UPDATE 1-Allied Irish Banks predicts jump in bad debts

By Padraic Halpin

DUBLIN, May 11 (Reuters) - Allied Irish Banks (ALBK.I: Quote, Profile, Research) expects to more than double its bad debt charge this year to 4.3 billion euros ($5.85 billion), it said on Monday, warning that there would be further pressure on borrowings that cannot be repaid this year.

AIB, which has been hit hard by plummeting commercial property markets, set aside 1.8 billions euros in bad debt provisions for 2008.

In a trading statement issued on Monday ahead of its annual meeting on May 13 the bank blamed a continued deterioration in the economic environment and said mortgage arrears in Ireland had climbed to 2 percent of total mortgage loans at the end of March from 1.5 percent three months earlier while impaired loans increased to 234 million euros.

"All commentators broadly concur on the significant downward revisions to expectations for Irish economic activity and employment that have issued since the beginning of March," it said in the statement.

"We now expect our bad debt charge for 2009 to be around 4.3 billion euros, circa 325 basis points of average loans."

However it also said that profit before bad debt provisions had been good in the year to date and up on the corresponding period in 2008, adding that group costs and income were down in the year to date.

The bank said that the creation of the National Management Agency (NAMA) -- the "bad bank" that the government will set up to deal with the financial industry's risky property loans -- would "be a key event for the bank and the industry."

With the banks' undisclosed discount on the estimated 90 billion euros book value of loans to be managed by the agency not yet decided, AIB added that it "was premature at this point to estimate its effect on our capital."