Dáil Éireann Debate, Thursday - 8 March 2012
70 Deputy Michael McGrath asked the Minister for Finance if he is satisfied that mortgage lenders here are adequately providing for the expected losses on their mortgage books; and if he will make a statement on the matter. [13360/12]
Amharc ar fhreagraThe mortgage lenders operating in the Republic of Ireland are independent commercial entities and are subject to compliance with relevant legal, regulatory and accounting requirements. It is a matter for each institution's Board and management to manage and report on the performance of its mortgage book and other activities of the bank. This includes estimating impairment charges on their loans in accordance with the requirements of International Financial Reporting Standards (IFRS).
On 20 December 2011, the Central Bank of Ireland (CBI) issued best practice guidelines regarding the policies, procedures and disclosures which the State supported Covered Institutions should adopt for loans and other financial assets that are subject to impairment review in accordance with IFRS. These guidelines are expected to be substantially implemented by the institutions in their 2011 annual reports. The guidelines have three principal objectives which are that the Covered Institutions: review and revise their existing impairment triggers for each loan asset portfolio to ensure that a trigger identifies a loss event as early as possible. This should result in the earliest possible recognition of losses within the IFRS framework; adopt a more conservative approach to the measurement of impairment provisions across all loan portfolios; and significantly improve the number and granularity of their asset quality and credit risk management disclosures.
In early 2011, the CBI undertook the Prudential Capital Assessment Review (PCAR) and the Prudential Liquidity Assessment Review (PLAR). The PCAR is an assessment of forward-looking prudential capital requirements, arising under a base case and stress case, with potential stressed loan losses, and other financial developments, over a three year (2011-2013) time horizon.
Completing the PCAR/PLAR exercises allowed the CBI to model both balance sheet and profit and loss dynamics in a transparent and conservative manner, offering robust reassurance that the resulting capital requirements are assessed on credible stress modelling. As part of this assessment, BlackRock Solutions performed an independent estimate of losses to include those which may occur on mortgage portfolios in both base and stress scenarios, based on expectations regarding loan amortization and prepayment, borrower delinquency and default, and loss severity.
The CBI's calculation of projected losses under the stress case ensures that banks will hold capital to meet potential future losses, even if they occur in a severely stressed macroeconomic context. This goes well beyond impairment provisions required under existing accounting standards. As a consequence, Irish banks have been recapitalised to cover higher target capital ratios set by the CBI, a prudent regulatory buffer for additional conservatism, adverse stress scenario loan loss estimates based on conservative assumptions; and a prudent estimate of losses arising from deleveraging under an adverse stress scenario
