Irish impairments push Lloyds pretax losses to £3.5bn

BRITISH BANK Lloyds reported a pretax loss of £3.5 billion (€4.1 billion) for 2011, driven in part by increased impairments in its Irish banking division, including a 90 per cent impairment on its Irish commercial property loans.

Lloyds – the parent company for Bank of Scotland Ireland, which is in the process of being run down – said total impaired loans in Ireland increased by £1.9 billion last year to £16.4 billion.

Lloyds is the third bank this week to report rising loan impairments in its Irish loan books, following results from Bank of Ireland and Ulster Bank, which is owned by RBS.

With a total Irish loan book of £24.7 billion, two-thirds of Lloyds Irish loans are now impaired, up from 53 per cent at the end of 2010.

The bank’s commercial property loans – which account for 44 per cent of its total Irish loan book – were the worst affected.

Some 90 per cent of Lloyds £10.87 billion Irish commercial property loans were impaired at the end of 2011, the accounts show. In total, provisions of £6.2 billion have been made against these loans.

The bank noted that £2.6 billion of loans in its Irish commercial property and corporate portfolios related to sterling loans secured on UK property.

The bank’s Irish mortgage book, which has a gross value of about £7 billion, had impaired loans of £1.4 billion, representing 20 per cent of the total mortgage book.

Provisions of £1.034 billion were made for those loans, the accounts show.

“Continuing weakness in the Irish real estate markets resulted in a further increase in impaired wholesale loans and coverage in 2011,” the bank said.

“The majority of Irish retail provisions relate to a residential mortgage portfolio where impairment charges have increased in relation to 2010 due to a continued decline in residential property prices and higher arrears levels, including customers on a forbearance arrangement.”

The bank’s impairment charge related to its Irish division was £3.2 billion. While this was 25 per cent lower than the previous year, it still represented a third of the group’s overall impairment charge of £9.8 billion.

Lloyds announced in 2010 it was winding down Bank of Scotland Ireland and pulling out of the Irish market. Its remaining loans are being managed by a separate company, Certus.

The bank said yesterday that it has successfully started to reduce its non-core exposure to Ireland with disposals in excess of €1 billion in the period.

The bank, which was a significant lender to developers during the boom, has moved against a number of properties in Ireland in the last year, appointing receivers to a number of hotels.

The £3.5 billion loss posted by Lloyds yesterday compares to a £281 million profit in 2010.

The loss was attributable in part to a £3.2 billion provision to cover compensation for customers who were wrongly sold payment protection insurance policies.

The bank is 40 per cent owned by the British government.