European Central Bank is putting pressure on Ireland’s main banks to deal with the non-performing mortgages on their books. The banks are coming up with ways to remove these non-performing loans off their balance sheets. Considering the possibility of special purpose vehicles (SPV) that package all of the non-performing loans. They will need to sell the majority of the stake of the SPV to investors for them to remove it from their books. By creating SPVs, banks will still be able to service and have a stake in the mortgages. They are starting to create leads on investors currently.
With the ECB already overseeing a lot of the main banks in Ireland in the end of 2014, they have cut their average of 27% of non-performing loans off their balance sheet in 2013 to 14% at the end of 2016.
In the recent years, US private equity firms have refinanced millions of non-performing loans from Irish lenders. Showing a demand for such bonds because of the great success of residential mortgage backed securitisation. The banks will need to structure any of the residential mortgage backed securitisation as off balance sheet transactions.
If Irish banks, as well as a few other countries’ banks, do not remove a lot of their non-performing loans off their books, it could cause them increased supervision, higher capital requirements, and restrictions on shareholder dividends.