Irish lenders returning to pre-collapse practices: lending regulator

'Don't forget the lessons of the bubble years,' says Ed Sibley

1st October, 2016
Central Bank deputy governor Ed Sibley. Pic: Central Bank of Ireland

Ireland’s top bank supervisor has warned that there are signs that the country’s financial institutions could be returning to pre-collapse lending practices.

In a speech delivered on Friday to the Banking and Payments Federation of Ireland, Central Bank director of credit institutions supervision Ed Sibley sent a shot across the bows of lenders, urging: “We must not forget the lessons from the bubble years and the more recent past, such that we never again have such a catastrophic and systemic failure of lending standards and practices.”

“Some memories do appear to be surprisingly short, both within banks and outside them. We have already seen some evidence of a return of more aggressive lending practices and cultures, and issues with risk appetites, the pricing of loans relative to risks and the effectiveness of board oversight of new lending,” he said.

The remarks will doubtlessly reverberate through the banking industry at a time when many lenders and market observers are calling for a relaxation of the Central Bank’s rules on income and value multiples which govern mortgage lending. A review of the rules is set to be published next month.

Addressing the mortgage rules, Sibley said: “I do want to reiterate that the design and calibration of the mortgage measures is based on published economic analysis and available empirical evidence... They are in place to protect both banks and borrowers from excessive and unsustainable levels of indebtedness, which has caused such problems in the past and that we continue to work to resolve.”

During the speech, which was focused on the management of distressed loans in the Irish finanancial system, Sibley revealed that almost one in every five Irish loans is still underperforming as the system struggles to cope with the long term effects of the financial crisis.

There are still €45 billion of non-performing loans on the balance sheets of Irish banks, representing 19 per cent of their combined balance sheets. While acknowledging that major progress has been made on management of NPLs, he said that a “significant challenge remains”.

“[The loans] are a blight on lenders, on borrowers and the wider economy. They directly impact on the pricing of new and existing lending. Similarly, they are likely to stifle competition through dis-incentivising new entrants due to the uncertainty of the recoverability of loans,” he said.

He said that there was evidence of a “sustained and sustainable” reduction in the level of non-performing loans, but tempered his praise for banks efforts, adding: “And yet, and yet... €45bn is a huge number. It still represents 19 per cent of loan books. Ireland still has one of the highest percentage of NPLs in the Eurozone.”

He pointed out that Retail NPLs, which largely comprise of mortgage lending, accounted for 40 per cent of non-performing loans two years ago, but that has risen to 60 per cent today.

“In other words retail NPLs are falling at a slower pace than non-retail NPLs,” he said.

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