PTSB revealed last Friday that it has entered into an agreement to transfer a portfolio of chiefly long-outstanding mortgages, having an overall value of €348 million, to a coalition formed of American private equity titan Apollo and loan service provider Mars Capital. The banking corporation, once identified as Permanent TSB, indicated that the transaction is anticipated to decrease its proportion of non-performing loans (NPL) to 1.7 per cent, which is under the European median value of 1.9 per cent.
In March, the banking institute’s ratio was higher at 3.3 per cent, having previously spiked at 28 per cent. To bring its NPL ratio to figures acceptable to supervisory authorities, the bank had to make several sales of their trouble loan portfolios.
The portfolio being transferred involves 1,244 loans as collateral for 1,489 properties, as specified in the bank’s announcement. Almost 83 per cent of the accounts are flagged as underperforming due to their outstanding debts status. The mean outstanding balance for such accounts is roughly €71,000, with a standard arrears duration of 22 months.
The residual portion of the portfolio qualifies as underperforming in accordance with regulatory norms and definitions. Usually, these are interest-only or part-principal-and-interest loans wherein the borrower and the bank have been unsuccessful in deciding a viable capital reimbursement scheme, as confirmed by the bank.
PTSB’s Chief Executive, Eamonn Crowley, noted that the financial institution decided on such an agreement to fortify its standing in the Irish retail banking sector and offer necessary alternatives to its clientele. He added, just like other retail banks, PTSB must keep additional capital for NPLs regulated, and this would have affected the lending power to first time buyers and other personal and business consumers if the transaction hadn’t taken place. As an outcome of this decision, Eamonn stated that they will manage to liberate capital that should provide support for up to €2 billion worth of loans into the Irish economy.
As PTSB attempts to convince regulators to allow a reduction in the implied risk associated with its loan book, which has negatively impacted its competitiveness against its larger counterparts, it has made a sale. For every £100 of mortgages the bank issues, it is required to hold capital against a risk weighting that exceeds 40%, a considerably high risk-weighted assets (RWA) density resultant from its previous experience with the arrears crisis post the financial crash. In stark contrast, the newer mortgages from Bank of Ireland and AIB have their risk weighting in the 20s, therefore allowing them a more competitive position in issuance of new business. These uneven conditions have resulted in a decrease of market share for new PTSB mortgages, which came down to 13.4 percent in the first quarter of this year from the previous 23 percent in the first half of 2024. Nevertheless, the bank has taken measures to lower specific mortgage rates in a bid to enhance its competitiveness. The expected loan sale aims at increasing the bank’s common equity Tier 1 capital ratio by 0.35 percentage points of risk weighted assets, a measure of financial robustness, which stood at 14.3 percent in March. PTSB has communicated that it will contact customers impacted by the transaction to ensure them that their terms and conditions and regulatory protections under the Consumer Protection Code and Code of Conduct on Mortgage Arrears will remain untouched. Mars Capital Finance Ireland’s CEO, Colin Maher, also mentioned his firm’s plans to communicate with the moving customers about the implications of the transaction for their loan, urging those struggling to reach out to their Dublin-based expert team for assistance.