Danske Bank said it doesn't expect loan losses at its Irish unit to improve until next year as the housing market takes longer to recover than the lender first estimated.
"We currently don't see any concrete signs of improvement in the property market despite the fact that the Irish economy looks to be picking up," said Thomas Borgen, the head of Danske's international banking activities, in an e-mailed reply to questions.
"We still expect continued high writedowns in the second half of 2011. We think we have to move into 2012 before the property market might have bottomed out."
The economy has shrunk every year since 2007 after a property boom turned to bust, pushing the country's financial system close to collapse and forcing the government to seek an international bailout. The nation's gross domestic product will expand 0.4 per cent this year, compared with a euro area average of 1.6 per cent, the International Monetary Fund said this week.
"Ireland has been, and is, very demanding for us," Mr Borgen said. "The property market has fallen considerably and we've continually needed to write down the value of our assets there."
Danske Bank back in December estimated its Irish loan losses peaked in the second quarter of last year, while predicting writedowns would remain high through 2011.
The bank's Irish and Northern Ireland businesses were the only two to see losses before tax widen in the first half. Impairments in the Irish unit rose to 3.13 billion kroner (€420 million) in the period from 2.74 billion kroner a year earlier.
Irish property prices have fallen 43 per cent since peaking in 2007, according to the country's statistics office.
The difference between two-year Irish government bond yields and borrowing costs on similar maturity German bunds widened two basis points to 871. The 10-year spread also widened two basis points to 694.
Home loans at Danske's Irish unit relative to property values rose to 96.4 per cent in the first half, versus 83.7 per cent a year ago, according to its second-quarter report.
The bank's Irish business has cost shareholders 34 billion kroner (€4.5 billion), Mr Borsen reported on September 19th. The bank's share price would be 58 per cent higher now had the lender not bought the National Irish Bank and Northern Bank in 2004, Mr Borsen said.
Bloomberg
