ULSTER BANK reported a 76 per cent plunge in operating profit to £117 million (€147 million) in 2008 as impaired loans quadrupled due to deteriorating local and global market conditions.
Loan losses climbed to £394 million, representing 0.8 per cent of the bank’s loan book, up from £88 million, or 0.18 per cent of loans, the previous year, reflecting the impact on credit quality of the slowdown in the economy.
Cormac McCarthy, chief executive of Ulster Bank Group, said that £326 million of loan impairments was in the bank’s corporate loan book and this included £255 million on residential investment and development loans.
Some £68 million of the remaining £394 million in impairments relates to personal banking.
“Every bank in every economy is challenged,” said Mr McCarthy.
“A lot of it is about surviving through this period.”
Ulster Bank reports its results in sterling with its UK parent company, Royal Bank of Scotland.
Despite reporting a loss of £24.1 billion – the biggest loss in UK corporate history – RBS said Ulster Bank was “a core asset” and would not be sold. “Ulster Bank is a keeper,” said Mr McCarthy.
He said the bank had no plans to reduce its workforce beyond the 750 job cuts announced last month as part of the bank’s plan to close down First Active and merge the lender into Ulster Bank. “What we announced was in anticipation of what was coming (the losses at RBS) today – we have no more to add to that,” he said.
RBS is seeking to restructure significantly its costs in Ireland, “rebalance” risks on its Irish balance sheet and grow deposits.
Mr McCarthy said that the bank was still open to new lending, though there was considerably lower demand among borrowers.
Loans and advances to customers rose 9 per cent during the year to £60 billion, while deposits fell 9 per cent to £24 billion. The bank’s total income dropped 2 per cent to £1.3 billion.
Mr McCarthy said that the bank had lost deposits following the introduction of the Government’s bank guarantee scheme, which it chose not to join, preferring to remain with the UK guarantee.
He declined to say how much was lost but said the bank recovered deposits later in the year. “It was more concerning that it happened at all,” he said.
Ulster Bank Group is the second largest mortgage lender in the country with about a 20 per cent share of the market.
Mr McCarthy said the bank’s share of new mortgages in 2008 amounted to about 12-13 per cent.
He attributed the decline to the bank’s exit last year from the mortgage broker market, which previously accounted for a large share of its home loan business.
He said that the bank postponed or “rolled up” interest payments “in certain circumstances” for customers in property development but not in cases where there was no prospect of interest being paid on the account.
He declined to comment on the bank’s specific exposure to the Ballsbridge site purchased by Seán Dunne for €379 million, saying the bank did not comment on individual customers. Ulster Bank was the lead lender on the Ballsbridge purchase.
Mr McCarthy said that his remuneration package was being cut by 40 per cent in 2008, but declined to give an exact figure on his pay.
The losses at RBS have led the British government to place £325 billion of the UK bank’s assets in a taxpayer-backed insurance scheme covering future bad debts.
Mr McCarthy said the insurance scheme was “still being worked out” and could not say whether any Irish assets would be included in the UK insurance plan. A further £13 billion is being invested by the UK in RBS, extending the government’s stake to 70 per cent and bringing to £33 billion the total state investment.
