AIB problem loans level to fall below 6% on mortgages sale deal

AIB said on Thursday evening that its non-performing loans (NPLs) ratio will fall below 6 per cent after agreeing to sell €400 million of problem mortgages to a consortium involving US-based Ellington Financial and Mars Capital Finance Ireland.

The Irish Times reported that the two firms, working with Morgan Stanley, had been part of a consortium selected as preferred bidders. Morgan Stanley is providing finance for the transaction, known as Project Bay, according to sources.

The statement did not give the original value of the loans. AIB said the sale would boost its capital base, as it releases money held in reserve against the mortgages and avoids the negative impact of the bank having to set aside more provisions against the loans in the coming years under so-called calendar provisioning rules and guidelines being pushed by European regulators.

AIB continues to target an NPL ratio of about 3 per cent of total loans.

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Prior to this deal, AIB had cut its NPLs from €31 billion in 2013 to €3.8 billion, or 6.5 per cent of gross loans, as of the end of June. While most of the decline in NPLs over the past eight years has been down to the bank restructuring loans as well as the sale of portfolios of soured non-mortgage debt, AIB has turned its focus more recently to shifting owner-occupier loans off its books.

Mars Capital, the loan-servicing firm, will manage the loans on a day-to-day basis once the deal goes through, AIB said.

Refinanced

The make-up of the preferred bidders suggests that the Project Bay portfolio, including loans that are deep in arrears and mortgages that have been restructured, will be refinanced on international bond markets in the near term, according to industry sources.

The portfolio consists of about 2,150 non-performing borrowers with loans out against 2,300 residential properties, with an average time in default of about nine years. All customers were in default prior to the onset of the Covid-19 pandemic.

However, sources have said that about half of the loans have been the subject of forbearance measures, where borrowers are meeting eased terms. However, AIB had to continue to classify them as NPLs under strict regulatory criteria, according to sources. Some 88 per cent of the properties behind the loans are private home dwellings.

“AIB will now contact impacted customers to inform them that their loans are being transferred,” the bank said.

In February, the State's largest mortgage lender agreed to sell a portfolio of mainly deep-in-arrears home loans to US investment group Apollo for a discounted price of €400 million, with Mars Capital Finance Ireland contracted to service the loans. The total original value of the loans in the portfolio, known as Project Oak, was about €1 billion.