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News : Irish Last Updated: Apr 24, 2009 - 5:31:05 PM

AIB’s loan book is between 60% and 70% exposed to the property sector; Bad debt losses at Ireland's top three domestic banks may peak at almost €5.2bn over the next two years says Goldman Sachs
By Finfacts Team
Aug 27, 2008 - 5:53:20 AM

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AIB headquarters, Dublin, Ireland.

AIB’s loan book is between 60% and 70% exposed to the property sector and bad debt losses at Ireland's top three domestic banks may peak at almost €5.2bn over the next two years as an increasing number of loans to property developers falter according to US investment bank Goldman Sachs, which downgraded AIB from buy to neutral.

In a note on Irish banks, Goldman Sachs said it was reducing their 2008-10 earnings estimates for all Irish banks by up to 34% and it expects Irish lenders to write off 3% of loans to property developers next year alone.

“AIB receives the largest cut as it has the highest proportion of property development exposure. We estimate that approximately 17% of AIB’s loan book is to property developers — the vast majority of this is Irish property developers.


“We cut our 2009-10 estimates for Anglo and BoI by 8%-16%, primarily due to increased loan loss expectations,” the note said.

However, Goldman believes AIB’s overall exposure to property is even greater. “We have attempted to break down loan losses for the Irish banks by asset class and geographic location. We expect the largest loan losses to stem from property development in Ireland.

“Allied Irish Bank is the most exposed while Bank of Ireland is the least. However, Bank of Ireland has significant exposure to UK specialist mortgages, where we also expect sharply increasing loan losses.

“We estimate that between 60% and 70% of Allied Irish Bank’s loan book is directly exposed to the property sector. About 17% consists of property development... We reduced our estimates for Allied Irish Bank by a third, predominantly due to higher loan loss estimates.”

Goldman says that Bank of Ireland has significantly less exposure to Irish property developers.

“We believe they make up less than 5% of the total loan book. While this is encouraging and leads us to forecast somewhat lower loan losses, the large exposure to UK specialist mortgages is a cause for concern; UK specialist mortgages make up 13% of its loan book.”

Goldman' outlook for Anglo Irish Bank is brighter. The dominant part of its loan portfolio is in property investments, where it expects significantly lower losses.

“In addition we expect it to experience somewhat lower losses in its developer loan book, due to cross collateralising...

“So far in the down cycle we have been encouraged by Anglo’s low loan losses. However, we expect investment property loan losses to peak late cycle, and hence expect loan losses to peak in 2010 rather than 2009,”
it added. 

Goldman Sachs sees AIB having a bad loans impairment charge of €1.5bn or 0.78% of its entire loan book in 2009, followed by a €1.06bn - or 0.72%, writedown in 2010.

Goldman sees loan writedowns at Bank of Ireland rising to €983m or 0.66% of loans in the year to the end of March 2010, followed by a €949m or 0.6% charge the following year.

Loan losses at Anglo should reach €505m or 0.7% of loans in the year to the end of September 2009, followed by a €650m or 0.84% charge in 2010, the Goldman Sachs analysts said.


AIB headquarters, Dublin, Ireland.

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