ALLIED IRISH Banks (AIB) raised its forecast for bad debts for 2009 by €1 billion to €5.3 billion, primarily due to higher losses on development and property-related loans moving to the National Asset Management Agency (Nama).

An underlying operating profit (before bad debts) of €2 billion for 2009 is forecast for the year, down from €2.7 billion in 2008.

“Our financial results for 2009 are expected to reflect solid operating profits before bad debt provisions set against a background of a very difficult operating environment,” the bank said in a trading update. AIB’s share price climbed 2 per cent, or 3 cent, to €1.78.

Loan loss charges had stabilised across all divisions, the bank said, and the charge in the second half of the year would be lower for the capital markets and Polish units.

Pressure on income and the cost of deposits will drive operating profits lower in the bank’s Irish and UK divisions, it said.

The pace of deterioration in loan quality is slowing but AIB forecast a higher level of bad debts within the €24.1 billion development loans moving to Nama.

Loan impairments are expected to increase by €3.8 billion to €10.5 billion within the €24.1 billion portfolio being acquired by Nama. AIB said the discount applied to the Nama loans, which will determine how much capital the bank needs, would be lower than the 30 per cent average estimated by Government for the €77 billion loans being bought from the banks. “It is our view that there is no reason to believe that the average discount applicable to AIB’s Nama-eligible loans will fall significantly outside the Minister’s guidance of 30 per cent,” the bank said.

Oliver Gilvarry, analyst at Dolmen Securities, said the trading statement was in line with estimates in most areas, but AIB’s views on Nama were a surprise.

The bank’s estimate of the “haircut” to be applied to the Nama loans was “more negative than two months ago”, he said.

The percentage of impaired loans within the Nama portfolio had jumped from 28 per cent to 44 per cent of the book in the space of six months, said Mr Gilvarry, highlighting the continued deterioration in the development loans.

AIB said the increase in “criticised” or higher-risk loans in the second half of this year would be “significantly less than the €18 billion increase in the first half”.

The bank’s net interest margin for the year is expected to be 25 basis points (0.25 per cent) lower than 2008, though the higher cost of deposits has been offset by improving loan returns and higher margins from treasury assets.