Size matters when looking at ISI writedowns

Judging the success or failure of the Insolvency Service of Ireland (ISI) was never going to be easy. It is tantamount to deciding what constitutes a successful undertaker. It depends whether you are selling funerals or a potential customer.

For most of us it would be great if undertakers did no business because it would presumably mean we all get to live for ever.

And so it goes with the ISI. While it is not as simple as saying that if the ISI does no business we are all solvent, there is an argument that it mean that people are using alternative processes to resolve their debt problems.

For this to hold true the relatively low level of business being done by the ISI – just 124 deals in the second quarter of 2014 – should by the corollary of a big upswing in the number of people reaching restructuring deals directly with the banks.

No figures are available on restructuring for the second quarter, but the Central Bank has recently published data for the first quarter, which saw an increase in the number of mortgage accounts classed as restructured increase by 10 per cent to 92,442. A total of 29,801 new "restructure arrangements" were agreed during the first quarter of 2014, reflecting a 25.3 per cent increase on the number of new arrangements agreed during the previous quarter, it said.

Many of these restructuring are, however, short-term arrangements such as interest-only periods, but encouragingly the number split mortgages agreed by banks increased by 5,000 in the period.

It is too early to draw any firm conclusions and even harder to prove cause and effect, but it would look as though the existence of a viable working statutory alternative to bankruptcy has impelled the banks to engage more seriously with borrowers looking to restructure.

From this perspective the most important figure published yesterday, by the ISI, was the size of the write downs it was agreeing on secured debts, which in the main were home loans.

They varied between zero and 61 per cent with t he average being 17 per cent.

That should focus the minds of the bank manager’s even more.