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Thursday 19 September 2019

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


Bank of Ireland. Stock photo: Getty Images
Bank of Ireland. Stock photo: Getty Images
Donal O'Donovan

Donal O'Donovan

Bank of Ireland will become the first main Irish bank 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 will be sold will be written to by the bank and Link, the company that will service the loans for Cerberus. A helpline for affected borrowers has been set up. In a statement, Bank of Ireland said that after the transaction its so-called non-performing exposure (NPE) ratio was 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, 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.

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, 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.

Irish Independent

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