Dire level of home loans in distress becomes all too clear


THE BOTTOM LINE:THE FULL extent of the distress in Irish home loans was laid bare in the latest set of figures published last week by the Central Bank, including for the first time mortgages that slipped into early arrears.

All the banks, with the exception of Permanent TSB, once the country’s biggest mortgage lender, have individually reported results for the first half of the year (Permanent TSB publishes its figures today). If you line the figures up, a clear picture emerges of just which lenders have the most distressed owner-occupier mortgage books.

The Central Bank’s figures to June show that 10.9 per cent, or 83,251 out of 761,000, of Irish home loans were in arrears. By value, the equivalent figure was 14.7 per cent or €16.5 billion of total mortgages of €112 billion.

All told, 168,000 mortgages were in some form of financial difficulty at the half year.

Residential mortgages at the former Irish Nationwide Building Society, now managed by Anglo Irish Bank – sorry, Irish Bank Resolution Corporation – win by a country mile the title of Ireland’s worst home loans.

Described by IBRC chief Mike Aynsley as “Ireland’s answer to subprime”, Irish Nationwide’s €1.4 billion owner-occupier mortgage book is performing horrendously. About 44 per per cent of this book was either in arrears of at least 90 days or impaired.

The best-performing book is at National Irish Bank where the bank’s low-risk policy of avoiding high loan-to-value mortgages left 90-day arrears at 3.5 per cent by number and 5.5 per cent by value of its €2.6 billion owner-occupier Irish mortgages in June.

Also, at the sunnier end of a grim scale are Bank of Ireland and AIB. The country’s two biggest banks – which are respectively 15 per cent and 99.8 per cent owned by the State – have better-performing home loans.

Bank of Ireland’s arrears of 90 days or more stood at 7 per cent of its €21 billion owner-occupier Irish mortgages (or 9.2 per cent by value) in June, while AIB’s arrears of 90 days amounted to 9.4 per cent of the bank’s €32 billion owner-occupier Irish mortgages (or 12.9 per cent by value).

These are below the average arrears figures for the industry at the half-year published by the Central Bank. Given that owner-occupier mortgages at the two banks account for just under half of the €112 billion checked by the Central Bank, this implies that arrears levels across the other lenders are far worse than both their figures and the industry average.

Of the other big home lenders, Ulster Bank and Permanent TSB as the two fiercest competitors in the mortgage market during the boom years – and Bank of Scotland (Ireland) to a lesser extent – have far greater levels of stress in their mortgage books.

Royal Bank of Scotland-owned Ulster Bank uses a classification that it calls “risk elements in lending” (reil) to describe impaired loans and loans in arrears of at least 90 days.

In the UK bank’s half-year results, RBS put 13.4 per cent (by value) of Ulster Bank’s £19 billion (€24 billion) mortgage book in the reil bucket. The bank does not, however, break out figures between owner-occupier and buy-to-let mortgages and the £19 billion figure includes mortgages in Northern Ireland.

Ulster Bank’s 90-day arrears are said to be below the Central Bank’s average but the mortgages advanced by subsidiary First Active, an aggressive lender of 100 per cent mortgages during the go-go years of the boom, pushes the arrears over the Central Bank’s average figure for the industry. (First Active was subsumed into Ulster Bank in 2009.)

Arrears at Belgian-owned KBC also rank above average. Almost 16 per cent of its €9 billion home loans was non-performing, or in arrears of 90 days or more, on June 30th.

Lloyds disclosed in the half-year results that 22 per cent of €8 billion in mortgages at the former Bank of Scotland (Ireland) were impaired, but the UK bank has not provided any breakdown on the level of 90-day arrears.

That leaves Permanent TSB – and more will be revealed today – but arrears on the State-controlled bank’s Irish home loan book, which totalled €18.7 billion of loans last December at the half-year, are said to be well above the Central Bank’s industry average.

Permanent TSB was until this year an afterthought when it came to the efforts to repair the banks. Given that the bank is almost fully State owned, one of the worst-performing mortgage lenders and the biggest Irish banking problem yet to be solved, the forensic oversight to be taken of its restructuring by new management – as set out in the latest set of EU-International Monetary Find targets published last Friday – is long overdue.

It will also be the biggest beneficiary of any EU-approved deal agreed this autumn to carve out soured mortgages – the third wave of asset purges from the Irish banks after the transfers to the National Asset Management Agency and to “non-core” units of the banks.

This deal aside, with the extent of problem home loans now clearer, the next task for the banks is to work them out, loan-by-loan.

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