Spreads higher for new lending than legacy loans, says Deutsche Bank

Ireland is one of a handful of countries in western Europe where the spreads on home loans are higher for new lending than for their so-called back books, or legacy loans, according to a note from research analysts at Deutsche Bank.

Figures for May show that Irish banks had a margin of 3.09 per cent for new lending and 2.27 per cent for its back book. This equates to a spread of 81 basis points, a number bettered only in Portugal at 114 basis points.

A different picture emerges for non-financial corporations. In Ireland, the margin on new lending is 2.5 per cent and is 2.93 for its back book.

The lower back book figure for Irish home loans is probably driven by the large volume of tracker mortgages, which are pegged to the rock-bottom ECB rates.

In terms of lending trends, the report shows redemptions in Ireland continue to outpace new loan growth.

Net volume growth was negative in Ireland, Austria, Spain and Portugal. Loan growth was most positive in Belgium, Germany as well as France and to a smaller extent UK. Spain and Ireland showed the sharpest contractions.

Deutsche Bank has incorporated figures for Bank of Ireland and Permanent TSB, the two Irish financial institutions with a main market listing, into its figures. Deutsche Bank has a "hold" recommendation on Bank of Ireland and PTSB. Its target price for Bank of Ireland is 30 cent and for €2.20 for PTSB.