Central Bank warns “forget the lessons from the crisis at our peril” on non-performing loans
A senior Central Bank official has warned that, while progress is being made by Irish banks on non-performing loans, they remain far too high.
Addressing delegates at a Banking and Payments Federation of Ireland event, Director of Credit Institutions Supervision Ed Silbey said: “We forget the lessons from the crisis at our peril.”
By the end of June this year, non-performing loans (NPLs) still represented 19% of the five main Irish banks’ combined loan books. These loans still represent a significant problem, according to Silbey.
He explained: “They are a blight on lenders, on borrowers and the wider economy. They directly impact on the pricing of new and existing lending. Similarly, they are likely to stifle competition through dis-incentivising new entrants due to the uncertainty of the recoverability of loans… There is a widely held belief that NPLs act as a drag on economic performance and in the case of the Eurozone, its recovery from the crisis.”
Worryingly, Silbey indicated that that Central Bank has identified some evidence of a return to some of the aggressive lending practices that lead to the boom and bust of the last decade. With factors such as rising underlying collateral values incentivising slow action on tackling bad loans, fears are developing that that the problem of non-performing loans could continue to be a drag on economies across the Eurozone.
While Irish banks had made progress on the situation, more work was needed to protect the Irish economy in the years ahead.
Silbey concluded: “Uncertainty of the future is increasing and there is no excuse for any of us to ease up on our efforts to address the high levels of NPLs that are still such a problem for the Irish economy and society… All of our actions need to both address the legacy of the crisis and mitigate and reduce the risk of recurrence.”
