Ulster Bank takes €32m loans charge amid Covid-19 crisis

Ulster Bank swung to a loss in the first quarter of the year in the Republic as the bank took a €32 million net impairment charge in anticipation of a likely surge in bad loan losses as borrowers are hit by the Covid-19 pandemic.

The lender posted a €25 million operating loss for the period, compared to a €23 million profit for the first three months of 2019, its parent, Royal Bank of Scotland (RBS), said in a trading update on Friday.

The wider RBS group's profit halved to £519 million (€595 million) as it set aside £802 million of loan impairment provisions.

Ulster Bank’s net impairment charge reflect the bank taking a €38 million provision to factor in “a more uncertain economic outlook and a €12 million charge for other post model adjustments”, but these were partly offset as the bank released money previously set aside for specific problem loans and portfolios.

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The bank said it would make no specific charge against loans on which it has agreed a 90-day payment holiday.

“For Ulster Bank RoI, customers who are granted Covid-19 related payment breaks of less than 90 days, but are otherwise considered to be viable enterprises, are not being categorised as forborne,” the bank said.

“The categorisation of payment breaks for over 90 days remains under discussion with the local regulator,” it said.

The Irish Times reported on Friday that the Central Bank will press lenders to use extended Covid-19 loan payment breaks to work on and offer longer-term restructuring solutions to borrowers who will still be under financial pressure at the end of the period.

While the payment breaks are giving banks and borrowers breathing space to deal with the economic shock caused by Covid-19, lenders will be expected to engage with borrowers who face longer-term issues and offer more sustainable solutions, according to Central Bank sources.

It is important that both sides avoid a “cliff-edge” at the end of six months in cases where households and businesses will not be in a position to resume payments, they said.

The State’s banks and other lenders agreed on Thursday to extend payment breaks, originally unveiled last month for a three-month period, to six months. Borrowers behind more than 65,000 mortgages and 22,000 small- to medium-sized enterprise loans have availed of such relief to date, according to Banking & Payments Federation Ireland.