By Padraic Halpin
DUBLIN, March 8 (Reuters) - Ireland's two dominant
banks, AIB Group and Bank of Ireland , expect
commercial real estate values to fall this year but said this
week conservative underwriting in their lending to the sector
will make any revaluation manageable.
A shift to home working has put pressure on the Irish office
market, which experienced a boom in recent years thanks largely
to high levels of investment from multinational tech firms, some
of whom are now cutting back on their hiring sprees, including
letting people go.
Ireland's largest life insurer Irish Life, a unit of
Canada's Great-West Lifeco Inc , introduced a six-month
notice period for withdrawal requests from a 500-million-euro
($526.95-million) property fund on Monday, citing an increase in
the level of customer withdrawals.
The commercial property market is facing a challenging
period due to the reduction of office demand and consequences of
higher interest rates, Colin Hunt, chief executive of AIB, the
country's largest mortgage lender, said on Thursday.
"From our perspective, we consider what are the qualities of
the underwriting and the quality of that underwriting is really,
really robust with loan to value (LTV) ratios in the order of
60% at initiation of the facilities," Hunt told RTE after the
bank reported a jump in profits and shareholder returns.
"So certainly I think that a valuation challenge may well be
ahead for the sector, but I don't expect material impairments on
foot of it."
Bank of Ireland, the country's largest lender by assets,
based its updated financial targets published on Tuesday on
commercial real estate (CRE) price falls of 6% in 2023 and 2.5%
in 2024.
AIB Finance Chief Donal Galvin told Reuters on Wednesday
that it estimates prices could fall by up to 10% this year.
Bank of Ireland Chief Executive Myles O'Grady described CRE
as "an area of some concern" for the system, but that the
average LTV for its office book stood at 55%.
The exits of KBC and NatWest Group from the
Irish market has left AIB and Bank of Ireland as the main banks
lending to the sector.
However unlike over a decade ago when a huge crash in CRE
prices contributed to a banking collapse, funds investing in
property are now a key participant in Ireland, holding around
35% of the investible market, according to the country's central
bank.
The regulator last year introduced a new leverage limit for
property funds to address risks arising from that rapid
expansion.
($1 = 0.9489 euros)
(Reporting by Padraic Halpin; Editing by Shounak Dasgupta)
Messaging: padraic.halpin.thomsonreuters.com@reuters.net))
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