ULSTER BANK has reversed the transfer of €6 billion in tracker mortgages into its non-core or internal “bad bank” and instead moved all commercial property, land and development loans totalling a similar sum into the quarantined unit.
Last year the bank, which is owned by part-nationalised UK bank Royal Bank of Scotland, split its £50 billion (€59 billion) loan book into core and non-core units, and will run down the non-core unit over time.
RBS plans to shrink the loan book at Ulster Bank to about £30 billion under the plan, the bank’s chief executive Stephen Hester told a parliamentary hearing in London.
“We’re going to shrink the bank to a sustainable size,” he said.
Last year Ulster Bank moved £15 billion in loans into the “non-core” to focus its ongoing banking operations on the remaining loans of £35 billion left in the core unit.
The reversal of the transfer of loss-making tracker mortgages means that Ulster Bank will focus on residential, corporate and small business loans in future, cleansing the core unit of the most toxic loans – about €6 billion in land, property and development loans.
The bank decided to move the tracker mortgages back into the core business as they were performing no differently to other mortgages left in the core unit.
Ulster Bank expects its mortgage book to shrink over the coming years as the home loans market and property sector will remain subdued, sources said.
This will reduce the overall size of the core business to about £30 billion from £35 billion as the loan book will be heavily weighted to residential mortgages.
Ulster Bank, the third-largest full-service bank in the Irish market, participated in the UK government’s asset protection scheme to cover potential losses on the bank’s most toxic loans.
The bank moved about £25 billion in loans into the scheme, which allowed the lender to pass the first losses onto the government and share any further losses with the government over time.
RBS, the only participant in the scheme, handed over a stake of 83 per cent to the UK government.
Mr Hester said a sale of the taxpayer’s stake in RBS would be “a symbol of Britain’s recovery”.
The Edinburgh-based bank is part way through a plan to shrink the lender by selling assets and cutting jobs, a process Mr Hester has described as the most complicated company restructuring in history.
In the Republic, the Government last month embarked on a similar plan to split Irish banks into core and non-core units – and to run down or sell the non-core businesses – as part of a reduction in the size and number of lenders under a €35 billion plan agreed with the EU and the IMF.
