You expect one or two fly-by-night companies to sneak out bad news during the quiet Christmas period. You don't expect it from $70 billion Lloyds Banking Group (NYSE: LYG).

Yet the British banking giant chose the Friday afternoon before the Christmas week to reveal the further hit to its balance sheet of what it called the "significant deterioration in market conditions in the Republic of Ireland" that had occurred since the bank's last interim management statement of Nov. 2.

Lloyds now expects that a further 10% of its 26.7 billion pound Irish portfolio will be impaired by the end of this financial year on Dec. 31. As a result, it's increasing the impairment charge it'll take this year on its Irish exposure to 4.3 billion pounds, which will increase the provisions made as a percentage of its impaired Irish loans to 54% for the full financial year.

Pumping those new figures into the data given its Aug. 4 interim results, we make this around a 3 billion pound impairment charge -- in other words, a further 3 billion pound hit to its profits for the 2010 financial year, which is, neatly enough, the consensus profit figure that analysts were forecasting the bank to report in this supposed turnaround year for Lloyds.

Republic of Ire
So more than half of Lloyds' Irish loan book is impaired, and of those dodgy loans, the bank currently thinks it will recover less than half of the money outstanding. Profits look a pipe dream once more for now.

It's all miserable news for shareholders who've watched Lloyds' share price slump during the Irish crisis, but who judged the bank had already taken a sufficiently pessimistic view of its Irish loans.

To add insult to injury, government officials were on Radio 4 at lunchtime on Friday mentioning again their desire to "break up the banks." Given that Lloyds acquired these awful Irish loans when it undertook its semi-shotgun merger with HBOS, taking the pain without ever seeing any gain would be a final wretched irony.

Indeed, I suppose some might wonder whether the bank is cunningly being overly pessimistic about Ireland to dial down profits in this crucial period of regulatory review. It could always write back the provisions in a few years' time, when the political mood has changed.

Given the parlous state of Ireland's economy, however, that seems rather optimistic to me.

Lloyds' full-year results for 2010 will be released on Feb. 25.

More from Fool U.K.'s Owain Bennallack:

This article has been adapted from our sister site across the pond, Fool U.K.  Follow all of our Foolish coverage on Lloyds by add it to My Watchlist.

Owain Bennallack owns shares in Lloyds Banking Group. Try any of our Foolish newsletter services free for 30 days. The Fool has a disclosure policy.