Permanent TSB has put as much as €4 billion of non-performing mortgages up for sale under its so-called Project Glas portfolio, triple the amount previously envisaged by management at one time, it has emerged.
The size of the planned transaction is equivalent to almost a fifth of its current total loan book.
Sources said the portfolio had been sub-divided into two portfolios: almost €1 billion of “untreated”, soured buy-to-let mortgages, known as Project Nepal; and about €3 billion of restructured as well as untreated owner-occupier loans, dubbed Project Tibet.
PTSB, which hired EY in September to advise on options, had originally planned to sell an initial portfolio of between €1 billion and €1.2 billion of non-performing loans (NPLs). However, it is understood that the bank decided to scale up the deal given current interest in the market for larger portfolios.
Lloyds Banking Group currently has its remaining €5 billion of Irish mortgages on the market, while AIB has a €3.75 billion portfolio of commercial real estate and buy-to-let loans on the block.
It is understood that the PTSB owner-occupier portfolio contains some extreme cases where borrowers in default have not engaged with the lender for up to seven years, and where others have re-defaulted on restructuring agreements.
However, it also includes a large portion of so-called split loans, where repayments on part of the original mortgage have been put on ice over the long term. These loans are still seen as non-performing by regulators, even though the borrowers are adhering to their new terms. A spokesman for the bank declined to comment on the break-down of Project Glas, which it announced on Tuesday.
Mounting pressure
While Irish lenders have reduced their level of NPLs to 11.6 per cent last June from 14.6 per cent 12 months earlier, according to a European Commission report published last month, they are under mounting pressure from the European Central Bank to reduce the ratio to the European Union average of about 4.6 per cent.
PTSB had the highest level of NPLs in the Republic last June, at 28 per cent, roughly split between loans that have been restructured and are generating cash for the bank, and loans that haven’t been treated, either because the bank has been unable to find a solution or the borrowers have refused to engage.
The planned loan sale would cut its NPLs to about 10 per cent.
The AIB portfolio currently on the market, known as Project Redwood, has reportedly attracted initial bids from Wall Street giant Goldman Sachs, private-equity firms Lone Star and Cerberus and investment firm Pimco, with a deal expected to be completed in June.
Bank of Ireland has also been in the market in recent times for performing portfolios and is expected to look at some of the PTSB owner-occupier portfolio.
Fianna Fáil spokesman on finance, Michael McGrath TD, warned on Thursday against the sale of the loan books currently on the market to so-called "vulture funds" that are unregulated.
“These funds are accountable to nobody and are completely behind the reach of the Central Bank,” said Mr McGrath, adding that rules enacted in 2015 to protect borrowers caught up in loan-sale situations relate only to firms that service those loans for the buyers, usually on an outsourced basis, are “half-baked measures”.
“In many cases, these funds refuse to engage with the borrower and seem intent on securing the underlying property,” said Mr McGrath.
