The Irish Bankers' Federation has defended the quality of bank lending in the Republic but conceded that a slow-down in the economy could create sizeable bad debts in the future.

IBF president, Mr Sean FitzPatrick, said the only recent problems involved leasing, principally where young drivers had overstretched themselves financially to buy new cars last year. "Arrears in mortgages are not a big issue at the moment but could be a serious issue down the road," he said, at the presentation of the IBF's annual review yesterday.

The banks have not reported any noticeable increase in arrears in recent months with just two houses being repossessed last year.

The IBF also said it was close to finalising a pilot debt settlement scheme to cope with any future increase in arrears. It would provide a means of settling bad debts outside the courts with participation by all federation members, building societies and registered money lenders.

The federation also welcomed the single regulatory structure announced by the Government last week but has concerns about how it might impact on the industry's ombudsman schemes which already adjudicate and make binding rulings in relation to consumer complaints.

IBF director general, Mr Jim Bardon, suggests it would be "overkill" on the Government's part to abolish the existing ombudsman schemes. He said the federation would be making representations on the issue.