Irish banks face rise in bad debt level
Monday, July 21 07:42:26
Banks in Ireland face more trouble with warnings on bad debt provisions for the Top Three and renewed talk of a sell-off for Bank of Scotland Ireland.
The Top Three will need to increase their bad debt provision up to six fold to E3 billion this year to cope with plummeting property values in Ireland and the UK and the bad debts that are likely to come, according to a leading global analyst.
AIB, Bank of Ireland and especially Anglo Irish Bank face the slump in the Irish and British property markets that is forecast to ‘rapidly’ force major increases in credit costs, according to a report from analysts from RBC Capital Markets, the investment banking unit of Royal Bank of Canada.
Anglo Irish has been one of the most aggressive property lenders and several analysts believe it is vulnerable to a further fall in values, which is expected to result in a number of property companies going to the wall.
RBC Capital market analyst Hank Calenti said: ‘If the economic situation continues to deteriorate and Anglo Irish is unable to raise funds in the wholesale markets, the management has little room for error.’
He added: ‘Anglo is probably one of the most susceptible to a commercial property decline in the UK.’
Meanwhile, pressure is mounting this week on British banking giant, HBOS, to sell off its Irish assets, including Bank of Scotland (Ireland) after its shares issue turned disastrous.
The bank, whose network under the Halifax brand, has spend hundreds of millions of euros building a branch network from the ESB retail outlets it bought in 2005.
However, as few as 10pc of its parent’s shareholders have signed up to a £4 billion fundraising by the British bank, according to reports in the British media.
The said the low take up, due to HBOS shares trading below the rights issue price of 275 pence recently, would leave underwriters Morgan Stanley and Dresdner Kleinwort with 3.5 billion to 3.6 billion pounds of unsold stock.
It will also increase the pressure on management to sell off some or all of its international operations, especially Bank of Scotland (Ireland).
National Australia Bank is considering a bid for the Australian operations of HBOS as the British bank struggles with the slump in the UK property market and heavy writedowns due to the sub-prime crisis.
While its Irish unit has made strong progress at its business banking division, market speculation says that HBOS could well seek to off-load its Irish operations as part of its fund raising.
Industry insiders say the bank is tempted by the prospect of reducing its exposure here as the Irish property market goes in to free-fall, the economy heads for recession and consumers tighten their belts.
Bank of Scotland (Ireland) has already made changes to its Irish operations as it attempts to cope with the downturn.
Last month it pulled out of funding investors in the buy-to-let market and hiked its interest rates on residential mortgages for the second time in two months.