Property developers owe over €100bn to banks

Irish property developers now owe more than €100 billion to the country's banks, new figures show. Barry O'Halloran and Paul Tansey report.

Private-sector credit figures released by the Irish Central Bank yesterday showed that by the end of last year, the total amount that banks had lent for real estate dealing and property development had hit €105.8 billion.

In the course of last year, bank lending to these two property-based sectors grew by €22.5 billion, or 27 per cent. This equated to 80 per cent of the money lent by the banks to business last year.

In total the loans advanced by the banks to business or the "productive sectors" increased by €28.2 billion.

The news came as international credit watchdog Fitch Ratings warned that the amount of money Irish banks have tied up in property leaves them vulnerable if there is a severe downturn in the market.

AIB, the country's largest bank, said this week said that it had scrutinised some €700 million worth of loans to property developers. The total amount of money owed by Irish people and businesses to the banks grew to €392 billion from €329 billion, an increase of 19.1 per cent.

All property-related lending, including money advanced to developers and people buying homes, climbed €39 billion last year to reach €246 billion, which meant that property-related lending accounted for 62 per cent of all private sector credit growth in the Irish economy last year.

The Central Bank's figures show that growth in property-related lending slowed sharply to €10 billion or just 4.2 per cent between September and December last year.

At the same time yesterday, Fitch Ratings, an international agency that measures organisations' and corporations' ability to repay their debts, warned that Irish banks are heavily exposed to mortgage lending, even while the housing market is slowing. The agency said that in the case of a "soft landing" for the Irish economy, the banks' large mortgage books should not be a cause for concern.

However, the agency's report argued that if the downturn were more severe than expected, then "this overall large exposure of Irish banks to residential borrowing and to commercial real estate constitutes a weakness".

It added that good profits, conservative risk management and reasonable capital may not be enough to protect the banks against the fallout from such a downturn.

Basing its figures on their 2006 balance sheets, the agency said that the three banks most exposed to residential mortgage lending were EBS, IIB and the Irish Life & Permanent. 

© 2008 The Irish Times

This article appears in the print edition of the Irish Times