The Central Bank set targets in March for resolving the arrears crisis. It expected banks to contact customers in mortgage arrears over the course of this year and offer sustainable solutions. Then, over the course of next year, the banks would have been required to put in place these sustainable solutions.
Michael Noonan, the finance minister, said if the banks failed to meet these targets, they would be forced to make provisions against future losses. The Central Bank said these capital charges will start from the financial year beginning on Jan 1, 2014.
However, it has not been decided whether these charges will accrue on a quarterly basis or whether there will be one single charge that will be booked in the year-end accounts.
“Where the Central Bank’s supervisory audit of performance against targets identifies concerns regarding whether solutions have been made on a sustainable basis, the Central Bank may... require particular credit institutions to apply a specific provisioning policy or treatment of assets, in terms of own funds requirements,” it said in a statement.
The Government owns 99.8% of AIB and Permanent TSB, and 15% of Bank of Ireland. These banks will undergo stress tests in 2014 to determine whether they have enough capital. If they fail, they must raise fresh capital.
However, it is not clear where this capital will come from. There is no political agreement yet for recapitalisations through the ESM, which means the Government would have to stump up any shortfall.
If the banks fail to meet the Central Bank mortgage restructuring targets, they could incur capital charges at the same time as they are undergoing stress tests.
Speaking at the launch of the Central Bank’s quarterly bulletin, chief economist Lars Frisell said: “We expect substantial restructuring over the winter months and not just interest-only solutions.”
The Government last month announced it had revised the targets for the banks.
It now wants banks to have concluded arrangements with 15% of their over 90-day mortgage arrears customers by the end of December, 70% by the end of March, and for concluded solutions to reach 25% of customers.