* Under pressure from ECB, PTSB kicks off bad loan sale
* Analysts say political opposition could lower sale price
By Padraic Halpin
DUBLIN, Feb 20 (Reuters) - Ireland could consider boosting protection for borrowers whose loans are sold to unregulated funds, Prime Minister Leo Varadkar said on Tuesday, amid political opposition to a planned sale by majority state-owned permanent tsb (PTSB) .
Irish banks are still grappling with large stocks of legacy bad loans a decade after a severe property crash and PTSB in particular has come under pressure from European Central Bank supervisors to cut its level of non-performing loans (NPLs).
The mortgage lender, whose NPLs represented 28 percent of its loan book at the end of June, last week kicked off a formal sales process for some of those loans.
Challenged loan books have been snapped up by large private-equity and investment firms in the past and Ireland's main opposition party Fianna Fail, whose backing Varadkar's minority government relies on in parliament, introduced proposed legislation on Tuesday to extend regulation to such funds.
"I know there is considerable concern out there. If additional protections are required, we are certainly open to considering that," Varadkar told parliament, adding that Finance Minister Paschal Donohoe would meet Fianna Fail to discuss the bill later this week.
"Obviously that has to be done within the constraints that we're under. The Single Supervisory Mechanism has determined that PTSB is carrying too many non-performing loans, it is necessary that that bank should continue to improve its balance sheet in order to protect its customers and staff."
Currently unregulated buyers use regulated 'credit servicing firms' to service acquired loans, prompting Davy Stockbrokers to call the bill "an unwelcome and unnecessary development" given consumer protections already in place.
Analysts at Davy, Investec and Goodbody Stockbrokers all said any onerous restrictions imposed on buyers would likely lower the price achieved for future portfolio sales and legislative changes could also delay those sales.
The lower the price, the more excess capital PTSB would have to use up to account for the loss on the original book value. The 75-percent state-owned lender has said it must make progress on its NPLs before seeking regulatory approval to resume dividend payments.
(Reporting by Padraic Halpin; Editing by Adrian Croft)
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