Banks must ‘tread carefully’ on bad loan write-backs

Irish banks must tread carefully before they begin to write back provisions on bad loans as a result of a recovering property market and not bow to demands to bolster profits, a senior official at the Central Bank said yesterday.

Property prices are recovering and are now 40% below a 2007 high versus the 55% peak-to-trough assumption banks have provided for, prompting some to raise the prospect of write-backs.

However, Sharon Donnery, director of credit institutions supervision at the Central Bank, said banks should remember that an appropriate level of provisions was critical to stabilising a sector that had been brought to the verge of collapse.