FURTHER HEAVY losses at National Irish Bank and Northern Bank from property lending have put their parent company, Danske, out of the market for new acquisitions, the Danish bank has said.

Bad property debts and falling house prices were causing Danske “a headache” in Ireland and it would be “some time before we see a satisfactory result”, Danske chief financial officer Henrick Ramlau-Hansen told reporters.

Danske has said that its purchase of NIB and Northern Bank in 2005 for €1.4 billion, just three years before the Irish property and banking crash, was “unfortunate” but it has no plans to exit Ireland.

Mr Ramlau-Hansen said the losses at the Irish banks had put Danske out of the market for acquisitions “for the time being”.

NIB’s losses rose to €805 million in 2011 from €618 million the previous year after setting aside more to cover bad debts, mostly on commercial property lending.

Danske’s loan losses rose 61 per cent in the last quarter of 2011 as Irish bad debts continued to grow.

NIB took an impairment charge of €850 million for 2010, up from €667 million the previous year. Profits at Danske declined 35 per cent to €566 million last year.

NIB chief executive Andrew Healy said its impairment charge remained “disappointingly high” and would remain “elevated” due to further property price falls and the effect of budgetary measures.

He declined to say when the charge would peak, saying property prices had further to fall.

“We have been hit hard again by the loan book,” he said. “The impairment charge is inextricably linked to the continuing fall in value of property assets.”

Commercial property values were down between 60 per cent and 90 per cent from peak, he said, while residential prices had fallen between 55 and 65 per cent.

“Confidence is still low, unemployment is still high – the economy is still struggling to a considerable extent. That is not going to feed positively into the property or the banking market,” he said.

The bank had seen residential and commercial property prices stabilising in prime areas, he said, and an emerging gap between the value of prime and secondary properties would continue to widen.

NIB has taken a cumulative impairment charges covering 26 per cent of its loan book since the banking crisis began. Some 80 per cent of this related to NIB’s €3.1 billion commercial property loans.

Staff levels at NIB declined further, to 444 from 482, as departing staff were not replaced following 150 redundancies in 2010. NIB has no plans to seek further redundancies, said Mr Healy.

Arrears of 90 days or more rose to 3 per cent on the €3.3 billion mortgage book at the end of 2011 from 1.7 per cent a year earlier.

This was below the industry average of 8.1 per cent last year, said Mr Healy, as NIB avoided high loan-to-value mortgages.

He doesn’t expect the proposed personal insolvency legislation, including mortgage debt write-offs in out-of-court settlements, to lead to widespread debt forgiveness.

A borrower’s ability to repay debts, and not negative equity on their property, will be the key to deciding whether they should be entitled to debt write-offs, he said.

“What is essential is that there is a mechanism to be able to distinguish between those who can’t pay and those who won’t pay before any writedowns can be considered,” said Mr Healy. (Additional reporting - Bloomberg)

DANISH FINANCIAL BODY: FORCED DANSKE COVER

DENMARK’S REGULATOR forced Danske to take higher impairment charges to cover bad loans at National Irish Bank for the first and second quarters of 2011 following an inspection in June 2011.

The Danish Financial Supervisory Authority reviewed 200 loan exposures ranging from €50,000 to €438 million during the inspection, according to its statement published on the Danske website.

The regulator found that a further charge of €23 million was required on NIB’s preliminary calculations for the second quarter and a further charge of €132.5 million was recognised against the loans reviewed compared with the for NIB’s own first-quarter charge.

NIB took the largest quarterly bad debt charge of the banking crisis in the second quarter of 2011.The regulator found that as of June 30th, 2011 the charges at NIB were “adequate” because of the “considerable charges made in the first and second quarters of 2011 and previously.

The inspection found that Danske had maintained “considerable capital add-on” due to the uncertainty surrounding the risks in the bank’s Irish loan book.

NIB changed its model last September “with the result that the risk on loans granted by the branch in Ireland entails a significant increase of the solvency need”, the regulator said.

Danske allocated €424 million in capital to cover loan losses in its NIB operations in 2011, up from €375 million the previous year, according to the bank’s results.

NIB is a branch of Danske rather than a stand-alone banking subsidiary so the capital to cushion against losses is held in Denmark rather than in Ireland unlike other Irish subsidiaries of foreign banks.

The Danish regulator carried out inspections of NIB in September 2008, May 2009 and June-July 2010, and said that since the first inspection NIB had taken “significant and necessary steps to improve credit management at the Irish branch”, the regulator said.

“The credit management at the Irish branch is now in line with the credit management in the other parts of the banking group,” said the regulator.

“We expect the need for strict management and close follow-up at the Irish branch to persist for a long time in order to minimise losses.”