Bank of Ireland said on Friday its lending margins were under pressure in a competitive market, weakening its defences against billions of euros of expected losses from soured property loans. "I have no doubt that we face a difficult and demanding journey over the next few years," said Pat Molloy, who took over as chairman at the group's annual investor meeting. "The challenges we face are very significant."
Ireland's largest lender is in lockdown mode after the global credit crunch and a local property crash plunged the group into the worst crisis in its 226-year history. Earnings and its share price have been shot to pieces by exposure to over-leveraged property developers, leaving it with an expected bad debt charge for the three years to March 2011 of 6 billion euros ($8.4 billion), nearly four times its market value.
In some comfort for investors, the bank reiterated that provision charge on Friday, but said pressure on margins due to intense competition and lower interest rates could eat into its pre-provision profit, weakening its ability to cushion itself against bad debts. "The key thing for Irish banks is they need to keep their pre-provision profits as high as possible to absorb the losses coming through on the bad loans and the haircuts they will have to take on the transfers to NAMA (Ireland's bad bank scheme)," said Oliver Gilvarry, head of research at Dolmen Securities.
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