'We forget the lessons from the crisis at our peril' - Director of Credit Institutions, Ed Sibley

Full speech available here

• Ed Sibley focuses on current position of Non-Performing Loans in Ireland
• Recognises that significant progress has been made, but that continued efforts are required to address the sizeable non-performing loan problems in Ireland and the difficulties these cause for borrowers, lenders and the wider economy
• Highlights the importance of learning the lessons of the past including the systemic failure of lending standards and practices

Director of Credit Institutions Supervision, Ed Sibley, today spoke to delegates at a Banking and Payments Federation of Ireland event on the Central Bank’s current view on non-performing loans (NPLs) in Irish banks.

He highlighted that while NPLs have reduced by more than 40 per cent since the start of 2015, they remain too high and continue to cause significant problems for the Irish economy, to borrowers and to the banking sector.  He noted that as a result, the NPLs remain a priority for the Central Bank of Ireland, the Single Supervisory Mechanism and more broadly the European Central Bank.

He noted that levels of indebtedness remain high, vulnerabilities of distressed and recovering borrowers will remain a cause of significant risk and that banks have a long term duty of care to these borrowers. Engagement between bank and borrower remains key in achieving the most favourable outcomes for all.

He highlighted the dangers of forgetting the lessons from the period immediately prior to the financial crash, saying that vigilance is necessary to ensure we never again have such a catastrophic and systemic failure of lending standards and practices. In this context, he said, there is some evidence that memories appear to be short, both within the banks and outside them.  He said that engagement with banks has already shown some evidence of a return of more aggressive lending practices and cultures, and issues with risk appetites, the pricing of loans relative to risk and the effectiveness of Board oversight over new lending.  

He acknowledged that supervisors cannot directly resolve NPLs, but that the Central Bank working with the ECB can and will continue to drive the actions needed in the banks to bring NPLs to more normalised levels.  He also stressed the importance of macroprudential measures in mitigating risks, both those which bank focused (such as counter-cyclical buffers) and borrower focused (such as the LTV and LTI rules).

Notes:

• The European Central Bank has an ongoing public consultation on guidance to banks on how they should tackle non-performing loans.
• On 4 November 2014, the Central Bank became part of the Single Supervisory Mechanism (SSM). This is the system for prudential supervision system of credit institutions in the euro area, comprised of the ECB and the national competent authorities (NCAs) from euro area countries.