With the focus in Europe these days very much concentrated on the real problem sovereigns such as Greece and Spain, it is worth pointing out that the situation in Ireland has also worsened. For some, this is something of a shock, as a few weeks back there was mounting speculation that the Emerald Isle might be able to return to the bond market before the end of the summer. Bond yields in Ireland have increased by around 50bp this month.
However, with mortgage arrears up significantly over the past year, house prices continuing to decline and more than one-half of mortgage-holders now in a position of negative equity, Ireland’s banks are suffering from a substantial increase in NPLs. In the year ended March, residential property prices plunged another 15.5% following an 11% decline in the previous twelve months and 14% two years ago. According to an analysis undertaken by Deutsche Bank, loan loss provisions might need to be raised by EUR 4bn over and above what was specified in last year’s stress tests. If this analysis proves to be correct, it is possible that the Irish government might need to apply for another bailout.