Danske Bank expects loan losses to continue

DANSKE Bank A/S doesn’t expect loan losses at its Irish unit to improve until next year as the housing market takes longer to recover than the lender first estimated.

“We currently don’t see any concrete signs of improvement in the property market despite the fact that the Irish economy looks to be picking up,” said Thomas Borgen, the head of Danske’s international banking activities, in an e-mailed reply to questions.

“We still expect continued high writedowns in the second half of 2011. We think we have to move into 2012 before the property market might have bottomed out.”

The economy has shrunk every year since 2007 after the property boom turned to bust, pushing the financial system close to collapse and forcing the Government to seek an international bailout. Ireland’s GDP will expand 0.4% this year, compared with a eurozone average of 1.6%, the International Monetary Fund said this week.

“Ireland has been, and is, very demanding for us,” Mr Borgen said. “The property market has fallen considerably and we’ve continually needed to write down the value of our assets there.”

Danske Bank back in December estimated its Irish loan losses peaked in the second quarter of last year, while predicting writedowns would remain high through 2011.

The bank’s Irish and Northern businesses were the only two to see losses before tax widen in the first half. Impairments in the Irish unit rose to 3.13 billion kroner (€420 million) in the period from 2.74 billion kroner a year earlier. Irish home prices have fallen 43% since peaking in 2007, according to the CSO.

Home loans at Danske’s Irish unit relative to property values rose to 96.4% in the first half, versus 83.7% a year ago, according to its second-quarter report.

The bank’s Irish business has cost shareholders 34 billion kroner (€4.63 billion), Borsen reported on September 19, citing a confidential document obtained by the Copenhagen-based newspaper and written by Danske Bank unit Danske Markets. The bank’s share price would be 58% higher now had the lender not bought the National Irish Bank and Northern Bank in 2004, Borsen said, citing the analysis.