Bank of Ireland losses fall to €950m but mortgage arrears set to rise

BANK OF Ireland has said that mortgage arrears will rise further but that the rate of increase has declined, as it reported a loss of €950 million for 2010, a drop of 57 per cent on a year earlier.

The bank faces the prospect of falling into State control as it must raise €5.2 billion, including €1 billion of contingent capital, after the Central Bank’s stress tests.

The bank said 9,169 customers, or 5.6 per cent of its 161,000 mortgage accounts, had missed at least three monthly repayments at the end of March. Arrears of 90 days or more on €28 billion of Irish mortgages rose to 4.17 per cent at end 2010 from 2.76 per cent in 2009.

“The numbers are stabilising.Arrears figures will probably go up a little bit more but the trajectory is coming down,” said the bank’s chief executive Richie Boucher.

He declined to comment on whether the bank would, like AIB, consider debt forgiveness for distressed borrowers. It would continue to work with customers on a case-by-case basis, he said.

Arrears of 90 days or more on the bank’s €7 billion Irish buy-to- let mortgages book increased to 5.9 per cent from 3.4 per cent.

But the charge taken overall on bad debts fell 34 per cent to €1.9 billion from €2.8 billion in 2009. “It’s a clean story to understand,” said Mr Boucher. “The loan losses, we are comfortable, are coming down. We have had the stress test of all time,” said Mr Boucher. The bank’s shares were flat as it failed to disclose any details of how it would raise the extra capital required.

Most of the impairment charge – some €2.2 billion of the bad debts – related to losses on loans transferred to the National Asset Management Agency (Nama).

“We see Nama as being done for Bank of Ireland – the hits have been taken,” said Mr Boucher.

The number of impaired loans jumped to €11 billion or 9 per cent of the bank’s €119 billion loan book at the end of 2010 from €8 billion or 7 per cent the previous year.

The bank would be “highly capitalised” after raising the Central Bank’s capital bill, which stress-tested the bank’s loans for a “very, very extreme downside case”.

The bank was supported by €23 billion of discount loans from the European Central Bank and €8 billion in emergency loans from the Irish Central Bank last December.

These figures have not dropped since then, said finance director John O’Donovan.

Central bank loans accounted for almost a quarter of the bank’s funding at the end of last year.

The increase in Central Bank funding was due to a loss of €20 billion in deposits over last year as a result of credit downgrades that led to corporate deposit withdrawals. Mr O’Donovan said deposits had risen to more than €66 billion from €65 billion last December.

Mr Boucher said the bank aimed to repay all Central Bank funding well before the end of 2013 when it must shed €30 billion of €119 billion in loans under the deleveraging plan. The bank’s income fell as “unsustainably high” deposit rates squeezed the net interest margin by a 0.18 of a percentage point. The margin is unlikely to rise in 2011.