Loans to Customers in the Covered Banks

A recent post looked at the state of the banks and in aggregate showed that the “Irish-headquartered banks” (AIB, BOI and PTSB) had €214 billion of loans to customers against which they had made €28 billion of provisions giving the €186 billion balance-sheet value for their loan books. 

The following table provides some insight by bank, sector and country on the aggregate figures looked at earlier.

It can be seen that about a quarter of the loans the banks have are in the UK, and these loans are performing much better than those in Ireland.  The NPL rate in the UK is around 7% (€4 billion out of €55 billion) while the NPL rate in Ireland is around 33% (€54 billion out of €159 billion).  It should be noted that the banks use slightly different definitions of non-performing or impaired loans.

How large will the ultimate losses on these loans be?  Impossible to say.  What we can say is that the covered banks have a lending exposure in Ireland of around €160 billion.  Of this nearly €60 billion is already impaired and the banks have made provisions for an average loss rate of around 50% on those loans.  That seems conservative but there may be losses above that (and also the amount of NPLs continues to rise).

For example, AIB is still carrying a €18 billion exposure to land, property and construction related lending in Ireland. Only €3.2 billion of that is rated as “satisfactory” with €13.1 billion impaired.  AIB also has €11 billion of non-property SME lending but this is similarly tied to property through hotels, pubs and other trading premises. 

Of the €16.5 billion of provisions AIB has against its loans, €7.8 billion are for loans to the property and construction sector while €3.3 billion are for non-property SME lending.  One concern may be that these are not large enough and another is that AIB may not have made sufficient provisions against other parts of its loan book, particularly Irish mortgages.

PTSB have also made provision of about 50% against their NPLs but the main problem there is the €14.3 billion of Irish and €6.5 billion of UK “tracker” rate mortgages it has.  This are a huge drag on any return to sustainable operating profitability though.

In general though, there does not seem to too many skeletons left to unearth in the loan books of the covered banks.  The ECB stress test will see some digging around but it is hard to see anything new been unearthed. Dealing with the nearly €60 billion of non-performing loans we can see are problems enough.