B of I says loan book reduction of €10bn on target

BANK OF Ireland says it has met its deleveraging target for international loans 18 months ahead of schedule. The bank has divested assets worth €10.3 billion, selling them at an average discount of 7.9 per cent and, according to the bank, the deals will reduce its dependency on the European Central Bank for funding.

The bank yesterday disclosed its most recent deal, a portfolio of UK infrastructure project finance loans, with total drawn and undrawn commitments of about €0.27 billion, which will be sold to the Danish pension fund PensionDanmark. The discount applied to this sale was 16.5 per cent.

This follows on from previous loan sales, which include a €2 billion UK mortgage portfolio; a €1.9 billion project finance portfolio; and €0.8 billion in US commercial real estate loans.

Despite the discounts at which the loans were sold, the bank noted that the sales had had a “positive impact” on the group’s core tier one capital ratio.

“From a capital ratio perspective, the losses incurred on the divestments are offset by a reduction in the associated risk-weighted assets,” it said. It added that the sale of such loans was “comfortably within” the base case discount assumptions used as part of the 2011 Prudential Capital Adequacy Review.

Davy Stockbrokers said the discount of 7.9 per cent was well within its expectations, as it had estimated a 9 per cent discount.

The divestment is part of Bank of Ireland’s overall restructuring strategy. Last year, at the time of its capital-raising drive, the bank said it planned to reduce the size of its loan book from € 114 billion as of December 2010, to € 90 billion by December 2013.

A key element of this plan was the divestment of €10 billion in international loan assets, which Bank of Ireland has since achieved.

The bank expects to complete its deleveraging by reducing its loan book, which stood at €102 billion as of December 2011, to €90 billion by December 2013.

Ireland’s other pillar bank, AIB, has a three-year deleveraging target of €20.5 billion, and according to the bank, it is “continuing to make good progress”.

By the end of the first quarter of this year, it had divested assets worth €13.7 billion.