Bank of Ireland to offload €1.4bn of problem Irish and UK loans

Bank of Ireland said on Tuesday it has reached deals to offload portfolios of problem Irish and UK loans, mainly made up of mortgages, that are valued at a discounted rate of €1.4 billion on the bank’s balance sheet.

A spokesman for the bank declined to comment on the original value of the loans or how much it will receive as a result of the two transactions.

The first involves a portfolio of non-performing Irish loans, primarily owner-occupier and buy-to-let mortgages, which have a carrying value on Bank of Ireland’s balance sheet of €800 million, to funds managed by US distressed debt group AB CarVal. That deal is expected to close by the end of this year. While Bank of Ireland will continue to service the loans for a temporary period, the day-to-day handling of the loans will ultimately move to the debt servicing firm Mars Capital Finance Ireland.

“Customers do not need to take any action arising from this announcement. There is no change to the protections currently afforded to customers, and all statutory codes of conduct relevant to these customer loans will continue to apply,” the bank said, adding that it will contact customers prior to the transfer of credit servicing to Mars.

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Meanwhile, Bank of Ireland has also agreed to dispose of a portfolio of €600 million of non-performing UK mortgages by way of a refinancing of the portfolio on the international bond markets.

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This process is known as securitisation. Although Bank of Ireland will continue to be the point of contact for customers on these loans, the deal will allow it to move the mortgages off its balance sheet.

The two portfolios are currently generating about €30 million of gross interest income a year, according to the bank.

Mainstream Irish banks have focused in recent years on moving on non-performing mortgage portfolios through loan sales and securitisations after years of loan restructurings after the financial crisis left lenders with some of their trickiest cases.

The two Bank of Ireland deals will see its non-performing loans ratio fall to 3.7 per cent – close to the EU banking average – from about 5.4 per cent.

The move comes at a time when banks are preparing for an increase in loan defaults as a result of the cost-of-living crisis and rising interest rates globally as central banks seek to contain soaring inflation.

While Bank of Ireland has not yet increased its mortgage rates since the European Central Bank (ECB) started hiking official borrowing costs in July, analysts say that it is only a matter of time before it does. The main ECB lending rate has risen from zero to 2 per cent in less than four months.

Bank of Ireland is due to release a trading update on Wednesday. The company is currently headed up by interim chief executive Gavin Kelly following the departure in September of Francesca McDonagh, who led the group for five years.

Sources previously said that the bank has picked its former chief financial officer Myles O’Grady to become its next permanent CEO, subject to regulatory clearance. Bank of Ireland has yet to comment on Mr O’Grady’s selection.