Bank of Ireland may sell more problem loans after bond deal

Bank of Ireland may sell portfolios of further problem loans after it completes the offloading of €375 million of non-performing buy-to-let mortgages from its balance sheet through a bond market refinancing, its chief executive said on Thursday.

Speaking to members of the Oireachtas Committee on Finance, Francesca McDonagh said "We are certainly looking at all options and that could include a sale of portfolios" of loans, as the bank seeks to lower its non-performing loans (NPLs) to about 5 per cent.

Bank of Ireland revealed last week that it planned to shift €375 million of restructured buy-to-let loans off its books by selling bonds in the international markets where interest payments to investors would be funded by income from the mortgages. This process is known as a residential mortgaged-backed securitisation, and is expected to lower the bank’s NPLs ratio from 6.3 per cent as of the end of 2018 to 5.8 per cent.

Ms McDonagh signalled that while the bank is currently aiming to reduce its NPLs ratio to 5 per cent, the European average stands at between 3 per cent and 4 per cent, a level that regulators are pressing lenders to meet in time. The chief executive refused to rule out the sale of owner-occupier mortgages in any future portfolio sale, when pressed on the matter by members of the committee.

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Ms McDonagh reiterated her opposition to Sinn Féin’s No Consent, No Sale Bill 2019, which is currently going through the legislative process and would give mortgage holders a veto on their loans being sold to so-called vulture funds. She said it would impede a lender’s ability to meet regulators’ NPL reduction demands, tie up capital in soured loans that could otherwise support new lending, and dissuade new entrants from looking at the market.

Redress plan

Bank of Ireland executives also came under sustained questioning during the meeting on about 200 current and former staff members who are arguing that they should be included in the bank’s tracker-mortgage redress plan.

These borrowers started off on a fixed mortgage rate more than a decade ago and argue that they had a legitimate expectation to move onto a tracker loan, linked to the European Central Bank’s main rate, after the fixed period. But when the fixed period was up, Bank of Ireland was no longer offering tracker loans.

John O’Beirne, head of products at the bank, told the committee that he had met representatives for the staff group this week. While Mr O’Beirne said he hasn’t seen “anything yet that indicates ongoing entitlement” among this group to a tracker loan, he has promised to review the matter again and update the Central Bank.

Meanwhile, Ms McDonagh highlighted that pay and bonus restrictions across bailed-out lenders was a “risk” for Irish banks, and that the influx of financial activities to Ireland as a result of Brexit had made it harder to retain and hire staff in certain specialist areas.

Minister for Finance Paschal Donohoe voted down a plan by AIB last year to reinstate bonuses. The Government subsequently hired executive search group Korn Ferry to review remuneration across the sector. While a draft of Korn Ferry's report is understood to highlight that the current restrictions are unsustainable, Mr Donohoe has said he has no plans to ease them.