Irish bankers are beginning to display echoes of pre-crisis hubris, as pressure mounts on regulators to ease back on checks and controls introduced in the past decade to prevent another financial crash, according to a senior central banker.
Speaking at a Banking & Payments Federation Ireland (BPFI) conference in Dublin on Tuesday, deputy Central Bank governor Ed Sibley noted a recent International Monetary Fund paper that showed how supervisors and politicians typically come under pressure to ease regulation at the top of the economic cycle.
"Typically at that point, people start listening and regulations are eased, supervision is eased back, just at the worst possible moment – and then we have a downturn," said Mr Sibley.
“We’re getting towards that point in the cycle – not just in Ireland, but we’re seeing it elsewhere – where there’s that little bit more pressure,” he said, pinpointing bank chiefs lobbying for an easing of mortgage rules as an example.
“But, in fairness, in Ireland, because the crisis was so bad, the scars are still pretty horrendous, and so the noise is relatively lower than elsewhere. But it still does creep back in.”
Last month, Colin Hunt, chief executive of AIB, the State's largest home loans provider, said in an interview that the time has come for a relaxation of mortgage lending restrictions introduced in 2015.
Taoiseach Leo Varadkar called in July for the limits to be loosened to help young couples struggling to build up a deposit for a mortgage as they are caught in a so-called rent trap.
The Central Bank is set to complete its annual review of the mortgage rules, which limit what banks can lend relative to borrowers’ incomes and the size of their initial deposits, in early December.
Meanwhile, Mr Sibley pressed bankers at the conference to refocus on restructuring distressed mortgages as lenders opt increasingly to sell off their trickiest debt to lower their levels of non-performing loans amid regulatory pressure.
“The Central Bank does not have a preference for loan sales,” Mr Sibley said. “We have a preference for sustainably reducing non-performing loans (NPLs).”
He signalled that banks may not be giving enough prominence to the benefits of long-term restructures for troubled customers as they focus on short-term capital relief from removing distressed debt from their balance sheets.
Mr Sibley said the way banks are dealing with their toughest remaining problem loans raises questions about how they “truly value” customer relationships.
Loan pressures
While Irish banks are currently marketing themselves under slogans such as “backing brave”, “providing help for what matters”, and the “bank of you”, the “real test of a relationship is not when things are new and going well, but over the long term, including when difficulties are experienced, when there are bumps in the road”, he said.
Domestic banks have cut their average NPLs ratio from a peak of 30 per cent in 2013 to 7 per cent at the end of June, according to Central Bank data, as they focused mainly on restructuring the terms of 109,000 distressed mortgages. However, they remain under pressure from European Central Bank regulators to lower their NPLs ratio to below 3 per cent to converge with the average EU rate.
Banks had refrained for much of the period from selling owner-occupier mortgages to focus on off-loading distressed commercial property debt and buy-to-let mortgages.
However, Permanent TSB, once the State's largest mortgage lenders, off-loaded €3.4 billion of mainly non-performing owner-occupier loans last year and agreed in September to sell a further €500 million of such debt. Ulster Bank has also been selling large portfolios of mortgages.
AIB, which has also sold billions of euros of commercial loans in recent years, is lining up a sale of a batch home loans, called Project Birch, early next year.
Mr Sibley also said that Irish banks complaining about having to hold higher levels of expensive capital against their mortgage books than the euro-zone average should “look in the mirror” as many charge long-standing borrowers higher rates than those offered to attract new customers.
“On too many serious issues – such as tracker mortgages, non-performing loans, some Brexit preparedness issues – the Central Bank has had to push too many retail banks too hard over too long to actually put customers first,” Mr Sibley said.
