THE CENTRAL Bank is planning to review how banks set pay for executives and staff in the final three months of the year, according to a first annual update of its strategy for banking supervision.

A decision will also be taken by the end of September on whether to introduce credit limits to prevent the banks repeating the mistakes of the past by lending too heavily into any one sector.

The Central Bank plans to publish details on the limits by the end of the third quarter and introduce them by the end of the year.

The way banks handle loan arrears at small and medium-sized businesses will also be reviewed in the second half of this year.

The Central Bank warned that banks will face sanctions if they fail to meet targets under the deleveraging plans to shrink the banks of €72 billion in assets to bring loans closer in line with deposits.

Credit risk management and valuation standards such as the setting up of a credit register and standard credit scores, which will allow customers understand why they are refused credit, will be introduced in December.

The Central Bank also wants improved financial statements and provisions for loan losses to be made “in a more conservative and prudent manner” to “enhance trust” in the statements.

There was “significant variation” in the treatment of distressed borrowers when it came to provisions for loan losses, the Central Bank said.

The review on bankers’ pay follows updated European guidelines since the last examination by the Central Bank.

The review is being carried out to ensure that the €70 billion capital injected into the bank is being used appropriately.

“It is a big public policy issue how that money is going to be used,” said Jonathan McMahon, the Central Bank’s director of financial institutions supervision.

“That capital must be effectively stewarded to ensure there is money coming out the other end for the taxpayer,” he said.