AIB is considering the sale of some troubled mortgages, as banks look at ways to deal with their more problematic loans.
Sources said the bank, which holds its annual general meeting in Dublin on Tuesday, has not yet made any decision to dispose of a portfolio of non-performing loans. However, it is one thing the lender, led by chief executive Bernard Byrne, is assessing in order to maintain its recent momentum in resolving soured loans.
“We keep all options under consideration; however, we have no active project,” a spokeswoman for the bank said. “Our primary objective is to work with borrowers under stress to return their borrowings to a satisfactory position.”
Restructured
At the end of last year, AIB had cut its level of impaired loans by 55 per cent from their €29 billion peak in 2013, as the country’s largest mortgage lender restructured unsustainable loans and the economy improved. Banks are under pressure from regulators and financial markets to keep up the pace, even though they are now grappling with a greater proportion of trickier, long-term arrears cases.
A sale of non-performing mortgages would mark a new departure for a bailed-out Irish bank. Any such move could potentially put AIB in the crosshairs of politicians, even though borrowers whose loans are sold to unregulated companies, such as hedge funds or private equity firms, have additional protections under laws enacted last year.
While Irish banks have delivered among the most dramatic reductions in troubled loans on their balance sheets in recent years, they continue to hold among the highest level of bad loans across the euro area. Some 19 per cent of AIB's gross loans were classified as impaired at the end of December. This may partly explain why the European Central Bank, which took over the regulation of the euro zone's biggest banks in 2014, has ordered Irish lenders to hold more capital than the average across the region's banks this year.
The ECB set a 9.9 per cent average minimum common equity Tier 1 capital ratio, a key gauge of banks' ability to absorb shock losses, for 2016. Bank of Ireland revealed earlier this year it was given a 10.25 per cent minimum target under the Central Bank's so-called supervisory review and evaluation process (SREP), while Permanent TSB disclosed its minimum target was set at 11.45 per cent. AIB has not yet published its SREP capital requirement.
Disposal of loans
AIB’s only sale of Irish non-performing mortgages since the start of the financial crisis was the disposal of some buy-to-let loans in 2012. These comprised about 15 per cent of a €675 million nominal value commercial property portfolio sold by its EBS unit. They were bought by private equity firm Lone Star.
Permanent TSB sold a portfolio of €465 million of subprime mortgages in 2014 to Mars Capital, a British business, at 4 per cent discount to their face value.
Bank of Ireland sold €220 million of performing loans in 2014 under direction from the European Commission that it sell its ICS Building Society brand.
However, the sale of non-performing mortgages has mainly been the focus of overseas banks retreating from the Irish market in recent years, such as Lloyds Banking Group and Danske Bank.
