THE LEVEL of mortgage arrears is likely to get worse but this should not destabilise our banks due to the new capital requirements that were put in place this year, Matthew Elderfield, head of financial regulation at the Central Bank, said yesterday.
“My guess is that, over time, they are going to get worse rather than improve because of the unemployment levels. But the banks, I think, are taking a responsible, reasonable approach of forbearance by allowing customers to reschedule,” Mr Elderfield told the Chairperson’s Forum at the Institute of Public Affairs in Dublin yesterday. “It’s something we will watch very closely in the course of the next year.”
After the meeting, speaking to The Irish Times, Mr Elderfield added: "It's right to say that mortgages is an area that needs close scrutiny, and the arrears levels are rising, but there is no evidence so far from the banks that the loss rates are higher than those established in the spring. But we will keep a very close eye on that."
His comments were made following a hard-hitting article in this newspaper yesterday by Morgan Kelly, professor of economics at University College Dublin.
Mr Kelly said the Irish State was effectively insolvent, and the next crisis for our banks would be a big default by mortgage holders.
Mr Kelly said “at least” 100,000 mortgages were “already under water”.
Mr Elderfield restated the official statistics, which show that 36,000 mortgages are in arrears. This is 4.6 per cent of the total. He said this was likely to rise when the statistics were updated in a “couple of weeks’ time”.
Mr Elderfield spoke to the IPA meeting about the new Corporate Governance Code for financial institutions, published yesterday. He said the old rules were “too general in nature” and “encouraged box ticking” as a means of compliance.
“Most disturbingly, all the evidence points to some boards that were seriously out of touch with what was happening on the ground in their organisations.”
He said more outsiders needed to be brought on to the boards of Irish banks and insurers to avoid the “pitfall of ‘groupthink’”.
Mr Elderfield said the chairman and independent non-executive directors needed to challenge more at board level and “ask more awkward questions”.
He also said the regulator should be prepared to prosecute more cases of non-compliance rather than reaching settlements, as was the past practice.
He said the Central Bank needed more resources to pursue enforcement with greater rigour. “Of the things we need to address, resources is key.”
