ABN Amro expects bad-loan provisions to rise

Amsterdam: ABN Amro Group NV, the state-owned lender that includes Fortis's former Dutch banking assets, expects loan impairments to climb this year after posting a 16 per cent drop in first-quarter profit.

Net income fell to €454 million (Dh2.12 billion) from €539 million a year earlier, the Amsterdam-based bank said in a statement yesterday. Loan impairments rose 50 per cent to €187 million (Dh880 million) in the quarter.

The Dutch economy, which provided ABN Amro with more than 80 per cent of its operating income, shrank for a third consecutive quarter and is forecast by the European Commission to contract 0.9 per cent this year. While the increase in the bank's provisions mainly related to loans to consumers and the real estate industry, mortgage debt is one of the country's biggest financial risks, according to the Dutch central bank.

"We expect loan impairments to rise, based in part on the weak outlook on the Dutch economy, and continued pressure on interest margins," ABN Amro Chairman Gerrit Zalm said in the statement.

"As the business environment we operate in is still unstable, these first-quarter results cannot be extrapolated for the remainder of the year."

Mortgage debt

Dutch mortgage debt is among the highest in the world, amounting to 107.1 per cent of gross domestic product in 2010, data compiled by the European Mortgage Federation show. That compares with an average of 52.4 per cent in the 27-nation European Union.

Impairments on residential mortgages rose "only slightly," said ABN Amro, which has portfolio of €155 billion.