THOUSANDS of struggling homeowners were last night offered the hope of having part of their mortgage debt written off.
Nationalised bank AIB said it was considering using some of its latest €13.3bn taxpayers' bailout to write off the debt of struggling borrowers.
So-called "debt forgiveness" by banks allows borrowers to cancel a portion of their loans so the debt becomes more manageable.
The plan is most likely to be used to ease the burden on mortgage holders who have been pinpointed as most coming under pressure in the latest banking stress tests.
The bailed-out lender, once Ireland's biggest bank, ann- ounced the plans on a day of drama for the troubled sector.
It began with the announcement by AIB that it would seek to slash 2,000 jobs by the end of next year, as it posted record losses of €10.4bn.
AIB executive chairman David Hodgkinson described the losses as "very disappointing" and expressed regret about the job cuts, but he insisted the bank was ready to embark on a new era. "The increased capital we're receiving provides the means for us to seek better solutions (for dealing with distressed borrowers)," he said.
Asked if the solutions would include writing off of debt for mortgage holders, Mr Hodgkinson said it was "one of the possibilities" that would be "actively considered".
Details of how the scheme would work could take months to hammer out. Other solutions being explored by AIB include interest rate reductions and extending the term of loans -- practices which are already been used by several lenders.
Debt forgiveness was previously spoken of by the US consortium that was planning to buy EBS. Mr Hodgkinson said there should be some "industry dialogue" on the topic as well, opening up the possibility of other banks following suit.
But he stressed that there was no question of debt writeoffs being applied across the board for borrowers who simply opt not to pay their mortgages or personal loans.
"It does depend on the situation of the customer, how transparent they are with us on their financial affairs, and how deep a hole they're in," he insisted.
Mr Hodgkinson added that any scheme would have to be discussed with the Government to "make sure they're comfortable" with how taxpayer funds were being used.
The AIB boss said the bank was also planning to redouble its efforts on small business lending over the coming months, admitting that there was some "justification" for the perception that banks should be doing more.
The AIB debt forgiveness plan was one of two radical schemes mooted yesterday to revive the property market.
State loan agency NAMA is working on a controversial plan to lend money directly to purchasers of residential and commercial property.
The agency has effectively admitted that measures to revive the sector and force the banks to lend have failed.
The proposed plan would result in NAMA lending money for the purchase of properties in conjunction with AIB and Bank of Ireland.
But it is a sign that NAMA is growing frustrated that a floor price has still not been put on the Irish property market. The loan agency effectively admitted that it was being forced to step into the lending market as banks remain reluctant to lend for property purchases.
The chairman of NAMA, Frank Daly, revealed the plan yesterday when addressing the Society of Chartered Surveyors. It took many people in the property sector by surprise, because so far NAMA has been reluctant to deal with property buyers directly.
Meanwhile, the International Monetary Fund said the Government won't reduce bor- rowing enough to meet the targets agreed as part of the country's €85bn bailout.
Ireland's borrowing won't be less than 3pc of gross domestic product by 2016, the IMF says in its Fiscal Monitor report, which is published several times a year.
The last Government had pledged to bring it below 3pc by 2014.