Rise in impairment charges raises fears

THE £500 million (€362m) increase in Ulster Bank’s annual impairment charge for non-performing loans has put commentators on high alert over a potential domino effect concerning the other domestic Irish banks — with each expected to report annual results in the coming months.

Before Ulster Bank reported impairment charges of £1.16bn, for 2010, yesterday (a figure which was up from £649m the previous year), Irish Life & Permanent (IL&P) set the ball rolling. It said — just last week — that its 2010 results, which are due out next week, are likely to show an €80m-€100m annual increase in impairment charge.

“Recent securitisation data has shown Ulster Bank — through First Active — to have the highest arrears levels, so it now appears these higher arrears are starting to translate into higher impairments. This is something that must be watched in the other domestic banks and, for instance, follows the uplift in mortgage impairment provisions guidance reported by IL&P in its interim management statement last week,” said Eamonn Hughes of Goodbody Stockbrokers yesterday.

Another industry source argued that latest figures coming from the likes of IL&P and Ulster Bank should not be surprising.

“The surprise was that so many people called it that we were at the bottom of the cycle six-to-12 months ago. That was very dangerous; the first half of this year is likely to see a continuation to the challenging conditions.”

&It is likely that Bank of Ireland and AIB will now hold off until after March, when the Central Bank is due to publish its latest stress test findings on the banks.

While Bank of Ireland said, in its latest trading update last week, that its impairment charges on loans likely peaked in 2009; AIB recently said that its bad debt charges remained elevated late last year.

Earlier this year, Central Bank governor, Patrick Honohan opined that the Irish banks would likely see higher loan losses following the completion of the new capital review.