IL&P lowers earnings growth forecast

THE STATE'S largest mortgage lender, Irish Life & Permanent (IL&P), has lowered its earnings growth forecast as lending fell 15 per cent in the first three months of the year and the investment and property markets were weakened by financial turmoil.

Operating profit for this year should be "broadly in line" with analysts' estimates of €563 million, the company said in an interim management statement.

The company had said in February that operating profit may rise "marginally" from €590 million in 2007 as funding costs had eased during January and February.

Three-month wholesale money, the benchmark for commercial lending, has risen 0.48 per cent since IL&P reported its 2007 results at the end of February.

Life and pension sales fell 10 per cent in the first three months of the year. However, the company outperformed the market, which declined 20 per cent during the first quarter.

An increase in pension sales was offset by "a sharp fall" in the sales of single-premium investment bonds. Lower new business volumes and a change in the mix of products would "create some pressure" on new business margins compared to earlier guidance, the company said.

"The year to date has brought a more challenging environment, with volatile investment markets and tightening credit conditions."

The company said while funding remained "challenging", the low-risk nature of Permanent TSB's lending - namely first charge home loans which could be used as collateral for funding - gave "flexibility in raising short-term and longer-term funding".

IL&P has term debt of €3 billion maturing in the third quarter. The company said it had "advanced" its plans to replace this, and had also taken steps to extend its ability to take new deposits. Mortgage arrears of over a month remained at just 0.14 per cent of loans.

The company has in the last two weeks raised its standard variable rate by 0.25 per cent and its tracker rate by 0.2-0.25 per cent and in some cases by 0.45 per cent. It has also tightened its lending criteria.

It said the changes would "help mitigate the impact of increased funding costs on the bank's net interest margin".

Davy analyst Emer Lang said the results were "better than feared", with the company enjoying "a pretty good performance" over the three months, particularly in the life and pensions business.