Lloyds posts lower charge on Irish loans

UK BANK Lloyds posted a lower bad debt charge on the Irish loans of former Bank of Scotland (Ireland) as the rate of new customers falling into arrears continued slowing in the first half of the year.

Lloyds’ impairment charge of £897 million (€1.1 billion) to cover bad loans in Ireland was half the £1.8 billion for the same period last year and down from £1.4 billion in the second half of last year.

Impaired loans fell by 7 per cent to £15.3 billion out of total loans of £22.8 billion as the bank sold previously impaired assets and recovered more loans from customers.

The bank has set aside total provisions of £10.3 billion, up from £10.2 billion six months earlier, against the loans of the former Bank of Scotland (Ireland), which was led by chief executive Mark Duffy during the property boom.

The bulk of the bad debt provisions, £6.2 billion, are on the bank’s £10 billion property investment and development loan book.

Lloyds said 92 per cent of this book was impaired at the end of June compared with 90 per cent at the end of last year.

The bank said bad debts in the £6.6 billion Irish residential mortgage book remained stable due to a reduction in the number of customers entering arrears and a slowdown in the rate of decrease in residential property prices.

The economic outlook for Britain and Ireland was “highly contingent on how successful political leaders are at stemming the euro zone crisis” and recession was the “most likely scenario” for the remainder of the year, Lloyds said.

Irish loans fell by £1.9 billion in the first half as disposals and repayments accounted for £800 million.

California-based property firm Kennedy Wilson Europe and Deutsche Bank acquired €360 million of non-performing Irish commercial property for 17 cent in the euro. It’s understood that Certus, the banking services company set up by former Bank of Scotland (Ireland) managers, has agreed to continue managing these loans.

Lloyds said the bank’s exposure to Ireland was being “closely managed” with a UK-based team managing the wind-down of the loans. The bank closed Bank of Scotland (Ireland) in 2010 and handed back its banking licence. The Irish loan book accounts for 4 per cent of Lloyds’ overall loans of £534 billion but was responsible for 28 per cent of its £3.2 billion impairment charge for the first half of the year.

Lloyds, which is 40 per cent state-owned, made a £439 million loss as it took a further £700 million charge to cover the cost of claims arising from mis-selling payment protection insurance.

The bill for dealing with the scandal has soared to £4.3 billion.

The bank has received subpoenas from government agencies investigating interest-rate rigging, dragging Britain’s biggest mortgage lender deeper into a scandal that has rocked the industry.

(Additional reporting: wires)