NIB sets aside €198m for loan losses

National Irish Bank (NIB) has set aside €198 million for loan loss impairments and reported a 90 per cent increase in operating profit to €21 million for the first quarter.

This marks an acceleration of the €134 million impairment reported during the fourth quarter of 2008 and is over 40 times the loan impairment reported during the same period last year.

As was the case in the fourth quarter 2008, the underperforming loans in the first three months of the year were mainly those in its commercial property loan portfolio.

For the full-year 2008 NIB took a loan loss charge of 228 million due to a marked deterioration its €3.5 billion commercial property loan portfolio, which accounts for about a third of its €10.7 billion loan book and about 3 per cent of all commercial property lending in Ireland.

During the first quarter NIB said income increased 12 per cent to €52 million while costs fell 13 per cent to €31 million.

The bank is not operating a redundancy programme and employs 630 people.

Danske said loan impairment charges at NIB had soared more than 40-fold in the first-quarter and that it was sending “senior people” to deal with the situation.

"You have to go deep into 2010 before you’ll see any changes in Ireland. They are fighting with challenging housing prices, a budget deficit and raising taxes,” Danske chief financial officer Tony Thierry Andersen said by telephone.

“We’ll make sure we send some of our more senior people there to help the Irish operations, as they don’t have a history of dealing with such a downturn.”

Danske Bank acquired National Irish Bank in 2005 and also operates in Northern Ireland.

Irish loan impairment charges, most of which are provisions for potential future loan losses, soared to 7.4 per cent of total loans in the first quarter from 0.19 per cent in the same period a year earlier after lending to property companies soured.

Impairment charges at NIB, which accounts for 3 per cent of Danske’s total loan book, jumped to 1.47 billion kroner €198 million) from 34 million kroner a year earlier.

The Irish economy will contract 6 per cent, or even more, this year, Mr Andersen said today, which is more optimistic than forecasts from the Esri and European Commission.

Danske Bank is therefore focusing on the asset quality of its Irish unit and cutting costs, he said. The Danish bank has no plans to exit any of the markets it operates in, including Ireland, Mr Andersen said.

“You cannot live your life backwards and it was a good decision then, but in hindsight the timing was not good,” Mr Andersen said. “But we are in Ireland now and we have a good basis once crisis is over.”

NIB chief executive Andrew Healy said in a statement that given the further deterioration in economic conditions “we have again this quarter set aside a substantial amount for potential loan losses”.

"We are fortunate in these difficult times to be part of Danske Bank Group, a strong, well capitalised and supportive parent”.

Danske Bank today repeated its view that its level of loan losses will be “high” in 2009, in its full- year outlook today. The bank also repeated its view that 2009 will be “very challenging” for the financial sector.

Danske said first-quarter profit fell 39 per cent, less than analysts had estimated, after loan losses and provisions for bad credit in Denmark and Ireland jumped.

Net income dropped to 1.57 billion kroner (€211 million), from 2.57 billion kroner a year earlier, the Copenhagen-based bank said in a statement today.

Danske Bank reported its first quarterly loss this decade in the final three months of last year after a jump in bad loans in Denmark.

The Danish government has agreed to inject 26 billion kroner into the lender, Danske Bank said today.

“The labour market in Denmark has been very tight and as the demand for goods and services has slowed, unemployment has begun to rise, although the level will probably remain relatively low,” Danske Bank said in the statement.

“Because of the economic climate, the group expects the level of loan impairment charges to remain high throughout 2009.”

Additional reporting Bloomberg