THE IRISH Financial Services Regulatory Authority has instructed accountants PricewaterhouseCoopers (PwC) to assess the extent to which the banks are delaying the collection of interest payments on loans to builders and property developers.
PwC is carrying out a forensic examination of the loan books of the six Irish-owned financial institutions covered under the State €485 billion bank guarantee scheme to assess the quality of the loans, the level of interest payments being "rolled up" and the cash being generated by customers to repay their loans.
The audit is being conducted to obtain an up-to-date report to determine how the loans are performing and whether there has been deterioration in the value of the property and other collateral on which the loans are secured.
"We are drilling down into the figures to get a detailed, comprehensive analysis of the individual loans," said a spokesman for the regulator.
The accountants started examining loans at the six institutions about a month ago, under the direction of the regulator.
They were sent in to the banks, before the bank guarantee scheme was announced, as part of contingency planning by the regulator and the Department of Finance to assess the risks facing the banking system from global financial crisis.
Banks have been postponing interest payments for some builders, developers and property investors who cannot sell properties due to the property downturn.
PricewaterhouseCoopers is expected to report the findings of its examination to the regulator by the middle of next month and possibly by the end of this month.
The regulator will then assess whether the banks are taking a realistic assessment of the value of properties securing the loans, the level of cash being generated to repay the loans and the chances of interest being paid at a later date.
Central Bank governor John Hurley confirmed that Irish banks were rolling up interest on loans to builders and developers when he appeared before the Oireachtas Committee on Finance and the Public Service last July.
AIB said at the bank's half-year results presentation, also in July, that it was "rolling up" interest for some property developers as there was no activity in the property market and no cash being generated to repay interest.
The bank said it was adopting "a very supportive approach".
The value of Irish shares fell 3.8 per cent, dragged down by further falls in the financial stocks amid concerns about the level of Government influence in the banks under the terms and conditions of the guarantee scheme which were published late on Wednesday.
The three main banks fell sharply in value. Bank of Ireland dropped 8.4 per cent, followed by Anglo Irish Bank which lost 8.1 per cent. AIB declined 5 per cent.
