Permanent TSB is preparing to increase the size of a planned transaction to shift non-performing loans (NPLs) off its balance sheet in a bond refinancing to as much as a €1.5 billion, according to sources.
It was previously reported that PTSB, struggling with the highest level of NPLs among the State's surviving banks, was planning a so-called residential mortgage-backed securitisation (RMBS) of €900 million of split mortgages, where bonds would be sold to international investors backed by income from the loans.
Although PTSB has been the most active user of split mortgage restructurings for distressed borrowers in recent years – where repayment on part of the loan is frozen until a future date – it has not been able to reclassify them as “performing” loans under European regulatory guidelines.
Structuring the RMBS as an off-balance-sheet deal would allow the bank to “derecognise” them from its balance sheet from an accounting point of view, while still maintaining its day-to-day relationship with the underlying borrowers.
Sources have said PTSB is now working on putting up to €600 million of additional restructured, or treated, loans into a securitisation deal as it accelerates plans to lower its NPLs ratio. It stood at 25 per cent in June and the bank is aiming to get to a single-digit percentage.
PTSB’s agreement to sell a €2.1 billion portfolio of soured loans – known as Project Glas – to an affiliate of US private equity giant Lone Star in July will see the bank’s NPL ratio fall to about 16 per cent. A €1.5 billion RMBS transaction would cut it to below 9 per cent.
A spokesman for the bank declined to comment on the the matter.
Euro-zone banks with high levels of distressed debt have been put under mounting pressure from the European Central Bank over the past year to set out credible and ambitious plans to lower their NPL ratios to the European Union average of about 5 per cent.
Analysts at Davy said last week that, after PTSB secured a sale on the Project Glas portfolio without triggering a hit on the group’s capital position, the bank should be able to “find a solution for its €1.5 billion treated NPL portfolio in the second half on a capital-neutral basis”.
The Davy analysts, Stephen Lyons and Diarmaid Sheridan, said the 75 per cent State-owned lender may be able to free up more bad-loan provisions that had been set aside during the financial crisis, once the bank's NPLs ratio as been "significantly reduced".