Zurich halts Irish property lending

 

Swiss insurer Zurich Financial Services AG stopped all property lending to Ireland and Britain, and sharply increased provisions to shield against loan losses in these hard-hit real estate markets.

The group, which had been financing commercial property developments but did not give out mortgages to retail clients in these markets, said today it had set aside an additional $330 million to cover losses.

"Loan provisions are regularly reviewed but given the continuing deterioration in the UK and Irish property markets, the group has carried out a further review of its property development loan books and the respective provisioning levels," Zurich said in a statement.

The group has stopped all new property development lending through its subsidiaries Dunbar Bank and Zurich Bank.

"Ending this business (in the UK and Ireland) is the better option at the moment," Zurich spokesman Angel Serna said, adding the group did not have similar operations elsewhere.

Real estate markets in Britain and Ireland are among the worst hit by the global crisis. Zurich said the total increase in provisions amounted to $250 million for Britain, taking the provisions-to-loan ratio to 18 per cent for its property loan portfolio, which stood at $1.91 billion at the end of the first quarter.

Provisions were bumped up by $80 million for Ireland, bringing overall provisions to 50 per cent of the portfolio of $495 million.

The announcement was likely to revive concerns about risks on insurers' balance sheets, said analyst Martin Koch at banking group Wegelin in a note.

"In addition to risks from real estate markets, worries about potential writedowns on government bonds are weighing on investors' sentiment," he said.

However, Zurich had so far weathered the crisis well, he said. "The group has a solid balance sheet and a very successful business model." Zurich will record the charges in its non-core business segment when it publishes first half results on August 5th. Both subsidiaries remain adequately capitalised after a capital injection from the group, Zurich said.