Tracker solution ‘next step’

A solution to remove tracker mortgages from the Irish banks’ balance sheets would provide a significant boost to the country’s banking sector but is unlikely to be found in the next 12 months, according to a leading stockbroking firm.

Analysts at Davy Stockbrokers listed the removal of the low-yield loans from the banks’ balance sheets as one of its key priorities for 2015 alongside loan book stabilisation and the conversion of deferred tax assets (DTA) into government credits, but conceded that all are presently unlikely to happen.

In its banking review of the year released yesterday, Davy described 2014 as a transformational year for the sector which, analysts added, bodes well for increased capital market activity in the coming year.

A series of positive announcements from Nama, which sees it far ahead of its original debt redemption targets coupled with encouraging Central Bank mortgage arrears data and the improving fortunes of the main domestic banks, has resulted in a significant improvement across the sector in 2014, analysts said.

In line with Davy predictions that further redemptions by the agency were likely before year’s end, Nama yesterday announced it is to redeem a further €500m of senior debt.

The Central Bank’s latest arrears figures point towards a slight improvement in the country’s mammoth mortgage crisis with mortgages in arrears of more than 90 days falling across both owner-occupier and buy-to-let loans — another sign of an improving sector outlook.

Further improvements could be realised through finding an appropriate solution to the tracker mortgage situation, however, but with the ECB’s current reluctance to purchase whole loans it seems unlikely the situation will be resolved in the coming year.

Similarly, despite a pick-up in lending volumes in 2014 and rising approval rates, Davy analysts also admit loan book stabilisation remains some way off and will most likely feature on similar wishlists in 2016 and 2017.

It also lists the Central Bank’s proposed mortgage lending restrictions, which would impose an 80% loan-to-value cap and loan-to-income restrictions of 3.5 times a lender’s annual income, as a threat to new mortgage lending volumes.

This could be at least partly offset by banks buying performing loan books similar to the deal announced by Bank of Ireland last week to purchase €250m of mortgages from the Irish Bank Resolution Company (Ibrc).

The conversion of DTAs into government credits would benefit both the State as well as the banks