UK banks exposed for $230bn on loans in Ireland
THE UK would be facing the biggest losses if Ireland, its banks or mortgage borrowers defaulted on billions of euro in debts, economic statistics show. The UK's total exposure to Ireland comes to $230bn (€186bn), far higher than the approximately $175bn exposure of Germany.
While German banks, insurance companies and pension funds have been upping their holdings of Irish government and bank debt, figures from the Bank of International Settlements show the UK with a far larger exposure, caused in part by loans to the private sector, made up of developers and mortgages borrowers.
"Banks headquartered in the United Kingdom have larger exposures ($230bn) than banks based in any other country. More than half of those ($128bn) were to the non-bank private sector," said the organisation.
The exposure of the UK banks to Ireland falls across a number of categories, including the private sector, but also via bank bonds issued by Irish banks and the Irish Government. The UK banks are also recorded as holding a large number of derivatives related to Ireland.
The Bank of International Settlements, in a new report, studied the exposures eurozone banks have to countries it describes as under "market pressure", among them Greece, Ireland, Portugal and Spain.
The figures, which cover debt levels at the end of 2009, show that eurozone banks hold 62pc of all debt issued by these four countries, with Asian and American banks making up the rest.
In total, eurozone banks have an exposure of $402bn to Ireland, $727bn to Spain, $244bn to Portugal and $206bn to Greece. French and German banks are particularly exposed, but in the case of Ireland the UK is far more exposed than any other country.
For example, banks in the United States only have half the exposure to Ireland that Britain has. France also has a relatively minor exposure when compared to the Irish debt levels held by British bank-balance sheets.
The scale of the British exposure is such it is twice the size of that of the rest of the eurozone, excluding Germany and France.
The amount of debt major European banks hold in so-called peripheral countries is a major concern to policy makers in Brussels and also at the European Central Bank (ECB). For example, if one of these countries was unable or unwilling to repay their debts this could cause major damage to the balance sheets of these banks.
Clearly the bigger the country unable to repay the debt, the bigger the collateral damage, hence the recent concern about problems in large economies like Italy and Spain.