Lloyds’s Irish Impairment Charge Cut by Half as Arrears Ease

Lloyds Banking Group Plc (LLOY), Britain’s biggest mortgage lender, said its Irish loan-impairment charge was cut by half to 897 million pounds ($1.39 billion) in the first six months compared with a year earlier as the pace of increase of home-loan arrears slowed.

The impairment charge compared with 1.78 billion pounds in the first half of last year and 1.41 billion pounds for the final six months, Lloyds said in a statement today. The decline in new provisions “is primarily due to a reduction in new customers entering arrears,” while the rate of commercial real estate market deterioration has eased, it said.

“The Irish economy appears to have grown in 2011 for the first time since 2007, by 1.4 percent, and the unemployment rate appears to have stabilized,” London-based Lloyds said. “Strict austerity measures in recent years targeted at improving international competitiveness are beginning to pay off.”

Lloyds has taken 11.8 billion pounds of impairment charges on Irish loans since the collapse of the nation’s real estate market four years ago, according to data compiled by Bloomberg News. The bank, which today reported an unexpected net loss of 641 million pounds, shut its Irish unit in 2010 and is running down its remaining assets.

2013 Outlook

“The slowdown in the rate of impaired loans is to be welcomed and may ease concerns in recent months as the pace re- accelerated in fourth quarter of 2011 and first quarter of this year,” Eamonn Hughes, an analyst with Dublin-based Goodbody Stockbrokers, said today in a note to clients. While Allied Irish Banks Plc (ALBK), the nation’s largest mortgage lender, also “recently indicated the pace of deterioration had slowed in the second quarter,” arrears across the industry will likely rise into 2013, he said.

Lloyds said 22 percent of its 6.7 billion-pound Irish retail loans, which are 99 percent comprised of residential mortgages, were impaired, or unlikely to be repaid in full, at the end of June. This compares with 20 percent at the end of December.

The level of impaired loans in the 16.1 billion-pound Irish wholesale portfolio rose to 85.5 percent from 84.3 percent.

Lloyds’s Irish mortgage arrears have been “consistently 1.6 times” that of the local banking industry in recent years, Shailesh Raikundlia, a London-based analyst with Espirito Santo Investment Bank, said in a note to clients on July 10. “The lower credit quality of the mortgage portfolio compared with the market is partly explained by aggressive lending by HBOS just prior to the crisis, coupled with weaker underwriting standards,” he said.

HBOS Acquisition

Lloyds acquired its Irish business through its takeover in 2008 of HBOS Plc.

Ireland’s commercial property prices have plunged 67 percent since 2007, according to Investment Property Databank, and home prices have been cut in half, the Central Statistics Office said July 24. Lloyds’s losses can be traced to HBOS predecessor Bank of Scotland Plc’s entry into the country’s mortgage market in 1999, followed two years later by its purchase of state-owned lender ICC Bank Plc.

Lloyds sold 300 million pounds of gross Irish wholesale assets during the first six month, it said.

To contact the reporter on this story: Joe Brennan in Dublin at jbrennan29@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.