The Central Bank has increased its 2014 growth forecast to 2%, although it warned that the economic outlook remains very uncertain because of the level of loan arrears.
“Despite some recent improvement, the scale of mortgage arrears remains a significant threat to financial stability,” it said.
“The number and value of mortgage accounts in arrears fell on a quarterly basis in the third quarter of 2013 as the scale of early arrears cases moderated further.
“However, almost 182,000 mortgages — 19.9% of total mortgages — remain in arrears at the end of September, with 72% of these at least 90 days past due.”
It noted that the biggest determinant of solving the mortgage arrears crisis will be an increase in employment.
There were 58,000 jobs created in the 12 months to the end of September.
Further improvements in the jobs market are expected in 2014.
However, the reduction in the unemployment rate from the current high level will be slow and this means any impact on mortgage arrears will be gradual, said the Central Bank.
The banks are constrained in their efforts to return to profitability by the high level of loan arrears and tracker mortgages.
And even though sentiment towards the Irish sovereign has improved, funding conditions remain fragile with banks reliant on short-term funding and official sector support, it added.
There is a disconnect between the level of house sales and mortgage activity because of the increasing numbers of cash buyers in the market.
Moreover, there is a stabilisation in property prices, but the recovery will be uneven with Dublin leading the way.
Funding for SMEs continues to be a problem as many companies are still carrying high debt levels and lack sufficient collateral to secure loans.
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