Majority State-owned AIB is preparing to offload thousands of distressed mortgages secured on family homes, a politically contentious step which the bank has avoided until now.
The lender has sold billions of euro in non-performing debt in recent years, but it has all been secured on second homes or business debt. The loan sale, which has been code-named Project Birch, is being planned for early next year, likely before the end of spring.
It is likely to reignite debate about the sale of non-performing loans to so-called vulture funds. Many of the borrowers earmarked for inclusion in Project Birch have paid little or nothing towards their debts for long periods of time. Meanwhile, the bank is under pressure from the European Central Bank to bring down its record level of non-performing loans.
Debtor advocates and Opposition politicians have raised fears over the treatment of borrowers by overseas funds who have invested billions in Irish assets.
Others point out that debtors are offered the same protections no matter who owns their loan, and argue that the fears around investment funds are overblown. Both Ulster Bank and Permanent TSB have sold owner-occupier loans to investment funds this year.
AIB – which is 71 per cent owned by the taxpayer – has targeted reducing its level of non-performing loans to about 5 per cent by the end of the year, down from its current level of 7.5 per cent.
The exact size of the Project Birch portfolio will be influenced by another process, already under way. AIB is currently engaged with two charitable organisations that are bidding to take some non-performing family home mortgages from the bank. An organisation called iCare Housing, which is run by debtor rights advocate David Hall and funded by UK debt investor Arrow Global, is competing with Home for Life, an Irish entity backed by financier Arizun and another UK investor, LCM Partners, to buy the loans.
While it is not clear exactly how many loans are likely to be sold to the charitable investors, it is understood that indicative bids were received in recent days from the two organisations.
The charitable groups are likely to bid at a significantly lower level than an investment fund, as they have ruled out aggressive strategies such as home repossession, which would allow them to maximise the value from the portfolio. This will limit the bank’s ability to sell a significant number of loans to the charities, leaving the remainder likely to face inclusion in Project Birch. Three sources agreed that thousands of loans were being considered for inclusion in the larger loan sale process next year.
A spokesman for AIB said: “We remain focused on reducing non-performing exposures to more normalised levels. Supporting customers in difficulty remains a key priority for AIB, and whilst we do see loan sales as part of our overall plan, our key priority remains restructuring customers on a case-by-case basis.”