Warning on Ulster Bank properties
Offloading properties with bad loans from the Ulster Bank too quickly could cut off Northern Ireland's recovery before it has started, it has been claimed.
Toxic loans at Ulster Bank make up nearly a quarter of the £38 billion of bad debts being hived off into the new internal "bad" bank at the parent Royal Bank of Scotland (RBS) group.
Stormont Finance Minister Simon Hamilton urged decision-makers not to drop confiscated properties into the local sales market too rapidly.
"It is not the same as London and the South East, flooding our market with assets over a very short three-year period...could have a very seriously detrimental impact on a property market which is languishing close to the bottom but is at least showing some signs of some improvement," he said.
"We don't want to kill that stone dead before it has even started."
Ulster has long been a thorn in RBS's side after the division was left with mammoth losses and crippling bad debts following the financial crisis.
A senior executive has said the remaining part of Ulster will be included in a group-wide review - the results of which are due in February - as RBS attempts to find a "viable and sustainable business model" for Ulster.
It is the largest bank in Northern Ireland and the third largest in the Republic of Ireland, with more than 1.9 million customers.
Acquired when RBS bought NatWest in 2000, the group has faced mounting calls to hive off Ulster Bank as its woes have added to the wider problems at the part-nationalised lender.
RBS and the Government have had to tread carefully, given its importance as a lender to the whole island of Ireland and the fact it is the last British-owned retail bank in Northern Ireland.
The Treasury's report into RBS said a sustainable operating model needs to be found for Ulster so that it is a viable business in a normalising Irish economy.
It said as Northern Ireland's largest bank, it was important to the health of the UK economy.
The report added: "UK businesses benefit from a bank which is active in both the UK and Ireland, which remains one of the UK's largest export markets."
Mr Hamilton acknowledged fears the review will lead to further restructuring at Ulster, which is already slashing its branch network from 214 to between 175 and 185 by the end of 2014 and cutting its workforce from about 5,800 full-time staff to between 4,000 and 4,500 by 2016.
Ulster was quick to state it was "business as usual" following the RBS announcements and that the review would create a "really good bank for our customers".
Third quarter figures showed an improving picture at Ulster.
Despite a near halving of operating losses at Ulster to £132 million, the Treasury said in its report that analysts did not expect Ulster's core business to break even until 2015 at the earliest.
Bad debts dropped 38% to £204 million year-on-year in the three months to September, but there were losses in Ulster's commercial real estate portfolio.
Ulster was hit hard by the financial crisis and the bursting of Ireland's property bubble, which left it with hefty arrears and losses on loans turned sour.
The bank has also suffered a series of recent blows to its reputation, with a serious IT glitch last summer causing particular embarrassment after customers were left unable to access their accounts for several weeks.
NatWest and RBS were affected by the same IT troubles, but their issues were resolved within around 10 days, leaving RBS to fend off accusations from the then shadow secretary of state for Northern Ireland Vernon Coaker that it had put customers in Ireland to the "back of the queue".
Ulster was then fined a record 1.96 million euro (£1.7 million) by the Central Bank of Ireland at the end of last year for breaching rules on how much capital and liquidity it must maintain to ensure the lender and its customers are protected in a crisis.
Concerns over Ulster Bank have led MPs on the Northern Ireland Affairs Committee to begin investigating wider lending practices and the future of the bank, with fears over a lack of bank credit in the region.