Irish Life & Permanent Hdgs : Update on Non-Performing Loans

Statement by Permanent TSB Bank

Tuesday 20th February 2018.
The following statement is issued in response to various enquiries in respect of the NPL issue.

Regulatory Expectations On Non-Performing Loans

The level of NPLs in certain jurisdictions has been an area of concern for European authorities. The lead regulators of the European Banking sector, the Single Supervisory Mechanism (known as the SSM) in Frankfurt, have set out clear expectations that all European banks with above average Non-Performing Loan (NPL) ratios will develop and implement measures to reduce significantly their NPL ratios as a matter of urgency. Permanent TSB (the Bank) is not alone amongst banks in the Eurozone or in Ireland in having to deal with a significant NPL issue.

The regulators in this area are clear that in dealing with this issue, the Bank must address all NPLs, whether restructured or not.

A Wide Range Of Approaches

As part of the Bank's response to this issue, it has utilised a range of innovative approaches. For example, agreements have been concluded with over 1,200 mortgage holders under which the Bank has agreed to write off outstanding debts which are owed to the Bank and linked to Investment Properties once the mortgage holders surrendered those properties to the Bank. Arrangements have also been put in place to cater for up to 1,000 mortgage customers who may be eligible to avail of the enhanced Mortgage To Rent (MTR) scheme. Under the MTR scheme, qualifying customers can remain in their homes with all debts to the bank secured by their property, written off after its sale to an Approved Housing Body.

Last week, the Bank confirmed that, in addition to these measures, it would prepare for the sale of certain NPLs to third parties (Project Glas).

Project Glas

In total, loans linked to approximately 18,000 properties are included in Project Glas; approximately 14,000 of which are Private Dwelling Homes (PDH).

The total value of all loans included is approximately €3.7 billion, with approximately €1 billion of this accounted for by properties bought specifically as investment properties (But-To-Let/BTL).

Of the remaining €2.7 billion in loans, just under €2 billion is accounted for by PDH loans which are typically owned by customers who have not engaged with the Bank, whose mortgages are unsustainable or who have been unable to meet the terms of various treatments put in place. Of this portion of Project Glas, some account holders have not engaged with the Bank for over 7 years and on average the loans are over 3.5 years in arrears. Many have made no payments at all for years.

Project Glas also includes some loans which are currently subject to agreed forbearance measures, but which remain categorised as NPLs and which, therefore, we are required to address.

It is important to note that, in preparing this loan book for sale, the Bank did exclude a significant number of customers who will be resolved through other means.

The sale of non-performing loans to third parties is common in the UK and other European countries. In the UK there are a number of examples since the current crisis began of the UK Government disposing of homeloans to third party funds.

Safeguards For Account Holders

The Bank is conscious that customer safeguards must be a key element of any NPL reduction programme. In that regard, there are a number of points worth noting;

• Under the Consumer Protection (Regulation of Credit Servicing) Act 2015, if the purchaser of a mortgage loan is an unregulated entity, then it can only deal with account holders of these loans through a Credit Service Firm (CSF) which itself must be regulated by the Central Bank of Ireland. The CSF's obligations include taking any necessary steps for the purposes of collecting or recovering payments; notifying the borrower of changes in interest rates or in payments due, and communicating with the borrower in relation to matters such as errors and complaints.
• CSFs are bound by the same regulations when dealing with account holders as currently apply to Permanent TSB and they are required to comply with the Code of Conduct for Mortgage Arrears (CCMA).
• In regard to potential legal action, the Court system does not process cases involving third party funds any differently than it does with cases brought by banks.
• Under the Consumer Protection Code (CPC) regulations, where a loan sale is eventually agreed - likely to be months from now - customers whose loans are included in the sale can expect to receive confirmation of that fact from the Bank at least sixty days before the loan transfers.
• Unlike the selling Bank, third party funds have greater flexibility to develop tailored solutions for individual home owners.

After Ten Years

NPLs are one of the last significant legacy issues of the financial crisis. All stakeholders have worked extremely hard over almost a decade to minimise the number of loans that are not performing and to give customers the space and time to try to resolve their issues themselves. However, we are now almost ten years on from the start of the crisis. A new generation of home buyers needs to be able to engage with healthy, competitive banks who can finance and purchase homes and, the banks themselves need to ensure that they are strong, profitable and capable of withstanding potential future shocks.

Given all this, and the existence of appropriate consumer protection regulation of the interaction with customers by any acquirer, the Bank believes that now is an appropriate time to implement measures that are considered part of normal banking practice in the UK and other European countries. These include allowing third parties to work out these Non-Performing Loans and allowing banks to use their resources to concentrate on providing new loans to home buyers and businesses who need access to credit.

Issued on behalf of Permanent TSB by Gordon MRM
[e-mail]
Ray Gordon / David Clerkin
Ph: 087 2417373 / 087 8301779