Permanent TSB's high level of soured loans is "dangerous for Ireland", the bank's chief executive, Jeremy Masding, said on Thursday, as he sought to defend the bank's planned €2.1 billion loan sale.
State-controlled PTSB is selling the non-performing loans (NPLs) to an affiliate of a US private equity firm.
“Our NPLs ratio is really, really dangerous,” Mr Masding said, adding that if there is another economic shock, such as an international trade war or a disorderly Brexit, these assets “are likely to cause us real difficulty in terms of our capital base”.
PTSB's deal in July to sell €2.1 billion of owner-occupier and buy-to-let loans to Start Mortgages, an affiliate of Dallas-based Lone Star, is set to reduce the bank's NPLs ratio from 25 per cent to 16 per cent. This is still well above the 3.5 per cent European Union average that regulators are pressing banks to move towards.
Mr Masding said there “has been a definite increase of engagement with the bank” by non-performing borrowers since PTSB announced plans earlier this year for the NPLs sale, known as Project Glas.
The chief executive also confirmed that the bank is planning to shift €1.5 billion of restructured loans, such as split mortgages, which continued to be categorised as NPLs, off its balance sheet within the next three to six months to move the bad loans ratio back to a single-digit percentage.
“That could be [through] a loan sale, it could be a securitisation, it could be another structure,” he said.
Securitisation
The Irish Times has previously reported that the bank is favouring a securitisation deal, where it would refinance the loans on the international bond markets in a way that allows the bank to "derecognise" the loans but continue a day-to-day relationship with borrowers.
Mr Masding said that all the loans in Project Glas were classified as non-performing, even if some of them were meeting the new terms of a restructuring arrangement. Mr Masding was criticised by Sinn Féin finance spokesman Pearse Doherty for including family homes in portfolio.
Mr Doherty highlighted the case of a borrower who had been meeting the terms of her mortgage for 19 years before falling behind in repayments earlier this year. The woman’s was €1,800 in arrears and within three days of being informed that she had cancer cells in her body, she was told that her loan was being included in Project Glas transaction.
Mr Masding said that there is no evidence that overseas buyers of soured Irish loans have been taking a harder line against borrowers, and that they are bound to meet the terms of any mortgage agreement.
“Project Glas is just one of numerous loans sales which have already taken place in this country in recent years,” said Mr Masding.
“Yet where is the so-called tsunami of repossessions which is forecast with such certainty by the same commentators? Where are the thousands of customers finding that their terms have been altered once their loans have been sold? Where are the examples of the courts allowing new owners to renege on pre-existing contractual commitments?”
