MORTGAGES:BAD MORTGAGE debts could total €9.5 billion between now and the end of 2013, under a worst-case economic shock outlined by the Central Bank yesterday.
The losses would arise under the “stress” scenario used to judge how much cash the banks could need to allow for their recovery and to reassure the markets.
The Central Bank’s figures are based on an in-depth study of the four main Irish banks by US consultants Blackrock who judge that their combined lifetime residential mortgage losses could amount to €16.9 billion under the same stress scenario.
The bulk of this – €10 billion – would come from Irish owner-occupier loans, with most of the remainder from Irish buy-to-let mortgages.
The Central Bank’s three-year figures do not exactly reflect BlackRock’s assessment because of the extended maturity of some loans.
The worst offender under the Central Bank’s three-year stress circumstances would be AIB, which the Central Bank said could suffer €3 billion in mortgage losses, representing almost 10 per cent of its book, between now and the end of 2013.
AIB itself reckoned it would lose €1.9 billion in the same scenario.
EBS would be next in percentage terms with a €1.4 billion, or 8.7 per cent, loss, followed by Irish Life Permanent with €2.7 billion in mortgage losses, representing 7.9 per cent of its total. Bank of Ireland would lose almost €2.4 billion on its mortgage book, or 3.9 per cent.
In total, the banks’ assessment of their worst-case mortgage losses was more than €3 billion lower than that of the Central Bank.
Under a “base” scenario, which refers to mainstream EU economic assumptions and is seen as a more likely outcome, the total mortgage losses to 2013 would amount to €5.8 billion according to the Central Bank.
The banks prefer a figure of €4.6 billion. BlackRock said lifetime losses under base circumstances would be €9.9 billion.
Central Bank governor Prof Patrick Honohan acknowledged that Irish Life Permanent had a problem with its mortgage book because some 60 per cent of its €33.9 million total comprises loss-making tracker loans.
Prof Honohan described this as “built-in unprofitability” and said it was a “problem for them, going forward”.
Head of financial regulation Matthew Elderfield was, however, quick to emphasise that borrowers who held tracker loans should not worry about losing them.
He described tracker contracts as being “absolutely watertight” and warned that lenders should be “careful” in how they presented options to customers considering giving up such products.
Some bankers were under the impression that the worst-case “stress” scenario being applied by the Central Bank had drawn heavily on the experience of the US state of Nevada, which suffered badly in the sub-prime crisis.
This was, however, denied by the Central Bank.
Criteria released show the stress circumstances would include gross national product contracting by 2.6 per cent this year and by 0.2 per cent next year.
Unemployment would hit 15.8 per cent in 2012 and 15.6 per cent in 2013, while house prices could fall by 17 per cent this year alone.
