IMPAIRMENTS ON loans originating from Ulster Bank reached £1.75 billion (€2.1 billion) in the first half of the year, with £1.25 billion of the losses relating to loans transferred from the bank to the “bad bank” of parent group Royal Bank of Scotland (RBS).

Losses on loans that remain in the “core” Ulster Bank business soared to almost £500 million in the first half of 2010.

Cormac McCarthy, departing chief executive of Ulster Bank, wouldn’t rule out a further rise in impairments on bad loans, but he said he didn’t expect any further job losses.

Ulster Bank remains the worst-performing part of the RBS group in terms of bad debts and was the only division not to report a reduction in loan losses yesterday.

Impairment provisions at the “core” business of the bank rose to £499 million, up from £157 million in the first half of 2009. The second-quarter impairments amounted to £281 million, higher than the £218 million provided for in the first quarter.

“Obviously the impairment story is big, but it’s not unexpected,” Mr McCarthy said. He added it was “very hard to say” if impairments had peaked. “There is still a lot of volatility and uncertainty out there. I’d be loath to call it.”

The loan losses soared despite the bank’s move in 2009 to hive off its worst “non-core” property development loans, as well as loss-making tracker mortgages totalling £6 billion, into RBS’s “bad bank” which is seeking to run off the loans.

Some £15.7 billion of Ulster Bank assets are housed in RBS’s non-core unit, with the £1.25 billion in first-half impairments contributing to total non-core impairments of £3.09 billion at the group.

Economic conditions in the Republic “remain challenging with a continued downward pressure on asset values”, which had an impact on the credit quality of customers, the bank said. However, Mr McCarthy said Ulster Bank had become a more efficient operation following its restructuring, a process which included the axing of 1,000 people from its 6,000 staff, changes to staff pensions and branch closures.

Before impairments are taken into consideration, the “core” bank made an operating profit of £185 million in the first half, with £104 million of this coming in the second quarter. The half-year figure was up 21 per cent compared to last year. Mr McCarthy said this indicated “a significant improvement in the performance of our underlying business”.

However, the impairment provisions reversed these gains into operating losses of £314 million for the first half and £177 million in the second quarter.

Some £209 million of the £499 million in first-half impairments came from corporate lending that was not related to property. In the first-half of 2009, this figure was £31 million. Impairments on mortgages rose to £66 million, up from £24 million.

Loans to customers decreased 4 per cent in the second quarter compared with the same quarter in 2009. The bank said levels of new business remained “muted”.