More Ulster Bank headaches for RBS

Royal Bank of Scotland Group, Britain’s largest state-controlled lender, may need to set aside additional provisions to cover rising mortgage losses at Ulster Bank over the next two years, according to Espirito Santo Investment Bank.

The investment bank increased its Irish residential mortgage provisions forecast for RBS by £147m (€182.7m), or 27%, for this year and by £370m, or 107%, for 2013, London- based analyst Shailesh Raikundlia said in a note yesterday.

While Lloyds Banking Group’s Irish mortgage arrears have been “consistently 1.6 times” that of the local banking industry in recent years, its loss provisions are already “conservative,” he said.

“High impairments in Ireland continue to spring unpleasant surprises for Lloyds and RBS as the economy deteriorates under the strict austerity measures instigated following the bursting of the property bubble,” Mr Raikundlia and other Espirito Santo analysts wrote in the note.

RBS, the largest overseas consumer lender in Ireland, has injected as much as €10.8bn into its Ulster Bank unit since 2008 to absorb loan losses.

Lloyds pumped about €8bn into its Irish business from 2008 to the end of 2010, when it subsumed loans made in the country into the London-based parent company.

Espirito Santo said: “Although Ireland accounts for only 10% and 4% of gross loans at RBS and Lloyds, provisions account for 48% and 37% of their total provisions” — respectively.

The investment bank cut its earnings per share estimate for RBS for this year by 8% to a loss of 23.3 pence per share and by 9% for next year to a profit of 24.4 pence a share. It has a neutral rating on both banks.

Espirito Santo estimates the level of Irish mortgages in negative equity rose to 57% at the end of last year from 47% a year earlier.

Bloomberg