Bank of Ireland Plc, the nation’s largest lender by assets, said the proportion of its Irish mortgages in arrears rose this year amid a weak economy and high unemployment.
The bank, which had 5.6 percent of Irish home loans more than three months behind in payments in December, expects loan losses to reduce from 2011, the Dublin-based company said in a statement today. It posted a 1.94 billion-euro charge last year.
“Given the continued difficult conditions in the Irish economy, our Irish business customers who have a high dependence on the domestic market continue to face challenges,” Bank of Ireland said in the statement.
Bank of Ireland has risen 1.2 euro cents, or 12 percent, since the state sold a 34.9 percent stake last year to five investors, including Toronto-based Fairfax Financial Holdings Ltd. (FFH) and WL Ross & Co. Still, the company, alone among the country’s six largest lenders in escaping state control, has fallen 25 percent from its peak this year, as banks grapple with rising home-loan arrears and government spending cuts sap economic growth.
Bank of Ireland rose 0.2 euro cents, or 1.8 percent, to 11.2 cents at 9:54 a.m. in Dublin.
“We do not expect the arrears trend to moderate before the end of 2012 at the earliest and we maintain elevated impairment expectations into 2013,” said Karl Goggin, an analyst with Dublin-based NCB Stockbrokers, who has a buy rating and 18-cent price target on the shares. “We continue to expect a far higher impairment charge in 2012 of 2.7 billion euros and we do not see any improvement in arrears trends.”
Irish residential property prices “do not appear, as yet to have fully stabilized,” Bank of Ireland said. While the country’s Central Statistics Office said last month that house prices have almost halved from their 2007 peak, Bank of Ireland assumed a 55 percent decline when preparing its accounts for last year.
“We continue to remain cautious on the valuation of the banks,” said Eamonn Hughes, an analyst at Dublin-based Goodbody Stockbrokers, who rates the shares a sell. Still, the statement “is very much in line with our expectations, so there will be minimal adjustments to our forecasts and our view on the stock.”
The lender said it agreed to sell a further 900 million euros of loans this year, including 600 million-euros of residential mortgages to a unit of Coventry Building Society. In all, it has either sold or agreed to sell 9.5 billion euros of loans, or 95 percent of its three-year sales target through 2013, at an average discount of 7.6 percent to par value, it said.
The net interest margin, the difference between the rate at which it funds itself and lends to customers, continues to be “adversely impacted” by competition for deposits and fees for a government guarantee on certain bank liabilities.
Customer deposits, currently at 70 billion euros, were “broadly in line” with the December level, having taken account of seasonal fluctuations, it said. Deposits stood at 70.5 billion at the end of last year, according to its annual report.
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