Irish Banks Said to Face European Pressure to Write Off Loans

  • Permanent TSB share slump said to underscore need for action
  • Banks said to resist loan writedowns on optimism for rebound

Irish banks are set to face mounting pressure from regulators to write off bad loans, a person familiar with the matter said.

European authorities that now oversee the biggest Irish lenders have consistently pushed bankers to deal with the legacy of non-performing assets left over from the nation’s financial crash through measures such as loan sales. Regulators are beginning to lose patience with some lenders, meaning more urgent solutions may be sought unless convincing plans are laid out, according to the person, who asked not to be named as the deliberations are private.

The plunge in Permanent TSB Group Holdings Plc’s share price over the past three weeks underscores the need for action, the person said. Some Irish officials have pushed back against wide-scale write offs, arguing the European regulators failed to recognize progress made on reducing bad loans and the potential for the assets to rebound in value, a second person said. Write-offs would also crystallize losses, hurting banks’ capital ratios.

Bad loans remain a 900 billion-euro ($1 trillion) burden on Europe’s banking sector and a millstone crimping economic growth. They remain concentrated unevenly among countries, with Ireland still among the worst affected. In Spain, Banco Popular Espanol SA collapsed this year under a mountain of bad property debt and was sold for 1 euro in a European-brokered fire sale.

PTSB Plan

A spokesman for PTSB declined to comment. In an e-mail response to a request for comment, the Irish finance ministry said the recent momentum in bad loan reduction has been “strong,” and the nation’s banks are dealing with non-performing assets at one of the fastest clips in the euro region.

“Further work is required by all banks to continue the momentum generated since 2013, all of which is supported by a large volumes of restructures, positive economic backdrop with rising employment, lower unemployment and improving collateral values and yields,” the ministry said.

While Irish bad loans have fallen about 65 percent since peaking in 2013, they still amount to about 18 percent of total loans, European Central Bank figures show.

In March, the ECB said that a reduction in non-performing loans is a key priority of the single supervisory mechanism this year, and some banks had to drop their “wait-and-see” approach.

Dividend Concern

Failure to deal with non-performing loans could prompt regulators to make it harder for banks to pay dividends, the second person said. Permanent TSB CEO Jeremy Masding said last month that his company needs to show material progress on bad loans to pay a dividend.

The ECB said it wouldn’t comment on individual banks.

“The onus is on banks to implement realistic and ambitious strategies to address NPLs,” the ECB said in response to questions. “In its ongoing work, the ECB challenges these plans where they are not sufficiently ambitious or realistic, in line with supervisory expectations.’’

Writing off loans won’t be an exercise in wholesale debt forgiveness, or mean banks give up legal claims, the first person said.

PTSB said last month that 28 percent of its loan book was non-performing at the end of June, a level it called unsustainable, and laid out a plan to reduce that percentage to high single digits over the medium term, partly through foreclosures and portfolio sales.

At Bank of Ireland Plc, about 10 percent of loans were classed as non-performing at the end of June. In response to questions, the lender said it would be “surprised” if any such requirements to write off more loans were imposed on it, given its “absolute and relative position with challenged assets.”

Allied Irish Banks Plc, where non-performing loans amounted to 19 percent of gross loans at end of June, said it’s focused on reducing impaired loans to levels more in line with European peers, and it’s reviewing all options to do that.

— With assistance by Peter Flanagan

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