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Banking reality check for RBS and Lloyds

FOR anyone who might have been naively hoping that the worst of the banking crisis was behind us, the full-year results from UK banks RBS and Lloyds will have provided an unwelcome dose of reality. Far from getting better the Irish banking crisis is continuing to worsen.

Last year, Lloyds, which is 43 per cent owned by the British government, pulled the plug on its Halifax retail banking operation in the Republic of Ireland. Now we know why. In its 2010 results, which were published this week, Lloyds revealed that it was writing off another £4.3bn of bad loans in Ireland.

Coming on top of the £2.9bn of Irish loans that Lloyds wrote off in 2009, that brings the total loan losses suffered by Lloyds in this country to £7.2bn in just two years. A massive 54 per cent of its £26.7bn Irish loan book is now impaired. While not quite in the Anglo or Nationwide class, this definitely counts as car-crash banking.

Earlier in the week, RBS, which owns the Ulster Bank franchise here, also announced its 2010 results. RBS, which is 83 per cent owned by the British government, revealed that Ulster had written off £1.16bn last year, up 80 per cent on the £649m loan losses recorded in 2009.

Coming on top of the dreadful 2010 results from the Danish-owned NIB, which were published two weeks ago, these latest announcements provide further proof that, far from having "turned the corner", the Irish banking crisis is deepening.

It is against this background that the sale of the Anglo deposit book to AIB and the Irish Nationwide deposit book to IL&P mortgage banking subsidiary Permanent TSB must be seen. While the disappearance of Anglo and the Nationwide is welcome, it will take more than a bit of long-overdue housekeeping to clean up the banking mess.

When he or she takes office on March 9, the new Finance Minister is going to find the banking crisis at the top of the agenda.

Sunday Indo Business