Annual Report & Accounts 2009 - Anglo Irish Bank

holdings, reduced investment cash flows and asset values,
much reduced borrower net worth and the increased time
envisaged to sell assets and realise investments.
IFRS requires that where there is objective evidence of
impairment at the period end an analysis of the present
value of all the expected cash flows associated with the loan
is undertaken to assess whether the loan is impaired. As a
result of this, loans in respect of investment property assets
originally purchased at low yields during the years 2005-2007,
which may, in the current low interest rate environment, be
fully servicing interest but on a discounted cash flow basis
show an inability to fully repay the loan principal, are deemed
to be impaired.
During the 15 months to 31 December 2009 the value of
property held as security for investment property loans has
fallen significantly and the value of the security in a large
number of cases is no longer sufficient to fully secure the
loan in the event of default. This does not impact loans
that continue to perform in accordance with facility terms
and where there are no indicators of impairment. However,
the loss rate on non-performing loans has increased very
substantially as a result.
The significant fall in values across the majority of asset
classes, and most especially property over the last 18 months
has eroded clients’ net worth and as a result recourse
previously available under personal guarantees and through
cross collateralisation is now of very limited value in protecting
the Bank’s interests.
Income statement – specific lending impairment - €m
Held for
sale
Loans and
advances to
customers Total
Ireland 8,164 2,651 10,815
UK 1,537 711 2,248
US 459 339 798
Total 10,160 3,701 13,861
% of closing loan
balances 28.5% 10.1% 19.2%
The specific lending impairment charge for the 15 months
to 31 December 2009 totals €13.9 billion (6 months to
31 March €3.7 billion, 9 months to 31 December 2009
€10.2 billion). Of this charge €10.2 billion (73%) relates to
held for sale assets expected to transfer to NAMA with the
Anglo Irish Bank
Annual Report & Accounts 2009
balance of €3.7 billion attributable to the expected post NAMA
portfolio. Impairment charges at 31 March 2009 reflected
losses incurred up to that point, based on the expected cash
flows at that date on the underlying loans, in accordance with
accounting standards. The economic and property market
deterioration between March and December 2009 resulted in
a further significant reduction in asset values and borrowers'
net worth. Property markets have continued to be highly
stressed with very limited activity and uncertain pricing levels,
particularly in Ireland which experienced a fall of approximately
20% in property values in that period.
Losses relating to land and development loans amount to
€5.9 billion (42%) of the total specific charge of €13.9 billion.
This charge covers loans related to all phases of development
from unzoned land to completed units available for sale. 75%
of the land and development charge relates to the Irish lending
division and reflects the very substantial declines in land values,
in some cases up to 90%, the uncertainty regarding the timing
and availability of funding to complete partially completed
developments and the significant overhang of supply in both
the commercial and residential markets.
A further €5.4 billion relates to property investment assets with
56% of this attributable to the leisure and retail sectors.
Operating conditions for businesses in these sectors have been
particularly hard hit by the decline in retail sales and the
increase in unemployment across Ireland, the UK and the US.
Ireland, which has experienced a fall in retail sales of
approximately 20% and rapid rise in unemployment to
12.5% over the last 12 months, was the worst affected and
accounted for €3.9 billion of the €5.4 billion charge. The
remaining specific charge of €2.6 billion is attributable to
business banking, personal and other lending of which 96%
relates to Ireland.
On an overall geographic basis €10.8 billion of the specific
impairment charge relates to Ireland with €2.3 billion and
€0.8 billion to the UK and US respectively.
Ireland
Losses in Ireland, which represent 78% of the total charge in
the 15 months, include €4.4 billion related to development
lending, €3.9 billion related to investment lending and
€2.5 billion related to business banking and other lending.
Included in this charge is an amount of €0.4 billion in relation
to losses incurred in respect of lending where the security
consisted solely of shares in the Bank. In addition the charge
includes €0.1 billion of losses relating to the former Chairman
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