Wednesday, 28 February 2018

Ceisteanna (85)

Michael McGrath


85. Deputy Michael McGrath asked the Minister for Finance the reason mortgage loans that have been restructured by agreement between a bank and in cases in which the borrower and the terms of that agreement are being fully honoured are being regarded as non-performing loans by the regulator; if he or the Central Bank are seeking to address this issue at a European level; and if he will make a statement on the matter. [10397/18]

Amharc ar fhreagra

Freagraí scríofa (Ceist ar Finance)

In answering the Deputy’s question, it is useful if I start by giving some historic context. During the height of the financial crisis a key focus of the authorities was on stabilising and ultimately reducing mortgage arrears through the implementation of sustainable mortgage solutions that were agreed with borrowers.

This led to the Central Bank of Ireland (CBI) introducing public mortgage arrears resolution targets (MART) for the banks in H1 2013. As the MART process was rolled out a split mortgage solution or a part capital and interest solution that met certain criteria were accepted by the CBI as being sustainable for the purposes of these targets.

Following the successful achievement of these targets by each of the banks, and since the implementation of the SSM in November 2014, the focus has shifted from the question of mortgage arrears levels and banks' progress in restructuring loans. In fact regulatory attitudes have not only hardened but have changed. This shift in focus has been accompanied by a new strict definition of what constitutes an NPL.  

Officials in my Department met with staff of the SSM at the highest level on two occasions since late 2016 and discussed NPLs. In the course of their discussions they outlined the background and history to the restructuring effort in Ireland and questioned the logic of now classifying some types of restructured loans as NPL, and not just for a short probationary period but indefinitely.

While my Department has been informed that the SSM is looking into the regulatory treatment of split mortgages across a number of European member states I have no evidence at this point that this categorisation is going to change. 

Aside from direct interaction with the SSM, Department officials have also been actively involved in the discussions on NPLs through its involvement in the European Council’s Financial Services Committee subgroup on NPLs, and the more recent European Commission Expert Group on NPLs. While this has ensured that Ireland’s views are voiced and considered on the matter, ultimately the final arbiter on the resolution of problem loans is the SSM.

The CBI has provided me with the following comment in relation to the Deputy's question:

"In 2014, the European Banking Authority (EBA) introduced harmonized definitions of forbearance and non-performing exposures for supervisory reporting purposes (referred to as the ITS on forbearance and non-performing exposures). The definitions provide supervisors of European banks with comparable measures of asset quality and forbearance activities. Banks are required to submit reporting templates (via FINREP) detailing their level of non-performing and forborne exposures in line with the EBA’s definitions.

Paragraph 145 of the EBA’s ITS on forbearance and non-performing exposures provides the definition of non-performing while paragraph 163 defines forbearance. Exposures should be classified as non-performing and/or forborne if they meet the relevant criteria outlined in the ITS. In relation to curing, paragraph 157 outlines the criteria required for a non-performing forborne exposure to move back to performing status.

Furthermore, in March 2017 the SSM published “Guidance to banks on non-performing loans” which sets out supervisory expectation regarding NPL identification, management, measurement and write-offs. Information on the requirements to cure/exit from non-performing status is also provided, which utilises the ITS noted above.

Therefore, restructured NPLs can migrate back to performing when the criteria outlined in the EBA ITS has been satisfied, and it is the bank’s responsibility to conduct that assessment. Depending on the specificities of the restructure, it can take at least a year for a restructured NPL to move back to performing status. Restructured NPLs successfully moving back to performing status is one of the important factors in improvements in mortgage NPL levels in recent years."