06 June 2018 Press Release
- A key role of the financial services system is to provide borrowers with loans to purchase their homes. The Central Bank’s role is to serve the public interest by seeking to ensure that mortgage provision is prudent, sustainable and that consumers’ interests are appropriately protected.
- Further reducing non-performing mortgage loans is likely to result in more competitive mortgage product offerings for consumers.
- 10 years after the start of the financial crisis, banks must continue to reduce non performing loans to address the dysfunction in the mortgage market and build resilience ahead of the next downturn. This requires continued engagement with borrowers, a willingness to enter into sustainable restructures and other avenues, including sales of loans – while ensuring the fair treatment of borrowers through adherence to the strong consumer protection framework in place.
At the Institute of Banking today, Deputy Governor of Prudential Regulation, Ed Sibley spoke about the functioning of the Irish Mortgage Market.
He said that “One key role of the financial services system is to provide borrowers with loans to purchase their homes. The Central Bank’s role is to serve the public interest by seeking to ensure that mortgage provision is prudent, sustainable, and that consumers’ interests are protected.” He added that “A functioning market should deliver a sufficient supply of appropriately priced mortgages to support house prices that are in line with the fundamentals of the economy, without driving credit fuelled house price bubbles.”
On the impact of non-performing loans on the economy, Mr Sibley cautioned that “The continued high level of non-performing loans makes banks highly vulnerable to future economic downturns, from both the existing non-performing loans, and potentially new defaults. While all the Irish retail banks are significantly better capitalised than pre-2008, they are more vulnerable than those without this legacy to future economic shocks.”
In this context, Mr Sibley noted that “Portfolio sales are a legitimate and necessary approach for banks to use to address non-performing mortgage loans.” He emphasised that the Central Bank, with the support of the Oireachtas, has ensured that the protections of our Codes of Conduct including the Code of Conduct on Mortgage Arrears travel with the loans.
Mr Sibley highlighted the human costs of mortgage arrears and urged anyone in arrears to engage with their lenders and / or the supports that are available. He noted that the protections, safety nets and restructuring options that are available are not going to address the underlying problems if distressed borrowers do not engage with their lender or the supports that are in place.
On future developments Mr Sibley said “The projected levels of growth in the Irish mortgage market, high net interest margins, regulatory developments, financial innovation and the continued reduction in non-performing loans should lead to increased competition in the market.”
Mr Sibley noted that the completion of Banking Union and Capital Markets Union should increase the level of cross border activity within the Eurozone. He concluded that the Central Bank’s actions include a focus on seeking to “Enhance the functioning of the market through enhancing transparency and market discipline, facilitating technological development and supporting, through our wider European engagement, initiatives that will enhance cross border provision .“