Central Bank says lenders must tackle arrears crisis

Wed, Jan 30, 2013, 00:00

Irish banks are still dragging their feet in dealing with mortgage arrears, the Central Bank said yesterday.

At the launch of the bank’s first quarterly economy bulletin of the year, the bank’s chief economist, Lars Frisell, said the individual banks had an incentive to avoid restructuring loans and instead wait for an upturn in the property market. However, this was not in the interests of the wider economy as it perpetuated uncertainty, among other things. He added that the Central Bank, which regulates the financial system, had both carrots and sticks with which to compel the banks to act.

Debt resolution

While acknowledging that more debt resolution measures were being rolled out by banks, the Central Bank report said the level of implementation, through either debt restructuring or loan recovery, was far from adequate.

“While there is a delicate balance to be struck here, it is critical that financial institutions move to deal decisively with the issue of long-term mortgage arrears,” the report said.

According to the Central Bank’s latest data, 112,916 mortgage accounts with €24.7 billion of debt were in arrears of 90 days or more at the end of September 2012.

This comprised €7.9 billion in buy-to-let investments and €16.8 billion in owner-occupier borrowings.

In its latest economic forecast, contained in the bulletin, the bank was marginally more upbeat about employment prospects than it was three months ago.

It now projects a 0.3 per cent increase in net employment this year. While modest, this would mark the first annual increase in employment since 2007.

The economists warned that “labour costs remained elevated, particularly in the public sector”. This, they said, would slow the rate of job creation.

The bank revised downwards its forecasts for economic activity for this year on the basis of a less favourable international outlook.

Its economists predicted that gross domestic product would grow by 1.3 per cent in 2013, lower than the 1.7 per cent forecast three months ago.

The bank also said that gross national product (a narrower measure of activity) would grow by 0.5 per cent this year, down from the 0.7 per cent previously forecast.

On the basis of consensus assumptions from the main international economic institutions, the bank is projecting a slow recovery in external demand over the next two years which would see GDP grow by 2.5 per cent in 2014, with GNP expected to rise by 1.4 per cent.