ALLIED IRISH Banks has hinted that it may be willing to offer some degree of debt forgiveness to struggling mortgage customers, while the Central Bank said the banks had been given “more scope” to restructure unmanageable mortgages on a case-by-case basis.
Speaking at AIB’s half-year results, executive chairman David Hodgkinson said the problem of mortgage arrears was industry-wide and must be resolved at that level.
However, he said the bank had submitted a number of proposals to the Central Bank aimed at tackling the issue and that these proposals would be discussed at a meeting in the Central Bank today.
He stopped short of saying that debt forgiveness was among the proposals included in its submission, but it is likely to form at least part of the solution it proposes.
“I would prefer to call it debt restructuring,” he said, adding that debt forgiveness could lead to “moral hazard” where risky behaviour by borrowers is rewarded.
Mr Hodgkinson said AIB was helping families who were struggling to repay debts to keep their homes but further measures were needed for some borrowers.
“For some people, particularly those who bought at the peak of the market and lost their jobs, the current arrangements may not go quite far enough.”
The bank disclosed figures showing a sharp increase in the number of borrowers missing repayments or seeking debt relief. One in five of its 44,000 Irish buy-to-let mortgages was in arrears or had been restructured to help borrowers at the end of June, compared with one in 12 of the bank’s 126,000 home loans.
“There is no point in putting the ‘can’t pay’ into a position where they just remain in the hole for years,” said Mr Hodgkinson.
He said he expected the Central Bank to issue a response to its proposals shortly but declined to go into detail as to what AIB had suggested. He said that if a borrower had their debt restructured they would be “unlikely” to retain full ownership of their home.
Mr Hodgkinson has previously said debt forgiveness was among a range of possibilities it was considering for distressed borrowers.
Any strategy agreed at an industry level will have to be approved by the Central Bank and the Government, he said.
The banks are reluctant to admit that they will forgive debts amid concerns that those who meet repayments may stop making repayments to take advantage of the changes, exacerbating the problems the banks are facing.
Separately, hundreds of property repossession cases could be struck out following a High Court ruling yesterday that there was a “lacuna” – or gap – in legislation introduced in December 2009.
Meanwhile, the Central Bank’s head of financial regulation Matthew Elderfield lent his support to mortgage holders in arrears and highlighted the need for reform of “antiquated” bankruptcy laws.
Speaking at the MacGill Summer School in Co Donegal, he said he recognised the “stress and anxiety that mortgage arrears, or even the imminent threat of mortgage arrears, is having on the day-to-day lives of many people”.
He said he expected a revised Consumer Protection Code on mortgage arrears by the autumn. He said with banks being “conservatively capitalised”, they would have more capacity to restructure mortgage debt.
“Any approach to restructuring needs to take account of the risk that it creates incentives for borrowers to cease meeting their obligations.
“But despite these considerations there is now more scope for the banks to take individual decisions, based on the particular circumstances of the borrower, to restructure debt,” he said.
Meanwhile, the Government agreed to sell up to 37 per cent of Bank of Ireland to a group of investors for €1.12 billion which will make it the only Irish bank to avoid Government control.Canadian financial investment company Fairfax, and New York billionaire investor Wilbur Ross and Dublin firm Cardinal Capital Group, who were part of a consortium that tried to buy EBS building society, are among the investors.