Bank of Ireland’s virtually entirely UK and Ireland property and construction loan book fell by €1.7bn over the six months to the end of June, to €17.4bn, with more than half of outstanding loans impaired reflecting further deterioration over the period.
According to BoI’s interim results published on Friday, €8.95bn of the €17.4bn property and construction loan book, or 51.4%, is now impaired, reflecting a €8.8bn at the end of 2012, which reflected 46.0% of the then €19.1bn in outstanding UK and Ireland property and construction loans
Against these €8.95bn impaired loans – €5.9bn of which are investment loans and €3.0bn are land and development loans – impairment provisions of €3.96bn have been set aside by BoI, reflecting a coverage ratio of 44% on the impaired loans.
This blended 44% impairment coverage ratio masks a huge spread between the investment property and development loans, with impairments provisioning within the much more troubled €3.0bn development loans segment amounting to €1.9bn, or 63%, compared to €2.1bn across €5.9bn worth of property investment loans, or 35% coverage.
Over the six months, the proportion of BoI’s impaired loans have risen by 6.4 percentage points, with the corresponding figures for the end of 2012: €8.8bn of impaired loans from a total €19.1bn UK and Ireland property and construction loans, comprised of €5.5bn in investment loans and €3.2bn in land and development loans.
BoI’s property and construction loan book, therefore, has suffered a modest proportional and nominal deterioration over the last six months,
In its interim results, BoI stated that the increase in defaulted investment property loans reflected “relatively muted activity and illiquidity in property markets, in both Ireland and the UK”.
“In addition,” continued BoI, “a challenging retail sector, as evidenced by the continuing high levels of retail tenant defaults, has contributed to elevated, but reducing, impairment on our Investment property portfolio.”
Overall, BoI’s €17.4bn loan book is comprised of €14.2bn in property investment loans and €3.2bn in land and development loans, down from €15.6bn and €3.6bn, respectively.
By geography, the loan book is split 53% to 47% of Irish over UK loans, with €7.4bn of the total €9.3bn Irish segment relating to investment property loans, compared to €6.8bn of BoI’s total €8.2bn UK loan book which are secured by investment property loans. The balance in both instances is land and development loans.
The quantity of non-impaired but past due loans has remained broadly static at around €0.5bn.
Bank of Ireland closed it largest new property loan of the post global financial period at the end of last month, the €199m senior loan to finance Kennedy Wilson’s protracted acquisition of the former Treasury Holding’s castle market portfolio of Dublin offices, reflecting a 66% LTV based on a loan to cost of €301m, excluding the €5m in rental income payback, for the portfolio.