximize value and enable the government to sell the shareholding.

"Our role is not to get involved in individual decisions about whether one of our banks should lend to one company or another company," Budenberg said.

"If we're to meet our targets on renewables this decade, there's going to have to be a very substantial investment in a range of renewable energy projects," Yeo said. "If one of the state-controlled banks has historically been one of the biggest lenders and now they're not continuing in that role, that's very disappointing."