AIB to write off some mortgage debts but no blanket amnesty

THE REPUBLIC’S largest mortgage lender, AIB, will write off the debts of distressed mortgage holders where it finds they cannot afford to repay them, but has again ruled out blanket debt forgiveness.

The bank indicated that about 10,000 of the most distressed mortgage customers will be considered for long-term fixes, including the potential write-off of debts.

Similar relief measures are being considered by the other banks as the Central Bank has publicly criticised the banks for failing to tackle the mortgage crisis.

In his first appearance at an Oireachtas committee, AIB chief executive David Duffy warned against widespread debt forgiveness when most customers were repaying their mortgages and did not get into financial trouble by investing heavily in property. AIB would be in “very dangerous territory” where people who made “mad decisions” should get part of their debt “magically” waived, he told the Committee on Finance, Public Expenditure and Reform.

The State-controlled bank, which received a €21 billion public bailout, was instead looking at distressed borrowers case by case to assess what they could afford over their lifetimes and would then write off any debt they could not afford.

Mr Duffy said many struggling borrowers had a home loan, debt on a small business and invested in buy-to-let properties or other real estate through partnerships, family or other relationships. The bank was “disentangling” these debts while trying to keep people in their homes.

AIB also warned that mortgage interest rates could rise to 5-6 per cent over the medium term from a current level of 4 per cent as the bank returns to full health and attempts to attract investors.

Mr Duffy said that, of the bank’s 33,000 mortgage customers in difficulty, 70 per cent have been able to return to normal repayments after moving to reduced interest-only payments for a period.

The bank said the remaining 30 per cent, about 10,000 customers, would require more complex solutions and that the bank hoped to introduce some over the next year.

He rejected criticism from Central Bank regulator Fiona Muldoon that banks were in denial about the mortgage problem or that AIB was waiting for a recovery in the market. AIB management had “hardly had a weekend day free” and were “working around the clock” to deal with troubled mortgages, he said.

The bank said just €600 million of lending to SMEs this year of its €3.5 billion target for the year was new money; the remainder was the restructuring of existing debt.

Earlier, during the committee’s day-long questioning of bankers, the former Anglo Irish Bank said that it didn’t offer mortgage forgiveness to distressed borrowers.

Bank of Ireland chairman Archie Kane and chief executive Richie Boucher will appear before the finance committee today.