NIB pre-tax profits slump in first half


National Irish Bank (NIB) has reported a slump in pre-tax profits to €2 million for the first six months of the year compared to €7 million during the same period in 2007.

According to data released by the bank’s owner Danske Bank, NIB’s results have been impacted by an “increasingly difficult market”.

One consequence of this is that credit loss expenses, or the bank’s provision for bad debts, have increased from €4 million in the first half of 2007 to €25 million in the first six months of this year. This accounts for 0.54 per cent of the bank’s loan book.

The bank has written off €1.7 million in bad debt.

Over the period NIB’s total loan book exceeded €10 billion with the bank saying around 37 per cent of the debt is “low risk residential mortgages” with an average loan-to-value ratio of 42 per cent.

NIB said it has seen no increase in mortgage arrears. Total income over the period rose 9 per cent to €94 million despite higher funding costs.

The bank said it cut costs by 12 per cent between January and the end of June. Total lending grew 19 per cent year-on-year. Customer deposits were up 8 per cent to €3.3 billion over the period.

Andrew Healy, CEO of NIB said the bank increased its loan loss provisions “substantially” in the three months to the end of June.

“That reflects where we are in the economic downturn. We feel that it is right to do to prepare for future losses. We do expect our losses to increase given where we are in the economic cycle.”

Some €900 million worth of loans, or 9 per cent of NIB’s €10 billion loan book is to the residential development sector. Mr Healy said the bank had less than half of this - or 5 per cent of the bank’s overall loan book - “under very careful management”, given the slump in the housing market.

He said the bank had “scaled back” lending to the sector from the end of 2006 and taken a more conservative approach on construction lending.

NIB increased its mortgage lending by 22 per cent in the first six months of the year as customers were drawn to the bank’s competitive rates to customers with low loan-to-value mortgages who switch from other lenders.

Mr Healy said that the bank’s funding costs had increased by €12 million due to the higher cost of wholesale money as a result of the credit crunch. However, the bank shouldered these costs, choosing not to pass them on to customers in an effort to win new business.

“We have priced very keenly and we plan to continue to price very keenly because we are winning a large number of new customers,” he said.

While the results had been impacted by “increasingly difficult market conditions” he said they also showed satisfactory growth.

“Lending and deposit growth is well ahead of the market. Profit before credit expenses has more than doubled even though funding costs were much higher and we continued to invest in new branches”, he said.

“We’ve substantially increased credit provisions reflecting the economic downturn and the outlook for continuing challenging conditions. However, our overall asset quality remains sound.”

NIB has 649 employees in 66 branches and 16 business banking centres.