Ulster profits plunge 76pc as property debts mount
'It's difficult to see the bottom,' says chief executive as lender bracing for 2010
Ulster Bank headquarters in Belfast (PETER MUHLY/AFP/Getty Images)
Ulster Bank saw its operating profits plunge 76pc to €147m last year as bad debts soared three-and-a-half fold -- mainly as loans to property developers turned sour in a weakening economy.
"It's difficult to see the bottom. And while things will eventually turn, we'll be preparing for a very difficult 2009 and a very difficult 2010 as well," said chief executive Cormac McCarthy.
Ulster, a unit of Royal Bank of Scotland (RBS), which yesterday posted the biggest annual loss in UK corporate history, wrote off £394m (€443m) of impaired loans across the island of Ireland last year.
But RBS confirmed that the Ulster remains a core part of the group as it has effectively created an internal 'bad bank' of assets to be wound down over time.
Ulster's loan losses jumped from 0.18pc of loans to over 0.8pc -- driven by impairments in residential and commercial developments.
The bank has a £17bn commercial property loan book, of which £7.9bn is exposed to commercial investment; £5.3bn to residential development; £3bn to commercial development and £680m to residential investment.
Mr McCarthy said the bank continues to work with its development customers. "Property is a very long-term game. It'd be precipitative of us to get too aggressive in some circumstance. By and large, customers are co-operating."
He said the bank has a cap on speculative lending at 3pc of its portfolio.
It stood at 1.8pc at the end of 2008.
Ulster's most high-profile speculative project is its backing of developer Sean Dunne's €379m purchase of seven-acre Jurys and Berkley Court site back in 2005.
An Bord Pleanala recently refused planning permission for a €1.5bn office, retail and residential development there. The Irish Independent previously reported that the bank is understood to have syndicated down half of its loan to other lenders to spread the risk.
Meanwhile, a further 40pc, or £25bn, of loans were made up of mortgages, where the bank is also beginning to see signs of stress as unemployment levels rise.
The group has classified 2.1pc of loans to high-street customers as non-performing, implying it expects to take a charge against a portion of these in the future.
However, some 8pc of the corporate loan book is described as non-performing -- mainly down to development loans. "This suggests there's a lot to come down the track over the next few years," said Scott Rankin, an analyst with Davy.
Under pressure
Overall lending was up 9pc last year on a constant currency basis to €63.2bn, but Mr McCarthy said that current demand for lending is "is very low" as house prices continue to fall and the broader economy remains under pressure.
Average deposits were flat during the year, though they ended 2008 down 9pc at €25.5bn as it opted out of the Irish €440bn guarantee scheme and RBS used UK government supports, which were introduced later. Mr McCarthy said that most deposits have come back into Ulster since the year end.
Ulster is seeking 750 voluntary redundancies as it does away with its First Active brand. Mr McCarthy declined to say what sort of restructuring charge the bank expects to book for the measure, as it remains in talks with unions on the issue.
He also declined to discuss his salary, other than say he had received no bonus last year and that his overall remuneration was down over 40pc.
- Joe Brennan
