TSB impairment provisions rise €1bn

Impairment charges at Permanent TSB are likely to have increased by €1bn during 2011, the bank’s management said last night.

Management at IL&P Holdings said impairment provisions — what is set aside to cover loan losses — at its retail banking arm, are expected to total around €1.4bn for 2011; with the increase almost entirely down to a significantly deteriorating residential mortgage book.

Permanent TSB’s total impairment provisions for 2010 came to a mere €420m in comparison.

The estimates for 2011 also factor in 11.5% of Permanent TSB’s residential mortgage book in the Republic being in arrears for 90 days or more, up from a rate of 6.8% as of the end of 2010.

Within the last week, both Bank of Ireland and Ulster Bank have reported increases in their mortgage arrears levels — Bank of Ireland up from 3.76% to 5.6% and Ulster Bank from 8% to 12%.

The industry average, according to the Central Bank, is of 9.2% of mortgages currently being in arrears.

In a brief statement yesterday, IL&P said that the decline in its mortgage book is due to a number of factors — including “a change in the assumption for the peak-to-trough decline in house prices to 55%, from 43% at the end of 2010”, and “the move to provisioning for all cases over 90 days in arrears — from over 180 days — in line with revised Central Bank guidance”.

The bank’s board expects further declines in property prices this year. It is understood that the impairment figure for last year — the final figure will be published with the group’s latest annual results in early April — was significantly in excess of the management expectations.

IL&P’s management also said Permanent TSB’s tier-1 capital, as of the end of 2011, was 18.3% — well beyond the 10.5% target for Irish banks — “reflecting the expected full year’s results, including the increased level of provisioning as well as the gain of €1bn from the liability management exercise which was completed in the third quarter of 2011”.

Earlier this month, the Government said that it would have a preliminary proposal for the restructuring of IL&P on the table by the end of this month, with a final decision due by the end of April.

The move would see the struggling banking arm split from the profitable life assurance business.

IL&P also announced yesterday that Jeremy Masding, who recently took up the role of chief executive at Permanent TSB, has been appointed to the group’s board.