Banks may refinance more mortgages despite Sinn Féin move, ratings agency says

Irish banks are likely to resort increasingly to refinancing restructured mortgages in the bond markets to lower their non-performing loans ratios. This is despite potential complications from a Bill that would require lenders to get borrowers’ consent to sell on their loans, according to debt ratings agency DBRS.

“DBRS anticipates future securitisations of long-term restructures, as lenders continue to attempt to reduce balance sheet concentrations of high-capital charged assets,” the firm said in a report published on Tuesday.

Securitisation is a transaction where banks move portfolios of loans into a special purpose vehicle (SPVs) and sell bonds to investors backed by interest income from borrowers. Banks are otherwise required to hold high levels of capital in reserve against NPLs.

Last November, Permanent TSB became the first Irish bank to securitise a portfolio of restructured home loans, while Bank of Ireland moved in April to carry out a residential mortgage-backed securitisation (RMBS) deal on €375 million of mainly restructured, buy-to-let debt.

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DBRS said that it will monitor the progress of Sinn Féin’s No Consent, No Sale Bill 2019, which would require the explicit consent of the underlying borrower for the legal title of their mortgage to be transferred, saying it “would potentially have a negative impact” on Irish RMBS deals involving both NPLs and reperforming loans.

Officials from the Department of Finance and Central Bank as well as commercial lenders have expressed concern in recent months about the bill, saying that it could inhibit competition and push up interest rates.

However, Sinn Féin finance spokesman Pearse Doherty has said the final legislation, if enacted, would exclude loans that are securitised or put up for refinancing through the sale of asset-backed securities (ABS).

Irish banks have lowered their NPLs ratio from almost 23 per cent in 2014 to 5.8 per cent at the end of last year, but are still some way off the European Union average of about 3.5 per cent that lenders with high problem loans levels are expected by regulators to meeting in time.

While much of the decline in early years had been due to the restructuring of distressed debt, banks have taken to loan sales and RMBS transactions in the past 18 months to remove trickier loans from their balance sheets.