Banks using staff league tables to incentivise lending

Central Bank Governor Philip Lane says ‘significant risks’ remain for Irish banks

Central Bank governor Philip Lane will face questions on the tracker mortgages controversy at the Finance Committee on Tuesday. Photograph: Eric Luke

Central Bank governor Philip Lane will face questions on the tracker mortgages controversy at the Finance Committee on Tuesday. Photograph: Eric Luke


Irish retail banks have been using league tables to incentivise staff in driving new lending without giving proper consideration to quality, the Governor of the Central Bank Philip Lane has told the Oireachtas finance committee.

Mr Lane said this emerged in recent inspections by the regulator of the Irish retail banks. Other weaknesses identified included a need for “better oversight and challenge” from boards in relation to the risk appetites of banks, which are used to govern and quantify lending decisions across sectors and borrower types.

It also included strategies focused on driving increased volumes without sufficient consideration of the risks associated with long-term lending, and the use of league tables to incentivise staff to drive lending volumes without due consideration to quality.

Mr Lane also said there have also been “far too many cases” where borrowers were denied a tracker interest rate. The Central Bank said on Monday that 8,200 cases had been identified so far as part of its industry-wide examination.

“This is absolutely unacceptable, and it is the reason why we decided that a broader examination of tracker-related issues was warranted and why we are ensuring such a comprehensive examination is being undertaken,” he said.

“Let me assure you, the Central Bank will take all necessary action to hold regulated firms and individuals to account for failures in relation to tracker mortgages. The process we are overseeing is exhaustive but takes time.”

Mr Lane said “significant risks” remain on the horizon for the domestic Irish bank, in spite of the measures that have taken place to repair their businesses. “All have relatively concentrated business models, focused primarily on Ireland and to some extent the UK. This makes them especially vulnerable to any shocks affecting the Irish economy.”

On Brexit, Mr Lane said it presented a “significant challenge” for the domestic banking sector.

“The implications of Brexit for the configuration of the Irish and European financial system depends on the agreement that will be reached. Should the UK-EU negotiations result in an agreement that retains the single passport for UK-resident entities selling into the EU, the net impact of Brexit on the structure of the European financial system may be limited,” he said.

“In other less favourable scenarios in which UK firms do not retain passporting rights, it is likely that significant migration of financial activity from the UK to the EU will occur. Depending on the outcome, the UK’s exit from the EU could have long-term structural consequences for those Irish banks with a significant presence there. This will become clearer during the next two years, as the elements of the EU-UK relationship take shape.”

He said the Central Bank would keep this and other risks “continually under review”.