ECB calls on Coalition to step up its reforms of bank sector

The European Central Bank has called on the Government to step up its banking reforms. Its governor Mario Draghi yesterday urged “further action”.

His comments came as new Central Bank figures showed that while the pace of growth in mortgage arrears is slowing, about 23,500 mortgages have not been paid for two years or more.

Uncharacteristically low

John Moran, secretary general of the Department of Finance, told the Public Accounts Committee that the level of repossessions in the Republic was “uncharacteristically low” but that banks should soon be able to “move forward” on tackling problem home loans.

The Republic has a repossession rate of about 0.25 per cent of mortgages, compared with 3 per cent in the UK and up to 5 per cent in the US.

“It’s surprising to us that there are so few repossessions in the system at the moment, given the extent of the crisis,” Mr Moran said. “Ultimately, it is the other people in the country who are paying for these people to stay in their houses.”

Speaking in Frankfurt after the ECB’s governing council meeting, Mr Draghi praised Ireland for its economic progress but said the banking sector was a key concern.

“The Irish Government has undertaken very, very significant progress, very significant results on several fronts... but further action is needed, especially on the banking side, in the financial sector,” Mr Draghi said.

The remarks place renewed pressure on the Government to focus on its banking policy. They follow comments made in this newspaper by the head of the International Monetary Fund, Christine Lagarde, raising concerns about a “relapse” in the global economy. Ms Lagarde is due to meet the Government today.

The latest Central Bank figures showed that mortgage arrears continued to rise in the last quarter of last year, albeit at a slower pace than in previous quarters. Almost 12 per cent of private residential mortgages were three months behind in payments at the end of December, rising from 11.5 per cent in September.

There was a 14 per cent rise in the number of loans in arrears by more than 720 days, with some 23,500 mortgages falling into this category.

Mr Moran said a “large range of different options” were needed to solve the problem but noted that a workable system was almost in place as the Department of Justice moves to close a legal loophole preventing many repossessions and the new personal insolvency service prepares to launch.

He said it would be “typical” to see a greater incidence of repossession, either through voluntary surrender of a home or through the court system, where the economics of paying a mortgage no longer work.

Repossessions to rise

Mr Moran acknowledged that the rate of repossessions could be expected to rise but added that “we are starting from a base which is uncharacteristically low”.

“Maybe we will move to those levels,” said Mr Moran, referring to repossession rates in the US and the UK. “We have had as serious a crisis as everybody else.”

He said full information on borrowers in difficulty was still unclear, even to the banks themselves, and needed to become more accessible. Options such as deferring repayments on a portion of a loan, or making interest-only repayments could be sufficient to address many problem situations, he said.

AIB said in recent weeks that it would restructure 2,000 loans each month, with other banks also promising greater effort on the issue.