No mortgage in BoI ‘bad loan’ pot in 90-day arrears

Protected: customers will be covered by Central Bank statutory codes of conduct. Stock image
None of the loans in a portfolio of Bank of Ireland mortgages classified as non-performing by regulators is more than two months in arrears, and the average loan-to value ratio is over 80pc, the Irish Independent has learned.

Under intense pressure from regulators to cut its stock of non-performing loan exposures, Bank of Ireland is planning to bundle up around €375m of mostly restructured buy-to-let mortgages into a so-called securitisation structure to be marketed to financial investors.

Investec’s equity analyst Owen Callan said Bank of Ireland’s own statements have made clear it would not have looked to offload such mortgages without a push from regulators, who have made it unattractive for the bank to hold onto its restructured mortgages by demanding greater levels of capital beheld against mortgages regarded as high-risk.

Ironically, in this case it means mortgages that have been restructured by the bank’s internal team more profitable for funds than for the regulated lender itself.

“The capital levels (required of banks) means that it if you are a non-bank lender it is more beneficial to have these mortgages,” Mr Callan said.

The mortgages in the Bank of Ireland pool are regarded as non-performing under European Banking Authority (EBA) and European Central Bank (ECB) guidelines because they have previously been restructured.

As a result, Bank of Ireland must hold high levels of capital against the loans which it cannot use for new lending or to pay dividends.

The bank has mandated Lloyds Bank and Morgan Stanley to run an investor roadshow in London, Paris, and the Netherlands for the deal – dubbed Mulcair Securities DAC – on April 1 and 2.

The aggregate balance of the 1,727 mortgages in the pool is €377,293,144, meaning an average loan size of €218,467. The average time remaining on the loans is 14 years – most were taken out before the financial crisis.

The arrears status of the mortgages is striking. Investors have been told that 97.51pc of borrowings are current with their monthly payments, less than 2.5pc are in arrears of two months at most.

Even so they are classed as non-performing and the proposed transaction is expected to result in a reduction in Bank of Ireland’s non-performing exposure (NPE) ratio from 6.3pc at the end of December to around 5.8pc.

Along with other Irish banks, Bank of Ireland, is under pressure from regulators to cut its stock of bad loans to the euro area average – around 3.4pc and falling.

In a statement, Bank of Ireland said borrowers will not be affected by the deal.

Existing restructuring terms will continue to be honoured by the lender, and customers will not have to take any action, the bank said.

“There will be no change to the protections currently afforded to customers under the relevant Central Bank of Ireland statutory codes of conduct, including the Consumer Protection Code,” the bank said.

“Furthermore, there is no transfer of servicing or legal title currently planned in respect of the portfolio and Bank of Ireland expects to continue to service these mortgage accounts.”

Bank of Ireland will remain the contact point for customers in all queries regarding their loan, as is the case today.”

Customers do not need to take any action but any borrower seeking more information can contact a dedicated customer phone line, the bank said.