Thousands of mortgages could end up in the hands of private equity and hedge funds under an IMF proposal to shrink the size of Irish banks next year, according to a source briefed on the matter.

Under the plan, the banks would move tranches of loans, possibly including trackers and other problem mortgages, into special-purpose vehicles or joint ventures with special distressed debt investors

The banks could then hold the assets off-balance sheet, where they would not be counted against capital, until buyers could be found or the loans were paid off.

Some market sources are expecting the IMF to push for deep discounting and forced sales to realise value quickly.

It is understood that part of the EU/IMF bailout fund will be used to provide back-stop capital and credit enhancements to entice specialist buyers – most likely private equity firms and hedge funds – to pick up the portfolios at bargain prices.

Such a plan would be similar to one executed by IMF official Ajai Chopra when he was part of the Korean bailout in 1998.

One chief executive of a guaranteed bank told the Sunday Tribune he expected forced sales of loan books under IMF-led deleveraging and said there would be opportunities for specialist funds. He said it would be difficult to find buyers for tracker mortgages, however, but that there would be interest in performing commercial loans. He said a workout for distressed mortgage books might require a Nama-like vehicle backed by funding from the ECB.

The Central Bank has asked banks to begin segregating their loan books in preparation for potential asset disposals designed to shrink Irish banks in line with the domestic economy.

One Dublin bank analyst said overseas mortgage books were a likely first target of any discounted disposal project.