BoI warns trading conditions worse

BANK of Ireland’s trading update warns that the trading environment in the first six months has worsened for the group.

As a result the bank has signalled its bad debt charge for the six months to September 30, 2009, will be between €1.6bn and €1.8bn.

Because of the weaker economic environment the bank said its guidance to the markets that it would write off €6bn in impaired loans in the three years to March 2011 will go up by at least another €1bn to €7bn.

In its comments to the market previously the bank said bad debt write-offs of €6bn were on the cards over three years, provided the trading environment did not get any worse.

It said yesterday in its trading statement that the increase in bad debt charges reflected asset quality deterioration over the first half.

That was most noticeable in “our property and construction portfolio (particularly landbank/development”, it said.

That sector represents about two-thirds of the increased charge in bad debts for the period, it said.

Chief executive Richie Boucher told analysts in a conference call that “deeper recessionary conditions” have also had “some impact on our SME/corporate books in Ireland”.

Bank of Ireland said in the six months to September 30 operating profits would be down on the comparable period for last year.

Total income was set to fall significantly and the decline would be in the “mid-teens” range it said.

The deterioration in the total income earned by the bank reflected several factors.

To keep money coming into its coffers the bank has been forced to pay higher deposit rates while having to pay more for what it borrowed.

Over the period under review the cost of the government guarantee, reduced new business activity in both lending and in the sale of investment and savings products have added up to a very difficult first half, the group said.

Those negatives will be offset to some degree by an expected gain from investment income from the group’s life company which returned a loss of €63m in the same period last year.

To counter the downturn the bank said over the last two years it has reduced staffing levels by 10% from 16,400 to 15,000.


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