The EU Commission has urged the Government to confront a re-emergence of lax lending standards in the banking system, warning in a new report that it sees fresh signs of bad practice in some lenders.

The commission expressed concern about the banks, which have received more than €60 billion in State aid, as it said the proceeds of the deal to scrap the Anglo Irish Bank promissory note scheme should be used to pay down debt.

The warnings from the Commission came as the Government said the amount of bailout loans it would need to repay between 2015 and 2022 would drop by more than €21 billion as a result of the deal with the EU authorities to extend the maturity of Ireland’s bailout loans.

While this would ease some of the strain on the public finances, the Government is coming under fresh pressure from the commission to tackle residual problems in the banking system.

Arguing against any complacency in its drive to stabilise the economy, the commission called for action to tackle loan arrears and said further “forceful action is essential on several fronts”.

It expressed anxiety that there were signs of “some lenders continuing to provide unsecured credit to highly indebted borrowers without adequately checking their creditworthiness”.

It also took issue with the “dysfunctional features of the institutional mortgage landscape”.

Defiance
In defiance of demands within the Coalition for the promissory note savings to be used to ease spending cuts and tax measures, the commission said the Government was still bound by its agreements with the EU-IMF troika.

The commission, which is a member of the troika, said these agreements obliged the Coalition “to seize opportunities to accelerate reducing the gross debt ratio, which would encompass the savings generated by the promissory note operation”.

The commission was equally blunt in relation to spending overruns in the health service, saying expenditure should be contained.

Documents laid before the Oireachtas yesterday suggest the Government will now repay €96.1 billion instead of the €117.5 billion hitherto liable.