NORTHERN BANK’S exposure to the subsiding commercial property market cost the Danske subsidiary a record €326 million in impairment charges and provisions last year.

This resulted in net losses of €258 million at the bank, which employs around 1,600 people in Northern Ireland, up from €113 million in the previous year.

Although Northern Bank declared an underlying operating profit of €68 million last year, it failed to cushion the impact of the loan impairment charges. The very high level of charges is a direct reflection of the “fragile” local economic environment according to the bank.

But it also illustrates the dramatic decline in property values in the North.

Gerry Mallon, Northern’s chief executive, said the bank had “looked very hard” at its land bank and property assets during 2011, resulting in a decision to increase the provisions for potential bad debts. “What we did was take a market value approach – we did not attach a hope value to these assets.

“Our analysts used imperial evidence to be able to come out and say this is what this asset would fetch if it went on the market today. In some cases, land bank assets have now been written down between 70 to 90 per cent from their peak values,” Mr Mallon said.

Mr Mallon said that aside from the issues relating to the bank’s exposure to commercial property loans, its overall loan to value ratio is relatively low. “Economic conditions undoubtedly remain challenging . . . but in my view, if you look at Northern Bank’s underlying profits, you can see that Northern Bank has delivered a sound underlying performance,” he added.

The bank’s latest set of full year results show income levels increased modestly against a backdrop of “low interest rates, low activity and falling volumes”. Lending volumes fell by 6 per cent while deposit balances also fell by 2 per cent year on year.

There was a 39 per cent increase in the amount of mortgage funds approved last year, with over half of all of its mortgages provided to first time buyers.

Mr Mallon said he expected 2012 to be a tough year with “low economic growth, low interest rates and elevated impairment charges dominating the agenda”.

Last year Northern Bank closed six branches in the North and Mr Mallon has warned it is likely there will be further closures among its 76 branches in the year ahead.