ULSTER BANK increased the number of its commercial loans on "watch list" during the third quarter of 2008.
Most of the affected borrowers came from the commercial property sector, according to an interim management statement yesterday from its parent company Royal Bank of Scotland (RBS).
Last month Ulster Bank, along with Bank of Ireland, put Belfastbased developer Taggart Holdings into administration.
However, RBS also noted that Ulster Bank's commercial portfolio remains "well diversified", and the proportion of commercial property commitments secured on speculative developments remains "modest".
Last August, the bank said speculative developments accounted for just 3 per cent of commercial property loans.
According to Ciarán Callaghan, financials analyst with Goodbody Stockbrokers, Ulster Bank's deteriorating commercial property loan book has a negative readacross for Anglo Irish Bank, given that about 87 per cent of its loan book comprises construction and property related lending.
In its statement, RBS also disclosed that "deteriorating economic conditions" in Ireland and Northern Ireland affected the group's Europe and Middle East retail and commercial banking performance during the third quarter, as income growth slowed and credit costs continued to rise.
The bank noted that competitive deposit pricing in the Irish market, combined with slower loan asset re-pricing, failed to offset the increased cost of funds, which has fed through into net interest margin. Commenting on this, Eamonn Hughes, a financials analyst with Goodbody Stockbrokers, said that based on this dynamic, he would expect margins to continue to decline for the Irish banks in 2009.
Although impairments at the group have accelerated, increasing by approximately 50 per cent in the third quarter, due in part to an increase in borrowers transferred into the group's corporate restructuring unit, they are not as marked as those announced earlier this week at HBOS.
Overall, RBS reported that operating profit for the first nine months of the year, before credit market writedowns, was 8 per cent lower than during the same period in 2007.
It also disclosed a smaller-than-expected writedown of £206 million (€253 million) on toxic assets in the third quarter, in addition to £5.9 billion of writedowns in the first half of 2008.
Like its competitors, HBOS and Lloyds TSB, RBS also availed of new mark-to-market accounting rules, introduced in October, to increase operating profit by a net £1.2 billion.
Irish banks may also avail of this new measure to boost profits when it comes to their turn to report.
Looking ahead, the group said it is unable to forecast, with precision, results for the second half of the year, as "significant risks remain in both credit conditions and funding markets".
RBS also launched its £20 billion capital raising yesterday, through the placement of £15 billion in ordinary shares which will be underwritten by an issue of £5 billion in preference shares to the UK government.
