Bank of Scotland Ireland profits up 6%

Pre-tax profits at Bank of Scotland Ireland rose 6 per cent to €107.8 million (£85m sterling) over the six month period to the end of June.

Lending grew by 34 per cent to £25.6 billion with deposits broadly flat at £7 billion. The competitive market in Ireland saw deposits in euro terms fall €0.8 billion.

According to the bank the figures reflected strong growth in net interest income although this was partially offset by higher funding costs and increased operating expenses.

These expenses rose by 26 per cent to £92 million.

Impairment losses rose from 0.12 per cent to 0.16 per cent due to deteriorating economic conditions. The bank said that while arrears levels have increased from "historic lows", the late entry of the bank into the Irish market and its "prudent risk management" should minimise potential losses.

The bank said a cautious entry into the first-time buyers segment and retail market "has allowed us to avoid many of the areas generating impairments".

However, the bank said it was seeing "stress at higher levels than previously experienced, particularly in residential property development" which represents 8 per cent of the bank's portfolio.

Bank of Scotland Ireland said it has temporarily withdrawn from the buy-to-let market and has restricted new lending to loan to value ratios of less than 90 per cent.

The bank sees no improvement in economic conditions over the next 12 months but believes that the fundamentals in the Irish economy remain strong.

"Impairment losses are expected to rise in the declining economic environment and softening property markets, but the longer term prospects for growth in the Irish economy are considered to be favourable and the group continues to invest in Ireland and sees it as a good opportunity for future growth," the bank said in a statement.

Bank of Scotland Ireland said it has opened 42 branches and plans to open four more by the end of the year.

Parent bank, Halifax Bank of Scotland (HBOS), announced this morning first-half profit fell 56 per cent as funding costs and asset writedowns rose. 

Britain's biggest mortgage lender, said net income dropped to £931 million, or 23.5 pence a share, from £2.1 billion, 54.6 pence, a year earlier, the bank said today in a statement.

Chief Executive Officer Andy Hornby curtailed lending after funding costs increased and has forecast UK house prices will decline through 2009.

HBOS, which raised £4 billion in a share sale this month, may come under pressure to sell assets, including its Australian unit, as the economy deteriorates and bad loans rise, Principal Investment Management said last week.

HBOS relied on underwriters Morgan Stanley and Dresdner Kleinwort to guarantee its rights offering after 92 per cent of shareholders spurned the new stock.

Banks including Royal Bank of Scotland Group and Barclays have raised more than £20 billion from investors this year to replenish capital eroded by writedowns.

The bank wrote down asset-backed securities of about £970 million in its trading book and £1.87 billion in its banking book in April, which doesn't affect regulatory capital or profits, HBOS said.

The company wrote down £200 million last month in its corporate investment unit, half of which relates to stakes in homebuilders. The bank disclosed last week that risks related to bond insurers almost tripled to £1.5 billion.

HBOS, which owns Halifax and Bank of Scotland, has fallen 63 per cent in London trading this year, the second-worst performance in the FTSE 350 Banks Index, down 25 per cent.

HBOS plans to cut as many as 650 jobs in the UK by the end of next year.

Additional Bloomberg