HBOS writedowns to rise 50% in 2009

by Gill Montia

Story link: HBOS writedowns to rise 50% in 2009

In a trading update, Lloyds Banking Group has warned that writedowns on bad debt will rise during 2009.

During the first three months of the year, impairment levels on the bank’s lending portfolios rose significantly, largely because of “the impact of the further economic deterioration, including the effects of rising unemployment, reduced corporate cash flows, the continuing impact of lower house prices and falls in the value of commercial real estate”.

Lloyds therefore expects retail impairment levels to rise significantly during 2009, in both secured and unsecured lending and notably in commercial real estate portfolios in the UK and Ireland.

Referring to the real estate exposures of the merged HBOS, the group describes the lender’s portfolios as “more sensitive to a downturn in the economic environment”.

HBOS’s corporate impairments are therefore expected to be 50% higher in 2009 than in 2008.

However, the majority of the risky loans concerned will be covered by the Government’s Asset Protection Scheme, meaning that a percentage of the writedowns will be covered by the Treasury.

The group has confirmed that it expects to post a loss for 2009.