EU backs Irish progress on non-performing loans

The level of “non-performing loans” in Ireland continues to decline significantly, falling by close to 20 per cent in the year to June 2017. The decline is due largely to the widespread use of loan restructuring solutions, the European Commission reports.

The non-performing loan (NPL) ratio – the percentage of total gross loans and advances – came down from 14.6 per cent in June 2016 to 11.6 per cent in June 2017. The figures are part of a Europe-wide study of NPLs which finds that the legacy of the financial crisis is still not behind us.

The trend on NPLs is downwards in nearly all member states, the Commission reports, but there “are remaining risks to financial stability and to economic growth, stemming from the still elevated level of NPLs”.

Overall, throughout the EU, the NPLs ratio fell to 4.6 per cent in the second quarter of 2017, down by roughly one percentage point year-on-year. That brought the ratio to its lowest level since the final quarter of 2014.

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The provisioning ratio has also risen, to 50.8 per cent, in the most recent period.

Downward trend

Despite the ongoing downward trend, the total volume of NPLs remains high at €950 billion.

NPL ratios are very uneven within the EU – ranging from 0.7 per cent to 46.9 per cent – and “some countries are making only slow progress, which are a source of concern”.

Non-performing loans are those where the borrower is not able to make scheduled payments to cover interest or capital reimbursements. When payments are more than 90 days past due, or the loan is assessed as unlikely to be repaid by the borrower, it is classified as an NPL.

In Ireland, there are approximately €34 billion of outstanding NPLs at September 2017, of which roughly 65 per cent relate to mortgages. Approximately 45 per cent of these mortgages have been restructured.

Of the mortgages on principal dwellings – owner occupied homes – that are classified as restructured, 87 per cent were deemed to be meeting the terms of their current restructure arrangement. The number of accounts for principal dwellings in arrears has continued to fall every quarter since 2013.

Free advice

The report cites approvingly the work of the Abhaile Scheme – set up under the auspices of the MABS (the State’s Money Advice and Budgeting Service) – in providing free, independent expert advice and support on financial and legal issues, and the revisions in the mortgage to rent scheme in 2017.

It records Nama’s sale of a substantial portion of its portfolio, and generation of cash flows of around €40 billion by end-June 2017 and the redemption of all of its senior debt in October 2017.

“Nama now aims to generate a return of €3 billion by the time it winds down in 2020.”

Although the challenge is being met largely at local bank and national level, the Commission has also pledged to put forward a comprehensive package of measures to tackle outstanding NPLs in the spring of 2018.