PTSB likely to sell €3.7bn non-performing loans at half par value, Davy says

Permanent TSB is likely to sell €3.7 billion of non-performing loans it currently has on the market for half their par value, triggering a €325 million additional loss on the portfolio, according to analysts at Davy.

If the disposal goes through this year, as planned by PTSB, it would push the bank into a €210 million net loss in 2018, according to the analysts, Stephen Lyons and Diarmaid Sheridan in a report published on Thursday. PTSB returned to profit last year for the first time in a decade.

The analysts estimate that PTSB has already set aside loss provisions to cover 41 per cent of the portfolio up for sale, called Project Glas. That equates to €1.52 billion.

PTSB’s plan, unveiled in February, to proceed with the country’s largest-ever home loans portfolio sale has courted political controversy, with the focus mainly on the planned sale of €900 million of split mortgages within Project Glas. The remainder is comprised of soured buy-to-let loans and “untreated” defaulted mortgages, where customers have either refused to engage with PTSB or the lender has been unable to come up with a viable restructuring solution.

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The bank, which has the highest non-performing loans (NPLs) ratio among Irish retail lenders, at 26 per cent, is under pressure from the European Central Bank's banking supervision arm to cut its level of distressed debt to the European Union average of about 5 per cent.

Reclassify

PTSB is hoping it may be able to reclassify the split loans, where repayments on a portion of the mortgage are put on ice to a future date, as performing loans, subject to clarity from the ECB on the future accounting for those loans.

“If this engagement was successful, then PTSB could retain the split mortgages and diffuse much of the political scrutiny at the moment,” said the Davy analysts. However, there would be “little point in securing a reclassification only for the regulator to impose a higher capital requirement due to the retention of the splits”.

Davy estimates that PTSB may have to top up its loan-loss provisioning for the frozen – or warehoused – portion of the split loans to get the regulatory go-ahead to reclassify the mortgages. That may cost an additional €90 million, the analysts said.