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RBS Says Impairments at Irish Division Fell in Second Quarter

Royal Bank of Scotland Group Plc, the owner of Ulster Bank Ltd., set aside less money in the second quarter to cover souring loans in Ireland as losses on the portfolio it’s trying to wind down dropped 80 percent.

Impairment charges at Ulster Bank’s so-called non-core unit fell to 191 million pounds ($296.5 million) from 982 million pounds in the year-earlier period after the bank made a “substantial” provision for declining real estate prices in 2011, RBS said in a statement today. The core loan-loss charge rose to 323 million pounds from 269 million pounds, RBS said.

Banks operating in Ireland have been grappling with bad-loan losses after the collapse of a real-estate bubble in 2008. RBS has injected as much as 10.8 billion pounds into Ulster Bank since 2008 to absorb rising loan losses. Lloyds Banking Group Plc and Allied Irish Banks Plc, the nation’s second-largest bank, last week reported declines in first-half loan-loss charges as the rate of increase in home-loan arrears slowed.

“Trading conditions remain difficult as Irish economic indicators continue to be weak,” RBS said. “While impairment levels are still elevated” at Ulster Bank, asset prices continue to weaken and mortgage arrears rise, the pace of deterioration in “credit metrics” eased in the second quarter compared to the first three months of the year, it said.

Ulster Bank, the largest overseas-owned consumer lender in Ireland, moved 16.7 billion pounds of its loan book to RBS’s non-core unit in 2009, leaving it with 39.7 billion pounds of loans at the time. The bank had 33 billion pounds of core loans and 13.4 billion pounds of non-core loans at the end of June.

Irish Property

Ulster Bank’s operating loss, which excludes the non-core business, widened to 245 million pounds in the second quarter from 178 million pounds in the year-earlier period, RBS said.

Irish house prices have halved from their 2007 peak, the Central Statistics Office said July 24. Commercial real estate values have plunged by 67 percent, according to Investment Property Databank. Unemployment in the country stood at 14.8 percent in July, according to the CSO.

Ulster Bank’s net interest margin, the difference between the rates at which it borrows and lends, narrowed by 5 basis points to 1.82 percent in the second quarter from the previous three months.

“The decline in the margin in the quarter reflects the trends we note at the other banks,” said Eamonn Hughes, an analyst at Dublin-based Goodbody Stockbrokers, in a note. “Allied Irish’s margin was down 12 basis points in the first half and we are anticipating an 8 basis-point decline in Bank of Ireland Plc when it reports first-half numbers next week.”

RBS set aside 28 million pounds to compensate Ulster Bank customers hit by a computer failure in June that left some of its 1.9 million customers unable to access their accounts. The breakdown has been “largely rectified,” the bank said.

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