LLOYDS BANKING Group set aside £2.9 billion (€3.3 billion) to cover losses on the €32.7 billion loan book at Bank of Scotland (Ireland) (BoSI) and said that it was still concerned about the Irish economy.
Loan losses on the UK bank’s struggling Irish business have increased sixfold from €553 million in 2008. A third of Irish loans, totalling €10.9 billion, are now categorised by Lloyds as impaired.
The bank blamed the heavy loan losses in its wealth and international division, which includes the Irish business, primarily on “a severe deterioration in economic conditions in the Irish economy”.
Losses on the €13.2 billion development and commercial property loan book at BoSI accounted for 61 per cent of the bad debt charge in Ireland. The bank has written off 47 per cent of this loan book.
The UK bank, which is 43 per cent owned by the British government, wrote off 9.9 per cent of the total Irish loan book in 2009, bringing the cumulative charge to just over €4 billion or 12 per cent of loans over the past two years.
The losses on the Irish loan book contributed to impairments of £24 billion on Lloyds’ book, a 61 per cent increase on a year earlier. Lloyds reported a better-than-expected loss of £6.3 billion, which was lower than the £6.7 billion loss posted the previous year.
Lloyds, Britain’s largest mortgage lender, took a heavier loan loss charge on its Irish loans in the second half of 2009 due to the collapsing property sector.
Bad debts in the Irish bank accounted for almost three-quarters of the impairment charge in the bank’s wealth and international division in the second half.
“We remain cautious on the Irish portfolios, given the uncertain economic outlook,” said Eric Daniels, Lloyds chief executive.
The outlook for the Irish economy “continues to be difficult”, Lloyds said, signalling that Irish loan losses may continue to rise, while they have peaked elsewhere for the bank during 2009.
BoSI announced the closure of its 44-branch Halifax network and retail business earlier this month with the loss of 750 jobs. The bank will run down its €8.8 billion mortgage book over time and will seek to redeem personal loans and credit card balances at Halifax.
Lloyds has injected €3.45 billion into its Irish bank over the past 14 months, including €2 billion as recently as last December.
Customer deposits in Lloyds’ wealth and international division fell by 22 per cent or €1.8 billion to €6.5 billion, “principally in Ireland, reflecting aggressive pricing from competitors who have also benefited from the Irish Government deposit guarantee”, the bank said.
Most of Lloyds’ impairments were on assets inherited from the bank’s rescue takeover of rival HBOS (the former owner of BoSI) which almost collapsed during the autumn of 2008.
“Ireland is a classic example of everything that was wrong with HBOS – late cycle entry into overcooked property market, where you didn’t know the customers, your underwriting standards were poor and you’re paying a very heavy price,” said banking analyst Simon Maughan at London-based securities firm MF Global.
– (Additional reporting: Reuters)
