Bank of Ireland Group Plc said its common equity Tier 1 ratio will rise by around 50 basis points after it executed a credit risk transfer on around $1.7 billion of loan assets originated by its leveraged acquisition finance business.
The transaction involved a credit default swap backed by credit-linked notes of around $205 million released to institutional investors by Mespil Securities DAC. The assets will remain on Bank of Ireland's balance sheet.
Following the transaction, the lender expects a drop in its credit risk exposure and in the risk-weighted assets on the portfolio. In exchange of an initial annual coupon of roughly $24 million, the buyers will assume the credit risk for around $205 million of potential credit losses on the portfolio, through a risk-sharing structure.
The bank also said its net interest margin will decrease by about 2 basis points as a result of the transaction.
Meanwhile, Bank of Ireland said some adjustments in its capital requirements for Irish mortgages could be made to either fully or partially absorb capital benefits of the credit risk transfer, as the European Central Bank continues with its Targeted Review of Internal Models, or TRIM, on Irish mortgages.
Bank of Ireland Group is the parent of Bank of Ireland.
