50% of transfers will be bad debt by year end
The group in its trading statement yesterday said, by the end of the first half of 2009, €6.7bn of the loans being transferred across to the bad bank had been designated as bad debts.
And that will have risen to €10.4bn by the year end, as the NAMA process continues to unfold.
For the year under review the group said it expects 2009balance sheet provisions for NAMA-related assets to reach €4.2bn, a significant increase from the €3.5bn it indicated in September.
The bank group said that, at this stage of the NAMA process, it does not believe that the discount (haircut) on the assets being transferred to the bad bank will be any different from the 30% industry average.
Commenting yesterday in a note to investors, Kevin McConnell, head of research at Bloxham Stockbrokers, said the view expressed yesterday by the bank on the “haircut” it faced “differs” from what it said back in September.
Provisions for bad debts outside the ambit of NAMA are expected to increase by €300 million from the non-NAMA lending book of over €100 billion.
McConnell said also that the bank’s lending books, not tied to the bad bank, are showing signs of stabilising.
Ireland, however, was continuing to be the most difficult region for the group.
Capital markets and other areas of corporate activity are likely to see an easing of their bad debt situation in the second half while in Britain the bank faces a level of charges similar to those encountered in the first half of the year.
The bank said margins are expected to be 196 basis points down from 221bps 2008.
That 25bps margin decline is a reflection of the fact that in the current environment banks are being forced to pay more to pull in deposits from sceptical consumers.
The battering the economy’s credit rating caused by the collapse in property has added significantly to the cost of borrowing for the banks, doing further damage to the margins it can earn on its loan book.
