“It is encouraging to hear more than one bank CEO acknowledge that, while repossessions will inevitably rise significantly, for co-operating owner- occupier borrowers there will also be a step-up in the volume of cases of long-term loan modification — carefully targeted debt relief if you like.”
His view was echoed last night by Finance Minister Michael Noonan who said he envisaged the emergence of what he termed a ‘menu’ of possible solutions for those in mortgage arrears to include interest-only payments and other methods of relieving the burden on distressed borrowers. However, he drew a sharp distinction between “those who can’t pay and those who won’t pay”, saying the latter faced repossession.
Earlier, speaking at the spring lunch for the Institute of Directors, Mr Elderfield said: “Wider industry recognition of this balanced approach is important: recovery of loans in full wherever possible, repossession, voluntary surrender or trade down if necessary, but for co-operating homeowners who are insolvent and at the threshold of repossession having already cut back their living expenses, that there will be more use of long-term loan modification where they are willing to repay what debt they can but also want to remain in their home.”
The deputy governor of the Central Bank took up this position in Jan 2010 in the middle of the financial sector implosion.
The Central Bank conducted stress tests of the banking system in Mar 2011 and ordered the banks to raise €24bn of fresh capital to act as a buffer against future losses. There would be very active engagement with the banks to ensure they deal with mortgage arrears and that these efforts are matched in their small business portfolios.
A fully functioning banking system is needed for Ireland’s economic recovery, noted Mr Elderfield. “In this respect, the outlook remains difficult, with low levels of domestic economic activity and compressed net interest margins.”
“An early exit from the guarantee will help to normalise the sector and reduce a drain on profitability. Continuing efforts are also needed on cost control. The path ahead remains a difficult one and progress will inevitably continue to be slow given the significant dislocation that has occurred to the banking sector and the economy as a whole.”
There would be a new era of a much more robust regulatory framework at the Central Bank. “Our strategy is one of assertive risk-based supervision underpinned by the credible threat of enforcement.”
Mr Elderfield stressed there would be new corporate governance standards that company boards would have to comply with in future.
The new guidelines include restrictions on the number of directorships that can be held. Moreover, there will be a goal of encouraging more diversity of background and robustness of challenge by broadening the gene pool of corporate life, he said.
“Do you have the right gender diversity? Do you have the right international experience? If you look around the board table and you are all the same sex, ethnicity, nationality and educational background, well, the answer is probably no. Board effectiveness reviews with these goals in mind are essential and need to be tackled in a structured and determined way, ideally with facilitation on these key points, to help offset the inertia that comes from incumbency.”