Top two to write down 3pc of their mortgages - Goodbody
Goodbody Stockbrokers sees the two main banks writing down up to 3pc of their mortgage books before the end of 2012, as interest rates rise and unemployment rates remain stubbornly high.
Turning its focus to banks' non-NAMA loans, Goodbody said its mortgage loss forecasts are at the top end of stress tests that have been set for US banks and almost twice as high as Standard & Poor's loan loss forecasts for the UK market.
It is sticking to its forecast that Allied Irish Banks faces an average 35pc discount on €23bn of loans it is transferring to NAMA, while Bank of Ireland stands to suffer a 26.5pc haircut on about €15bn of loans.
The agency is expected to start taking over loans relating to the country's top 10 developers next Friday, before announcing the initial industry-wide discount the following week.
"The first tranche of loans, estimated at €3bn and €2bn, respectively, for AIB and BoI, incorporate the most distressed borrowers, so the initial haircuts are likely to be higher than the portfolio average, trending down to our targets over time," Goodbody said.
It said the market will be looking for greater visibility on non-NAMA losses in the months ahead as they seek to raise capital from private sources.
Goodbody is also forecasting that the banks stomach losses equating to 8.6pc of their loans to small- to medium-sized enterprise (SMEs). "This is about 1.3 times the International Monetary Fund estimate for the US and 1.9 times its UK estimate," the broker said.
All told, the broker sees AIB's bad loan losses coming to €16bn over a five-year period, with NAMA discounts accounting for half of this. It expects BoI's loan writedowns to reach €11.7bn, with NAMA haircuts making up a third of the total.
"Our estimates hopefully provide comfort that we are being conservative relative to history and international stress-test evidence," it said.