BoI makes modest inroads into impaired loan levels as outlook brightens

Bank of Ireland’s (BoI) impaired UK and Ireland commercial property and development loans fell fractionally in 2013 to €8.6bn, over a year in which the bank cemented the run-down trajectory of its UK and corporate banking businesses.

BoI logo 2BoI’s impaired property and construction loans as a proportion of total sector loan book rose by 5.2 percentage points to 51.1% by the end of last year – albeit falling by €218m to €8.6bn, reflecting the greater success BoI achieved in de-leveraging from its performing property loan book.

Overall, BoI’s property and construction loan book fell €2.4bn to €16.8bn, which itself is comprised of a €2bn reduction of investment property loans to €13.6bn and a €400m fall in development loans to €3.2bn.

Of BoI’s total investment property loans €5.8bn are impaired or 42.6% of its total €13.6bn. By comparison, €2.8bn of BoI’s development loans are impaired, reflecting 87.5% of its €3.2bn total.

BoI’s impairment charge on the property and construction loan portfolio of €583m in 2013 reflected a 26.8% fall on 2012’s €797m. Total impairment provisions against the investment property and land and development loan portfolios were €2.2bn and €1.9bn, respectively, which reflects a coverage ratio of 38% and 68%.

Last July, the European Commission authorised revisions to BoI’s second restructuring plan which was accepted on condition, inter alia, that BoI would “exit from the Great Britain Business Banking and Great Britain Corporate Banking businesses”.

In accepting the terms last summer, BoI stated that the UK-domiciled business – which includes commercial property and corporate lending – had total loan assets of €4.6bn, as at the reported end of the previous calendar year.

Over the subsequent 18 months of results reporting, BoI has reduced this combined UK business and corporate banking subsidiary business to circa €3.5bn, against which, risk-weighted assets of circa were held as at the end of last year, with the business “now in run-down,” BoI stated in its annual results this morning.

Last July, the bank stated: “Bank of Ireland will attempt to accelerate the de-leveraging of these businesses by way of sale, but will not have an obligation to sell these businesses at disposal discounts greater than those agreed with the European Commission which discount will have due regard to the protection of Bank of Ireland’s capital and capital ratios.”

It remains to be seen whether the improving investor demand for real estate loan portfolios, and tightening discount to unpaid balance, will enable BoI to return to an accelerated sell-off through a loan portfolio sale of its legacy UK commercial property book.

However, BoI’s entire UK property and construction loan book is much larger than this circa €3.5bn combined property and corporate loan book quoted this morning, at €7.6bn – down €1.6bn on 2012’s €9.3bn.

The impairment charge on the investment property element of loan book was €343m, down 21.5% on 2012’s €437m.

jwallace@costar.co.uk

Bank of Ireland’s (BoI) impaired UK and Ireland commercial
property and development loans fell fractionally in 2013 to €8.6bn, over a year
in which the bank cemented the run-down trajectory of its UK and corporate
banking businesses.

 

BoI’s
impaired property and construction loans as a proportion of total sector loan
book rose by 5.2 percentage points to 51.1% by the end of last year – albeit
falling by €218m to €8.6bn, reflecting the greater success BoI achieved in
de-leveraging from its performing property loan book.

Overall, BoI’s property and construction loan book fell €2.4bn to €16.8bn,
which itself is comprised of a €2bn reduction of investment property loans to
€13.6bn and a €400m fall in development loans to €3.2bn.

Of BoI’s total investment property loans €5.8bn are impaired or 42.6% of its
total €13.6bn. By comparison, €2.8bn of BoI’s development loans are impaired,
reflecting 87.5% of its €3.2bn total.

BoI’s impairment charge on the property and construction loan portfolio of
€583m in 2013 reflected a 26.8% fall on 2012’s €797m. Total impairment
provisions against the investment property and land and development loan
portfolios were €2.2bn and €1.9bn, respectively, which reflects a coverage ratio
of 38% and 68%.

Last July, the European Commission authorised revisions to BoI’s second
restructuring plan which was accepted on condition, inter alia, that BoI would
“exit from the Great Britain Business Banking and Great Britain Corporate
Banking businesses”.

In accepting the terms last summer, BoI stated that the UK-domiciled business
– which includes commercial property and corporate lending – had total loan
assets of €4.6bn, as at the reported end of the previous calendar year.

Over the subsequent 18 months of results reporting, BoI has reduced this
combined UK business and corporate banking subsidiary business to circa €3.5bn,
against which, risk-weighted assets of circa were held as at the end of last
year, with the business “now in run-down,” BoI stated in its annual results this
morning.

Last July, the bank stated: “Bank of Ireland will attempt to accelerate the
de-leveraging of these businesses by way of sale, but will not have an
obligation to sell these businesses at disposal discounts greater than those
agreed with the European Commission which discount will have due regard to the
protection of Bank of Ireland’s capital and capital ratios.”

It remains to be seen whether the improving investor demand for real estate
loan portfolios, and tightening discount to unpaid balance, will enable BoI to
return to an accelerated sell-off through a loan portfolio sale of its legacy UK
commercial property book.

However, BoI’s entire UK property and construction loan book is much larger
than this circa €3.5bn combined property and corporate loan book quoted this
morning, at €7.6bn – down €1.6bn on 2012’s €9.3bn.

The impairment charge on the investment property element of loan book was
€343m, down 21.5% on 2012’s €437m.

jwallace@costar.co.uk

–>