Dealing with the issue of excessive indebtedness amongst SMEs and consumers is key issue for the new Government. The Programme for A Partnership Government contains a range of commitments on this issue. These commitments will ensure that progress continues to be made and that this issue will be addressed in an effective and fair manner.
In relation to SME loans, as part of on-going supervision, the Central Bank, working in conjunction with the European Central Bank (ECB) as part of the Single Supervisory Mechanism (SSM), continues to challenge the banks on their strategies, management, measurement and reporting of the resolution and restructuring of all non-performing loans (NPLs) including SME NPLs. Relevant actions taken by the Central Bank in recent years have been extensive and include, inter alia, capital assessment reviews, stress tests, distressed credit operation reviews, balance sheet assessment exercises, SME loan resolution bank specific targets, on-site inspections and on-going, intensive supervisory engagement with the banks regarding distressed debt.
In 2013 non-public institution-specific SME distressed loan resolution targets were set for a number of banks. The targets required the banks to develop strategies, at borrower level, to resolve their non-performing loans. The targets ended in Q1 2015 with lenders reporting that they satisfied the requirements set out. Progress has been made by the relevant institutions in resolving SME NPLs in recent years and NPL trends continue to move in a positive trajectory.
Recognising these developments, alongside changes in the supervision of the banks following the introduction of the SSM, the Central Bank's approach to commercial NPL resolution utilises a bank specific approach taking into consideration a number of factors including, inter alia, the institution's NPL resolution strategy and operational capability. The sustainable resolution of distressed SME loans remains a significant priority for the Central Bank and will therefore continue to be central to their supervisory focus throughout 2016 and beyond. Supervision will continue to be intrusive, supplemented by targeted inspections and enhanced monitoring of performance of the banks in delivery of supervisory objectives.
In relation to homeowners in financial difficulties, the Code of Conduct on Mortgage Arrears (CCMA) is a key part of the Central Bank's mortgage arrears framework. It is designed to provide appropriate and effective consumer protection measures and to ensure that borrowers are treated in a fair and transparent manner.
The CCMA is a statutory code and can be found at: http://www.centralbank.ie/regulation/processes/consumer-protection-code/Pages/codes-of-conduct.aspx.
The CCMA sets out requirements for all mortgage lenders dealing with borrowers in arrears or pre-arrears. It provides a strong consumer protection framework to ensure that borrowers struggling to keep up mortgage repayments are treated in a fair and transparent way by their lender and that long term resolution is sought by lenders with each of their borrowers. It sets out a process, called the Mortgage Arrears Resolution Process (MARP). The MARP is a four-step process which lenders must follow:
Step 1: Communicate with the borrower
Step 2: Gather financial information
Step 3: Assess the borrower's circumstances
Step 4: Propose a resolution
The CCMA also requires lenders to have an appeals process in place to enable a borrower appeal a decision by a lender, including where the borrower is not willing to enter into an alternative repayment arrangement or where the lender declines to offer an alternative repayment arrangement. The appeals procedure must inform the borrower of his/her right to refer the matter to the Financial Services Ombudsman. The CCMA also provides that, at the borrower's request and with the borrower's written consent, the lender must liaise with a third party to act on his/her behalf in relation to his/her arrears situation.
On 18 December 2015, the Central Bank (Supervision and Enforcement) Act 2013 (Section 48) (Lending to Small and Medium-Sized Enterprises) Regulations 2015 were published. These regulations come into effect and apply to regulated entities, except credit unions, from 1 July 2016. Until then, the Code of Conduct for Business Lending to Small and Medium Enterprises 2012 will continue to apply.
