Monday, April 2, 2012

Mortgage Arrears in the Covered Banks

The release over the past few weeks of the Financial Reports of the covered banks has given a useful insight into the mortgage books of the covered banks.  All have generally followed the same template and have provided similar detail.

Here is a summary of the headline figures.


The full market figures come from the Financial Regulator’s Mortgage Arrears release.  The figure for the non-covered banks (Ulster Bank, National Irish Bank and other lenders) is the residual after the reported totals for the covered banks are subtracted.

It can be seen that there is a wide variation in the loan book performance for owner-occupied mortgages in Ireland across the covered banks.  AIB report the lowest level of arrears of 90 days or more with the highest level by far in the mortgage book of Irish Nationwide which has been subsumed into the Irish Bank Resolution Corporation.

The loss provisions follow a similar pattern with AIB allowing for a loss equal to 1.6% of the mortgage balances at the end of December.  The IBRC have allowed for a loss of over 20% on its owner-occupied residential mortgage book.

The level of arrears is higher in the non-covered banks and they make up about 35% of the market by mortgage balance.

Here is the projected stress-case loss rates from last March’s stress tests and the losses covered under the Central Bank’s three-year loss forecast on which the €24 billion recapitalisation sum was based.  Note that the figures in the stress tests relate to the 31st of December 2010 rather than the end of 2011 as with the figures above.

Mortgage Balances

There is some disagreement between the tables.  Outside of the Irish Nationwide loans, AIB has the highest projected loss rate.  The projected losses are still significantly above the provisions currently being made by the banks.


  1. Seamus

    There appears to be quite a difference between the small amount of mortgage provisions made by the banks and the amounts allowed and given to them for recapitalization.
    In my humble opinion there a a fudge going on in the accounts.
    How will anybody ever know if the 'recap provisions' for mortgage losses are used in respect of mortgage losses.

    The proper way to do this was for the banks to put these 'recap provisions' into specific reserves to be used exclusively for the purpose for which they were intended.
    Any reserves not used for a specific purpose should be given back, and not used to shore up losses in other loan sectors.
    AIB have mortgage provisions of ~300 million against a 'recap provision' (Blackrock) of ~3 billion.
    Personally speaking I would not like it at all if most of that 3 billion provision was used for commercial property losses, while the squeeze was continually put on home owner mortgages.
    Could that kind of scenario happen?

    1. Hi Joseph,

      I'm sure it could. The recap money was not earmarked in any way; it was the total that mattered. If there is internal reallocation within the banks I'm not sure there is anything that can be done.

      The €300 million provision made by AIB is specific, i.e. it is make against particularly loan. I think they also have some unallocated general provisions. When I get a chance I will check this.

  2. Seamus I presume the gross amount for the non covered only refers to those a) still trading here, b) still on the books of the Irish trading entity. As such the HBOS loans are not included?

    1. Hi Niall,

      The Financial Regulator's Mortgage Statistics are not specifically 'Banking' statistics but cover residential mortgages in Ireland. Bank of Scotland (Ireland)'s loans are included in the €113.5 billion figure.

      BOSI left the banking market in Ireland in December 2010 but if you check the FR's mortgage arrears statistics for Q4 2010 and Q1 2011 you will see that the number of mortgages and outstanding amount hardly changed. See here.

      BOSI had about €8.5 billion of mortgages with about 40,000 customers when it ceased operations and handed them over to Certus to be collected.

  3. The INBS arrears rates are shocking. Did they sell a portfolio of their better loans? If not, it looks like there's something (in addition to the rescession) going on.

    I was going to verify your numbers in the IBRC annual report, but got distracted by some other mortgage strats on pages 169 - 173.

    3 things that struck me 1. the level of arrears capitalisation in forbearance measures (this seems distinct from those 'paying something') 2. inferred loss severity of 69% on 28 property disposals. I wonder who they have recruited to sell these properties and hope it's above board. Also have they made any additional recoveries from these borrowers. 3. oh, and the level of arrears.