THE OUTLOOK FOR IRISH PROVIDERS OF RESIDENTIAL MORTGAGES IS PROMISING, ACCORDING

TO AN ASSESSMENT OF THE MARKET By DAVY STOCKBROKERS.

A BUOYANT ECONOMY, LOW INTEREST RATES and FAVOURABLE DEMOGRAPHIC FACTORS

PROVIDE "A RECIPE FOR STEADY DEMAND FOR MORTGAGES AND RELATED PRODUCTS, AT LEAST

OVER THE BALANCE OF THE DECADE", ACCORDING TO ANALYST MS EMER LANG.

DEMAND FOR RESIDENTIAL MORTGAGES WAS ALMOST INSATIABLE IN 1996 AND REMAINS SO

IN 1997, BOOSTED BY LOW INTEREST RATES AND A STRONG ECONOMY. INTEREST RATES

SHOULD CONTINUE TO BE A BENIGN INFLUENCE ON THE MARKET OVER THE NEXT 12 TO 18

MONTHS, SHE FORECAST. LOW INTEREST RATES HAVE TRADITIONALLY BEEN A KEY DRIVER OF

CONSUMER CONFIDENCE.

DAVY IS FORECASTING THAT INTEREST RATES WILL REMAIN AT CURRENT LEVELS OVER

THE REST OF 1997 AND WILL FALL IN 1998. HOUSING COMPLETIONS ARE EXPECTED TOP

EXCEED 36,000 THIS YEAR, UP FROM 33,750 IN 1996.

AFTER 1997, THE PACE OF GROWTH IN THE HOUSING MARKET WILL MODERATE, ACCORDING

TO MS LANG WHO HAS MADE AN INITIAL FORECAST OF A 4 PER CENT RISE IN HOUSING

GROWTH IN 1998.

RESIDENTIAL MORTGAGE LENDING HAS CONSISTENTLY OUTPACED GROWTH IN PRIVATE

SECTOR CREDIT OVER THE LAST THREE YEARS. RESIDENTIAL MORTGAGE LENDING ROSE BY

13.8 PER CENT IN 1994, 13.3 PER CENT IN 1995, AND 16.2 PER CENT IN 1996 WITH

YEAR ON YEAR UNDERLYING GROWTH OF 16.6 PER CENT FOR THE FIVE MONTHS TO END MAY.

WITHIN THE MARKET, THE BUILDING SOCIETIES AND IRISH PERMANENT HAVE INCREASED

THEIR MARKET SHARES FROM 40 PER CENT TO 49 PER CENT IN 1996. BUT THEIR

UNDERLYING PROFIT GROWTH, AT 13.5 PER CENT, WAS BELOW THE UNDERLYING RATE OF

VOLUME GROWTH BECAUSE OF CONTINUING CONTRACTION IS LARGELY EXPLAINED BY THE

MOVEMENT OF DEPOSITS FORM LOW INTEREST DEMAND ACCOUNTS TO HIGHER INTEREST TERM

ACCOUNTS, INCREASING THE COST OF FUNDS FOR LENDERS, WHILE LENDING RATES WERE

HELD DOWN BECAUSE OF INTENSE COMPETITION BETWEEN LENDERS.

DEMUTUALISATION IN THE BRITISH MARKETS HAS NOT SPREAD INTO THE IRISH MARKET

WITH IRISH PERMANENT THE ONLY MUTUAL TO CONVERT INTO A PUBLIC COMPANY, THROUGH

THERE HAS BEEN SPECULATION THAT FIRST NATIONAL WILL TAKE THIS ROUTE. AS THE

SMALLEST BUILDING SOCIETY, IRISH NATIONWIDE IS THE MOST LIKELY TO BE INVOLVED

"IN SOME SHAPE OR FORM IN ANY SECTOR CONSOLIDATION".

BUT THE REPORT POINTS OUT THAT CURRENT IRISH LEGISLATION WHICH PROTECTS

CONVERTING MUTUALS FROM TAKEOVER BY A PLC FOR FIVE YEARS IF RESTRICTIVE.

BASED ON PROFITS FORECASTS, FIRST NATIONAL COULD BE VALUED AT BETWEEN

£309 MILLION AND £384 MILLION IN A FLOTATION, ACCORDING TO THE

REPORT WHILE THE VALUE OF IRISH NATIONWIDE COULD RANGE FROM £202

MILLION, TO £251 MILLION, ACCORDING TO DAVY.

THE REPORT FORECAST THAT THE FOUR BUILDING SOCIETIES - FIRST NATIONAL, ESB,

IRISH NATIONWIDE AND ICS - AND IRISH PERMANENT SHOULD PRODUCT AVERAGE PRE-TAX

PROFITS GROWTH OF 10.6 PER CENT THIS YEAR WITH GROWTH OF 13.3 PER CENT IN LOANS

AND 10.6 PER CENT IN TOTAL ASSETS.

MARGINS ARE EXPECTED TO FALL TO 2.35 PER CENT IN 1996, WHILE BAD DEBTS ARE

EXPECTED TO REMAIN AROUND 1996 LEVELS. RETURNS ON EQUITY SHOULD IMPROVE FROM

14.56 PER CENT TO 15 PER CENT, WHILE RETURN ON ASSETS IS EXPECTED TO FALL FROM

0.86 PER CENT TO 0.79 PER CENT.

PRE-TAX PROFITS AT IRISH NATIONWIDE ARE EXPECTED TO BE 6.9 PER CENT HIGHER AT

£26 MILLION, WHILE ICS IS EXPECTED TO REPORT A 7.6 PER CENT INCREASE TO

£31.9 MILLION. PASSING ON THE BENEFITS OF MUTUALITY TO MEMBERS WILL MEAN

PROFIT GROWTH WILL BE HELD TO 6.4 PER CENT AT EBS WITH PRE-TAX PROFITS OF

£19.5 MILLION FORECAST.