Business Irish

Friday 23 June 2017

NIB and Ulster results point to more bad news

LAST week's disastrous third-quarter results from NIB and Ulster Bank provide clear evidence that the bad-debt situation at the Irish banks is continuing to worsen.

With NIB now having written off almost a seventh of its peak loan book, stand by for more bad news from the Irish-owned banks.

Ever since the banking crisis erupted here at the end of September 2008, the Irish-based banks, both domestic and foreign-owned, have consistently failed to come clean about the true state of their loan books.

The one exception to this has been NIB, which is owned by Denmark's Danske Bank.

Whereas most of its competitors seem to be still in denial, NIB has at least told it like it is.

In its third-quarter results, published last Tuesday, NIB revealed it had written off a further €504m in the nine months to the end of September.

This brings the total amount of bad loans written off by NIB since the start of 2008 to €1.43bn -- the equivalent of 13.5 per cent, almost a seventh, of its peak loan book.

What is even more worrying about the NIB results is that despite being one of the first to come clean on its loan losses, there is still no sign of any significant reduction in write-offs, with the €504m bad-debt charge being down a mere 7 per cent on the same period last year.

Further evidence that the worst is yet to come for the Irish banks came when Ulster Bank, which is owned by UK lender RBS, released its third-quarter results on Friday.

It revealed that it had written off stg£785m of bad loans (Ulster reports in sterling) in the first nine months of 2010, up from stg£301m for the same period in 2009.

So what implications do this week's results -- particularly the NIB numbers -- have for the Irish-owned banks?

If one excludes the two rogue banks, Anglo and Irish Nationwide, the four other Irish-owned banks had a combined peak loan book of just over €320bn.

They have so far written off, including losses on bad loans transferred to NAMA, just €18bn of this -- with AIB writing off €9.5bn, Bank of Ireland €7.2bn, Permanent TSB €730m and the EBS €568m. That's 5.6 per cent, or just over a 20th, of their combined pre-crash loan books.

If the four more-or-less-solvent Irish banks were to write down their loan books to the same extent as NIB, then they would be looking at a further €25bn of loan losses. And who is to say that NIB won't find even more nasties as it goes through its loan book with a fine-tooth comb?

Whatever the precise numbers, it's as clear as daylight that the Irish-owned banks have still not acknowledged the full extent of their loan losses.

If the NIB results are any guide, they haven't even come close.

All of which means that, even after this week's falls, Irish bank shares are still dear.

Sunday Independent

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