Friday 19 January 2018

Banks were 'behind the curve' on sorting out mortgages -- Honohan

Laura Noonan

CENTRAL Bank governor Patrick Honohan yesterday slated the banks for being "behind the curve" in their response to the mortgage debt crisis -- despite already having powers to waive debt on a "case-by-case basis" and implement other solutions.

Mr Honohan also criticised banks for being "under confident" in lending to small businesses, although he acknowledged that muted demand was a significant factor in the lack of credit being advanced.

The comments at a Finance Committee meeting came as Mr Honohan rejected arguments for a government-led debt forgiveness scheme, insisting there was no case for the State "telling banks how much they most or must not write down a loan by".

Banks are already waiving some mortgage debt in limited numbers and are granting "negative-equity mortgages" with his blessing, Mr Honohan said, confirming reports in the Irish Independent on Thursday.

Asked was he satisfied on a general level with the way banks were dealing with the unfolding mortgage debt crisis, Mr Honohan replied: "We're not, really.

"They didn't put enough resources into place for dealing with cases that were not going to be recovered," he added, "to really deal with them, not just say, 'We'll give you a little bit off your interest and see how things pan out.'"

The Central Bank bosses were also critical of discrepancies between the ways different banks dealt with recovering debt. "BlackRock (which did the March stress tests) reviewed practices and said it was extraordinary how different they were," Mr Honohan said. "Some banks are getting there; some are not."

Deputy Governor Matthew Elderfield added he wanted banks to be "more proactive" and show "more creativity (by) broadening the menu" of options to aid struggling borrowers.

The system could also be improved by the creation of a debt-management agency that would assist people who had borrowings across a number of banks, Mr Honohan said, or by banks taking ownership or stakes in homes and renting them back to their original owners.


On the topic of banks waiving mortgage debt for some struggling homeowners, Mr Honohan said that was "what we're aiming for" in "a very small number of cases".

"It's not standardised and it shouldn't be," he stressed. "(But) if there's a question of dealing with indebtedness that cannot be fully repaid . . . that situation needs to be dealt with."

The Central Bank bosses also defended their decision to allow banks to offer negative-equity mortgages, while banning them from advertising the service.

Asked about the level of SME lending, Mr Honohan said banks had swung from being "overconfident" to "under confident". "Banks are shy of getting into trouble again," he said.

Irish Independent

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