Monday 16 September 2019

Bank of Ireland sells buy-to-let bad loans at €100m discount

Francesca McDonagh CEO of Bank of Ireland
Francesca McDonagh CEO of Bank of Ireland
The Central Bank building on the capital’s North Wall Quay
Donal O'Donovan

Donal O'Donovan

Bank of Ireland will become the first of the main Irish banks to cut its stock of bad loans below a target of 5pc of all lending, after its latest sale of problem mortgages.

The bank has agreed a deal to sell crash era buy-to-let mortgages to a unit of US vulture fund Cerberus. The mortgages have a face value of €250m but are being sold for €150m, reflecting the scale of arrears.

Landlords whose mortgages are to be sold will be written to by the bank and by Link, the company that will service the loans for Cerberus. A helpline for affected borrowers has also been set up.

In a statement, Bank of Ireland said that following the transaction its so-called non-performing exposure (NPE) ratio is now below 5pc.

It is the first Irish bank to hit that level, which had been set by European regulators as a semi-formal target for all Irish lenders, based on the average stock of bad loans for banks across the Euro area.

The push by European regulators kicked-off an acceleration of loan sales by the banks over the past 18 months, including controversially of soured home loans. That, in turn, sparked fears of a rise in family home repossession cases by the so-called vulture funds that buy the loans.

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The Central Bank building on the capital’s North Wall Quay

Selling off buy-to-let mortgages is less controversial, but has also led in some cases to rent hikes for tenants or the ending of tenant leases.

Central Bank codes of conduct, including the Consumer Protection Code, continue to apply after such sales.

For Bank of Ireland, headed by CEO Francesca McDonagh, the sale helps it hit its European target and will also potentially allow it to increase lending, by reducing the capital it must hold as a guard against losses.

“Like all banks in Ireland the Bank (of Ireland) is required to hold much more significant levels of capital against NPE mortgage loans than performing mortgage loans. This is capital that could otherwise be deployed in a range of ways, including lending into the Irish economy,” the bank said.

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