Mr Elderfield said that while most of the challenges facing the banking sector were financial in nature, there was one that was not but was nevertheless absolutely essential.
“We need to see a substantial, deeply rooted and sustained change in the culture that operates within the Irish banking system,” he told the Association of Compliance Officers in Ireland.
“Cultural change is evidently a complicated, laborious and time-consuming process and will need to touch on a number of dimensions, but at its essence we need to see a fundamental shift in attitudes to risk management and the treatment of consumers. The financial crisis exposed a corrosive influence at the heart of the way the Irish banks were run and that has had to be decisively tackled.”
He said a new fitness and probity regime was now in place to more rigorously police those who worked in the financial services sector.
“Some 71 of the 73 executive and non-executive directors who were in place at the time of the guarantee have now or will shortly depart the system.”
In his wide-ranging address Mr Elderfield asked: “What then are the remaining challenges that need to be tackled to speed up and complete the process of fixing the banks?”
He highlighted five such challenges: Problem portfolios, balance sheet restructuring, profitability, culture, and capital.
Mr Elderfield said he did not set out funding as one of the principal five challenges, as improving the banks’ liquidity position and capacity to fund themselves, with reduced reliance on the central bank, will flow from successfully addressing the other challenges.
Mr Elderfield said one important message for the banks was that the efforts under way for mortgage arrears needed to be matched for the banks’ SME portfolios. He disclosed that earlier in the year, the Central Bank commissioned an analysis of the leading banks’ operational capacity for SME loan review, recovery and resolution.
“The results were in many respects dismayingly similar to those regarding mortgage arrears operation.”
He said it appeared SME portfolios were largely subject to rescheduling and extended forbearance rather than a determined effort to restructure loans and deploy a wide range of workout options.