Danske Bank, owner of Ireland's NIB, could be forgiven for cursing its original decision to enter the Irish market, when it acquired the Irish bank from National Australia just three years ago.

First, it had to swallow significant integration costs which curbed its growth in this market, and then, just as things were starting to improve, this country's property market lurched in the wrong direction exposing Danske to escalating bad debt levels. It's a tough challenge for NIB chief Andrew Healy to manage.

Ireland may only be a small part of the Danske's overall revenues, but it is sure making its presence felt. Credit losses in the third quarter for Danske are estimated at 1.8bn Danish kroner, with one third of this relating to Lehman Brothers exposures. But, astonishingly, one-third of it relates to bad loans in Ireland.

Danske is not a huge property lender in Ireland when placed alongside AIB or Anglo Irish, but it does have an Irish loan book of about €10bn. The bank surprised and rattled many in the Irish banking industry by saying it is likely to write off 318bps of this loan book in the third quarter. This is much higher than the kind of bad debt levels the Irish banks are estimating.

An analysis of its Irish loan book from the summer shows it had 27% allocated to commercial property loans, with 7.7% on Irish construction and building material loans.

Despite the Irish challenges Danske Bank remains the largest Nordic lender by assets, and there are banks elsewhere in Europe with much larger problems.

However, the bad news has not just been confined to property. Danske's insurance arm, Danica, has lost big money because of the slump on the stock market.

Insurance and property-related losses means the bank's profit has dropped for four straight quarters. The property losses are a major challenge, but some of the smaller Danish banks have larger exposures. Still being exposed to Ireland and Denmark is going to be tough and the bank is forecasting a drop in profit in 2008, with little visibility provided so far on the precise scale of the drop.

However, Danish house prices are expected to drop as much as 10% both this year and next, and with Irish prices in deep trouble too, its going to be a tough slog.