Annual Report & Accounts 2009 - Anglo Irish Bank

Notes to the financial statements continued
13. Provisions for impairment 15 months Year
ended ended
31 December 30 September
2009 2008
€m €m
74
Loans and advances to customers (note 27)
Specific 13,861 224
Collective 583 500
Debt securities - available-for-sale ('AFS') financial assets (note 26)
14,444 724
Financial institutions 4 27
Residential mortgage backed securities 31 -
Other asset backed securities ('ABS') 436 128
Investment property - held on own account (note 32)
471 155
Attributable to owners of the parent 92 -
Attributable to non-controlling interests 9 -
Financial guarantee contracts and other credit provisions (note 41)
101 -
89 -
Total provisions for impairment 15,105 879
The increase in provisions for impairment on loans and advances to customers in the current period reflects extremely difficult
economic conditions and significant declines in property valuations across the Group's key lending markets of Ireland, the UK
and North America. The specific charge comprises €10,815m (30 September 2008: €112m) in respect of Ireland, €2,248m
(30 September 2008: €101m) in respect of the UK and €798m (30 September 2008: €11m) in respect of North America.
The specific charge for the period includes provisions in respect of loans eligible for transfer to NAMA. Closing specific
provisions of €10,120m in respect of these loans have been reclassified as held for sale. NAMA loans continue to be carried at
amortised cost less provisions for impairment.
By loan category, the specific charge comprises €8,040m (30 September 2008: €35m) in respect of commercial lending,
€2,871m (30 September 2008: €181m) in respect of residential lending, €1,078m (30 September 2008: €nil) in respect of
business banking and €1,872m (30 September 2008: €8m) in respect of other lending.
The collective provision is applied to portfolios of customer loans for which there is no evidence of specific impairment. It has
been calculated with reference to historical loss experience supplemented by observable market evidence and management's
judgement regarding current market conditions. The provision amount is also adjusted to reflect the appropriate loss
emergence period. The loss emergence period represents the time it takes following a specific loss event on an individual loan
for that loan to be identified as impaired. This is determined by taking account of current credit risk management practices
together with historical loss experience. The loss emergence period applied for the current period is six months
(30 September 2008: twelve months).
Additional information explaining the increase in lending impairment is provided in the Business review.
The Group incurred an impairment charge of €471m on its portfolio of AFS financial assets during the current period. €141m
was incurred in the six months ending 31 March 2009 and an additional €330m in the remainder of the period. While the
prices of certain asset classes have improved in the latter half of 2009, others have shown further signs of deterioration. The
charge for other ABS for the period comprises €150m in relation to collateralised debt obligations ('CDO') on commercial real
estate ('CRE'), €111m in relation to CDO investments with US bank capital instruments as the underlying collateral, €112m in
respect of CDO of ABS indirectly linked to the US sub-prime mortgage market, €42m in relation to collateralised loan
obligations ('CLO') and the remainder primarily relating to other investment securities with varied classes of underlying
collateral. The Bank’s residual exposure to other asset backed securities (including amounts in the AFS reserve) is €572m and
includes the following asset classes: CLO €306m, CMBS €93m, CDO CRE €64m, Student loan ABS €64m.