Heavy losses make €1.4bn paid for bank all the more puzzling

NIB reacted quickly to crisis but has still been unable to stem tide, writes SIMON CARSWELL

IT’S CONCERNING that as Ireland is about to enter the fourth year of the financial crisis, a foreign-owned bank took its largest quarterly writedown on loans in the second quarter of this year.

Ireland accounts for just 4 per cent of the lending at the Danish banking group Danske but its loss-making Irish subsidiary, National Irish Bank, accounted for 56 per cent of the impairment charge taken by the Nordic bank across its businesses.

It’s little wonder then that NIB chief executive Andrew Healy, should express frustration bad loans remain so high. The heading on a slide in Danske’s results presentation yesterday said it all: “Other impairments: Northern Ireland and Ireland are still dragging on”.

Danske says that, despite the heavy second-quarter hit, loan impairments in Ireland will be lower this year than last. The bank has written down its Irish loans by 21 per cent or €2 billion.

NIB reacted more severely and quickly than rivals on cost-cutting, reducing staff by 25 per cent and closing more than 21 branches. Despite this, the bank is not reaping rewards yet as income fell 19 per cent due to reduced customer demand and increased impaired loans.

The bank, which accounts for about 6 per cent of the Irish banking sector, is shrinking its loans dramatically; overall loans fell 9 per cent on last year to €9.1 billion.

Mirroring similar problems flagged last week by Lloyds and RBS at their Irish subsidiaries, bad commercial property loans are at the root of Danske’s problems. Three-quarters of the €2 billion loans provisions have taken by NIB are on the €3.3 billion commercial property book.

Unlike other lenders, NIB doesn’t appear to have the same problems. The decision to lend low margin and low loan-to-value tracker mortgages mean the loans generate little or no income but that fewer of its customers are in trouble.

Arrears of 90 days or more increased but are still relatively low, up to 2.3 per cent at the end of June from 1.7 per cent six months earlier. Still, the heavy losses on the bank’s property loans make little sense of the €1.4 billion Danske paid for NIB and Northern Bank in 2004.