AIB to write off unsustainable debt
Allied Irish Banks chief executive David Duffy said the lender will write off unsustainable debt as it looks at "the principle of affordability" of borrowers' repayments.
The bank would, however, not engage in "debt forgiveness" where borrowings "magically go away" and the issue of moral hazard becomes "a very dangerous territory", he told the Oireachtas Committee on Finance, Public Expenditure and Reform.
The bank is looking at "the principle of affordability to try to address with people what is sustainable and yes, there will be write-offs," he said."It's looking at that rather than looking at blanket forgiveness." The bank is not capitalised to solve borrowers' negative equity, he said.
The committee heard seven out of 10 distressed mortgage holders who switched to interest-only mortgage repayments were meeting their repayments.
Approximately 33,000 of the AIB's mortgage customers are in difficulty with mortgages.
Earlier, Alan Dukes, chairman of Irish Bank Resolution Corporation, told the committee the bank is hopeful the final cost to the State of the Anglo wind-down will be “closer to €25 billion” rather than within a previous €29 billion to €34 billion estimate.
He told the committee that the lower figure was “highly contingent” on the Irish and UK property markets not deteriorating further, the performance of the Irish economy, the euro crisis not deepening and a possible restructuring of the promissory notes used by the Government to cover the cost of the nationalised bank.
Mr Dukes said the bank was “extremely vulnerable” to what happens in the euro zone and that there was a “serious downside risk” to property markets deteriorating further.
He said if the maturity or interest paid to the bank on the promissory notes or State IOUs changes following the restructuring of bank debt it could affect the interest accruing to the bank and the cost of the bank to the State.
Mr Dukes said that the bank was not involved in the discussions between the Government and the European authorities on the possible restructuring of the promissory notes and that he didn’t know how they might be changed or the effect on the bank.
The interest paid on the promissory notes and money recovered from loans being repaid and assets being sold is used by the bank to repay emergency lending to the Central Bank and the European Central Bank, which stands at €42 billion, the bank told the committee.
Mr Dukes said the bank noted the recent criticism by the Central Bank’s banking regulator Fiona Muldoon that the banks were not moving fast enough to tackle problem mortgages.
IBRC, which manages the former residential mortgage book of Irish Nationwide, wanted to be “decisive and creative” in dealing with mortgages that people could not afford to repay, he said.
He described the situation as “extremely difficult” for mortgage holders and said that it would take time to “construct solutions that will work”. The real test was not in launching the new products to help the borrowers but that the solutions actually work, he said.
The bank was looking at going beyond these mortgage products being developed by the banks for the customers in the greatest difficulty to relieve the burden of debt on consumers to stimulate a recovery in the domestic market in the short term, he added.
Mr Dukes said that the bank couldn’t make any comment on its litigation with bankrupt businessman Sean Quinn and his family as the legal actions were before the courts.
Additional reporting: Bloomberg