DUBLIN: The resolution of non-performing loans (NPLs) by Irish banks needs to “regain momentum” while plans to give the Central Bank powers to cap mortgage interest rates could prevent lenders from generating “sustainable profits” and deter new entrants to the market, the European Commission has warned. In its latest unpublished post-bailout surveillance report on Ireland, seen by The Irish Times, the commission stated that while much work has been done by the banks to reduce their NPLs, the stock “remains high and shows signs of stickiness”.
It noted that the NPL ratio of the Irish domestic banks was 14.2 per cent in September 2016, down from a peak level of 27.1 per cent at the end of 2013. But this is well above the EU average of 5.4 per cent and the “pace of NPL reduction has slowed somewhat”. It suggested off balance sheet options to incentivise “more durable” resolution strategies. “Options such as formulating a set of derecognition, or write-off, rules to facilitate the timely removal of NPLs from banks’ balance sheets could be explored,” it said. The commission said long-term mortgage arrears accounted for about 70 per cent of the total balance of loans in default, with “reduced chances of recovery”. Some 23 per cent of loans that defaulted at some point between 2010 and 2015 have never been restructured, it added.
