Honohan: Banks too slow on arrears

Banks will have to agree to debt writedowns as part of the resolution of the mortgage crisis, Patrick Honohan, the Central Bank governor, has told the Oireachtas finance committee.

Moreover, Mr Honohan said he had “concerns and was not satisfied” with the pace at which the pillar banks were tackling mortgage arrears.

Bank of Ireland CEO Richie Boucher ruled out debt writedowns when he appeared before the finance committee last year.

Mr Honohan said he was quite concerned about the appearance of some of the public interest directors at the finance committee before Christmas and their apparent reluctance to use “trigger words” such as debt writedowns.

“There will be some cases there will have to be a permanent modification of the principle and in some cases there will have to be a permanent reduction in the interest rate,” Mr Honohan said.

He rejected criticism by committee members that the Central Bank was not putting enough pressure on banks to deal with troubled clients. He said the banks have to deal with roughly 100,000 homes in mortgage arrears on a case by case basis. It was the job of the Central Bank to ensure that the banks had the proper procedures in place to deal with this process.

He had no concerns that the valuations put on the homes by Revenue as part of the home tax initiative would expose further losses in the banks as very adverse scenarios were used in the last set of stress tests in Mar 2011.

He declined to speculate whether the banks would need to be recapitalised following the next set of stress tests, scheduled for July of this year.

Mr Honohan was reluctant to say whether the country would successfully emerge from the EU/IMF bailout programme at the end of this year.

“I am not in the business of forecasting.” But investors had taken the view that the country was on a very credible path, he said.