Lloyds Banking Group is actively considering the sale its remaining €5 billion-plus Irish mortgage book early next year in a move that would end its drawn-out retreat from the Republic, according to sources.
If the loans were sold in one lot, as expected, it would be the largest Irish mortgage portfolio transaction to date.
London-based Lloyds inherited Bank of Scotland (Ireland)'s then €32 billion loans after it agreed to take over Scottish group HBOS in a 2008 rescue deal engineered by the UK government. The group handed back its Irish licence two years later and started to sell down the portfolio at pace.
The group racked up £10.9 billion (€12.3 billion) of losses on the Irish loans between 2008 and 2011, according to a UK government report published two years ago.
Lloyds had £4.5 billion (€5.1 billion) of Irish retail loans as of the end of 2016, according to stock exchange filings, with the figure having increased by £457 million during the course of the year as a result of a plunge in the value of sterling against the euro. That more than offset the impact of customers repaying 3 per cent of the loans during the period.
The portfolio has a low level of impaired loans, with 3.5 per cent having been subject to forbearance by the bank as borrowers encountered difficulties. This would ordinarily make the portfolio attractive to mainstream banks in Ireland that are looking to buy performing portfolios and rebuild their balance sheets and profits.
However, sources said that a large portion of the loan book is made up of long-term interest-only mortgages, which were issued to professionals during the property boom and make them more of a play in the eyes of would-be bidders on property prices.
At the end of December, 27.8 per cent of the loans were in negative equity, meaning the size of the mortgage exceeded the value of the property, albeit that is down from 31.4 per cent in 2015.
A spokeswoman for Lloyds declined to comment on the loan sale plans.
The development comes weeks after Danske Bank, which entered Ireland in 2005 before deciding four years ago to exit the retail banking business in the Republic, agreed to sell €1.8 billion of performing mortgages to Goldman Sachs and US investment firm Pimco.
AIB is preparing to start the sale of a €3.8 billion portfolio of non-performing loans, known as Project Redwood, within weeks. This well-flagged sale includes buy-to-let mortgages as well as small business and commercial property loans.
Permanent TSB hired consultants EY in September to advise on loan sales as it prepares to move decisively on its €2.68 billion of worst-performing mortgages. These are loans in default that remain "untreated", either because the bank can't find a sustainable solution or the borrowers haven't engaged.