Business Irish

Saturday 17 February 2018

Banks will need State's backing for longer – Central Bank official

Peter Flanagan

Peter Flanagan

DESPITE major deleveraging over the past few years, Irish banks have still some way to go before they can rid themselves of public funding, the Central Bank's chief economist has claimed.

Speaking at the Bank of Finland, Lars Frisell said the banks here must wait some time before they could be weaned off state funding.

Bank of Ireland is 15pc-owned by the State, while Allied Irish Bank and Permanent TSB are more then 99pc in government hands.

Mr Frisell, who is Swedish and has direct experience of a housing crash in his home country in the 1990s, highlighted the problem that buy-to-let mortgages now presented to the financial system in Ireland.

The buy-to-let scenario is seen as far more acute in Ireland than other countries that have dealt with a housing crash.

"The Irish property bubble, which was virtually absent in the Swedish and Finnish crises, is the large amount of retail mortgages that were taken on for investment purposes," he said.

"Small companies, family businesses and ordinary households would acquire one or even two apartments or houses to sublet, with the expectation to profit both from the stream of rents and from a price increase.

"These buy-to-let mortgages now add to the perhaps largest remaining problem facing the Irish economy, the number of mortgage arrears.

"Currently some 95,000 private residential mortgage accounts for principal dwelling houses (PDH) are in arrears of over 90 days, and some 28,000 buy-to-let mortgages," he added.

The question of how to deal with these troubled mortgages has been a thorn in the side of the Government in recent weeks.

Earlier this month the Department of Finance's top civil servant, John Moran, was given a dressing down after he told the Oireachtas Finance Committee there was an "unnaturally low" number of repossessions.

Since then, the Government has set out mortgage arrears resolution targets for the banks, which have been criticised in some quarters for not being detailed enough. Other analysts have expressed concern that the plan could hit the banks' still fragile structure.

But Mr Frisell said the banks were in a good position to deal with the problems. "The banks have been massively recapitalised by the State and the domestic banks have core capital ratios of about 15pc – a buffer they now can and should use to write off losses where such are inevitable," he said.

Irish Independent

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