PTSB faces EU conditions to have home loans reclassified

Jeremy Masding

Gretchen Friemann

March 28 2018 02:30 AM

Permanent TSB has yet to receive a ruling from the European Central Bank on whether some €900m worth of restructured or split mortgages can be reclassified as performing, in a move that would likely reduce the bank's massive sell-off of soured home loans.

The State-backed lender has come under political fire for including these mortgages in its €3.7bn Project Glas non-performing loan portfolio sale.

While Brussels this week signalled its willingness to adopt a lenient stance on the issue, sources said potential bidders will continue to sift through the data on Project Glas until PTSB receives clarity from the ECB.

A spokesperson for the bank declined to comment. However the Irish Independent understands Danièle Nouy, head of the ECB's supervisory board, has offered informal feedback on the classification of split mortgages to PTSB.

On Monday she told the European Parliament, in response to questions by Fine Gael MEP Brian Hayes, the restructured home loans could be reclassified if they met certain conditions.

In a statement yesterday Mr Hayes said "Ms Nouy has confirmed that the senior part of a split mortgage may be considered as performing as long as certain conditions are met.

"The senior part and the warehoused part must be completely separated from each other; there can be no repayment obligation on the warehoused part until the senior part has been repaid in full. The senior part must also meet certain sustainability criteria and then it can be considered non-NPL."

He added the ECB, the European Banking Authority and the Irish Central Bank have reached consensus on this issue, according to indications from Ms Nouy.

It is understood PTSB has received a similar message via informal discussions with the ECB's supervisory wing.

Whether the bank, which is under intense pressure to reduces its high stack of NPLs, opts to excise all the splits from Project Glas, even if all 4,300 of the loans are judged performing, remains unclear. In a note to clients Goodbody Stockbrokers said reclassification "will come at a cost as management will have to fully provide for the unprovided warehoused element of the loan, meaning a higher level of upfront provision write-offs".

Owen Callan of Investec said PTSB will take the brunt of the cost hit "upfront" and pointed out splits will continue to weigh on the balance sheet as the assets are "low-yielding" and there is propensity for the borrowers to "re-default".