A FURTHER deterioration in the loan book of HBOS, the UK parent of Bank of Scotland (Ireland), was reported yesterday, as the bank revealed that write-downs and losses on bad debts for the first nine months of the year had risen by £2.7 billion (€ 3.4 billion) in the third quarter, up to £5.2 billion, as the bank continues to suffer from a deteriorating UK property market and poor market conditions.

While the bank's third quarter interim management statement did not give an indication of how its Irish subsidiary has performed, it did provide an insight into how the UK operations of two Irish banks, Bank of Ireland (BOI) and Irish Life Permanent (ILP), are performing.

In the third quarter of this year, HBOS reported a doubling in its retail secured impairment charge, as falling house prices saw the charge rise to £440 million from £213 million as of the end of June. Arrears rose significantly on the bank's specialist lending book, up from 2.49 to 2.80, with buy-to-let (BTL) arrears increasing by 20 per cent to 1.6 per cent from 1.33 per cent, and self-cert arrears to 3.59 per cent from 3.22 per cent.

Stephen Lyons, a financials analyst with Davy Stockbrokers, noted that this would be of most concern to ILP, as the loan book of its UK subsidiary, Capital Home Loans, is mostly BTL, accounting for 19 per cent of the group's total loan book.

Arrears in HBOS's standard book only increased marginally during the period under review, to 1.26 per cent from 1.23 per cent in June. As half of BOI's UK mortgages, or 13 per cent of its total group loan book, relate to these type of mortgages, this very slight deterioration in arrears is a positive sign for the bank.

Moreover, Mr Lyons said that both players have historically outperformed the industry, with arrears levels consistently below the UK average.

Elsewhere, HBOS also reported an increase in arrears in its unsecured lending, giving rise to an impairment charge of £806 million, while its corporate division reported a dramatic increase in its impairment charge, up to £1.7 billion.

The bank also disclosed that it would incur impairment losses of over £1.8 billion on its treasury portfolio, while an additional hit of £150 million is expected to be taken in relation to Icelandic banks.