Ulster Bank's Irish book racked up £10bn loan losses for parent
Published 24/02/2012 | 05:00
ULSTER Bank's loans have racked up almost £10bn (€11.8bn) of impairments since the crisis hit, prompting bailed-out parent Royal Bank of Scotland to denounce Irish property lending as the "worst of all" its unwise decisions.
RBS chief Stephen Hester also admitted Ulster Bank had sucked up "too much" capital from its parent -- but Ulster Bank's new chief executive Jim Brown insisted yesterday that there was "no doubt" his bank remained a "core" part of RBS.
The comments came as it emerged that Ulster got another £4bn of capital from RBS last year. It got more than £3.5bn in 2010. The latest injection came as the Irish bank's impairment charges jumped 20pc to £1.4bn and operating losses rose 25pc to just over £1bn.
Bailed-out RBS also took a £2.3bn charge on Ulster loans in a 'non-core' unit that includes troubled portfolios from across the RBS group.
The bank's Irish woes were compounded when Ulster lost £2bn of corporate deposits after downgrades in Irish government bonds triggered an automatic cut in Ulster's credit rating and forced institutions to pull their cash.
The biggest credit negative in the results for mainstream Ulster was a sharp increase in mortgage impairments from £294m to £578m -- a trend that Mr Brown blamed on the economy coupled with "discussions about personal insolvency measures" and the introduction of a new code restricting lenders' contact with defaulting borrowers.
Mr Brown said the bank was "hopeful" that mortgage impairments would "peak" in 2012 as arrears levels stabilise and clarity emerges about new insolvency measures that will make it easier for people to have mortgage debt written off and offer shorter bankruptcy terms.
It was "too early to say" what the new rules' impact would be, Mr Brown said. He warned that those designing the scheme would have to be "very careful to make sure that those who can pay, do pay" and that having loans written off doesn't become the "default option".
Both Bank of Ireland and KBC this week warned that the new regime could lead to an increase in mortgage interest rates, as lenders priced in the additional "risk" that came with customers being able to avoid repaying their loans.
Asked if Ulster shared that view, Mr Brown replied: "I couldn't really say at this stage."
Mr Brown said he also couldn't call whether Ulster's total impairments would be up or down for 2012, since the bank's corporate book was showing an "improving trend".
Impairments on corporate loans fell from £375m to £324m and are expected to fall further.
He insisted that despite the bank's losses, Ulster "absolutely" remained "open for business" for both SMEs and mortgage customers.
The bank loaned €1.8bn to SMEs last year and supported 6,000 start-ups.
The bank now has a 20pc market share in SME lending, but its market share for mortgages is just "8pc or 9pc".
On the deposit front, Ulster's total figure fell from £23.4bn to £21.8bn.
Mr Brown said this was entirely due to a £2bn outflow of cash after the bank's credit rating was cut following a downgrade of the Irish sovereign.
"Retail and customer deposits went up," he added.
Ulster is currently in negotiations with staff about 950 job cuts, and has provoked fury from unions after offering payoffs of three and a half weeks' salary, about half what the bank offered in a 2009 scheme.
Mr Brown declined to say whether he was "optimistic" about the outcome of those talks, noting only that they are "continuing".