Banking federation criticises €3m limit on mortgage debt

BANK REACTION:BANKS GAVE a lukewarm response to the publication of the Personal Insolvency Bill, designed to provide debt-resolution solutions to citizens who cannot repay their debts.

While the banks must consent to any prospective scheme, they will incur a loss if debts are written down.

However, Minister for Finance Michael Noonan said yesterday that banks would not require more capital as a result of the new personal insolvency measures.

The Irish Banking Federation criticised the €3 million ceiling on mortgage debt, saying it did not properly reflect the average mortgage loan in the country, and would encourage buy-to-let property investors rather than householders to avail of the scheme.

This point was echoed by head of KBC Ireland John Reynolds, who said the decision to cover debt of up to €3 million would result in “the inclusion of borrowers of a commercial nature”.

Michael McAteer, an insolvency partner at Grant Thornton Ireland, said the new personal insolvency legislation would be a “debtor-driven” rather than a creditor-driven process.

He welcomed the decision to reduce the proportion of secured creditors required to approve the personal insolvency arrangement (PIA) from 75 per cent to more than half of voting secured creditors.

“The bank would previously have had a stronger veto position if they were not in favour of the proposed arrangement,” he said.

Genworth Financial, an international mortgage insurance business with operations in Ireland,welcomed the announcement, but said there was a case for “confining the PIA to existing mortgages, since the measures are intended to help address the problems of the past”.

Christine Cullen of business information provider Visionnet.iecalled for the Bill to include a solution for individuals facing debt-recovery legal proceedings or who have been declared insolvent before the courts in recent years.

Davy Stockbrokers said the legislation was intended as a “resolution mechanism to cater for those long-term distressed debtors already out there in the system”.

“It is not expected to lead to lots of ‘new’ troubled cases,” it said. “Although it will be some time before we can fully gauge its impact, we are sticking with our mortgage loss assumptions.”