Ulster Bank puts €1.6bn in defaulted mortgages on market

Regulators and Oireachtas committee members clash over attitude of vulture funds

Ulster Bank: a sale of the €1.6 billion portfolio would lower the bank’s non-performing exposures ratio to 10-11 per cent.  Photograph Nick Bradshaw

Ulster Bank: a sale of the €1.6 billion portfolio would lower the bank’s non-performing exposures ratio to 10-11 per cent. Photograph Nick Bradshaw

 

Ulster Bank has pressed the button on the sale of €1.6 billion of mortgages that are deep in arrears, bringing to more than €12 billion the amount of Irish loans on the market as lenders face mounting regulatory pressure to cut their bad debt levels.

The news came as senior central bankers and Oireachtas finance committee members locked horns on Thursday over the approach that overseas buyers of non-performing loans are taking to mortgage holders in default.

The Ulster Bank portfolio, known as Project Scariff, is comprised of €900 million of owner-occupier loans across 3,600 accounts and €700 million of buy-to-let (BTL) mortgages across 2,900 accounts, is expected to be the final big portfolio sale by Ulster Bank. This follows years of restructuring at the company, a unit of UK government controlled Royal Bank of Scotland.

The average owner-occupier loan being sold has missed 43 payments and is €52,000 in arrears, according to sources. The average BTL loan in the portfolio has missed 15 payments and is €31,000 in arrears, they said. The loans are expected to sell at a deep discount to their face value.

“As signalled in February, Ulster Bank can now confirm that it has prepared a portfolio of its non-performing loans for sale,” a spokeswoman for the lender said. “This difficult decision comes a decade after the financial crisis began and the continued extension of forbearance cannot be maintained.”

Ulster Bank has shrunk the size of its loan book from almost €47 billion of advances to customers in the Republic in 2008 to €21.7 billion at the end of March, mainly through the sale of billions of euro of distressed commercial property debt following the property crash. However, the bank continues to have a 17 per cent non-performing exposures (NPE) ratio, compared to the 5 per cent European Union average that the European Central Bank is pressing all euro-zone banks to achieve.

Forbearance arrangements

A sale of the €1.6 billion portfolio, expected to be completed within six months, would lower its NPE ratio to 10-11 per cent. The average loan in the portfolio has been through three forbearance arrangements, according to sources.

Confirmation of the Ulster Bank portfolio sale means that banks in the State are currently seeking to dispose of as much as €12.3 billon of non-performing loans.

Permanent TSB has as much as €3.7 billion of non-performing mortgages on the market, while AIB has included soured BTL loans in a portfolio of up to €2 billion of NPLs it has up for sale. Elsewhere, Lloyds Banking Group has put its remaining €5 billion Irish mortgage book, mainly comprised of performing loans, up for sale as it aims to end its retreat from the Republic, which began in 2010.

Concerns over the attitude of buyers of Irish loan portfolios to distressed borrowers prompted Fianna Fáil to introduce a Bill to the Dáil in February, seeking to have so-called vulture funds regulated by the Central Bank.

However, Central Bank governor Philip Lane told the Oireachtas finance committee on Thursday that mortgage holders enjoy the same protections whether they are indebted to banks or funds. He added that service providers used by such funds are already captured by regulatory oversight.

Fianna Fáil finance spokesman Michael McGrath said that the Central Bank powers to regulate service providers were insufficient and that this point is now politically accepted, even if the Central Bank didn’t acknowledge it.

John McGuinness, chairman of the Oireachtas finance committee, said that funds are “running rings around the Central Bank in order to push people out of their homes”.

Prof Lane said that there was no real difference in repossession rates between banks and non-banks.

Meanwhile, Ulster Bank named chief financial officer, Paul Stanley, as interim chief executive with immediate effect on Thursday, as Gerry Mallon began gardening leave after handing in his notice in January to join Tesco Bank in the UK. RBS’s planned appointment of group executive, Jane Howard, to the top job at Ulster Bank is going through regulatory approvals.