AIB lines up €500m Project Bay problem-mortgages sale

Portfolio includes loans deep in arrears and restructured debt underpinned by eased terms

AIB is in the market looking to sell up to €500 million of problem loans, mainly comprising mortgages.

The so-called Project Bay portfolio includes loans deep in arrears as well as restructured, or reperforming, debt where borrowers are meeting eased terms but which AIB must continue to classify as non-performing under strict regulatory criteria, according to sources. First-round bids are due imminently, with final bid expected to be called in October.

An AIB spokesman declined to comment on the loan sale. However, he said that “notwithstanding the considerable progress” the bank has made in reducing non-performing exposures (NPEs) from €31 billion in 2013 to €3.8 billion, or 6.5 per cent of gross loans, as of the end of June, the problem loans ratio “remains elevated and we are committed to reaching an NPEs to circa 3 per cent, which is more in line with European levels. In line with regulatory requirements, European banks are obliged to classify certain loans as NPEs for a variety of reasons.”

While most of the decline in non-performing loans (NPLs) over the past eight years has been down to the bank restructuring loans as well as the sale of portfolios soured non-mortgage debt, AIB has turned its focus more recently to shifting owner-occupier loans off its books.

In February, the State's largest mortgage lender agreed to sell a portfolio of mainly deep-in-arrears home loans to US investment group Apollo for a discounted price of €400 million, with Mars Capital Finance Ireland contracted to service the loans.

The total original value of the loans in the portfolio, known as Project Oak, was about € 1 billion.

Some 92 per cent of the loans are against private dwellings, with the remainder secured against buy-to-let and mixed-use properties.

‘Ethical’ investment group

A month earlier, the bank sold a portfolio of 620 owner-occupier mortgages, originally worth €150 million, to an "ethical" investment consortium, comprising Everyday Finance, Home for Life, Arizun Asset Management (Ireland) and LCM Partners, that is focused on mortgage-to-rent for borrowers.

Elsewhere, Bank of Ireland offloaded €350 million of NPLs earlier this year through a bond market refinancing, while KBC Bank Ireland agreed on Monday to sell €1.1 billion of impaired loans to US distressed-debt group CarVal as the Belgian-owned lender retreats from the Republic.

Ulster Bank's €1.5 billion of problem loans are on the market as the UK-owned lender also races to exit the Irish market.

The NPL ratios of the remaining three banks in the market – AIB, Bank of Ireland and Permanent TSB – will fall under plans to acquire performing loans from Ulster Bank and KBC Bank Ireland.

However, lenders face having to increase provisions against problem loans in the coming years under so-called calendar provisioning rules and guidelines being pushed by European regulators.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times

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