Permanent TSB (PTSB) has decided to proceed with a plan to sell bundles of its worst-performing mortgages, as it faces mounting pressure from regulators to draw a line under the problem, a decade after the global financial crisis began.
The lender, which is 75 per cent owned by the State, has written to a number of investment banks and accountancy firms this week, seeking advisers on potential sales of non-performing loans either this year or next, according to sources. A spokesman for the bank declined to comment.
PTSB has the highest ratio of non-performing loans among Ireland's bailed-out banks at 28 per cent of its portfolio at the end of June, even as the group and wider industry have cut arrears at pace from their 2013 peak. The bank's problem has been compounded by the fact that it was forced to sell its largely performing UK mortgage portfolio in the past two years under a European Union restructuring programme tied to its €2.7 billion bailout in 2011.
More than half of PTSB’s €5.78 billion of non-performing loans are in some form of long-term restructuring or forbearance arrangement and are making an important contribution to the group’s profits.
The bank’s €2.68 million of “untreated” bad loans – either because the bank can’t find a sustainable solution or the borrowers haven’t engaged – are likely to be the focus of the disposal plan.
Market value
PTSB has lost about a quarter of its market value in the past two weeks as analysts, who had believed the bank would have a large store of excess capital to return to shareholders in time, now fear the bank will have to sell troubled loans at deep discounts. This has prompted Davy and Investec in Dublin to downgrade their ratings on the stock.
The European Central Bank’s banking supervision arm, which took charge of overseeing euro zone financial institutions in late 2014, has been pressing lenders across Europe with high levels of non-performing loans to come up with credible plans to reduce the problem over the next few years. While Irish domestic banks have cut non-performing loans from an average of 27 per cent of their loan books in 2013 to 14.3 per cent at the end of last year, they remain well above the 5.4 per cent EU average.
Banks that fail to set – and meet – tough non-performing loan-reduction targets face repercussions, including more intrusive supervision, demands that set aside more provisions for bad loans, hold more expensive capital in reserve and, ultimately, restrictions on shareholder dividends.
PTSB chief executive Jeremy Masding said last month, as the company unveiled first-half results, that it was unlikely the bank would meet a previous target of resuming dividend payments from 2019, due to its high level of non-performing loans.
Mr Masding also said the bank planned to reduce its “untreated” bad loans to “zero” in time, with increased repossession activity, mortgage-to-rent solutions and “financial engineering” also on the cards.
Some of the State’s banks are known to be considering ways other than outright sales to shift loans off their balance sheets. These include setting up special purpose vehicles that would house bundles of non-performing loans, in which the banks would sell a majority stake to outside investors.
Lenders are also weighing refinancing pools of soured loans through off-balance-sheet residential mortgage-backed securitisation (RMBS) deals, where bonds would be sold, backed by the assets.
