Permanent TSB to allow €1.4bn for loan arrears

LOAN IMPAIRMENTS at Permanent TSB more than trebled last year on the back of rising mortgage arrears and tighter Central Bank guidance on provisions.

The bank said last night that thee had been a sharp rise in the number of mortgage loans that are in arrears for more than 90 days.

At the end of last year, more than 11.5 per cent of mortgage loans were more than 90 days in arrears, up from 6.8 per cent at the end of 2010.

In a statement, Irish Life & Permanent said the board had considered the amount of loan impairment provision to be made by its banking arm Permanent TSB for 2011. The provisions are now expected to be about €1.4 billion. This is a sharp rise from the corresponding figure for 2010, which was €420 million.

Almost all of the expected increase is attributable to the bank’s Irish residential mortgage loan book, it said.

The financial institution cited three factors relevant to the rise in the impairment provision. They included the change in the assumption for the peak to trough decline in house prices, to 55 per cent, from the 43 per cent envisaged at the end of 2010.

The rise in the impairment figure also reflects the move to making provision for all accounts more than 90 days in arrears. Previously, the threshold had been 180 days. This change is in line with Central Bank guidance.

The third factor was the jump in the number of accounts in arrears of more than 90 days. The percentage figure for Permanent TSB (11.5 per cent) for accounts that are more than 90 days in arrears, compares with a total industry average of 9.2 per cent.

Tier 1 capital at Permanent TSB at the end of December 2011 was 18.3 per cent, reflecting the expected full year results, the increased level of provisioning, and a gain of €1 billion from a liability management exercise completed in the third quarter, the group said.

Irish Life & Permanent expects to publish its annual report and financial statements in early April.

Also yesterday the financial institution announced the appointment of Jeremy Masding as a director of the group and also as a director of its banking subsidiary, Irish Life Permanent plc.

Mr Masding recently joined the group when he was became chief executive of Irish Life Permanent plc, which trades as Permanent TSB bank.

Earlier this month the Government concluded an updated memorandum of understanding with the EU-IMF-ECB troika team that included an agreement to prepare a proposal to deal with “Irish Life & Permanent’s vulnerabilities” by the end of this month.

The reference was understood to be to the high level of lossmaking loans and heavy external funding requirements at the bank.

Figures released by the CSO yesterday show that house prices continue to fall. The average price of a house in Dublin fell by 4 per cent last month, according to the office.