Moody’s sees slow fall in personal loan arrears

The Government and bank lenders were given something of a wake-up call yesterday as a leading international credit rating agency threw cold water on the prospects for a speedy return to normal personal debt levels here.

Moody’s Investors Service said in a a major report covering four eurozone countries that high levels of consumer confidence will unlikely mean that arrears on consumer loans will fall sharply in Ireland any time soon.

It said that there is little link between consumer confidence surveys because “high unemployment and stagnant salaries” matter more in the ability of households to meet their debts.

Irish household debt, and mortgage debt in particular, remain among the highest levels in the eurozone. But good economic news and forecasts for rapid economic growth this year and for 2016 have tended to obscure the fact that debts — the legacy of the financial bust — remain at elevated levels.

In its ‘Consumer Loan Performance in Ireland, Italy, Portugal and Spain’, Moody’s said yesterday it had instead sampled Irish mortgage payments as a more reliable measure and concluded that households are more likely to repay their mortgages, not their consumer loan arrears.

“Two main factors prevent consumer confidence from significantly benefiting loan performance in the euro area periphery: Unemployment remains at peak levels, and will not significantly fall within the next two years.

“Stagnant incomes for a significant segment of households will continue to hurt consumers’ ability to pay off debt.

“If consumers’ ability to pay debt improves, they would likely prioritise their residential mortgages, not their consumer loans, owing to the full recourse nature of the former.”

Mortgage arrears on homes fell by 2,708 and stood at 78,403 at the end of June, figures released yesterday by the Department of Finance show.

Mortgage accounts in arrears for over 90 days fell by 1,282 to 54,336.

The department said there were now a total of 110,116 mortgage accounts that have been “permanently restructured.”

Moody’s forecasts that unemployment may remain relatively high in Ireland and in other eurozone countries which were badly hit by the financial crisis.

The Irish jobless rate will fall from an average rate this year of 9.6% to 8.7% next year, and to 8% in 2017. In Italy, it predicts unemployment will decrease marginally from 12.5% to 12.3% in 2017, and it sees Portuguese and Spanish jobless rates remaining high, at 13% and 21% in 2017.

“Political developments that do not reflect economic changes have influenced Irish consumer confidence. For example, the fall in consumer confidence in the third quarter of 2010 related to the [bailout] package with the EU and IMF, entailing four years of tax rises and spending cuts,” Moody’s said.

“Consumer confidence improved in 2012, when fears had eased due to expected lower interest rates and slight improvements in the economic outlook.

“Rising confidence in 2013 and 2014 has been attributed to a “relief rally” following some difficult years, supported by Ireland’s exit from the EU-IMF assistance programme,” Moody’s said.