Central Bank presses lenders to write off unsustainable loans

Central Bank deputy governor Ed Sibley warned on Friday that the country's lenders, who have set aside billions of euro of provisions to absorb bad loans following the crisis, must now turn their focus to writing off loans on their accounts that will never be repaid.

Speaking a European Systemic Risk Board conference in Frankfurt on Ireland's experience in trying to address the issue of non-performing loans (NPLs), Mr Sibley said that banks have lowered their level of soured loans significantly.

However, he warned: “Accounting write-offs have not featured to the extent warranted.”

While domestic banks have slashed their NPL levels from an average of 27 per cent of their loan books in 2013 to 14.2 per cent at the end of last year, they remain well above the 5.4 per cent European Union average.

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The European Central Bank has this year been pressing lenders with big NPL problems to come up with credible strategies to draw a line under the problem once and for all. Permanent TSB has hired consultants EY in recent weeks to advise on the sale of soured loans, with the focus on its €2.68 billion of "untreated" mortgages, while AIB is known to be lining up a sale of a portfolio of problem buy-to-let and small business loans.

Banks are also expected to increase the pace of repossessions, voluntary sales and the restructuring of loans where borrowers can afford the new terms.

Addressing the NPL resolution strategies submitted by euro area lenders to the ECB’s bank supervision arm, Mr Sibley said: “Many banks have submitted credible plans. However, many more still need to improve - indeed some were wholly inadequate and in those cases, banks have been required to resubmit.”

Mr Sibley told the audience of European regulators that Ireland’s experience carries a number of lessons for other counties.

“Firstly, left to their own devices, individual banks will not resolve Europe’s NPLs alone, now matter that it is primarily their responsibility to do so,” he said. “Secondly, it’s is clear from the Irish experience that no single measure will resolve NPLs.”