Central Bank governor Gabriel Makhlouf responded publicly on Thursday for the first time to the head of KBC Group bemoaning the regulator's ongoing focus on the tracker mortgage scandal, saying he "may regret the fact that we will continue to be annoying".
Appearing before the Oireachtas Finance Committee for the first time since he became governor three months ago, Mr Makhlouf said: "Under my leadership I am absolutely determined to make sure that the practices and culture and behaviours of the past are not repeated. We're going to make sure the banks are held to account for their actions."
KBC Group chief executive Johan Thijs, whose group injected €1.4 billion into its Irish unit during the financial crisis, was forced on November 15th to apologise for his "insensitive" comments on the tracker mortgage scandal the previous day after drawing censure from the Minister for Finance and consumer activists.
Mr Thijs had told analysts the previous day that the regulator’s focus on the tracker debacle and “nitty-gritty stuff” was holding the industry back.
Mr Makhlouf told the committee: “If I recall correctly that particular gentleman described our work as annoying and one of the things I can tell you is that he may regret the fact that we will continue to be annoying.”
He also recalled a conversation last week with an unnamed “stakeholder” outside the Central Bank, who told him that the regulator has “got to protect bank profits” at a time when their income was being squeezed by an ultra-low interest rate environment internationally and Irish mortgage lending limits.
“My response to him is that my job and our job is not to protect profits. Our job is to protect bank stability,” he said, acknowledging, however, that the profitability of lenders was linked to financial stability.
More flexibility
Meanwhile, Mr Makhlouf said that Irish lenders have “a bit more flexibility” within existing mortgage rules to lend to would-be home-buyers. He said this a day after the regulator decided to leave lending restrictions in place.
However, deputy governor Sharon Donnery said that individual banks have to operate within their "own risk appetite", adding that some may be unwilling to offer too many loans to first-time buyers that amount to more than 90 per cent of a property's value, as allowed by limited exemptions to the rules.
In resisting calls from politicians and bankers to loosen lending caps, the Central Bank noted on Wednesday that there were signs that households were increasingly borrowing to the maximum allowed as house price growth outpaced that of incomes.
The bank estimates that house prices would have been 26 per cent higher in March – above CelticTiger levels – had the rules not been introduced in 2015.
“We recognise that significant challenges remain for people and families looking to purchase homes. Demand continues to outstrip supply,” Mr Makhlouf told the Oireachtas committee. “There are issues in the mortgage market, the rental market, and the market for social housing. However, increasing household debt is not a substitute for increasing the supply of housing.”
Mr Makhlouf said a range of things need to be looked at to boost supply.
“The issues that impact on the housing market and its effectiveness include planning regulations, incentives around the use of land and, in particular, taxation of land.
“They include the capacity of the industry to mobilise, the availability of underlying infrastructure to facilitate development, the productivity of the construction industry as well as the ability of the financial system to respond appropriately [to fund development].”
The Construction Industry Federation estimates that house and apartment completions will increase this year to 23,000 from 18,072 in 2018.
While completions are forecast to rise to 28,500 in 2020, well off a low of 4,575 seen in 2013, economists estimate that there is demand for about 35,000 new homes a year over the medium term at least.
