Banks fear lending after ‘Ponzi’ property bubble, says Shatter

Irish banks may be suffering a “fear factor” in lending after the collapse of the property bubble that resembled “a Ponzi scheme”, Justice Minister Alan Shatter said.

Lenders issued €623 million in home loans in the third quarter of last year, according to the Irish Banking Federation. They lent €11 billion in the same period five years earlier, at the peak.

“What our financial institutions were running in the 2003-2007 period was the nearest thing to a residential property pyramid scheme,” Mr Shatter said in an interview at his Dublin office.

“We have gone from a situation from where they were throwing money at any dog that moved,” to one where banks are being “unduly difficult” and “constipated”.

Almost 13% of private residential mortgages were either more than 90 days in arrears or restructured at the end of September, according to the Central Bank.

Moody’s Investors Service said last week that Mr Shatter’s proposed personal insolvency laws may leave up to 25% of the country’s mortgage debt open to a write-off.

“There was the implicit suggestion that there would be some sort of banking Armageddon with this legislation,” said Mr Shatter, of the report. “There are a whole range of things Moody’s are missing.”

Mr Shatter said many home owners in negative equity are paying their loans in full and only “an extraordinarily small number” of home repossessions have been ordered by the courts.

Stress tests of the nation’s banks last year also accounted for “potential residential mortgage losses”, he said.

The state has injected about €62bn into the country’s lenders over the past three years amid soaring bad-loan losses, as the economy struggles to emerge from what the government calls the worst crisis since World WarII.

“As we go along, there is going to be some hiccups and there will also be some unexpected victories,” Mr Shatter said. “But we are going to keep at it.”