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Peter Straarup, the chief executive of National Irish Bank's parent Danske Bank, has told analysts that the Irish commercial market is "frozen" and that collateral on some development projects have fallen as much as 80pc in value.
Irish banking analysts believe Mr Straarup was referring to development land at the extreme end of asset declines. They cautioned that it is nearly impossible to give realistic valuations when there are few deals taking place.
Mr Straarup, who spearheaded the €1.4bn acquisition of NIB and Northern Bank in 2005, indicated that non-performing loans accounted for 3.36pc of its €10.5bn loan book at the end of September.
That level had grown more than three-fold over the space of three months and mainly relates to lending out to residential and commercial property developers that are suffering as a result of the property downturn.
Bottom
"We have seen collateral fall up to as much than 80pc. So the Irish market, to a certain extent, has basically lost contact with any bottom in some areas and some aspects," said Mr Straarup. "This has surprised the bank obviously and that's the reason for the impairment charges."
On Tuesday, NIB reported a €49m loss for the first nine months of the year after writing off €94m of bad loans. It took a €69m charge for the third quarter alone. "If one assumed that the full (€69m third-quarter) bad debt charge solely related to the overall property and construction (P&C) book, including commercial investment, the charge-off rate would be equivalent to 7.6pc (of the portfolio)," said Goodbody Stockbrokers.
"NIB is one of the smaller players in the P&C space in Ireland and it doesn't necessarily follow that its comments will read straight through to the other banks."
The broker said that the overall tone of the commentary "is clearly unhelpful in a volatile market where banks are already pricing-in a lot of negative news that is expected to come down the tracks".
Meanwhile, Allied Irish Banks said yesterday it will issue a trading statement next Wednesday and host an analysts conference call -- making it the first indigenous lender to update the markets on its financial standing after the Government launched its €500bn guarantee scheme.
