Write-offs may push EBS into red amid €2.4bn loan review

DUBLIN-BASED building society EBS is reviewing its entire €2.4 billion commercial loan book to ascertain the potential level of write-offs necessary as a result of the credit crunch, writes Ciarán Hancock

It is understood that the provisions involved could push EBS into the red in 2008.

In a statement released to The Irish Times the building society stated: "EBS, like other institutions, is actively reviewing its commercial portfolio with a view to making higher provisions. EBS believes this is a prudent thing to do in the current environment.

"As a mutual, EBS is not immune to all of these challenges. However, with a strong balance sheet - 89 per cent of lending relates to lower-risk, prime residential lending - and a Tier 1 capital ratio of 7.8 per cent, well in excess of regulatory requirements, EBS is well placed to adjust to the changed environment."

Documents leaked to a number of Sunday newspapers last weekend indicate that EBS's management team is concerned that the level of provisions involved could wipe out its profit for the year or push it into the red.

EBS made a pre-tax profit of €66.6 million in 2007, but an increase in the level of funding due to the credit crunch, increasing bad debts and the €12 million annual cost of being covered by the Government's bank guarantee scheme could result in EBS reporting a loss for 2008.

EBS's public relations adviser, Q4, recently prepared a document for the building society's management team outlining how it should handle the communication of this with its members and the media.

Weekend newspaper reports said that three options were outlined.

The first involved it remaining as a stand-alone entity.

The second would see it merge with another domestic financial institution to create a third Irish banking force.

It is understood that Irish Life Permanent was named in the document as a potential merger partner.

The third option outlined in the document involves EBS becoming part of a bigger mutual. It is believed to have held discussions with Rabobank and the Nationwide building society in Britain about a possible link-up.