Practice findings due in July

THE Central Bank will publicly report its initial findings into how well the country’s main banks have reformed their practices, next month – warning that it will “make life difficult and expensive for banks which fail to manage risk adequately”.

In launching the Central Bank’s new paper outlining its fresh approach to banking supervision, yesterday, assistant director general for financial institutions, Jonathan McMahon, said that a lack of progress in one of the key areas under review – the banks’ lending standards – “would be unforgivable”.

Next month the Central Bank will publish its findings into its review into new mortgage lending to first-time buyers, with a broader report into bank lending due next January.

“In the pre-crisis years Irish banks became excessively reliant on property lending and their earnings, consequently, concentrated. There is now an economic imperative to broaden lending to other areas of the economy,” said Mr McMahon.

The new paper into financial supervision outlines four key areas which the Central Bank is reviewing on an ongoing, in-depth basis: governance and risk management; lending standards; the quality of banking strategies and remuneration practices.

The governance/risk management study will also assess areas such as the skills and experience of board members at the main banks and the effectiveness of non-executive directors.

It will also assess the skills and independence of staff in risk management positions and the effectiveness of measures banks have taken to address weaknesses that were exposed during the financial crisis.

Findings in these regards will be published in January also, while the Central Bank will publish its report into financial institutions’ remuneration practices in November.