NATIONAL IRISH Bank has posted a net loss of €49 million for the first nine months of the year due to a bad debt charge of €69 million in the third quarter of the year primarily on losses to the building and development sectors.
The bank wrote off loans of €25 million in the first six months of the year, but substantially increased the bad charge on loan losses in the three months to the end of September due to the sharp economic decline since the summer, the poor outlook for 2009 and the conservative approach on loan impairments taken by its parent bank, Danske.
"It's a hard landing by anyone's definition," said NIB deputy chief executive Kevin Gallen.
The third-quarter loan losses amount to an annualised charge of 2.7 per cent of average loans, slightly below the 3.2 per cent charge outlined by Danske in a conference call earlier this month.
Eamonn Hughes, analyst at Goodbody Stockbrokers, said in a research note that NIB's loan loss charge was "modestly better than first flagged a few weeks ago".
The third-quarter provision brought the loan loss charge for the first nine months of the year to €94 million, or 1.3 per cent of average loans. This is a 12-fold increase on a year earlier when NIB posted a charge of €8 million.
"The Irish economy's decline has accelerated over recent months and the outlook for the next 18 months is not good," said NIB chief executive Andrew Healy in a statement. "That is the reality and we have therefore taken a substantial increase in loan impairment charges during this quarter."
The €49 million loss compares with a pretax profit of €11 million in the same period last year.
Income rose 9 per cent to €145 million, while costs fell 12 per cent to €100 million, leaving NIB with a profit of €45 million before loan losses. The bank's cost-income ratio fell to 68.9 per cent from 85.5 per cent. Deposits rose 10 per cent to €3.4 billion, while loans grew 18 per cent to €10.5 billion. Mr Gallen said most of the €69 million bad debt charge in the third quarter was due to losses on the property development, construction and landbank loan portfolio. He said this portfolio totalled 16 per cent of NIB's €10.5 billion loan book, or almost €1.7 billion.
He said in some areas of the country, landbank and property development values had fallen by 40 - 50 per cent. Mr Gallen added that 17-18 per cent of the bank's loan book related to commercial property. "That is a less risky area because there is cashflow coming in," said Mr Gallen.
He said NIB had less than 100 mortgages in arrears and that its mortgage book, which equals about 37 per cent or €3.8 billion of the overall loan book, was one of the lowest risk Irish mortgage books with an average loan-to-value ratio of less than 55 per cent.
It withdrew its low loan-to-value tracker mortgages earlier this month as funding had remained "at such a high-risk level" that the trackers were no longer viable.
"Overall, we didn't anticipate the funding challenges that have emerged over the last year," he said. He said NIB decided not to join the bank guarantee scheme as it felt that it was adequately protected under the Danish scheme, which guarantees 100 per cent of personal and business deposits.
Danske reported a profit of €1.3 billion, a fall of 38 per cent. Loan impairment charges totalled €388 million, or 0.33 per cent of average loans at the bank.
Niamh Hore, analyst at Davy Stockbrokers, said NIB's loan book represented just 4 per cent of Danske's group loans, but the Irish loan loss charge made up 30 per cent of Danske's underlying impairment charge for the period.
NCB Stockbrokers said Danske had taken an "aggressive approach" writing down its Irish loans after reviewing the book.
