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Zurich Financial Services Group reported a $330 million increase in the loan loss provisions in its commercial property loan books in the UK and Ireland to be taken in the second quarter 2010.
Zurich noted that during 2009 it had “stopped new lending for commercial property development in Ireland and significantly reduced the level of new lending in the UK. In June 2010, Zurich stopped all new property development lending through its subsidiaries Dunbar Bank and Zurich Bank.”
The company also explained that, although “loan provisions are regularly reviewed, given the continuing deterioration in the UK and Irish property markets, the Group has carried out a further review of its property development loan books and the respective provisioning levels.”
Zurich’s total increase for UK loans is around $250 million, which reflects “the continued weakness in the commercial property development market. This is an increase in both specific and general provisions.”
Zurich also said it has revised its “assumptions on recoverability, following an extended reduction in the rate of loan redemptions. Pressure on property prices has affected the value of the underlying collateral supporting Zurich’s loan book, especially in respect of undeveloped land, where market values have experienced significant deterioration.”
In Ireland, the Group has increased provisions by $80 million, “bringing the overall provision on the Irish portfolio to 50 percent of loan values, a level which is generally consistent with the average discount recently applied in the market.”
The charges for the increased provisions will be recorded in the “Non-Core Businesses segment in the half year results 2010, which are due to be released on August 5, 2010,” said the bulletin.
Zurich also said that it has injected additional Group capital into the two banks, and that they “remain adequately capitalized.”
Source: Zurich Financial Services Group