Irish loan books problem

Two of the largest banking groups in Britain have said their Irish operations pose their biggest problems for loan book recovery.

Royal Bank of Scotland (RBS) and Lloyds Banking Group — which own Ulster Bank and the former Halifax/Bank of Scotland businesses here — yesterday said their worst problems are behind them and that their impaired loan books are showing signs of recovery.

However, both told the Financial Times that their Irish-based loan portfolios will take the longest to recover.

They said Ireland remains their “biggest headache”, with the property crash being a “generational problem” that could take decades to fully resolve. “Lending completely lost touch with reality in Ireland.

“It’s beyond my ken why many of these loans were even contemplated,” said Derek Sach, RBS Group’s global head of restructuring.

Despite seeing the value of its impaired loans increase from £38.5bn (€46.18bn) to £40.8bn last year, RBS claims that the outlook for impairments is improving.

Total impairment charges went from £1.16bn to over £1.38bn at Ulster Bank last year, but RBS has always maintained it remains fully committed to its Irish subsidiary.

Andy Cumming, who heads up Lloyds Banking Group’s restructuring unit, said: “The Irish book is, without doubt, our biggest challenge and will take the longest time to resolve.”

While much of RBS’ Irish impaired loans are on the residential mortgage side, Lloyds said in February, that approximately 80% of its corporate loan book in Ireland is impaired.

“ Most of the focus in recent months has centred on mortgage loans as arrears continue to rise.

“However, we must not forget that the banks still have about one quarter of their loan books in commercial real estate, where average loan loss rates are substantially higher than on mortgages,” said Eamonn Hughes of Goodbody Stockbrokers.