In a race to lower the problem of non-performing loans following an unexpected increase in Covid-related defaults, the Bank of Ireland has agreed to a mortgage portfolio securitisation deal. The loans of this deal are worth €350 million.
Non-performing loans are considered to be those that are less than 90 days past due, only when there is a high level of uncertainty regarding future payments. In particular, the average time that the disposed of loans have been non-performing is around 6 years.
A mortgage portfolio securitisation deal involves the lender pooling various types of mortgages to create mortgage security that is then traded in capital markets for profit. This particular deal is the pooling of mortgages and selling bonds to investors. The portfolio contains both buy-to-lend and owner-occupied investments, with a majority of these loans having been restructured to make them more favorable to the buyer. They are now performing in line with their customers’ agreements.
At the end of March, The Bank of Ireland’s non-performing exposure (NPE) ratio was at 5.7%. The bank expects that the transaction will result in a reduction to 5.3%. In addition, the deal will cause an increase in the Bank of Ireland’s regulatory capital but a decrease in the bank’s interest income by about €5 million each year.
In a statement from the bank, it is said that the restructuring arrangements agreed are unchanged by the sale. The Bank of Ireland states that it expects to continue to service all of the mortgage accounts and “will remain the contact point for customers in all queries regarding their loan, as is the case today.”
A huge driving force of this deal is the Bank of Ireland’s plan to takeover KBC Ireland. KBC has the hopes of exiting the republic, selling its performing loans and deposits to the Bank of Ireland. John Thijs, chief executive of KBC Bank Ireland in Brussels says that “we have reached an agreement with Bank of Ireland Group regarding the potential sale to Bank of Ireland Group of substantially all of the performing loan assets and liabilities of KBC Bank Ireland.” With KBC gone, there will only be three retail banks in the country.
While the bank refused to comment on who the buyers are, rumor is that Pimco, a global investment management firm based out of California, is one of them. Pimco has bought problem loans from Permanent TSB in the past.
Brennan, Joe. “KBC Plots Irish Exit with Loans Sale to Bank of Ireland.” The Irish Times, The Irish Times, 16 Apr. 2021, www.irishtimes.com/business/financial-services/kbc-plots-irish-exit-with-loans-sale-to-bank-of-ireland-1.4539135.
“Bank of Ireland Moves on Non-Performing Loan Portfolio.” RTE.ie, RTÉ, 18 June 2021, www.rte.ie/news/business/2021/0618/1228952-bank-of-ireland-loan-sale/.