Majority of loans are still ‘at risk’

In a way this is the most straightforward set of results IBRC chief executive Mike Aynsley has had to deliver since he took the top job at the beleaguered institution.

A lot of the heavy lifting has been done. All that remains for Mr Aynsley is for an orderly wind-down of the bank between now and 2020 — apart from the sideshow that is Sean Quinn and the ongoing legal tussle between the two over who is owed what.

But that is not to say IBRC’s latest set of accounts were not a cause for concern. The quality of the loan book is deteriorating at an alarming pace. Total eventual losses over the bank’s remaining lifespan are forecast to come in between €25bn-€29bn.

Mr Aynsley remains confident that eventual losses will not exceed thesefigures — notwithstanding the deteriorating quality of the loan book. He argues that the bank’s aggressive provisioning policy and current capital levels are sufficient buffers against future losses. IBRC has €3.47bn in tier one capital and €2.73bn in equity capital.

But the bank’s loan book poses formidable challenges — 87% of the €27.5bn loan book is now “at risk”. Moreover, impairment levels were running at 66% at the end of June, which was up from 61% at the end of last december. Ireland continues to be the worst performing region with a 68% impairment level.

The problem with Ireland is that there is no liquidity in the system and without liquidity there is no functioning property market. Consequently, property prices will keep falling, which means that the bank’s loan-to-value ratios will also keep falling, which in turn will push up impairment levels.

Investors are still reluctant to look at Ireland because of continuing risks to the euro and the Irish sovereign. And without investors there is no liquidity which means the downward spiral continues.