IL&P predicts fall in loan losses

Irish Life & Permanent said it expects operating profits to rise by 70 per cent in 2010, and predicted its impairment provisions for the year would be up to 15 per cent less than last year.

The bank said early arrears in its residential loan book have levelled off since May, although arrears case over 90 days in both the Irish residential and commercial mortgage books were still rising. The UK mortgage book is performing in line with expectations.

"The continued weakness in domestic demand and the disruption in debt markets have made for challenging operating conditions for the group's businesses," IL&P said in a statement.

"The Irish economy is recovering but more slowly than expected in 2010. The very strong performance of the export sector - both multi-national and domestic companies - has been offset by weakness in consumer confidence and by the effect of fiscal tightening. However unemployment is showing evidence of stabilising and, while house prices continue to fall, the pace of decline has slowed considerably."

Net interest income before the cost of the Government's guarantee will be ahead of target, it said. Total life and investment sales for the year at IL&P are expected to be ahead of 2009.

IL&P said its goal to improve its funding mix and grow its core stable funding has made good progress but was being affected by current debt market conditions.

Retail deposits at the bank have grown through the second half of the year, with inflows expected to be between €700 million and €800 million for the period. Although corporate deposits fell from €5.4 billion to €4.8 billion in the third quarter, they have remained stable since the end of September.

The debt market deterioration has also affected the refinancing of long term debt. The bank has a total term debt refinancing requirement of €6.4 billion, with €4.8 billion refinanced by first half issuance under the Eligible Liabilities Guarantee, and €500 million raised in the third quarter through a sale of Irish originated mortgage assets.

Drawings from the European Central Bank are currently €11.7 billion, the bank said.

"Our current focus is to raise un-guaranteed term funding using our UK residential mortgage assets as security," it said in a statement.

"These bilateral long-term repo transactions would reduce ECB funding. The market value of unencumbered ECB eligible securities is currently €5.5 billion and will be added to as further loan pools are securitised."

IL&P, which is one of the preferred bidders for EBS, said its solvency position strengthened in the third quarter of the year. The bank has offered the Government a potential 10 per cent stake in the company if it accepts IL&P's offer to merge its permanent TSB banking division with EBS.