The Central Bank's head of banking supervision Fiona Muldoon has sharply criticised the banks for their slow progress in tackling mortgage arrears cases saying that the scale of the problem showed that "wait and see" had become the strategy of choice for lenders.

Speaking to the Irish Banking Federation's annual conference, Ms Muldoon questioned the commercial rationale behind the "wait and see" strategy for dealing with mortgage arrears.

"Further falls in asset values have just simply increased ultimate losses for both bank and borrower alike," said Ms Muldoon, who is the director of credit institutions and insurance supervision at the Central Bank.

Revealing for the first time that there were 48,000 buy-to-let mortgages either in arrears or which had been restructured to help struggling borrowers, Ms Muldoon berated the bankers for failing to offer meaningful solutions to the mortgage crisis.

"Stuck in stasis, but least hunting with the pack, I see too much 'activity' and not enough 'outcome'," she said.

"I see too much ‘give the Central Bank exactly, literally, what they asked for’ and not enough true dialogue and meaningful engagement to find a solution. I see way to many ‘extend and pretends’ masking as solutions.”

She asked the bankers whether they were instead hoping for an economic recovery or an increase in house prices or that the new personal insolvency legislation would deal with arrears cases.

"This is the stuff of denial. Hope is not a strategy – any more than anger," she said.

The approaches of the banks to mortgage arrears resolution strategies directed by the Central Bank was "characterised by reluctance, a preference for the status quote or an adherence to the letter of the request rather than the spirit," she said.

She likened her role with the regulator and the banks on getting lenders to progress strategies to deal with mortgage arrears to that of a parent and teenager.

“The Central Bank has led on the issues; the banks have waited to be told what to do and not particularly liked it when we have done just that,” she said.

She told the conference that bankers needed to “move on” from the mistakes of the past and to concentrate on fixing them but that a culture of leadership was missing from the industry.

"Forget about humility and get busy fixing," she said. "What is needed now is authentic leadership, not humility; some courage to act."

The Central Bank has directed banks to start offering customers long-term mortgage forbearance products - such as split mortgages where repayments on part of the debt are reduced for a long period of time - after piloting the products with small numbers of customers over recent months.

Ms Muldoon said that of the 168,000 owner-occupier customers who were in arrears, half of them by value and by number had "no formal arrangement in place".

"The economic milk spilt in poor lending, the losses already incurred, have not even begun to be cleaned up," she said.

Her presentation showed that 167,000 mortgage accounts with €35 billion of debt, including buy-to-let mortgages, were in arrears at the end of June 2012, while a further 51,000 cases with €9 billion in debt had been restructured but were not in arrears.

Ms Muldoon said that progress in dealing with arrears on buy-to-let mortgages was even slower than on owner-occupier mortgages.

"And this is where the emotional issues surrounding the family home are not even in play," she said.

Some 37,000 buy-to-let mortgages with debt of €11 billion were in arrears at the end of June and a further 11,000 with €2 billion of debt had been restructured but were not in arrears

John Reynolds, IBF president and chief executive of KBC Bank Ireland, said that resolving mortgage arrears was "frustratingly slow" but that it reflected the scale of the problem. Criticism of the banks' short-term forbearance was "misplaced and unfair", he said.

The banks were devoting "huge resources" to deal with customers in difficulty and that the measures would prove to be effective over time, he said.

John Moran, secretary general of the Department of Finance, told the conference that there had to a "dramatic write-off of debt" for households that could not afford to repay.

Mr Moran said that there were situations where repossessions were going to occur and that people needed to change their expectations from the boom times and that in some cases customers would have to trade down from houses they can no longer afford.