UBS says Royal Bank of Scotland's Irish loans are a 'modest challenge'

Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc’s holdings of Irish loans and sovereign debt are “no more than a modest challenge” for the U.K. government-backed banks, according to research by UBS AG.

The lenders have “minimal” amounts of Irish government bonds and primarily invest in Ireland through residential mortgages, UBS said in an e-mail to clients Monday. RBS, the parent company of Citizens Financial Group Inc., has gross investments in Ireland totaling 35 billion pounds ($56 billion), compared with 27 billion pounds at Lloyds, according to UBS.

“With pre-impairment group profits at each bank north of 13 billion pounds and capital bases robust, we see Ireland as no more than a modest challenge for the banks,” UBS said.

Ireland is in talks with its European neighbors about current “market conditions” after its bonds plummeted last week as investors speculated the nation may follow Greece into bankruptcy. RBS mainly lends to Irish consumers through its Ulster Bank division and Lloyds’s Irish loan book was acquired after its purchase of HBOS Plc.

Each bank has between 4 billion pounds and 5 billion pounds of reserves against their Irish loan books, UBS said.

The Irish government has made no application for external support and the country is “fully funded” into next year, a Finance Ministry spokesman said on Sunday.