Saturday 21 October 2017

More than 25pc of main banks' loans 'bad' – IMF

Toxic €55bn of lending by AIB, BoI and PTSB 'hinders growth'

IMF managing director Christine Lagarde jokes with Taoiseach Enda Kenny at the G8 summit at Lough Erne in Fermanagh
IMF managing director Christine Lagarde jokes with Taoiseach Enda Kenny at the G8 summit at Lough Erne in Fermanagh
Colm Kelpie

Colm Kelpie

MORE than a quarter of loans in the State's main banks have gone bad, the International Monetary Fund has revealed.

This equates to more than €55bn worth of loans in AIB, Bank of Ireland and Permanent TSB. The Washington-based lender warned these loans were hindering new lending.

Completing its 10th review under the bailout programme, the IMF said economic recovery was not yet well established with risks to debt sustainability remaining.

IMF deputy managing director David Lipton said that two-and-a-half years into the programme, the authorities continue steadfast implementation.

"Improved market sentiment and the recently approved extension of EFSF/EFSM loan maturities have been reflected in a decline of bond yields," Mr Lipton said.

"Yet economic recovery is not well established and risks-to-debt sustainability remain. Strong policy implementation and timely delivery on European pledges to enhance programme sustainability remain key."

The short statement from the IMF follows the latest review from the European Commission which lambasted the Government for the lack of progress in pushing through vital reforms, particularly to help the unemployed get back to work.

Austerity

In a strongly worded criticism of the Coalition's implementation of major reforms, the European Commission also singled out the delays in changes to legal services, the creation of a credit register, introduction of water charges and cutting the cost of drugs.

The IMF said that the economy grew modestly for a second year in 2012 and that "positive signs" were emerging, pointing out that employment rose just over 1pc year-on-year in the first quarter of 2013, though the rate of employment remains high at 13.7pc.

It said the finances remain on track and that any changes to the austerity regime should not take place until the Budget later this year.

"Fiscal policy remains on track to achieve the 2013 targets and the authorities' commitment to achieving targeted pay and pension savings is welcome.

"Any reassessment of the fiscal consolidation path should await Budget 2014 and focus on safely reaching medium-term targets in a growth-friendly manner, where savings from the promissory note transaction provide an opportunity to help build buffers against shocks."

The IMF said public debt is expected to peak at about 123pc of GDP this year.

But it added: "In the banking sector, just over 25pc of loans are non-performing and losses persist, hindering new lending," the IMF statement said.

"Addressing these issues is the focus of the authorities' preparations for entry into European banking union ahead of the European stress test exercise next year."

Mr Lipton said the stress tests of Ireland's banks next year will be aligned with those taking place in Europe.

"In the interim, the authorities will undertake all the necessary preparations, including a comprehensive asset quality review and an operating profit analysis, and banks will take appropriate remedial actions if needed," he said.

He said monitoring banks' performance against the targets for resolving mortgage arrears was also particularly important.

"Work outs of small- and medium-enterprise loans in arrears are needed to help support growth and jobs," Mr Lipton said.

Irish Independent

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