AIB weighs final sale of crisis-era problem loans

AIB is considering selling a final multimillion-euro portfolio of non-performing commercial property loans that were granted before the financial crisis, as it looks to draw a line under problem loans from that era, according to sources.

Bankers in the lender have code-named the work on which loans could be included in a sale as Project Joshua, the sources said. Any sale would not include private residential mortgages and would be unlikely to be marketed before next year, they added.

“AIB has reduced its non-performing exposure (NPE) levels to circa 3.3 per cent of gross loans, as of June 2023, and we envisage further reducing this ratio to circa 3 per cent by year end 2023,” said a spokesman for the bank, who declined to comment on the latest potential loan sale.

“We have materially resolved our legacy non-performing loans from the last crisis to circa €200 million.”

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AIB’s focus remains on individual case-by-case resolution, he added. “However, for customers where we are unable to resolve their NPE status, the use of loan sales or recovery via the legal process continue to be reviewed and considered as options,” he said.

The spokesman said that the bank has “no active plans for a residential mortgage loan sale”.

Work on the potential loan sale comes as later this month marks the 15th anniversary of the banking guarantee that was put in place to avert a collapse of the Irish financial system amid a wider global crisis. Irish lenders subsequently racked up massive bad loan losses and required €64 billion of taxpayer bailouts before the State itself was forced to seek an international rescue in 2010.

AIB has reduced its non-performing loans from a crisis-era peak of about €31 billion in 2013 to €2.1 billion as of the end of June, aided by loan sales.

The bank’s last portfolio disposal took place in the middle of 2022, when it sold a batch mainly deep-in-default loans for €400 million to a consortium led by US distressed debt group Cerberus and including debt management company Everyday Finance and London-based investment firm LCM Partners.

The original value of loans in that portfolio, dubbed Project Sycamore, was said to be more than €700 million. The book included buy-to-let mortgages, land and development and commercial property loans, as well as unsecured personal debt and residential mortgages.

AIB has set also aside more than €400 million of impairment provisions since the middle of last year to cover potential problem loans stemming from the cost-of-living crisis and the effects of rising interest rates and commercial property values.

However, executives at AIB and the other Irish banks said at the time of reporting first-half results that they have not yet seen a noticeable increase in problem loans.