Irish Central Bank’s Impairment Provisions Rise to $523 Million

The Irish central bank’s provisions for potential losses on investments and securities increased to 400 million euro ($523 million) last year, amid rising risks posed by the euro area’s sovereign debt crisis.

Impairment provisions on investments and securities held for monetary policy operations rose from 300 million euros in 2011, the Dublin-based bank said in its annual report published today. It follows the bank’s annual review of investments and monetary policy related portfolios such as the European Central Bank’s former Securities Markets Program bond-buying plan and covered bond purchase plan, it said.

“The estimation of the impairment charge is subject to considerable uncertainty, which has increased in the current economic environment,” the central bank said. “It is sensitive to factors such as the market perception of debt sustainability.”

The ECB ended the SMP, which allowed it to buy government debt, and covered bond purchase programs last year in favor of its so-called Outright Monetary Transactions plan as a way of tackling the debt crisis. The OMT hasn’t been activated.

The decision to introduce the OMT “contributed to a significant improvement in financial-market conditions in the second half of 2012,” the central bank said.

2012 Profit

Yields on Ireland’s five-year bonds have narrowed to 2.38 percent from 5.7 percent before ECB President Mario Draghi unveiled the bond plan in August. The sovereign has since sold 7.5 billion-euros of bonds, while its largest lenders Bank of Ireland Plc and Allied Irish Banks Plc (ALBK) also re-entered public debt markets for the first time since 2010.

The central bank said it didn’t take an impairment charge on 40.4 billion euros of extraordinary liquidity assistance to former Anglo Irish Bank Corp. ELA was repaid on Feb. 7 as the nationalized bank liquidated and the central bank agreed to swap so-called promissory notes, used as collateral for the facility, for long-term government-backed bonds. The bonds are held in the bank’s trading portfolio.

The central bank’s full year profit rose to 1.44 billion euros from 1.2 billion euros in 2011, before paying 1.15 billion euros over to the Irish state. Profits were driven by interest income from ELA and other monetary policy operations.

Central Bank Governor Patrick Honohan passed 63,324 euros of his 276,324 euros in remuneration for last year to the finance ministry. His salary was eclipsed by that of outgoing Deputy Governor Matthew Elderfield’s 340,000 euro package.

Elderfield is in talks to join Lloyds Banking Group Plc in a senior compliance post, a person with knowledge of the matter said on April 18.

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

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