Politicians should not get involved in banks' loan decisions, the head of the Irish Banking and Payments Federation (IBPF) says.
Brian Hayes, a former MEP and former Fine Gael Minister of State, made his comment amid criticism from a Fine Gael TD of banks' refusal to allow people availing of the State's Covid-19 salary support scheme to draw down mortgages.
Cork North Central TD, Colm Burke, said the banks' policy towards those mortgage applicants whose salaries are being topped up by the State could have a serious knock-on effect in the wider economy.
He warned: "If the banks are allowed to continue to adopt this policy a collapse will again occur in the housing market."
"Contracts which were in place will no longer be able to move forward and builders who have carried out work will not get paid.
"Borrowers who have entered into unconditional contracts should not be put at risk where there is clear evidence that they are in a very strong position to comply with the terms of their loan offer."
In an interview on RTÉ Radio One's Today with Sarah McInerny about a report warning of a looming mortgage crisis, Mr Hayes said the bank bailout here was done in line with agreements from the European Commission:
"And that agreement was we wouldn't have political banking, we would have banking based on commercial realities, banking based on the cost of capital, banking based on the huge amount of capital that Irish banks have to hold viz-a-viz other banks because of the level of risk that occurred 10 years ago."
"Commercial banking requires a framework whereby politicians cannot get involved in loan decisions by those banks, despite the fact that 70% of them might be owned (by the State)."
He said there is some inevitability around people going into mortgage arrears when the Covid-19 mortgage payment break ends but he said the risk of home repossession is low.
There are about 750,000 mortgages on private homes in Ireland, and Mr Hayes said there have been about 3,200 repossessions in the last decade and about 6,500 voluntary surrenders: "So the chance of being repossessed in this country is 0.5%.
"It is the lowest in any European country. So really, people should not be scaring people. The chance of repossession in Ireland is very low."
The length of time it takes is 44 months by comparison to our nearest neighbor in the UK, which was 17 months.
He said 85,000 mortgages have been restructured by Irish banks, credit servicing firms and by non-banks — and that in about 90% of those cases, the restructure has worked for people.
He also pointed out that the banking sector, like other industries, will be affected by the pandemic, and is making provisions for that in line with meeting European requirements on their rates of non-performing loans and bad debts.
He also pointed out that of the €30bn pumped into the three pillar banks, AIB, Bank of Ireland and Permanent TSB, €20bn has been returned to the Irish taxpayer.
"And the ambition of all of those banks is to make sure that the remaining €10bn can be done ultimately in the sale of shares as a consequence of making those banks profitable," he said.