AIB planning to sell off €1.4bn of property loans

AIB IS drawing up plans to sell €1.4 billion of property loans made on homes, offices and shops across Ireland, joining the queue of European banks seeking to unwind exposure to the Continent’s troubled real-estate market.

The State-controlled lender, which is battling to meet capital requirements introduced this year, is holding a beauty parade to hire advisers to devise a plan for disposing of the loans, people familiar with the process said.

A spokesman for the bank said it had no comment.

The sale would mark a step change for AIB as it looks to reduce the balance of non-core loans in its portfolio from €25.1 billion at the end of 2010 to €4.2 billion by the end of 2013 and could open the way for a flurry of disposals.

The portfolio is made up of €1.1 billion of commercial property loans, at least half of which are understood to be distressed. The remaining €300 million is made up of loans on houses and apartments across the country.

Potential advisers are expected to make submissions to AIB by the middle of next week. However, according to people involved, the lender has not yet decided on whether it will sell the loans in a single portfolio deal, or break them up into smaller packages.

One quirk of the AIB portfolio is the small size of the non-performing loans, with some thought to have a face value of little more that €1 million.

The bulk of distressed loans in Ireland have been taken over by Nama. However, the agency will not take loans with a value of less than €20 million, leaving the lenders to dispose of them.

Both Lloyds and RBS, the UK government-backed lenders, are close to completing large disposals of domestic debt, while Lloyds this week also sold more than £1 billion worth of Australian and New Zealand property loans.

As well as disposing of distressed loans, many European banks are slowing, or, in some cases, suspending, new lending to the property sector.

France’s Société Générale and Eurohypo, the real-estate arm of Commerzbank, have temporarily frozen new lending.

It is unclear what kind of impairment AIB would have to take on the original €1.4 billion value of the loans. The four main banks – AIB, Bank of Ireland, Irish Life Permanent and EBS – are being forced to shed non-core loans to clean up their balance sheets.

Under the EU-IMF bailout programme the banks must remove €70.4 billion of non-core assets from their balance sheets by 2013 to wean themselves off emergency funding provided by the ECB and the Central Bank of Ireland. – (Copyright The Financial Times Limited 2011)