Two thirds of Lloyds Irish loan book is impaired as loss is £2.3bn
NEARLY two thirds of Lloyds' Irish loan book is now impaired, the bank said yesterday, as losses in Ireland helped push the firm into a half year loss.
The banking giant, whose subsidiary Bank of Scotland (Ireland) pulled out of Ireland last year after incurring huge losses, said 11pc of its loan book worsened last year, to the point where 64.1pc of its £27.6bn (€31.76bn) Irish loan book was now impaired.
Provisions as a percentage of impaired Irish loans were 55.8pc at the end of June up slightly from the 53.7pc at the end of last year.
Losses on bad loans here topped £1.8bn, the bank said, 14pc worse than the £1.6bn the lender had to set aside a year ago. Lloyds took a charge of £1.78bn of Irish loans during the period.
In a statement, the bank said its current economic assumptions for the UK and Ireland, including unemployment and property valuations, meant it continued "to expect further reductions in impairment losses in 2011, compared to 2010, and beyond."
A dedicated UK-based credit team has been set up by Lloyds to "manage the wind down of the Irish book; however, the Irish market is extremely illiquid with limited opportunities for disposals in the short term," the bank said.
The losses in Ireland combined with provisions made to deal with the mis-selling of payment protection insurance in the UK helped push the bank into an overall loss of £2.31bn.
Shares in the bank tumbled on the news, closing down 10.1pc.
British banks are compensating customers improperly sold personal-loan insurance, which covers payments on credit cards and mortgages in case of illness or unemployment. Clients who bought the insurance rarely compared prices or terms and sometimes were not covered by their policies.
"I have some concerns about the trajectory of the retail net interest margin which declined substantially on the back of increased wholesale funding costs," said Joseph Dickerson, an analyst at Espirito Santo Investment Bank in London.
"It remains to be seen their ability to pass on increases in funding costs to customers in the current, competitive environment."
The bank's loan-to-deposit ratio improved to 144pc from 154pc. It was 176pc at the end of June 2009, and company chief executive Antonio Horta-Osorio plans to reduce it to 130pc.
Lloyds's acquisition of Halifax Bank of Scotland in a government-brokered deal as it neared collapse three years ago, forced it to accept a taxpayer-funded bailout. The deal has been a drag on Lloyds since.