Banking group’s six-month figure ’driven’ by acquisition of HBOS real estate book

Lloyds Banking Group has written off almost £3bn from the value of its property portfolio in the first six months of 2010.

The figure compares to £9.8bn in the first half of 2009 and £6bn in the final six months of last year, figures the bank said were “primarily driven” by the real estate book of HBOS, which it bought in January 2009.

HBOS had invested heavily in the housebuilding and commercial property sectors via debt and equity in the run up to the crash in the summer of 2007, including firms such as Crest Nicholson, Miller Group and Gladedale.

In a statement the bank, which is 41% owned by the taxpayer, said the numbers provided “further evidence that total impairment losses peaked in the first half of 2009”.

LBG said it was expecting “a modest reduction” in writedowns in the second half of this year with “further reductions in 2011”.

But it warned action on the portfolio would be needed to combat continued weakness in the market.

As revealed by Building, the bank is examining the possibility of refinancing some companies in its portfolio. It said: “Refinancing risk is an emerging issue with significant maturities due in the next few years, especially in the group’s real estate and real estate related portfolios as well as for leveraged loans. Against the group’s economic assumptions, 2010 and 2011 are expected to continue to be difficult for these portfolios.

It added: “Whilst recent sector performance has been encouraging, the group remains cautious regarding the short to medium term prospects for the sector. Clearly the management of the distressed portfolio remains key not only to mitigating loss but also for the group as a significant player within the property sector to ensure that the strategies adopted do not adversely impact on a market that remains fragile.

This week has seen several of the big banks release their results and they have come under pressure from the government to lend more to small and medium sized firms.

Lloyds revealed that lending to the construction industry has remained largely flat since the second half of 2009, with total loans falling from £10.8bn to £10.4bn.

Overall the bank returned to the black with a pre-tax profit of £1.6bn compared to a loss of £4bn this time last year.