Since the onset of the financial crisis, progress has been made by the banks in reducing non-performing loans, NPLs, from their peak. NPLs at the banks in which the State has invested have reduced by approximately 70% from €54 billion in 2013 to €16 billion at the end of June 2018. This reduction includes the recently announced sale of a portfolio of NPLs by Permanent TSB, namely Project Glas. A major contributor to this progress has been the number of mortgage restructures the banks have agreed with their customers. At the end of June 2018, almost 136,000 mortgage restructures were in place throughout the system covering private dwelling homes and buy-to-let facilities.
Despite this progress, the NPL ratios of the banks remain at an elevated level and are well above the European average of 4%. Permanent TSB is a particular outlier in this regard with a ratio of 25% before the Project Glas loan sale. Given this position, the banking regulatory authorities have tasked the management and board of each institution with developing and implementing a strategy with the expectation that they will reduce their ratio towards the European average. Given the scale of the reduction required, it is unfortunate but inevitable that the recently announced loan sale was a necessary action taken by Permanent TSB. The consequences of the failure of this loan sale process would have been exceptionally serious for Permanent TSB.
It is important that I highlight the strong protections in place for borrowers following a sale of their loans to a non-bank. The Minister for Finance has stated on a number of occasions that the protections for borrowers in place before the sale remain unchanged after that sale. In this regard, it is important to note that there are no changes to the rights of a borrower whose loan is sold by a bank. All terms and conditions attached to their mortgage contract remain in place, including the terms of a restructure agreed with the bank before a sale. Permanent TSB has further reinforced this important point and has confirmed that, if a borrower has agreed a restructure or an alternative payment arrangement and they have consistently made payments in line with the terms of the restructure, then these terms will be honoured by Start Mortgages.
In addition, it should be noted that Start Mortgages is a retail credit firm regulated by the Central Bank of Ireland since 2008. When dealing with borrowers, retail credit firms are bound by the same regulations that currently apply to Permanent TSB. Like Permanent TSB, they are required to comply with the consumer protection code and the code of conduct for mortgage arrears when dealing with borrowers who are in arrears. The Minister for Finance has demonstrated his own commitment to strengthening these protections further, including his support for the Bill introduced by Deputy Michael McGrath, which seeks to regulate the purchasers of mortgage loans. In addition, earlier this year, the Minister asked the Central Bank to carry out a review of the code of conduct for mortgage arrears to ensure that it remains effective. He has asked for the report to be completed as soon as possible and the Central Bank has stated that the report will be ready at the end of this month. If, as a result of this review, the code requires amendment, a full public consultation process will be required in line with normal guidelines.
I wish to highlight the recent comments of Mr. Ed Sibley, the deputy governor of the Central Bank of Ireland. He said that there is no evidence that non-banks are being more aggressive in seeking a resolution than banks. In addition, he said that loans sales are a legitimate and necessary approach for banks to address non-performing mortgage loans and, to date, there has been no material difference in the number of legal proceedings issued between banks and non-banks as a percentage of the total number of accounts in arrears.
Separate to a loan sale, I draw the Deputy's attention to the publication of two recent financial stability reports in September by the Central Bank that highlight some key findings in terms of NPL resolution and long-term mortgage arrears. With regard to principal private dwelling houses, the term, "loan cure", is used to describe the return of previously defaulted loan balances to performing loan status, and the research shows that this is the biggest driver of NPL reduction. This reflects the success of the Government’s supports that have been put in place over the past number of years to assist those who find themselves in mortgage arrears. Furthermore, the paper shows that loans that go through the mortgage arrears resolution process framework are twice as likely to end up in a lower arrears state six months later, which is a positive indicator of how well this process is working and how important it is for borrowers who find themselves in difficulty to continue to engage with their bank.
The Minister for Finance cannot stop loan sales, even by the banks in which the State has a shareholding. These decisions, including the composition of loans included in any loan sale, are the responsibility of the board and management of the banks, which must run on an independent and commercial basis.