Irish Life and Permanent has reported an operating loss of €51m for the first six months of 2009 compared to an operating profit of €300m the same time last year.
The figure was worse than analysts' expectations but its shares rose after it said that loan arrears should peak by the end of the year, despite rising sharply in H1. The comments also lifted other bank shares.
The country's biggest mortgage provider said its banking business saw operating losses of €132m due to a significant increase in loan impairment provisions made to cover potential bad loans and higher funding costs for the bank. This compares to operating profits of €124m the same time last year.
IL&P also said that it saw a significant increase in mortgage arrears in Ireland in the first six months of 2009. It said that a total of 6,122 mortgages out of 188,000 on the books are in arrears for more than 90 days.
Impaired loans represent 1.1% of total loans and have more than doubled to €442m at the end of June, up from €202m at the end of December 2008. The impairment charge for the first half of 2008 was €189m compared to €15m in the first half of 2008 and €82m for the whole of last year.
However, IL&P added there is some evidence that the rate of increase in arrears is moderating and said that the broader economic environment is showing signs of improvement and recovery.
The group's life business reported operating profits of €84m, down from €175m the same time last year. It said the fall was due to lower sales volumes, an increase in the number of policymakers cashing in their policies and tighter margins.
IL&P says that lending demand remains very subdued in Irish residential mortgages and car finance, with gross new lending of €0.7 billion reported in the first six months of the year.
IL&P not selling assets to NAMA
The lender confirmed that the group would not be selling assets to the National Asset Management Agency.
'Our lending focus has always been on mortgages for home owners and, while we're seeing arrears on those mortgages rising as unemployment has risen, we are working closely with those affected to help them deal with their problems,' commented newly appointed group CEO Kevin Murphy.
IL&P said that the main challenge facing the group's banking business remains funding. It said the first three months of theyear saw major outflows of overseas commercial deposits from the Irish banking sector and credit spreads from Ireland widened considerably.
In response, the group said it had focused on growing its domestic deposit franchise and recorded growth of €1.6 billion in domestic retail, commercial and interbank deposits in the first half of the year.
Irish Life and Permanent said it expects demand across all its businesses to remain weak for the second half of the year as business and household cash flow continues to be tight.
'Current trends would indicate that loan arrears in the bank should peak by the year end but given the unprecedented market conditions that may be optimistic. In any event, our strong capital position gives up the capacity to absorb expected impairments through the cycle,' it added.
Mr Murphy also said today that IL&P would schedule an EGM before the end of this year to get shareholder approval for a restructuring of the group.
'We do believe that there will be considerable change and consolidation in the industry here over the coming years and we want the group to be structured in such a way that we can respond flexibly and quickly to any developments that take place,' he added.
Shares in IL&P closed up eight cent at €4.06 in Dublin.
