ANALYSIS: Despite Ulster "donating" its most toxic debts to RBS, core loan losses have greatly increased, writes LAURA SLATTERY

LYING WITHIN the 303 pages of the Royal Bank of Scotland (RBS) group’s interim results, there’s a tale in numbers of the misery permeating from the banks to most sectors of the Irish economy.

The largest figure, the £1.25 billion in impairments on loans that Ulster Bank “donated” to RBS’s non-core “bad bank”, relates to about £15 billion of its worst-performing commercial property loans. Included in this move was some £6 billion worth of loss-making tracker mortgages: but though the rates were a good deal for consumers, the timing of the loans, close to the peak of the property market, was not.

Among Ulster Bank’s “core” mortgages, there is evidence that the suffering among homeowners is getting worse, not better. Some 4.8 per cent of the loans are in arrears by more than three months, up from 3.3 per cent in December. There were 43 repossessions in the first half of 2010, many of them walkaways.

Despite casting aside the most toxic debts into the RBS non-core division, Ulster Bank’s “core” impairments have soared, with no guarantee that there are no more nasty loan losses to come.

This is in rather stark contrast to the rest of RBS. The group, 84 per cent owned by the British government, made its first profit since 2007, while the condition of its sickly debts, both core and non-core, is on the mend.

RBS chief executive Stephen Hester singled out Ireland as evidence of the group’s contrasting fortunes. Indeed, Ulster Bank’s status as the worst-performing division of RBS in terms of bad debts is an achievement of a kind. Consider this quote to Bloomberg by London-based banking strategist Ralph Silva: “RBS wasn’t just the UK’s worst bank, they were the world’s worst bank.”

Ulster Bank boss Cormac McCarthy, who is due to depart his position next year, pointed to the brighter aspects of the results: the bits that might prove comforting for its remaining employees. As a result of its restructuring, first-half expenses have fallen 18 per cent. No further job cuts are on the cards: “By and large now, we feel we’re pretty fit for purpose.”

McCarthy would not comment on the future of Arnotts, which Ulster Bank co-controls with Anglo Irish Bank, except to note that it was not in the bank’s interest to run down “viable businesses”. McCarthy also said the bank was committed to the small and medium enterprise (SME) sector, which he described as “very stressed”.

A genuine plus point comes in the form of a 2 per cent quarterly increase in customer deposit balances, as Ulster Bank swept up business from the departure of Halifax from the Republic.

Over the year, it increased customer numbers by 49,000. This, according to McCarthy, is evidence of the strength of the Ulster franchise.

But while Hester noted that “the rebuilding of RBS is a marathon, not a sprint”, the weight of Ulster Bank’s impairments is preventing this division from leaving the starting blocks.