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Bank of Ireland reweights mortgage loans, takes capital hit

Bank of Ireland has increased its estimates of the riskiness of part of its mortgage loan portfolio ahead of a supervisory crackdown on internal risk-weighting models, but partially offset the resulting hit to its capital ratio by taking out insurance against losses on business loans, it said Dec. 23.

The average risk weighting on the bank's mortgages in the Irish Republic will rise to 34%, preempting the European Central Bank's targeted reviews of internal models due early in 2017 and reducing the group's fully loaded common equity Tier 1 ratio by about 60 basis points, the company said.

This will be partially compensated by a roughly 40-basis-point CET1 gain from a credit risk transfer on a €3 billion portfolio of business banking and corporate loans. This involves a credit default swap backed by €185 million in credit-linked notes issued to a small group of international investors, Bank of Ireland said. The investors will assume responsibility for the risk-weighted assets on the loan portfolio in return for an initial annual coupon of €21 million. The deal will not remove assets from the bank's balance sheet.