THE OWNER of Bank of Scotland (Ireland) and Halifax set aside €1.2 billion to cover losses on its Irish loan book of €33.4 billion in the first six months of this year.

Half-year figures released by Lloyds Banking Group yesterday show that the bank wrote off 3.4 per cent of its Irish loan book in the six-month period, compared with a 1.8 per cent write-off in the second half of last year.

The bank said that impaired loans totalled £3.9 billion (€4.69 billion), or 14 per cent of Irish loans at June 30th, compared with £1.7 billion (€1.8 billion) or 5.7 per cent of loans six months earlier. The €1.2 billion set aside to cover bad debts at the end of June compares with a €553 million charge for the whole of 2008.

The figures show that the loan book fell to £28.5 billion from £31.4 billion in sterling terms, but in euro Bank of Scotland (Ireland) extended a further €585 million to customers in the first six months, bring total loans to €33.4 billion.

“With limited new business being written and very low levels of roll-off driven by a lack of liquidity in the commercial property market, overall exposures remain almost static,” Lloyds said.

“The severe economic downturn has significantly influenced performance with a depressed property development sector being impacted by a year-on-year house price fall of 10.9 per cent and unemployment levels of 11.9 per cent.”

Lloyds said that its international division, which includes its Irish and Australian businesses, made a loss of £1.19 billion (€1.4 billion) for the six months. The Irish bank accounted for 70 per cent of the loan write-offs in the division, with the Australian unit accounting for most of the remainder.

A spokesman for Bank of Scotland (Ireland) declined to say how much of the losses in the international division related to Ireland.

The bank has broken from tradition by not separating out the results for the Irish business from its UK parent bank in full and by not holding a results presentation.

Bank of Scotland (Ireland) is carrying out a review of its operations, the outcome of which is not expected for several weeks. A significant downsizing or closure of the Halifax retail business has been under consideration.

The review follows the takeover of the bank’s UK parent, HBOS, by Lloyds last January. Lloyds, the UK’s largest retail bank, helped its shares jump as much as 15 per cent as conservative loan provisioning on HBOS means its bad debts have already hit a peak.

The group, which is 43 per cent owned by the UK taxpayer, posted a loss of £4 billion for the first half and said that loan losses rose to £13.4 billion, more than five times higher than a year earlier.

Some 80 per cent of that stemmed from what it said was an “imbalanced” HBOS loan book, badly hit by the drop in property prices.