Find out everything you need to know about Ireland's economy, including the latest mortgage arrears figures, AIB returning to profit for the first time since the crash and which company has revealed it is to sell almost 3% of Bank of Ireland shares.

1. March 2015
Ireland’s economy is expected to enjoy robust growth in 2015,
according to the IMF
AIB has announced its first annual profit since 2008
The FCA has approved the purchase of Topaz by SMS

2. HML News
Guest blog: Fred Crawley,
Credit Today - IFRS9; lay
the groundwork now to
avoid a last-minute rush
Fred Crawley, Managing Editor of Credit
Today, explains why with a 2018 deadline
IFRS9 may not seem urgent, but could
result in a last-minute panic for mortgage
portfolio owners if they do not lay the
groundwork now.
One theory of time management, attributed to
US President Dwight D. Eisenhower, has it
that “what is important is seldom urgent, and
what is urgent is seldom important”.
You’d be hard pressed to find an environment
that proves the exception to this rule more
neatly than the world of credit provision as it
goes through Financial Conduct Authority
(FCA) authorisation.
In the face of a regulator that has already
shown its teeth, and which is demanding
considerable administrative feats from firms, it
seems that compliance has become the
perennial hot topic: the task that is both
important and urgent.
Nevertheless, Eisenhower still has a lesson for
the market: companies that overlook important
issues beyond those that are most urgent, do
so very much at their own risk.
For me, the implementation of IFRS9 (and the
changes it will prompt for creditors) falls solidly
into this category of important but not urgent.
IFRS9 – important but not urgent?
Because while it may not seem pressing at the
moment – the change in reporting standards
won’t come into force until January 2018 – it’s
certainly important, requiring a massive rethink
on the part of any business that deals with
default risk.
The implementation will require lenders to
assess the probability of default on all
exposures, not just impaired accounts, and
make provisions for loss accordingly. As a
result, there may well be significant increases in
impairment charges across the industry.
Not only this, but businesses will need to be
sitting on a long tail of historic performance data
in order to handle this new approach to
provisioning: the bottom line is that the
groundwork for IFRS9 needs to be laid now.
If you look at things in this way, IFRS9 may be
a more urgent issue than it seems: at the very
least, it is an issue lenders still have a chance
to confront before a sense of urgency develops.
Continued over the page

3. HML News
What this means for debt purchasers
I’ve been interested to find out what IFRS9
means for the mortgage business, and also for
other verticals covered by Credit Today, for
example debt purchase. In the case of those in
the business of buying books of debt, the
changes wrought could have a dramatic effect
on portfolio pricing – and yet planning for
IFRS9 has taken a solid back seat to
discussion of FCA compliance, at least in the
discussions I have been a part of.
As such, Credit Today will be working with
HML to broadcast a webinar later this year,
looking at what businesses must do now in
terms of tracking, scorecarding, and data
curation to ensure they aren’t caught out come
2018. HML has been a good partner to work
with on this project due to the sheer amount of
mortgage data the business is sitting on – with
data for more than one million accounts on file,
covering all sorts of risk profile, it is in a good
position to model outcomes.
Indeed, during the broadcast, we hope to be
able to use some of this information for live
presentation, forecasting what may happen to
impairment charges across a number of
different portfolio types, in a number of
different circumstances, following the
implementation of the new standard.
As well as looking at HML’s core market in
property, we may also look to extend the
analysis to look at what material impact IFRS9
could have on other sectors, such as motor
finance and debt purchase, as mentioned
above.
It will be interesting to see what findings
emerge in the webinar, but even before the
number crunching one message is clear: this
is an issue that portfolio holders should flag as
important before it becomes urgent.
Disclaimer: The views expressed in this blog are Fred
Crawley's and do not necessarily reflect those of HML
Overview of the MFG
Conference.
The Mortgage Finance Gazette’s inaugural
conference was held at The Gibson Hall,
Bishopsgate, London on 11th March 2015. HML
sponsored the conference and the lunch and
our commercial director Paul Fryers spoke at
the event.
Originate, securitise, trade and repeat
Paul spoke to delegates about whether we will
see the return of the create and trade model. At
the start of 2014, HML expected several new
lenders to enter the mortgage market as a result
of lower securitisation costs, increasing house
prices and improved economic sentiment.
Indeed, we have seen new challengers to
traditional lending enter the sector, such as
Harrods Bank and Charter Savings Bank and a
consolidation in the position of existing
challengers such as Aldermore and Paragon.
The Council of Mortgage Lenders has said that
gross mortgage lending is set to climb to £222
billion in 2015, up from £206 billion last year.
This is expected to increase further still in 2016
to £240 billion. There appears to be plenty of
opportunity for new lenders to come to the fore,
as well as alternative funding lines. Two
questions can be asked; is the dominance of
big banks about to be shaken up by specialist
and niche lenders and are we set to see a re-
emergence of the originate-securitise-trade
cycle?
Securitisation fell out of favour following the
economic downturn, but when used correctly, it
can increase the supply of credit, in turn
supporting financial recovery.
Continued over the page

4. HML News
Unlike some deals at the height of the boom,
today’s securitisation deals are much clearer,
with extensive ongoing loan level reporting. It
is telling that the regulator and the Bank of
England have asserted their confidence in
securitisation, so long as it is deployed in the
right way.
Investors, asset traders and lenders coming to
prominence are in a much stronger position
(thanks to improved confidence and macro-
economics) to originate new loans, securitise
their portfolios and trade - raising funds and
repeating the process. Portfolio trades can be
a robust foundation for asset traders to quickly
scale up, enabling them to expand the
originate-securitise-trade model to maximise
return on investment.
FCA approval received for
SMS acquisition of Topaz.
Specialist Mortgage Services (SMS), a
subsidiary of mortgage administration
company HML, has received Financial
Conduct Authority (FCA) approval for its
acquisition of Topaz Finance Limited (Topaz)
from the Royal Bank of Scotland.
Topaz is the master servicer for approximately
£700 million of residential mortgages held in
the Uropa Series I and Series II
securitisations. SMS is a specialist manager of
mortgage portfolios, managing master
servicing and applying its advanced analytics
and mortgage expertise to enhance the
performance of mortgage portfolios on behalf
of the beneficial owners of those assets.
Andrew Freeley, managing director of
SMS and proposition director at HML,
said: “We are delighted that the FCA has
approved the purchase of Topaz. The acquisition
of Topaz supports our strategy, giving us further
scale and enhanced capability in mortgage
portfolio management. With HML being the clear
market leader in mortgage servicing, the ability to
deliver the most advanced end-to-end mortgage
management solution in the market sets us apart
from our competitors.
“The commitment by Computershare to grow the
loan servicing business is significant and the
acquisition by SMS of Topaz is an important part of
this strategy. Now we have FCA approval, we can
progress our plans to grow our business and
support asset traders and other investors in their
mortgage portfolio acquisition strategies.”

5. Industry Statistics
Date reflects what the statistic was during that period, rather than when the statistic was published
Consumer Price Index (Central
Statistics Office)
FEB ‘15
-0.5%
JAN ‘15
-0.6%
DEC ‘14
-0.3%
European Central Bank (ECB)
Base Rate
MAR ‘15
0.05%
FEB ‘15
0.05%
JAN ‘15
0.05%
Unemployment Rate (Central
Statistics Office)
FEB ‘15
10.1%
JAN ‘15
10.3%
DEC ‘14
10.6%
Average National House Prices
(Myhome.ie)
Q4 ‘14
Up 0.6% from Q3
€194,000
Q3 ‘14
Up 1.4% from Q2
€193,000
Q2 ‘14
Up 1.3% from Q1
€190,216
Arrears
(Central Bank of Ireland - CBI)
PDH – total
PDH – 90 days+
BTL – total
BTL – 90 days+
Q4 ’14
110,366
78,699
35,583
29,224
Q3 ’14
117,889
84,955
38,463
31,619
Q2 ’14
126,005
90,343
39.669
31,749
Home Repossessions (CBI)
PDH
BTL
Q4 ‘14
1,393
634
Q3 ‘14
1,274
634
Q2 ‘14
1,110
611

6. Industry Statistics
Consumer Price Index
The CPI in February was 0.5% lower than the
same month in 2014. Notable downward
pressures came from the Transport (7%),
Clothing and Footwear (3%) and Food and
Non-Alcoholic Beverages (2.9%) sectors.
ECB Interest Rate
The ECB base rate remained at 0.05% in
March. Mario Draghi, president of the
ECB, said: “We have already seen a
significant number of positive effects from
these monetary policy decisions. Financial
market conditions and the cost of external
finance for the private economy have eased
further, also following our previous monetary
policy measures. In particular, borrowing
conditions for firms and households have
improved considerably. Moreover, money and
credit dynamics have been firming.”
Unemployment Rate
The unemployment rate stood at 10.1% in
February 2015, down from 10.3% in January.
This represents 355,600 individuals
unemployed when seasonally adjusted.
House Prices
The national average house price in Ireland
stood at €194,000 in Q4 2014, a 0.6%
increase on the previous quarter, according to
Myhome.ie’s analysis of asking prices.
During 2014, house prices rose nationally by
2.6%, the strongest year for value growth
since Q2 2007.
Angela Keegan, managing director
of Myhome.ie, said: “The Property Price
Register indicates that in the year to
September over 27,000 transactions had
taken place.
Based on current trends, total transactions in
2014 look set to hit the 40,000 mark, an
increase of 38% on the 29,000 recorded in
2013. This is very heartening and while still
short of the level required for a properly
functioning property market it shows the
recovery is gaining ground.”
Arrears
Principal Dwelling Houses (PDH)
The number of PDH mortgage accounts in
arrears declined by 6.4% between Q3 2014 and
Q4 2014. Out of the total mortgage accounts,
14.5% were in arrears, representing 110,366.
The number of PDH mortgage accounts in over
90 days of arrears also declined during Q4,
falling by 7.4%. These accounts totalled 78,699
10.4% of all the PDH mortgages in arrears.
Accounts in arrears of more than 720 days
increased in number by 294 during Q4, the
lowest increase recorded to date. The total
outstanding balance on accounts over 720 days
in arrears was €8.2 billion, 7.9% of total
outstanding balances.
Buy-to-let (BTL)
The number of BTL mortgage accounts in
arrears decreased between Q3 and Q4 2014 to
35,583 (25,2% of the total accounts).
Home Repossessions
At the end of Q4 2014, there were 1,393 PDHs
and 634 BTLs in lenders’ possession. Of the
PDHs, 429 were taken into possession during
the quarter, 123 of which were the result of a
court order, while 306 were abandoned or
voluntarily surrendered.

7. Top News Stories
Ireland will enjoy robust
economic growth in 2015.
This is according to a new report from the
International Monetary Fund (IMF), which
noted that falling energy prices have helped to
aid increased consumption.
The country is also experiencing a
combination of improving bank profitability,
climbing mortgage approvals and the support
of low-cost funding channels for lenders.
With the budget forecast to have a 2.7% of
GDP deficit this year, Ireland looks set to exit
the EU’s Excessive Deficit Procedure.
The IMF report stated: “Executive
Directors welcomed Ireland’s strong economic
recovery, the further decline in unemployment,
and the strengthened fiscal balances.
“They noted that medium-term growth
prospects appear favorable, though facing
headwinds from risks of protracted slow
growth in advanced economies, especially the
euro area.
“Directors agreed that the priority is to
maintain solid growth, which would require
continued prudence in fiscal and financial
policies to build policy space, while addressing
legacy issues in the banking and housing
sectors.”
Owners of sub-prime
mortgages are increasing
legal action against
customers.
Michael McGrath, Fianna Fáil’s finance
spokesman, made the comments after
requesting arrears statistics from finance
minister Michael Noonan.
The figures show that at the end of December,
19,935 mortgages issued by sub-prime lenders
were in arrears of 90 days or more. This is an
increase from the 18,064 noted at the end of
September.
The sub-prime sector accounts for 18.6% of all
residential mortgages that are in arrears of
more than 90 days.
Mr McGrath commented: “There is a
clear need for a specific response to the
problems of this sector including clear targets
for resolution measures. The first proposal I
would make it to extend the Mortgage Arrears
Resolution Targets to the sector. Currently, the
targets only apply to the six main banks
operating in the state.
“In addition, there would be considerable merit
in establishing a dedicated mortgage to rent
scheme targeting this group of loans which
would potentially prevent thousands of families
from being evicted from their homes. Finally, the
Central Bank investigation in to the sector
needs to be expedited as the people affected
need practical support now.”
AIB has made its first annual
profit since 2008.
The bank revealed group pre-tax profit of €1.1
billion for the year ended December 31st 2014, a
€2.8 billion improvement on 2013.
In addition, the total number of impaired loans
has fallen by almost a quarter since December
2013 and the number of accounts in arrears for
owner-occupiers has declined by 22%.
Continued over the page

8. Top News Stories
AIB’s chief executive officer David
Duffy said: “2014 saw AIB successfully
execute its three-year plan to deliver a bank
that is sustainably profitable, adequately
capitalised and appropriately funded. We have
a strong momentum in our business and are
committed to supporting our customers by
understanding their needs, providing suitable
solutions and serving them through our
branches, online or on the phone. We are
focused on growing our lending to support the
Irish economy and delivering sustainable
returns for our shareholders.”
Approximately 16,000 customers were granted
approval for a mortgage last year, with around
15,500 Irish small and medium-sized
enterprises supported, the bank revealed.
Lending drawdowns also rose by 50% in 2014
compared to the previous year.
Meanwhile, it has been suggested that AIB’s
director of retail and business banking Bernard
Byrne is the current favourite to replace Mr
Duffy as CEO.
Speaking to the Sunday Independent, Mr
Noonan said a second round of interviews
would soon be underway.
Mr Duffy is taking on the chief executive role at
Clydesdale Bank in Scotland. According to the
newspaper, other internal candidates that
could become his successor including Fergus
Murphy, director of corporate and institutional
banking and Mark Bourke, chief financial
officer.
PTSB plans to raise €525m
from private investors.
In the lender’s financial results for 2014, it
noted that it intends to use €400 million of this
to repurchase contingent capital that is
currently held by the state.
PTSB also revealed plans to sell around €5
billion in non-core assets. Of this, €3.5 billion is
from the CHL mortgage book (50% of the total
book) and €1.5 billion represents a portfolio of
mainly Irish commercial properties.
An agreement to sell the CHL legal entity and
its loan servicing platform has also been signed.
A profit before exceptional items of €5 million
was posted for 2014, an improvement from the
previous year’s loss of €694 million.
There was also a decrease of 8.000 mortgage
accounts in arrears of more than 90 days, a
decline of 32% from the peak in 2013. Almost
27,000 long-term and sustainable treatments
have been offered to customers in arrears.
Commenting on the results, Jeremy
Masding, group chief executive, said:
“The sale of these non-core loans is a key
objective for the Group and it will allow us to
concentrate on our core retail banking business
in Ireland. Completion of the three transactions
announced today [11th March] will mean that we
will have completed over 50% of our total
deleveraging target for non-core loans; this is
well ahead of schedule.”
Fairfax Financial plans to sell
2.9% of Bank of Ireland.
The company was one of several North
American purchasers that took a combined 35%
stake in the bank in 2011.
Fairfax expects to sell 935 million shares. On
the basis of Bank of Ireland’s closing price on
31st March, this would provide Fairfax with a
€266 million profit.