EBS could need up to €400m in fresh capital as the building society expects to write down 37% of its development finance book by the end of 2011, increasing its already aggressive level of provisions by two-and-a-half times, according to a senior source.

Executives are scheduled to sit down with officials from the Department of Finance on Tuesday to have a wide ranging discussion about the future of the mutual. Nothing has been decided yet, sources said, but the possible use of EBS's development portfolio as a test case for the National Asset Management Agency (NAMA) is on the table.

The society's latest writedown disclosure provides a new yardstick for measuring the possible 'haircuts' or discounts NAMA will apply when it acquires the bad property loans from the six relevant banks. Estimates included in EBS's annual report predict an ultimate 45% writedown on the average original purchase prices for development projects.

EBS, which took a heavy charge of nearly 14%, or €69m, against its €500m development book for 2008, is continuing to tidy up the fall-out from its late entry into the development finance market - described by chief executive Fergus Murphy in the report as "a costly mistake".

The large 2008 provision against bad debt led to an overall annual loss for EBS of just under €38m for the year. According to a senior source, EBS made "kitchen sink" provisions for a number of loans which were up to date on repayments at the end of 2008 after an evaluation of the likely projected cashflow difficulties and asset value writedowns in these cases.

The development finance portfolio made up just 3% of EBS's €16.9bn loan book, but nearly 60% of the loans are either past due or impaired, according to the annual report. In total, 36% are non-performing while another 13.8% are on watch for default. This is a drastic change from 2007, when just 2.4% of the development book was defaulting.

The value of sites owned by EBS's 70 development customers fell from between 20% and more than 50% last year, Murphy said, due to a "complete lack of confidence" in the market.

He expects the numbers to get worse, too, and has warned members of "continued deterioration in the economy" and "further provisions" this year.

Murphy is up for re-election at the building society's annual general meeting later this month. If returned by the membership, he will be the only surviving chief executive at a covered institution.