PTSB to defer decision on sale of €900m of split mortgages

Permanent TSB (PTSB) will defer a decision on whether it can pull the sale of €900 million of split mortgages until it receives formal guidance from the European Central Bank (ECB) on how the loans could be reclassified as performing assets.

It follows comments from the head of the ECB’s Single Supervisory Mechanism (SSM) banking supervisory arm, Daniele Nouy, on Monday, when she said that split mortgages could be removed from the bank’s non-performing loans (NPLs) pot under certain conditions.

The bank has earmarked some €900 million of split mortgages for sale as part of a €3.7 billion portfolio of NPLs put in the market in February to help lower the bank’s bad-debt ratio from 26 per cent to the European Union average of about 5 per cent over the medium term.

PTSB’s version of split mortgages, where repayments on a portion of the loan are put on ice until a future date, are currently classified as NPLs under European regulatory guidance.

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While PTSB’s chief risk officer, Stephen Groarke, said last week that the bank had been in talks with the ECB about the possibility of reclassifying split mortgages as performing loans, which would allow the bank to withdraw them from the loan sale, Ms Nouy appeared to offer hope of such a prospect when she answered a question from Brian Hayes MEP at a European Parliament hearing on Monday.

Ms Nouy said a split mortgage could be turned into a performing loan if the frozen – or junior – part of the loan was “written off until the non-warehoused part has been repaid in full”.

However, sources said PTSB would need to see detailed, formal written confirmation of the regulator’s comments to ascertain if this could be achieved in a cost-effective way that allowed the bank to pull the most politically contentions element of its loan portfolio sale. It was not clear on Tuesday when that will be forthcoming.

“PTSB management is likely to perceive the clarity provided by the SSM as helpful,” said Goodbody Stockbrokers analyst Eamonn Hughes. “However, the reclassification will come at a cost, as management will have to fully provide for the unprovided warehoused element of the loan, meaning a higher level of upfront provision write-offs.”

Mr Hayes said Ms Nouy’s comments “would appear to indicate the need for in-depth assessment of PTSB’s NPL book, possibly on a loan-by-loan basis”.

The bank has said that it hopes to complete the portfolio sale this year.