Banks will be more aggressive towards defaulters, says Investec

The State's banks are set to become more "aggressive" in their approach towards borrowers in default this year, according to analysts at Investec, after the largest home lender, AIB, led the way in resorting to legal action to recover unpaid debts in 2016.

“We expect all of the Irish banks to step up their rate of foreclosures and the use of more aggressive legal options to deal with problem loans in 2017, as they start to encounter more problematic arrears solutions cases and the rate of decline of problem loans starts to decelerate,” Philip O’Sullivan, an economist with Investec, said in a note.

The comments come after The Irish Times reported on Monday that AIB issued almost four times as many High Court debt actions against borrowers than its closest rival, Bank of Ireland. The State-owned bank filed just over 1,200 applications for summary judgment last year, up from 860 in 2015.

Applications by Bank of Ireland for similar judgments fell last year to 325 from 550 in 2015, according to an analysis of court records.

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Summary judgments give a bank recourse to all income and assets of a borrower, irrespective of what was originally pledged as loan security.

“Summary judgments are typically sought where the bank believes the delinquent borrowers has not fully engaged and may have more capacity to meet their outstanding debts than they are willing to acknowledge,” said Mr O’Sullivan.

“We would see these actions typically being used in buy-to-let or strategic owner-occupier default cases, or in larger unsecured lending arrangements, where the borrower may have significant other assets or income available to them.”

Last resorts

Both AIB and Bank of Ireland have said they only use summary judgment applications as last resorts where borrowers do not engage or alternative repayment options have been exhausted.

While Irish banks have, under the direction of the Central Bank, delivered among the most dramatic reductions across the euro zone in troubled loans on their balance sheets in recent years, they continue to hold among the highest level of bad loans.

Defaulted loans at Bank of Ireland have fallen by more than 50 per cent from their peak in 2013, to €8.1 billion at the end of September. Impaired loans have dropped 63 per cent over the same period, to €10.6 billion.

However, as the pace of resolving soured loans begins to slow, some are looking at other options.

Last year AIB began to assess the possibility of selling some of its portfolio of troubled buy-to-let mortgages in significant arrears.