JOINT COMMITTEE ON FINANCE, PUBLIC EXPENDITURE AND REFORM debate -
Wednesday, 8 Feb 2012

Personal Non-Mortgage Debt: Discussion with Central Bank

Chairman

I welcome Mr. Joe McNeill, head of statistics at the Central Bank of Ireland, who is accompanied by Mr. Martin O'Brien and Ms Mary Cussen. Mr. McNeill will make some opening remarks which will be followed by a question and answer session. I remind members, delegates and those in the Visitors Gallery that all mobile phones must be switched off because they interfere with the sound production equipment in the room.

By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the joint committee. If they are directed by it to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of that evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they do not criticise or make charges against a person or an entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing parliamentary practice to the effect that they do not comment on, criticise or make charges against a person outside the Houses, or an official, either by name or in such a way as to make him or her identifiable.

Mr. Joe McNeill

I thank the Chairman and members of the joint committee for inviting us to discuss the statistics compiled by the Central Bank for personal non-mortgage debt in Ireland. As the Chairman stated, I am accompanied by colleagues from the statistics division: Ms Mary Cussen, a senior economist in our financial accounts unit, and Mr. Martin O'Brien, an economist in the money and banking unit.

I propose to begin by outlining the framework for the compilation of statistics for personal non-mortgage debt by the Central Bank. I will then discuss recent trends in these data which are presented in the charts which have been circulated to members. I will also discuss some forthcoming developments.

Most of the statistics published by the Central Bank derive from statutory obligations to provide data necessary for monetary policy decision-making at the ECB. The data are compiled in accordance with international standards which provide the framework for national accounts and international financial statistics. Understanding the rationale for collecting the data is important in interpreting the information for domestic policy purposes. In this regard, I have outlined a number of factors which we need to consider.

The first factor concerns the institutions which are covered. Money and banking statistics published by the Central Bank are collected from credit institutions, that is, banks, building societies and credit unions, which conduct business in the Republic of Ireland. To be clear, we are talking about lending by resident offices of institutions in the Republic. Lending by affiliates or branches outside the country is not included in our money and banking statistics. The statistics are used to analyse the dynamics in Irish credit and deposit markets and, as I stated, cover only household positions vis-à-vis resident credit institutions. In contrast, quarterly financial accounts, also published by the bank, include the balance sheet and transactions of the household sector in aggregate, not just their liabilities vis-à-vis resident credit institutions. The financial accounts also include debts such as tax liabilities, trade or store credit figures, etc.

The second factor to bear in mind is the definition of household in the national accounts framework. For statistical purposes the household sector covers not only private households but also sole traders and non-profit institutions serving households. Therefore, only some of the data specifically refer to personal debt, or more correctly, credit advanced to private households.

The third point worth bearing in mind concerns the aggregate nature of the data. The statistics published by the Central Bank relate to the entire resident banking system and the entire household sector. In terms of the personal debt dynamics, they say nothing about the distributional aspects of the debt across the population, which is obviously an important aspect when considering policy responses to issues of concern.

I understand the committee has asked me to address the issue of personal non-mortgage debt, but before turning to address it, it is useful to set it in the context of total household debt in recent years. In the years leading up to the financial crisis Irish households' liabilities increased substantially, as Chart 1 outlines. By the fourth quarter of 2006, their average ratio, measured by liabilities as a percentage of disposable income, was over double that of the euro area average. The growth in liabilities was mainly due to increased levels of mortgage debt - this led to mortgage debt comprising over 70% of total household debt by the end of the third quarter of 2011. However, in aggregate, the assets of households increased much more than their liabilities in the pre-crisis period, predominantly owing to valuation increases in housing assets. This led to an increase in households' net worth up to the end of 2006, with a subsequent decline which was driven primarily by negative valuation effects. Chart 2 outlines these data. The reduction in net worth has been accompanied in the past two years by de-leveraging of the household balance sheet, which means that household debt repayments have been outstripping new drawdowns of debt by households. These data are included in Chart 3. It is important to acknowledge these developments to analyse household behaviour and inform policy decision-making.

As outlined, the money and banking data published by the Central Bank for non-mortgage personal debt refer only to personal or household debt vis-á-vis credit institutions. This non-mortgage debt can be split between consumer credit and other forms of credit. Consumer credit which covers standard lending for the consumption of goods or services accounted for approximately 10% of total household debt, or €17.3 billion at the end of 2011, having been close to 12% in the two years leading up to the financial crisis. There was, in most cases, annual double digit growth in consumer credit up to the third quarter of 2008, far outstripping the level of consumer credit growth in the euro area as a whole in the same period. Chart 4 outlines these data. Since late 2008 the level of consumer credit has been contracting, albeit at a slower pace throughout 2011. Most consumer credit is unsecured, with approximately 10% collateralised by real estate - this mainly reflects mortgage equity withdrawals used for consumption purposes rather than for home improvement or investment purposes.

Consumer credit includes the use of credit cards, a product for which we have specific data which are shown in Chart 5. The amount of personal credit card debt outstanding peaked at the end of 2008 at just under €3 billion, or approximately €1,350 for each card in issuance. Repayments have since outstripped new lending and by the end of 2011 credit card debt outstanding had fallen to €2.6 billion. Part of this reflects the exit from the Irish market of some credit card providers, as well as repayment dynamics. Given that there are fewer personal credit cards in circulation, the average debt per card has not fallen significantly and currently stands at approximately €1,330. The information available suggests many new transaction charges on credit cards are being repaid but that there is a portion of historic debt that is not being reduced significantly.

The other category - other household credit - which effectively covers lending for non-housing and non-consumption related activity also grew substantially during the years to the end of 2007, as highlighted in Chart 6. This category of lending which includes items such as education loans or loans for non-property investment purposes was the first to react to the wider financial crisis but accounted for the smallest share of household debt. In looking at this category it is important to recognise, as I mentioned, the definition of the household sector in financial statistics. As I stated, the household sector includes, for instance, lending to sole traders, partnerships and other non-incorporated enterprises. This needs to be distinguished from credit advanced to private households.

Apart from the volume of personal debt, it is also worth examining, where possible, the cost of servicing the debt. Interest rates on lending to households for non-mortgage related credit purposes are typically higher than mortgage interest rates, as they are mostly unsecured and have shorter terms to maturity. The link between policy rates, such as the ECB main refinancing rate, and interest rates on non-mortgage related household lending is also less defined than that of mortgage rates, as shown in chart 7. Interest rates charged on short-term non-mortgage household loans with a maturity of up to one year, including amounts drawn down on credit cards and overdraft facilities, as well as other short-term loans, have typically been in high single digits and above comparable rates for the euro area as a whole. This has been particularly true since 2010, when rates on this type of lending in Ireland increased more sharply than for the euro area and reached approximately 9.3% by the end of 2011. It must be noted, however, that interest rates on this type of lending remain close to pre-crisis levels, despite the recent increases. Meanwhile, interest rates on longer-term non-mortgage lending in Ireland have remained relatively stable in recent years and were around 5.5% at the end of 2011.

I will move on to the quarterly financial accounts, QFA, data, which include all Irish household debt, including debt not held with Irish credit institutions, and these data are shown in chart 8. They reveal that at the end of Q3 2011, Irish households had €27 billion of liabilities not held with Irish credit institutions or in the form of securitised mortgages. The largest component of this €27 billion is held with non-residents. However, it should be noted that household debt held with non-residents increased substantially in Q4 2010, when Bank of Scotland (Ireland) exited the Irish market. At the time Bank of Scotland (Ireland) left the Irish market, Irish households had approximately €10 billion in debt with that institution, primarily in the form of household mortgages. The QFA data also include mortgages with some sub-prime lenders and debt held with general government, largely reflecting taxes payable and affordable housing loans. The QFA data also include other smaller elements, such as accrued interest on borrowings from non-financial corporations, which are not part of the money and banking data but which are quite small in volume.

I will turn to the new work that is taking place in the Central Bank. It is developing new data sources for analysing issues relevant to personal debt dynamics. These data sources stem from the requirements to conduct stress testing of the Irish-owned banks under the financial measures programme, FMP. This exercise involved the collection of detailed loan-by-loan information for the banks covered in the FMP report published at end of March 2011. Members will recall the presentation given to the joint committee on 26 October last on work related to mortgage lending using these data. To date, this loan-by-loan analysis has focused on mortgage lending and SME lending, as non-mortgage lending to households has not been analysed in depth as yet. A new data collection exercise is under way for the forthcoming 2012 stress testing exercise, when analysis undertaken in 2011 will be built upon and expanded.

Alongside this data collection from the participating banks, the Central Bank will conduct a household income survey in the coming months. This survey will aim to collect more accurate detail on the income and financial position of a representative sample of households. These survey data will complement the kind of analysis done on the aggregate household position and the loan-by-loan data discussed previously, by allowing more direct matching of issues like employment status with individual household's financing conditions, thus enabling the tailoring of policy recommendations in areas of concern. It is envisaged that data collection will be undertaken around April 2012, with first results and analysis of the data later in the year. Separately, a detailed survey on household income and wealth is being considered for 2013 as part of a euro area-wide initiative. This is designed to provide comprehensive information on household income, consumption and wealth.

Finally, in the medium term a more significant project is the establishment of a centralised credit register, CCR, which would see the kind of micro-level data collected from the Irish-owned banks for the stress testing exercises being expanded across all credit providers in the State. The main purpose of the CCR is to ensure that consumers, credit institutions and the Central Bank have sufficient information to ensure that risks are appropriately managed. Members can appreciate the significant amount of work that is involved in such a project, ranging from establishing a data protection and legislative framework through to the conceptual issues around database definitions and design, as well as installing supporting information technology, IT, infrastructure in all the relevant institutions. It is envisaged the CCR will become operational in late 2013.

I thank members for their attention and we are now happy to respond to any questions from the members.

Chairman

I thank Mr. McNeill. Before turning to my colleagues, I seek clarification myself on one or two matters. At the outset, when Mr. McNeill referred to the level of data or the types of data and the statutory obligations on the bank to collect these, he stated it is necessary for monetary policy decision making at the ECB. I believe he referred later on to the requirements arising from the various stress testing exercises that occurred. Have these obligations changed dramatically since the onset of the crisis? I gather there is a different level, although I will not say a higher level, of data collection. Is there now a different level of data collection or a different approach to data collection than was the case during the period from the late 1990s that was dealt with in the banking reports, including Professor Honohan's report? In other words, is a new level of data collection under way?

Mr. Joe McNeill

There are two almost separate data collection frameworks. There is what we call the monetary policy framework, which is our remit and which effectively comprises statutory obligations to the ECB. However, over on the regulatory side of the bank, data are collected for prudential regulatory purposes. That activity has extended significantly in recent years and there are a number of initiatives, both at national and ECB or euro area level involving banking supervisors and the ECB, to try to integrate data of a regulatory nature with data of a monetary policy nature. They are different frameworks and are collected for different purposes. As there are different definitions and concepts, it is not a straightforward exercise to integrate them. However, it is one of the major projects for the future, both at national and at international level, to integrate both frameworks in so far as possible.

Chairman

To what extent is that a response to the problem? Is this a development of the technical function and expertise or to what extent is this a new approach to data collection and data transmission?

Mr. Joe McNeill

It probably is a bit of both. It probably is ongoing development work in part but certainly there are a number of new data initiatives and new proposals, even at the G20 level and right across the supervisory function, to integrate the data as much as possible. However, while data gaps have been identified as part of the crisis, which are being addressed, a major project also is under way to try to integrate as far as possible. This is being done both from an efficiency point of view from the perspective of banks' reporting and in particular because better IT systems and better access to microdata offer significant potential to integrate as far as possible. It is being done both in terms of normal developmental work and of responding to the crisis.

Chairman

Mr. McNeill is head of statistics. Do many professional colleagues, that is, statisticians, work in that particular section?

Mr. Joe McNeill

On the regulatory side?

Chairman

Yes.

Mr. Joe McNeill

No, we are confined at present. Most of the loan-by-loan data to which the Chairman has referred are collected in our financial stability unit at present, which really considers matters from a financial stability perspective. The role of the statistics department largely is to collect the statistics we are statutorily obliged to collect for ECB and domestic purposes. We are not directly involved in supervisory data collection.

Chairman

I wish to raise one or two other matters. Mr. McNeill mentioned the available data are macrodata and do not allow for any information to be imparted on what Mr. McNeill described as the distributional aspect. To be clear, does Mr. McNeill mean this in respect of geographical spread or spread by category of individual? Is this what he means?

Mr. Joe McNeill

Yes.

Chairman

That is what he means by stating we do not have such data.

Mr. Joe McNeill

Yes, it is a high level aggregate but within that aggregate, one does not understand the distributional aspect, which is an extremely important consideration for policy purposes.

Chairman

If one considers some of the charts, I refer to one piece of information provided by Mr. McNeill which people can get their heads around. The average amount outstanding on credit cards stands at approximately €1,330 and Mr. McNeill stated the average has not changed much but that this also reflects the intervention of other factors. How does this compare with Europe-wide figures? What kind of average amount is outstanding on credit cards or can Mr. McNeill provide a meaningful comparison?

Mr. Joe McNeill

Neither my colleagues nor I have those data available to hand. We will try to acquire whatever data we can and will revert to the joint committee in this regard. I apologise but we do not have such data to hand at present.

Chairman

This leads me to my last question. One chart that struck me as being extraordinary was chart 6, which shows the figures for the euro area are almost identical from 2004 onwards. This is the annual rate of change for other loans to households. I understand that is tracking the change but the European line is remarkably steady. One then has all these extraordinary spikes which we are all interested to see. They date from early 2004 and 2005, followed by a dramatic drop to 2006 and then a lift in the last year of the boom, if we can call it that. There is not a particularly dramatic dropping off until Q4 in 2007, when it goes back down to just below the European average. It does not seem to have dropped very much then. It has not dropped as much below the European average as it went above it in the early years. It is an interesting comparator. We would be interested in European comparators to get a sense of it. When one gives numbers about Ireland, it is a little bit in the dark. What does the average figure of €1,330 on a credit card mean? Maybe it is the case in Germany or Holland but I doubt it. Does Mr. McNeill have anything that could assist us on that? Could he get some material for us on that to give more meaning to the figures about Ireland?

Mr. Joe McNeill

We have actuarial averages on some, but we would provide whatever information we can. We certainly do not have the credit card data to hand. The volumes are quite small, however, and it is a difficult category. There are definitional issues, so it is probably wise to interpret it with a bit of caution because the volumes are low and movements can be quite volatile for Ireland.

Chairman

Okay. I call Deputy Doherty.

Deputy Pearse Doherty

Cuirim fáilte roimh ár dtoscairí ó Bhanc Ceannais na hÉireann. Tá an cur i láthair atá déanta acu íontach suimiúil.The presentation was very interesting, particularly the graphs. What type of information on personal debt can we glean from these figures, and particularly from the upcoming household income survey that the Central Bank will be conducting. Will the data tell us about the relationship between people who are finding it difficult to pay their mortgage debt and others who may be paying such debt but are finding it difficult and may slip into arrears? I have a major concern about the 100,000 plus who are in mortgage difficulties. From Mr. McNeill's analysis of non-mortgage debt - because all of this is linked - what type of understanding can we glean from these figures? In addition, what more could we learn from the survey that is being done? Linked to that is the impact of servicing household sector debt to the continuing fall in retail sales and consumer demand generally. What does the existing data tell us about that relationship? How does Mr. McNeill think we can gain a better understanding from collating the new data today, as well as information from the CSO? What kind of drag on the economy does he think these figures will show?

The table shows a figure of about €190 billion of non-mortgage household debt, which is about 120% of GDP. What type of impact does that level of household debt have on the economy? International reports say that we are well over the threshold and that it is having a negative impact. Can Mr. McNeill quantify the impact that is having? What would be a sustainable level of debt? Maybe the best way to measure it is as a percentage of GDP, so where does he believe it should be? Is it at 90% before it starts having an impact, or is the figure lower or higher?

Other issues of concern include poverty, inequality and deprivation. The EU's figures in 2010 show significant increases in relative poverty. We have also seen multiple deprivation in income inequality, so what do these figures show us in that regard?

Various proposals have been made by committee members on how to deal with mortgage arrears. I believe we have to write down the level of debt that individuals are paying. Mortgage debt is secured debt against an asset, yet the vast majority of the credit card debt we are talking about is unsecured. When examining people's ability to pay mortgages, instead of demanding that banks take the write-down, should we not first demand that of credit card companies who have the most unsecured debt? The average figure is approximately €1,300 per person.

Can Mr. McNeill give us the figures for non-mortgage household debt as a percentage of GDP and GNP? Could he also give us a comparison, as the Chairperson sought, with other EU countries, as well as the trajectory to see if it is increasing or decreasing? He may not have the figures here, but perhaps he could furnish them to the committee.

As regards net worth, chart No. 2 shows that non-mortgage household debt is in the region of €190 billion. However, the assets of households are just under €600 billion, which gives a net wealth of about €400 billion.

Deputy Arthur Spring

About €400 billion?

Deputy Pearse Doherty

Yes. It was €400 billion in the fourth quarter of 2011. That is made up both of financial and housing assets. Can Mr. McNeill quantify what we are talking about in terms of financial assets? What is the make-up? In that way we can have the figure of net wealth of households within the State, but is there a more detailed breakdown of the categories into which that falls? Some people might have a net wealth of €300,000 or €400,000, but how many have a net wealth of €5 million or €100 million? Can we have the figures broken down into categories? If not, are there any plans to do so? I understand that the programme for Government requires the CSO to carry out some type of analysis in this regard. Is the Central Bank involved in that at all?

Mr. Joe McNeill

I shall start with one qualification - our role is largely to collect and provide the statistics under our statutory obligations. We are not specifically policy people, so we are not qualified to make major comments on policy. Having said that, we will try to answer the questions as far as possible. The Deputy's first point concerned the income survey. As I mentioned in the presentation, while one can have macro-aggregate figures, for policy purposes the distributional aspect is all important - whether all the debt is confined to a small number of people or whether it is spread across the population. One needs to be able to match income variables with expenditure variables, which is precisely what the survey will try to do. It will look at a representative sample of the population and will try to see their income, outgoings, and their potential to service their debt. It will try to provide that distributional information which one cannot provide from the macro-aggregate statistics.

As regards servicing household debt, it is clear from the statistics that households are deleveraging at the moment. In a large number of cases, net savings are taken up by servicing debt. They are spending less than they are earning but that excess is largely going to repay debt.

The Deputy mentioned the impact on consumption and while the focus of households is on repaying debt, that also has negative implications for consumption. The data make it clear that while households are net savers, a lot of those net savings are in the form of deleveraging.

Deputy Pearse Doherty

While I do not have the data in front of me, I agree the statistics obviously show there is deleveraging. However, Mr. McNeill's presentation shows that while the aggregate figure for credit card debt has come down - he put that down to Royal Bank of Scotland, in particular, leaving the Irish market - the level of debt people have on their credit cards is €30 less than it was at the peak of the boom. When one starts de-leveraging, the first element at which one looks is who charges the highest interest rate, what type of loans to have out there and what needs to be paid back, and the credit card is number one among the priorities. Mr. McNeill has shown that the amount of personal credit card debt outstanding has reduced by €30 on average, from, I think, €1,330 at the height of the boom to €1,300. Those figures would not show widescale de-leveraging or if there is widescale de-leveraging, then maybe it is focused in the wrong areas.

Mr. Joe McNeill

It is a fair point. It seem contradictory but one must bear in mind that the total amount of debt has fallen. We are talking about macroeconomic aggregates here and total debt, in terms of credit card debt and wider mortgage and non-mortgage debt, has fallen. That said, there is a smaller number of cards. The average outstanding balance is fairly similar, which would highlight the need for some sort of distributional information across the spread of debt. We can state categorically that the total level of credit card debt has fallen, from some €3 billion to €2.6 billion, but the average amount outstanding on a smaller number of cards has remained the same.

Deputy Kieran O’Donnell

It is hard core old debt.

Mr. Joe McNeill

The conclusion we draw is that the new debt being generated on the credit cards is being repaid but there seems to be a significant outlay of historic debt that is not being addressed as part of the problems. It may sound contradictory but what we are saying is that the total level of debt has clearly fallen. When households are de-leveraging, that is, right across consumption loans, mortgage loans, and so on, we see it. We collect it. We call it transactions data, which matches net repayments with new lending. For recent months, it has been clear that net repayments have outstripped new lending.

I will let my colleague Ms Cussen address the net worth point. While I am looking through my notes, Mr. O'Brien may wish to add something.

Mr. Martin O’Brien

On a point of clarification, Deputy Doherty mentioned the figure of €190 billion referring only to non-mortgage debt. That €190 billion refers to all household debt inclusive of mortgage debt. The non-mortgage personal debt is reflected in Chart 8, to which the Deputy might refer.

Chairman

Is that alright with Deputy Doherty?

Deputy Pearse Doherty

I think there is a response to come on the net wealth.

Chairman

Yes.

Deputy Pearse Doherty

On the survey, perhaps they could indicate when that work would be completed and published?

Mr. Joe McNeill

It is being done, not within the statistical division but within the financial stability division. What I can report is that they propose to undertake the data collection around April and hope to have the first results at some stage in the second half of the year.

Ms Mary Cussen

On Deputy Doherty's question on Chart 2, he asks whether we had a breakdown of the financial assets. We have that breakdown on our website and we can send it on to the Deputy. We can break down the financial assets into deposits, shares in other equity and insurance technical reserves, which would basically be household pensions.

Chairman

Ms Cussen can send that to the clerk to the committee, who will circulate it.

Mr. Joe McNeill

We have information at our disposal on total household liabilities vis-à-vis our counterparts in the European Community, not on consumer debt as such. If the committee clarifies the information it wants, we can provide as much as we can. I can call out the figures for total household liabilities as a percentage of annual disposable income for European countries if the committee wants, but if it wants specifically consumer debt, we do not have that to hand at present, but we will certainly provide it as quickly as we can.

Deputy Peter Mathews

I thank Mr. McNeill for attending. Statistics and charts tell a great deal. On the spiky graph provided, other loans to households - annual rate of change, where the Chairman asked where there was a fall-off in Q4 2005 through to 2006 when it started to rise again, my memory of the period is that there was a pause in the racing housing bubble to see what would happen with stamp duty. As Mr. McNeill stated, the numbers that make up this graph are relatively small and, therefore, one gets exaggeration in the dip. That would explain it, from my memory.

On credit card debt in other countries, from our recent trip in Berlin, I made a few inquiries. Germans tend not to carry credit cards - they carry debit cards - and their number would be probably nil per head.

On Chart 8, total household debt, where, as Deputy Doherty mentioned, the line indicates approximately €190 billion, it is still a staggering amount of debt considering that it relates approximately to 2 million out of the 4.5 million persons in the country. That would indicate there is debt of €100,000 per person. That is a staggering amount of money when one then adds sovereign debt, which rests on the head of every citizen as well. It comes back to the point Deputy Doherty mentioned, that, as a drag on growth and economic activity, personal debt, non-financial corporate debt and the sovereign debt are the three components that must be serviced and repaid by the income generating capacity, which are individuals' earnings under PAYE, businesses under profits and the State under the surplus of revenues over expenditures. If one adds all of those composites in Ireland, we are far ahead of the others.

It would be most helpful if these statisticians, and their colleagues in policy-making, could make that writ-large and voiced-large point to all our colleagues in Europe. It has been missed completely by them. We paid a visit to DEW, the German equivalent of the ESRI which has 250 highly educated economists with PhDs dripping out of their ears, and who each speak four languages, and their eyes got large when I put it to them that these composites of debt had been missed in their assessment of Ireland. With blinkers, they keep focusing on where the German focus is - fiscal, which is government revenues and government expenditures.

The Wyoming conference in Jackson Hole, attended by the Governor and others, presented a paper by the three BIS economists which addressed this very point of the three elements of debt in an economy being a drag. Between 1980 and 2010, 18 OECD developed economies were examined for this purpose, compositely individually and compositely collectively. The wisdom was that where the combined debt is more than 300% of national income or GDP, one is into terrible territory and there will be stagnation. We are at levels of more than 400%, whatever way one measures it, and at the top of the table. We were not included in that table but under a parliamentary question, the statistics were presented to me and I put the jigsaw together to see where we would be.

That needs to be writ large and voiced large. We must make our case. Mr. McNeill and his colleagues have the irrefutable statistical facts and need only assemble them into the jigsaw picture to tell our story, which, in turn, gives validity to the argument that it is wrong to saddle €70 billion of private bank loan losses on to the economy as a legacy to save the greater euro system and world financial system because of the interrelationship through CDSs and exposures of big banks. The Germans did not understand that. If they had to carry legacy debts from private banks on to their economy, €70 billion would translate, at scale, into €1.3 trillion. They need to know this. As colleagues and professionals, all trying to do our best for the country, these statisticians should make the case and get the jigsaw bits which would mean there is not even advocacy needed. The facts will speak for themselves.

I applaud Mr. McNeill for getting these statistics. These are much better statistics than we have had heretofore. There is no doubt that the banks' balance sheets were pathetic. I am a member of the chartered accountancy profession but the auditors get no marks for what they have done over the past ten or 15 years. It is pathetic to plead international accounting standards. That is like a doctor saying the rule book tells him or her to take a patient's temperature in a certain way even though he or she is fully aware the patient needs cooling.

Chairman

As the Deputy did not ask a question, I call Deputy Spring.

Deputy Peter Mathews

I raised a number of rhetorical questions.

Ms Mary Cussen

The figures in chart No. 8 are available on the EUROSTAT and ECB websites. Studies have been conducted recently to compare different countries, including a McKinsey report which compared Ireland with other indebted countries. Irish household debt was ranked relatively high in that report.

Deputy Peter Mathews

It is twice that of Greece, which is bust.

Ms Mary Cussen

These studies indicate that we rank extremely high when compared with other countries. Two issues must be taken into account when we do cross-country comparisons, however. The first is that a large proportion of our assets are in the form of housing assets.

Deputy Peter Mathews

They do not produce income, however.

Ms Mary Cussen

They do not but that must be taken into account when asking why our debt is so high. Over 70% of our debt is related to mortgages. The second issue is that Irish households are starting to deleverage and reduce their debt levels.

Deputy Peter Mathews

Elderly people may own valuable houses but that is no use to them if they do not have an income. Households need income to repay their debts. Houses will not earn that income.

Mr. Joe McNeill

I take the Deputy's point but, as Ms Cussen noted, we have a significant house owning population and this skews the level of indebtedness. I accept the assets may not be income generating but they can be put against the liabilities. We have done work to highlight Irish debt and the debt problem in Ireland. There has been negative publicity due the large number of financial institutions in the IFSC, which skew our external debt because it is on a gross rather than a net basis. In the last bulletin we published data on the consolidated debt of Irish owned banks. The BIS data attributes several IFSC banks to Ireland on the basis of group structure.

Deputy Peter Mathews

This is instructive and fair.

Mr. Joe McNeill

We have taken steps to address negative international publicity about the scale of Irish external debt, which is largely driven by IFSC factors. I take the point that even disregarding the IFSC, our levels of debt are still high by international standards.

Deputy Peter Mathews

This makes our case.

Deputy Arthur Spring

Chart No. 8 sets out figures for household debt securitised by mortgages. Between the first quarter of 2007 and today the figure for securitised mortgages appears to have doubled. If that is the case, have Irish banks sold the mortgages into the securities market?

Mr. Martin O’Brien

Securitisation is not necessarily a question of where mortgages are bundled and sold into the market. Most, if not all, securitisation activity since 2007 has been in the form of retained securitisations. The mortgage books are securitised, that is, their composition changes from loans through a financing structure that allows the banks to take them back on to their balance sheets in a form that allows them to access re-financing activities in the Central Bank. They provide collateral for these re-financing activities. The securitised mortgages are not necessarily loans that have been securitised by the banks before being off-loaded to third parties. Since 2007, most of this activity has taken the form of a liquidity transformation of banks' balance sheets.

Deputy Arthur Spring

Is information available on the savings made by the banks to the cost of funding as a result of securitising those loans?

Mr. Martin O’Brien

We do not have that information to hand and I am not aware of whether such an analysis has been carried out. I can revert back to the Deputy on the matter.

Deputy Arthur Spring

It would be pertinent information in respect of looking for margin reductions from the banks.

Chairman

Where might we seek that information if it is not available to the Central Bank?

Mr. Martin O’Brien

I am not sure that we can source that information for the committee.

Deputy Arthur Spring

Mr. O'Brien knows where I am going with the issue.

Mr. Martin O’Brien

Yes, I appreciate where the Deputy is going and we will do our best to furnish as much information as we can.

Deputy Arthur Spring

If the mortgage holders are being hit and the cost of funding for the banks is decreasing, the savings should be passed on.

My second question pertains to credit card debt. All the indications suggest a consolidation process is ongoing in the banks. The chart suggest that people are stuck with credit card debts that should be transferred into a form of personal debt at a lower rate than credit cards. Is this not happening or are personal debts not being allowed to increase in order to reduce credit card debt?

Mr. Joe McNeill

It is difficult to be definitive on that question. There is some evidence - perhaps Mr. O'Brien can confirm this - that there has been a move from overdrafts and credit card debt into term loans. The volumes are quite small, however.

Chairman

Are people not taking a head-in-the-sand type of approach to credit card debt? They are not under immediate pressure to resolve it if they make their monthly payments but the interest is racking up. Can the behavioural aspects explain why the average has not decreased markedly? Instead of being rational in the way Deputy Doherty described, people who are under pressure elsewhere with their debts might think the credit card is parked.

Deputy Arthur Spring

Should the banks not be taking a lead? Their method of securing the funding for credit cards is not too different from term loans.

Chairman

It is a wider policy question. Can that be tracked as a reason?

Mr. Martin O’Brien

It cannot be tracked directly from the statistics as presented to the committee today. We can infer from the data on new spending and lending on credit cards versus repayments that they seem to track each other closely. Over the past year or two, credit card repayments have been substantial. It appears, however, that a bloc of historic legacy issues are not being resolved.

Deputy Arthur Spring

This committee might deal with credit card debts by asking the banks to restructure them to make them cheaper.

Mr. Martin O’Brien

I have not noticed particular movements of overdraft facilities into term loans in the context of household loans but it has been an issue among loans to companies.

Deputy Arthur Spring

Chart No. 2 indicates that the net worth of the country was approximately €650 billion in the second quarter of 2006 but has since decreased to €400 billion. That equates to a reduction of €250 billion since the height of the crazy boom. Has NAMA been taken into account in calculating these figures and has the write-down of net worth increased the country's debt?

Mr. Joe McNeill

In nominal terms it should not affect the national debt because it is measured as the outstanding amount of debt.

Ms Mary Cussen

As banks write down the debt, that would affect the green bars on the chart. Household debt is being reduced.

Deputy Arthur Spring

It is NAMA, not household debt.

Ms Mary Cussen

The green bars on chart 2 are household debt and this is reduced as loans are written down.

Deputy Arthur Spring

One must differentiate this from net worth. Much of the net worth would have been built into property companies, but the liabilities are household liabilities, so they are separated. The asset is in the house but the liability would not be household debt.

Mr. Martin O’Brien

The household we refer to in the chart is more related to people in their personal capacity; it is not necessarily the type of activity the Deputy spoke about which could be related to corporate net worth, for example companies or property investment companies-----

Deputy Arthur Spring

Which have shareholders.

Mr. Martin O’Brien

Yes, people who would also be impacted in the financial asset breakdown Ms Cussen referred to previously. Valuation issues arise which feed into the developments and Ms Cussen may be able to explain this in more detail. It is the case that irrespective of these evaluation issues regarding household holdings of securities, such as shares in this type of company, the vast majority of the decline is related to the value of people's houses reducing.

Mr. Joe McNeill

We must look at this in the context of how the national accounts are structured. The economy is divided into sectors. What has been transferred to NAMA has come from the non-financial corporate sector. This is household debt. Household borrowings have not really been transferred to NAMA and do not impact hugely on these figures.

Deputy Kieran O’Donnell

I want to take up a couple of points. Am I right in stating the general profile is that deleveraging is taking place but incomes are reducing so the ratio of household debt to income remains relatively static? Overall the consumer credit annual rate of change seems to be continuing to reduce in Ireland but at a lower rate. Average personal credit card debt appears to be more or less the same. The annual rate of change to loans appears to be more or less static.

Will the witnesses comment on the retail rate of interest detailed on chart 7? It seems to be significantly higher than the European average and the level of debt is not reducing in percentage terms.

With regard to chart 2, will the witnesses comment on housing assets? Deputy Mathews has raised this issue. We are told the rate of savings is increasing. Is this true or are people using their savings to reduce household debt? Is the increase in savings arising because people put money into a deposit account and the following month repay credit cards or other debt?

Ireland appears to have a far higher percentage of house ownership than elsewhere in Europe. Is it possible to obtain an indication on what percentage unsecured consumer debt is of disposable income and household debt? Is it possible to examine the amount of debt which is made up of mortgage debt, so the net worth figure would include all loans minus all deposits and investments minus the value of one's house? This would give us gross and net viewpoints, which are not in the public domain at present. It would be extremely important for the overall view of Ireland. We speak in gross terms and I would like to see more depth.

Mr. Joe McNeill

I will take the interest rate question first and then pass over to Ms Cussen to answer on financial accounts and net wealth. The green line in chart 7 shows the substantial difference and this is for short-term debt or variable rate debt. We have seen a steady upward pressure on short-term debt. Longer-term debt is a variation of the euro area average and is not that significant. However there has been significant upward pressure on short-term variable rate interest which is shown in these statistics and it has begun to diverge from developments in the euro area.

Deputy Kieran O’Donnell

My interpretation is people are deleveraging but their household income is dropping and therefore the overall percentage is not changing and they still have the same level of net indebtedness relative to their income. Is this analysis correct? Are savings increasing or are savings being used to reduce debt? This is very important.

Ms Mary Cussen

What the Deputy is referring to with regard to deleveraging can be seen in chart 1. The red bar is debt divided by disposable income. One can see it has declined a small bit but because disposable incomes are also falling it remains static in parts and the Deputy is correct in this regard.

With regard to savings, sometimes people misinterpret what savings are. When we speak about savings we do not speak about deposit accounts. Savings are financial assets minus liabilities. If one repays debt this increases savings. When we say saving levels are high we do not mean people are putting more money into their deposit accounts; what is happening is that people are repaying debt and this leads to a higher savings rate.

Deputy Kieran O’Donnell

When we hear comment in the public media that the rate of savings has increased significantly this does not necessarily translate into cash in the banks.

Mr. Joe McNeill

It is one of the contradictions. We have not seen the volume of deposits increase significantly even though savings have been increasing. This is because "savings" as defined in national accounts means the difference between income and spend. One must remember pension fund payments, deleveraging or paying back debt all translate into savings. Just because one's income outstretches one's savings-----

Deputy Kieran O’Donnell

I am talking about the ordinary person who hears the savings rate is going up and immediately assumes everyone has money in the bank. Mr. McNeill is stating the general level of personal deposits is not dramatically increasing. However, people are repaying debt. Average credit card debt is more or less static.

Mr. Martin O’Brien

It is worth noting with regard to absolute volumes that at its peak credit card debt was €3 billion. Mortgage debt amounts to hundreds of billions of euro. When trying to disentangle the relative impact people making monthly mortgage payments are more significant with regard to the aggregate numbers than people paying off their credit cards.

Deputy Kieran O’Donnell

Invariably the people coming to our constituency clinics have mortgage and credit card problems. Therefore, they are very interlinked. I know the relative amount. I do not know about anyone else but, when people approach me about mortgage problems, 90.9% of the time they have credit card problems as well.

Mr. Martin O’Brien

I appreciate the Deputy's view. As Mr. McNeill mentioned, these are aggregate data and we cannot tease out the distributional impacts of the types of issue the Deputy is rightly highlighting. Regarding the savings rate, the national accounts framework treats savings as income minus one's spending on consumption. This is not necessarily the same as having money in one's pocket.

Deputy Kieran O’Donnell

I have a final question.

Chairman

I am keen to call Deputy Boyd Barrett because I skipped him the last time.

Deputy Kieran O’Donnell

I will ask two quick questions. Can the delegation change how it came up with chart No. 2? Is it possible to redefine the savings rate so that people will know that this does not mean money alone?

Senator Thomas Byrne

Change the terminology.

Deputy Kieran O’Donnell

Yes.

Mr. Joe McNeill

We will see what we can provide on the composition of savings, but it is a wide concept. It is the difference between income and expenditure. Whether this translates into extra pension payments or investments, debt repayments or so on, the national accounts framework defines it as savings. However, it will not enhance consumption or increase bank deposits.

Senator Thomas Byrne

Can the Central Bank change the definition? The common interpretation of "savings" is what is in one's piggy bank.

Deputy Peter Mathews

It is the difference between consumption and-----

Chairman

I apologise, but I must call Deputy Boyd Barrett.

Deputy Richard Boyd Barrett

Reading chart No. 8, one would believe that the situation was improving. The total level of household debt is declining, which must be a good development. Does the new spending referred to in chart No. 5 refer to people taking out more personal credit? It is decreasing, which one would also view as being a good development.

If I understand the situation, the real problem is that the average level of indebtedness is increasing. Is the figure in purple right? Average indebtedness fell slightly, but is now on an upward curve. From this, one might extrapolate that some people can afford to pay down their debts, having been impacted upon by the recessionary atmosphere and having decided to rein in their credit a bit. However, large numbers of people are not in a position to pay down their debts. They have lost their jobs and experienced income cuts. Their situation is as bad as before or might even be worsening. This is alarming. Have I misinterpreted the chart? After a slight dip, average indebtedness seems to be on a rising curve.

Chairman

To help the Deputy's flow, he could be answered as he goes.

Deputy Richard Boyd Barrett

My questions are connected.

Chairman

I am in the Deputy's hands, but his last question was a factual one that could be answered now. It is up to him.

Deputy Richard Boyd Barrett

It is connected to the next question. I am giving an overview of how these matters connect with one another. Would it be fair to liken chart No. 1 to a household version of the State's debt to GDP ratio? When states reach the level we are expected to reach, namely, 118%, Europe tells them that they should be at 50% or 60%. What is Greece at now?

Deputy Peter Mathews

Greece is way up there at 165%.

Deputy Richard Boyd Barrett

At the personal household level, our debt to GDP ratio is a shocking 220%. We are really in a bad way. The figure for household leverage still seems to be on a rising curve. It is higher than ever or at least as high as the worst point. This indicates that, with the possible exception of a few people who still have money to make choices with, many people are in as bad a situation as ever. In many cases, their situation is becoming worse than ever. It is a significant problem. The leverage ratio compared with Europe is astonishing. Is this a reasonable comparison? Our household leverage ratio is 220% and Europe's is 110%. We are in a disastrous situation by European standards. I have another question on a different chart, but will the delegates answer my questions so far?

Mr. Joe McNeill

I shall answer the Deputy's first question and Ms Cussen will take his question on chart No. 1. Chart No. 5 refers to personal credit card debt, which is small in overall terms. The Deputy highlighted a point I tried to make in my presentation. While the overall level of debt is decreasing, we do not know the distribution of that debt across the population. For policy purposes, we need data on incomes versus outgoings and on the number of people for whom servicing their debts is a serious problem. All that we can provide today are the macroeconomic aggregates, which show that the total level of debt in all categories is falling. They do not provide distributional information. As Deputy O'Donnell mentioned, even when aggregates are decreasing, we cannot see how many people are in worse circumstances than their fellows.

Deputy Richard Boyd Barrett

I take Mr. McNeill's point, but is it not fair to extrapolate from the figure for average indebtedness, which is high and on an upward trajectory-----

Chairman

To which chart is the Deputy referring?

Deputy Richard Boyd Barrett

No. 5.

Chairman

Chart No. 5 only refers to personal credit card debt.

Mr. Joe McNeill

My point was about credit card debt, which constitutes a small proportion. The average outstanding amount of credit card debt has decreased marginally, but total credit card debt has fallen significantly from 3% to 2.6%. There are two reasons for this, but it is primarily because there are fewer cards in existence. Ms Cullen is better qualified to answer the question on chart No. 1.

Ms Mary Cussen

When making cross-country comparisons, it is important to remember that, in Ireland's case, more than 70% of the figure is mortgage-related whereas not as many people in other European countries take out mortgages or own houses.

Senator Michael D’Arcy

I wish to make an important point.

Deputy Richard Boyd Barrett

I have not finished yet.

Chairman

The Senator always says his points are important, but I must be fair to his and my colleagues. Deputy Boyd Barrett to conclude.

Deputy Richard Boyd Barrett

The financial assets chart is interesting. Will Ms Cussen clarify her statement to the effect that she can provide a distributional breakdown?

Ms Mary Cussen

I cannot provide a distributional breakdown. It would be a breakdown of asset types.

Deputy Richard Boyd Barrett

I take Ms Cussen's point. She can confirm something to me concerning a matter about which the ULA has been banging its drum for the past year. The value of housing assets has fallen significantly, yet financial assets are rising. If this is the case and the delegates are telling us that there has not been an increase in savings, given that most ordinary people are using what little bit of money they have to pay down their considerable accumulated debts, can we not assume that some group is doing well and its financial assets are increasing?

Deputy Peter Mathews

Stock market practices dictate that to some degree.

Deputy Richard Boyd Barrett

Is my assumption not fair? The €300 billion in financial assets are increasing.

Ms Mary Cussen

The increase in financial assets is the result of valuation changes. Approximately one third of households' financial assets are in the form of insurance technical reserves, which are essentially pension funds. Their value declined around the time of the crisis but is now rebounding. That is the reason for the increase in financial assets.

Deputy Richard Boyd Barrett

Someone is doing well. I would like to set out one instance that indicates to me that the cause remains with us. A self-employed woman who has been working consistently recently married her partner who is a council tenant willing to give up his house to someone on the housing list. The woman's house which is in negative equity is now their home. As it is quite small, they decided to extend it. However, when they applied to the bank for a loan of €10,000 to meet the cost of construction of the extension to make the house large enough for a family, they were refused. The bank, having consistently refused them a loan, recently extended their credit card limit to the same amount. This indicates to me that some of the banks have learned nothing. They are continuing to extort money by way of high interest rates on credit card debt, rather than managing the situation. What is the Central Bank-----

Chairman

That is a big issue for the committee, but I am not sure the statisticians can stray into the area of policy. They can only provide us with numbers and it is up to us to make political judgments.

Deputy Richard Boyd Barrett

Okay.

Senator Thomas Byrne

I apologise for my late attendance. The debate has been interesting. Who would have thought that statisticians would make a most interesting presentation to the committee? They have certainly given us food for thought. It is important that we follow up on this issue, given, as stated by the Chairman, the delegates are precluded from discussions on policy matters. The issue of interest rates is already on the agenda.

There are clarion calls for further pay cuts and an abandonment of the Croke Park agreement. If that were to happen in the public sector, the effects might flow into the private sector. Is it possible to predict where there would be deleveraging if, say, there was a 5% or 10% cut in public sector pay and debt was repaid at the same rate? Could this be done? I presume deleveraging would increase if disposable income was lower but debts remained the same. Have the delegates ever undertaken such a task? It would inform the debate taking place.

Mr. Joe McNeill

One would need very detailed micro data in order to do that; one would need to know the amount outstanding, the amount of income and so on.

Senator Thomas Byrne

Could it be done on a national basis?

Mr. Joe McNeill

It certainly could not be done with the macro statistics. There might be possibilities, but even within the micro data it would difficult to do without having access to a huge database.

Senator Thomas Byrne

Would Mr. McNeill expect deleveraging ratios to increase if there was to be another pay cut?

Mr. Martin O’Brien

In that instance, one would be engaged in forecasting on two issues - debt and disposable income. One would need complicated models in order to forecast the dynamics in both. For example, while our colleagues who produce economic forecasts produce short to medium terms forecasts in respect of, say, disposable income, they would not necessarily be able to produce forecasts in respect of, say, household debt. It might not be possible to engage in that type of analysis. However, the Senator's assertion is correct, that all else being equal, if disposable income was to decrease, the deleveraging ratio would begin to pick up.

Senator Thomas Byrne

I accept that there is a volume of credit card debt and that the focus is on mortgage debt, in respect of which more needs to be done. However, I suspect those subject to hard core debt are in severe difficulties. As a committee, we should be coming up with a policy in this regard. I am shocked by what I have heard. I was aware that the total amount had decreased. However, the statistics provided are frightening and should call us to take action. We need to come up with a solution on behalf of the many people affected. This problem is not going to go away, particularly if people are only paying back the minimum amount each month.

Senator Aideen Hayden

It has been stated, in terms of total national indebtedness, that the volume of credit card debt is not particularly significant. However, we must also take into account unsecured debt such as store card, utility and car loan debts. Even though we accept that the overall level of indebtedness is dropping, the volume of credit card debt, as well as as store card unsecured debt, is not.

From what I am hearing at the coalface there is huge competition between debtors in regard to who gets paid and who does not. In theory, consumers should act as rational actors, namely, they should repay the most expensive debt first. In most instances, credit card-store card debt is the most expensive. Given the high rate of interest charged, logically this debt should be the first port of call. When we look at the graphs, what we should be seeing is that the level of that debt is dropping because it impacts most on a household's ability to pay, but this is not the case. This indicates to me that competition in terms of who is paid is not working in a logical way. In other words, the result is not the logical outcome - that the most expensive debt is repaid first.

What I am hearing at the coalface is that the pressure being put on the average household by mortgage institutions is such that mortgage debt, the cheapest debt, is being repaid first. I accept that policy is not the responsibility of the delegates. However, it is an issue for us. It is a big issue for the average family with average disposable income. Am I correct in my analysis that the most expensive debt is not being prioritised by debtors? Could the delegates determine from the statistics the extent to which people are prioritising mortgage debt? There is an old Irish adage, "we will not default on our mortgage no matter what." However, this is masking the problem and people are repaying their mortgage debt first rather than more expensive one.

Mr. Joe McNeill

It is difficult to be definitive on that issue, given that, as has been stated, we work with aggregate numbers. As the Senator stated, it is surprising that while there has been a substantial fall in total credit card debt, the average figure has only marginally reduced. It is difficult for us to comment on the dynamics underlying this based on aggregate numbers. All I can say definitively is that the total amount outstanding has fallen. There is what appears to be a core of historic debt that is not being repaid. It does not appear to be moving within the system and we are not in a position to say whether this is due to the prioritisation of debt.

The Senator mentioned unsecured debt. We have provided statistics for consumer debt which, by and large, is the other element of unsecured debt, including car and holiday loans and so on. That is falling as well, although the year on year rate of decline in 2011 is falling. All we can say definitely is that all types of debt are falling, as we do not have the data on where consumers are prioritising their payments.

Mr. Martin O’Brien

Overall consumer credit, which would take in credit cards, car loans or holiday loans, contracted quite substantially, as is indicated in a chart in the submission to the committee. For example, the figure was down almost 17%, 18% or 20% year on year. That does not relate what kind of households are necessarily paying back that debt or whether they are facing difficulties in servicing or prioritising other forms of debt. It is the case that all elements of household debt are going down.

Chairman

Senator Hayden and others may draw certain inferences from what we observe but there is nothing in the data to suggest that those inferences are untrue. The delegates cannot say one way or another because the data cannot be segmented. I and others put that point to the delegation earlier. There is nothing to suggest that the inference is wrong.

Mr. Joe McNeill

No, and it is absolutely plausible. It highlights the point that we need this sort of distributional data across cohorts.

Chairman

So it could be named.

Mr. Joe McNeill

One cannot come to those sort of conclusions from the aggregate data. One can surmise that certain things are happening but we do not have the raw statistics.

Senator Aideen Hayden

I accept that I am surmising from the data. I am trying to match what is being presented with the proposals we have under the insolvency legislation, which will have an impact. I had assumed that the level of unsecured debt out there among people who had no fixed assets or houses would be under €20,000. I have been reliably assured that it is well in excess of that figure. It will be quite interesting to see how the proposed legislation affects this. We will consider this historically, perhaps in two years, and deal with an entirely different perspective.

Deputy Liam Twomey

When we considered the Keane report we met representatives of the different banks and the Central Bank on this issue. Considering the figures from the Central Bank, it seems mortgage arrears of some type affect one in eight mortgages at this time. There is a lost generation of human misery behind these figures and we were made very aware of them during the course of the discussions. The delegates have indicated that the liability as a percentage of disposable income is exactly the same, holding at 220%, but we know there is a significant percentage of people out there in mortgage arrears.

I was almost certain that during the course of those debates a number of months ago, representatives of the Central Bank told us they would drill down into the figures to get a better indication of who is affected. This relates to the questions I have heard raised around me, as we were going to fine-tune this process in order to understand the level of debt. It is extremely difficult to hear that we will formulate policy and legislation without having the dead accurate figures on who is really in debt and the burden such people carry.

When the representatives of banks have come before us they have, more or less, told us they will not write off any debt and they are still ploughing along as if everything is hunky dory when we know it is not. When one in eight mortgages is in arrears, there is a real problem. I am a little surprised the delegation has indicated it only has aggregate figures. I was certain that during the course of that debate we were told by all the delegations, from the Central Bank, the Department of Finance and some financial institutions, that there would be an attempt to drill down into the figures and revert with data that is more useful. As accurate as these figures are, they are not really useful for considering policy.

Deputy Peter Mathews

They are cohorts.

Deputy Liam Twomey

We are not quite sure who is in trouble.

Mr. Joe McNeill

We are concentrating today on consumer debt, which has not got much focus because the big numbers are in mortgage debt. I mentioned the loan by loan database and there was a mortgage conference last year. The prudential capital assessment review, PCAR, report considered in great detail loan by loan data while concentrating largely on mortgages. The consumer debt is relatively small. We have a conference on small and medium enterprise lending coming up in March but non-secured consumer debt has not had the same focus as the other two elements; concentration to date has been on mortgage and small and medium enterprise lending.

Deputy Liam Twomey

The impression I got was that these were tied together and one problem could not be solved without another. They are, to some degree, connected.

Chairman

The focus is on policy but we need data.

Deputy Liam Twomey

Yes, otherwise we are making up policy in a vacuum.

Chairman

Most of the data seems to be gathered for the purpose of EUROSTAT and European institutions, as was indicated in the beginning. That is as opposed to directing data collection towards policy impairments as mentioned by Deputy Twomey.

Deputy Peter Mathews

The PCAR would then come into doubt. If the cohort analysis-----

Chairman

We are going on to a different topic now.

Deputy Peter Mathews

No, it is not.

Chairman

Has Deputy Twomey concluded?

Deputy Liam Twomey

As good as the information is for us, it also rings bells as we need a further breakdown.

Mr. Martin O’Brien

I just want to clarify that the loan by loan level detail has been collected as part of last year's stress testing exercise and will continue to be collected, as Mr. McNeill mentioned, in regard to this year's stress testing exercises. That loan by loan level detail was collected across the different kinds of loan books. Analysis has focused on trying to tease out the issues highlighted by members, including the kinds of households facing difficulties with mortgage repayments in particular and small and medium size enterprises facing credit issues, but the stress testing exercises would have taken into account the entire loan book aspects. I imagine there is an intention, once the detailed loan by loan data is developed more frequently, for the analysis to be broadened to consider the particular issues raised by members.

Deputy Liam Twomey

I would like the delegation to continue drilling down into the data. We are three years after the bank guarantee and it is amazing that when delegations from the banks came before the committee, they said no loans or mortgages had been written off. There was almost a surreal atmosphere in the discussion and one would not think we have gone through an economic crisis when listening to it. There is a sense that we must rely on the Central Bank to get this information for us. It is not just about the mortgage data but how other debt is affecting the one in eight mortgages that is in arrears now. That will influence policy.

Chairman

We may have further contact with the Central Bank. Are there any suggestions for material that colleagues would like to have? They should let us know over the next few days or week. We are thinking of formulating a list of areas about which we have concerns or where there are gaps. We can write to Mr. McNeill and his colleagues about those. If there is a belief that the Central Bank cannot deliver on that, we might ponder where else to formulate that data and what other sources would be of help to the committee. They should just send us an e-mail with bullet points on which they would like to see more data. Perhaps colleagues in the Oireachtas Library and Research Service could help us as well because they are very good at that end of it.

Deputy Peter Mathews

Chart 2 gathers together four dimensions of the overall picture. We have the guts of €200 billion in household debt. To address Ms Cussen's point that 70% refers to mortgage debt, that is not really important and I will tell her why. That BIS report and paper last August was just household debt and non-financial corporate debt. It was not net debt and it did not take into account assets for the simple reason that the debt must be serviced and repaid from income. Houses do not make income, except a very small number of rental properties. That is why stressing the point about 70% mortgages is irrelevant when we say household debt levels need to be referred to national income levels to part of that comparative and to see what the relative burden is on the Irish State as a result of a credit fuelled asset bubble, which has burst.

The red bar in chart 2 shows the housing assets. That was at quarter 3, 2011. I reckon that is probably way behind the valuation curve and that approximately 20% or 25% of that red bar should disappear. If one looks at the red bar in 2011 and compares it to 2006, it suggests the levels of write-off. We must go at it more aggressively.

Now is our opportunity to face it. Let us not be afraid of the figures. Let us bring them forward to today and let us get them out there so that the people with whom we have conversations and policy discussions abroad really understand where we are. The symptoms on the skin are the credit debt, which has not changed on credit cards, the ESB and the gas bills, which are not are being paid resulting in people being cut off, and all these bills. They are the measles rash on the skin. Below that are the boils. These are the boils.

In regard to the financial assets, that is a little bit of suspension or flexibility, depending on market prices of stocks and shares, pension funds and all the rest.

The green bar in chart 2 is the liabilities. That is interesting too because at the moment, the reduction in total debt has occurred as a result of normal repayments and forced recoveries by banks but there is a stuck element there which is around about the €200 billion. Households are sweating sweat and blood to keep everything at bay so let us get the story out there. It will help us.

The cohorts thing is very important. I have no trust that PCAR got it right. It got it wrong in March 2010 - big time. I was laughed at for suggesting that it was all wrong and that AIB did not need €7.4 billion before Christmas of that year, with a mixture of sales of assets and all the rest of it, but needed at least €10 billion. That was even short. They would have thought I was certifiable and St. Patrick's material if I said what I really thought at the time.

We must get it right. Accountants need to step up to the plate and forget about international standards. We know the bombs have left the bomb bays and the bombs - the losses - are whistling down to earth. Let us recognise them.

Deputy Kieran O’Donnell

I refer to chart 7 and the retail interest rate being charged. The banks are getting significant amounts of money from the ECB. I refer to Ireland's one-year money, which would be the case back in 2011. It can now get access to three-year money from the ECB. Why is there a divergence of roughly between 1% and 1.5% on short term money, which is being charged in terms of say credit card debt? I refer to the differential between the EU average and what is being charged in Ireland. I assume these figures do not include SME lending. Does the Central Bank do work on SME lending similar to this type of analysis it could provide to the committee?

Senator Thomas Byrne

To follow on from Senator Hayden's point about the logical way to pay down debt, a kind of off the cuff remark was made by the Irish Banking Federation at a conference recently suggesting it would be prepared to give people mortgage holidays to pay down their other debt. I heard nothing more about it. It is something at which we should look as a possible solution to the issue identified by Senator Hayden because it has merit.

Following on from the point Deputy Mathews made about having the debt on its own, he is right in that regard. When one looks at mortgages in Ireland, only 39% of households are mortgaged, according to the 2006 CSO statistics. There is no mortgage on 61% of houses. These liabilities are, by and large, mortgage debt. It only applies to 40% of houses and 40% of families. In my constituency, it is a bit higher but it is still only 50% to 56%, even in the commuter belt area like Meath east and north Dublin. That emphasises Deputy Mathews's point and the need for the distribution of statistics that have been requested.

Senator Aideen Hayden

I refer to the information the Central Bank is able to present to us. I accept that much of this information is gathered for the purposes of EUROSTAT, the European Central Bank and so on. However, it is important that we understand the relationship between different forms of debt in the Irish economy, how debt is resolved and how those decisions are made by households. It is important for the Central Bank to engage in some more extensive qualitative research and, quantitative research around how debt is resolved and the relationship between secured and unsecured debt for Irish households.

Chairman

The delegates might have picked up that there are a number of issues which are still outstanding. The clerk to the committee will try to pull some of those together and will contact them. The delegates very kindly said they would revert to us on some issues. They might do that through the clerk to the committee and we will distribute it.

Another area on our near term agenda is non-financial corporate debt. That might be something on which we might like to approach the delegates and on which they might be able to help us - perhaps at a future session like this.

Mr. Joe McNeill

I refer to Deputy Twomey's earlier remark on the work that still needs to be done. The PCAR exercise was largely focused on it from a bank's perspective and what level of impairments the banks would suffer. We are looking at this from a different focus - from a household perspective. I refer to detailed analysis of the loan by loan data. That aspect, consumer loans per household, has not actually been analysed in depth yet. It is focused on mortgages and likely bank impairments and SME lending. They are the ones that got the focus. The PCAR exercise was from a bank's perspective. We are looking today from the household perspective.

I refer to Deputy Mathews's point on chart 7. He said it may be overstated. There will be a significant increase in volume which will add to the total assets.

Someone mentioned SME lending. We provide interest rate data. We do not have SMEs specifically but we have loans up to €1 million and loans of more than €1 million. We believe the interest rates on loans up to €1 million represent a good proxy for SME lending. It is the best proxy we have. That data are published monthly and we can provide it to the committee.

Deputy Kieran O’Donnell

May I say - - - - -

Chairman

No, Deputy, we are against the clock.

Mr. Joe McNeill

I take the point entirely on the relationship between the different types of debt, but we must remember there are different functions in the banks. Our function is statistics. We work closely with others in the financial stability and research functions. Some of that particular analysis is more rightly located in those functions. We have a number of collaborative projects and we work closely with others in different functions

We will certainly take that message to the bank.

Chairman

I thank Mr. McNeill, Mr. O'Brien and Ms Cussen for coming before the committee and making the presentation. I thank them for their attention to the questions, which has been extremely helpful to the committee. We may be in touch again.

The joint committee adjourned at 4.05 p.m. until 2 p.m. on Wednesday, 15 February 2012.