ULSTER BANK has received a €300 million capital injection from its parent company, Royal Bank of Scotland (RBS), to bolster equity levels to protect it against rising losses on loans.
The fresh capital was injected at the end of June as bad loans had increased sharply over the past nine months. Impaired loans were the main cause of a £91 million (€106 million) operating loss at RBS’s Europe and Middle East banking division, which includes Ulster Bank, in the first quarter.
Loan losses at Ulster Bank, the third-largest retail bank in the Irish market, were responsible for most of the £221 million in bad loans in the division in this period.
Ulster Bank will report its half-year figures on August 7th. The bank is expected to be loss-making over the six-month period. The bank had no comment.
The bank is engaging with its parent company on moving soured assets into the UK government asset-protection scheme (Gaps) – the risk insurance plan to remove toxic loans from the banks.
Stephen Hester, chief executive of RBS, which is 70 per cent owned by the UK government, described Ulster Bank as one of its “core” businesses at its annual results presentation last April.
The fresh capital was invested into Ulster Bank at the same time as Lloyds Banking Group injected a further €700 million into Bank of Scotland (Ireland) to raise capital levels as the bank absorbs increased losses on loans.
The €700 million injection follows a capital investment of €750 million late last year. The bank declined to comment.
It is understood Bank of Scotland (Ireland) will break from tradition next month and will not publish its half-year results separately from its parent’s figures. Its half-year results will be contained in the figures for Lloyds’s wealth and international division, which includes the Irish unit, when Lloyds publishes the group’s interim results on August 5th.
Bank of Scotland (Ireland) is currently reviewing its business, with the closure or significant shrinking of its retail operation, Halifax, under consideration.
Under the Gaps, the UK government agreed with RBS and Lloyds to cap future losses on assets worth almost £600 billion. Lloyds and RBS will submit the portfolios of assets to be insured.The banks, in return, agree to pay a fee and to absorb a certain amount of the initial losses on the assets.
Once the first loss is taken, the UK government assumes 90 per cent of the remaining risk, while the bank takes on 10 per cent.
It is thought that Lloyds provided the additional €700 million in capital based on the first loss assumed on the assets to be transferred from Bank of Scotland (Ireland) under the Gaps plan.
