“It’s time for hard hats, I’m afraid. It’s time to run this bank in a very conservative way,” Richard Burrows, governor of Bank of Ireland’s board, told shareholders at the company’s annual meeting on Tuesday.
Brian Lenihan, Irish finance minister, admitted last month that Ireland’s once booming housing market had come to a “shuddering halt”. Bank lending growth has slowed sharply. In addition, the higher cost of funding resulting from the international credit crunch has hit net interest margins, making lending less profitable.
“But the bad news hasn’t really started yet,” Eamonn Hughes, bank analyst with Goodbody Stockbrokers, said. He believes many investors expect banks to incur large bad debt charges as developers and home owners are unable to service their borrowings in the face of the property slowdown.
CB Richard Ellis last week estimated that prime shop values in Grafton Street, Dublin’s premier retail location, had fallen 50 per cent this year.
Anglo Irish Bank, the specialist business lender, is considered the most exposed to a property slump, according to Citigroup, which last week downgraded the stock to a sell. It said that 80 per cent of the loan book was secured on Irish and UK property.
Problems at Irish Life & Permanent are a direct result of the growth of its loan book. With a much smaller deposit base than Bank of Ireland or AIB, it has come to rely on wholesale funding.