NATIONAL IRISH Bank (NIB) expects loan impairments to remain high in 2011 as the economy struggles.
This prediction came as Lloyds Banking Group said its expects to report an increased impairment charge of €4.3 billion because of Irish loan losses.
In a presentation yesterday, NIB chief executive Andrew Healy said cumulative impairments amounted to €1.4 billion at September 30th, concentrated heavily in commercial property.
Some 59 per cent of commercial property loans are now impaired, he said.
NIB’s development and landbank books are impaired by 54 per cent and 46 per cent respectively. Within these categories, some assets in good locations have little or no impairment, he said. However, non-performing assets in poor locations have impairment rates as high as 90 per cent.
Investment properties have the lowest impairment rate within NIB’s commercial property book as they tend to generate sufficient rental income to service the loan, he said.
NIB’s parent Danske Bank suffered the largest loan losses of any Nordic bank in 2009 because of credit impairments in Ireland, Denmark and the three Baltic states.
Mr Healy expects impairment levels to remain high in Ireland next year due to the continuing fall in property values, but does not expect the spike experienced in the second quarter of 2010 to be repeated.
“We hope that the gradual trend of declining impairments will continue, but of course there can be no guarantees,” he said. “While the austerity measures do not help, they have not materially changed our expectations.”
Commercial property is expected to continue to account for the majority of impairments next year.
Impairments on NIB’s mortgage book remain relatively low at 1.3 per cent. He said this reflected the low loan-to-value ratios of home loans extended during the boom period.
Meanwhile London-based Lloyds said an additional 10 per cent of its £26.7 billion of loans in Ireland would become impaired before its fiscal year-end.
These loans are a legacy of its Bank of Scotland (Ireland) unit, which is due to close by the end of the year.
“The group has seen a further significant deterioration in market conditions in the Republic of Ireland,” Lloyds said in an update on its Irish portfolio. “We are concerned that any economic recovery in the Republic of Ireland may take longer to achieve, and that asset prices will remain depressed for longer than previously anticipated.”
Lloyds, 41 per cent UK-government owned, said last month it had sent a total of €4.45 billion in fresh capital to Bank of Scotland (Ireland) in 2010. (Additional reporting - Bloomberg)
