Non-Performing Loans – Still a Long Way to Go and Delays are Costing Borrowers
Commenting on the newly published Banking and Payments Federation Ireland (BPFI) paper on Non-Performing Loans, Brokers Ireland said while it is to be welcomed that the pace of progress to address the issue of such loans has increased substantially in the last two years the tragedy is that it has taken the best part of a decade to get to this stage, and there is still a long way to go.
Diarmuid Kelly (pictured), Chief Executive of Brokers Ireland, which represent, 1,250 member firms, said: “The consequence of not dealing with the situation, of lenders themselves not writing down debt, as we have called for over those years, has been that new and existing mortgage holders have been paying the price in substantially higher interest rates than their euro area counterparts, not to mention, the wider social costs.”
He said Brokers were not alone in calling for the banks to write down debt at a much earlier stage, the European Commission also supported such a stance. “Indeed had it not been for the pressure applied by the European Commission we may still not have seen the more recent momentum,” he said.
Diarmuid Kelly said Central Bank figures on mortgage arrears and repossessions in June of this year show that mortgages in arrears for more than 720 days had actually increased and represented 88pc of all arrears outstanding.
“And 35pc, more than one in three, of mortgages termed ‘restructured’ involve ‘arrears capitalisation’ which is a delaying of the inevitable rather than a sustainable solution for most borrowers. It works only for the small numbers of people whose financial status improves over the short-term. The worst arrears cases remain very persistent, and that is not good for those impacted and neither is it good for the banks,” he said. “It prolongs the inevitable and cost others.”
Brokers Ireland has repeatedly said lenders should have been separating the unwilling to pay from those who are unable to pay and writing down debt in the case of the latter.
Diarmuid Kelly pointed to a Department of Finance report earlier this year on Risk Weighted Assets in Ireland which said as Irish banks reduce their NPLs (non-performing loans) average mortgage RWAs will fall improving banks’ ability to compete on price.
“With higher than average Eurozone interest rates in Ireland we’re seeing the consequences of not dealing adequately with arrears. Both new mortgage borrowers and those in deep arrears are paying the price for the inability to deal effectively with the arrears situation,” he said.
