Quarterly Bulletin Q3 2013

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72 EU-IMF Financial Assistance Programme Quarterly Bulletin 03 / July 13 – Tenth Review four week consultation process, also started in the first quarter of 2013. Similarly, work to get the Insolvency Service of Ireland (ISI) up and running - so that it will soon be in a position to accept applications for the three new debt relief arrangements - continued. The ISI’s website has been launched, and information guides on each arrangement along with ‘Guidelines on Reasonable Standards of Living’, have also been published. The regulations for the authorisation of insolvency practitioners and other approved intermediaries have been published, while six specialist judges have been nominated for appointment to deal specifically with personal insolvency cases. On the SME front, the Bank developed a set of KPIs and metrics, which PCAR banks are required to submit on a quarterly basis, for monitoring distressed SME loans. It is reviewing progress with these and the intention is to enhance them over time. The Land and Conveyancing Law Reform Bill 2013 was published in March. When enacted, this will address the lacuna identified by the Justice Dunne High Court judgement 6 . The effectiveness of statutory repossession arrangements is also being kept under review. In March, the Bank published a report comparing the Prudential Capital Assessment Review (PCAR) 2011 with actual performance up to June 2012. The Central Bank requested an assessment by the IMF of its observance against Basel Core Principles for Effective Banking Supervision (structural benchmark for end-March). The normal monitoring and reporting on banks’ deleveraging, based on existing nominal targets and the run-off of non-core assets, continued during the first quarter. In addition, the Eligible Liabilities Guarantee (ELG) Scheme was removed for new liabilities with effect from midnight on 28 March 2013. Turning to credit unions, the Restructuring Board (ReBo), which is leading the restructuring process, was placed on a statutory basis in January 2013. A new fitness and probity regime has been agreed and will be introduced on a phased basis. For credit unions with total assets greater than €10 million, it will come into effect on 1 August 2013 (1 August 2015 for all others). Following discussions between the banks and credit unions, the Bank announced a pilot scheme looking at the restructuring of distressed consumer debt across multiple lenders. The aim of the scheme is to enhance cooperation between lenders of secured and unsecured debt, so as to resolve the situation at an early stage, without the borrower having to enter the full insolvency process. Future Financial Sector Commitments The financial sector reforms undertaken in the second quarter of 2013 and the actions to be progressed over the coming months, including two proposed structural benchmarks, are summarised below. To enhance the MART framework, the Bank issued guidance to credit institutions on the definition of sustainable restructuring arrangements at end-June. Targets for the completion of a substantial share of such arrangements during 2013 will be established in the third quarter, along with targets to ensure that the terms of concluded solutions are being met. Banks’ progress in respect of these will be monitored closely. As a means of taking stock of progress in tackling mortgage arrears, a comprehensive review was prepared for the External Partners at the end of June (existing structural benchmark). 6 The jurisprudence related to this High Court judgement (of 25 July 2011) highlighted a loophole in the current legislation which has had the effect of limiting banks’ ability to repossess property collateral. Justice Dunne ruled that a lending institution cannot apply for an order for possession where a mortgage was created before December 2009 but a demand for full payment was not made by the lender until after that date.
EU-IMF Financial Assistance Programme – Tenth Review Quarterly Bulletin 03 / July 13 73 In addition, the Bank published the revised CCMA 7 , which came into effect from 1 July 2013. Amendments to the code include greater clarity on when a borrower is considered to be cooperating, the introduction of communication policies approved by the boards of the lenders to ensure that borrowers are protected against unnecessarily frequent contacts and harassment, and the removal of the current monthly cap on unsolicited successful contacts. Lenders are also permitted to offer arrangements to distressed mortgage holders that provide for the removal of tracker rates, as a last resort, in cases where there is no other sustainable option available and the only alternative is repossession. The arrangement offered must be a long-term, sustainable solution that is affordable to the borrower. In addition, cooperating borrowers must now be given at least eight months from the date arrears first arise before legal action can commence and, at the end of the Mortgage Arrears Resolution Process (MARP), lenders will be required to provide a newly introduced three-month notice period to allow co-operating borrowers time to consider their options, such as voluntary surrender or an arrangement under the Personal Insolvency Act (once available), before legal action can commence. The Bank has also developed non-public individual bank targets for SME distressed debt restructuring, which it issued to the relevant banks in June. Along with tracking banks’ progress with the KPIs, it is maintaining its focus on strengthening the operational capacity of the banks so that they can deliver durable solutions. In the area of provisioning, the Bank has been engaging with each bank to ensure an appropriately conservative treatment. It published updated impairment provisioning and disclosure guidelines at the end of May 8 , which will inform the development and application of the covered institutions’ 9 impairment provisioning frameworks. The Bank’s work in this area drew, amongst other things, on a review of the implementation of the 2011 Guidelines by the covered banks. The Bank reported to the External Partners on the evolution of regulatory capital within the PCAR banks up to the end of December 2012, at the end of May. Two new structural benchmarks have also been proposed, namely to undertake a forward-looking analysis of operating profits for the PCAR banks to the end of 2015 (by end- September) and a preliminary balance sheet assessment (by end-October). The latter will be finalised by end-November, and will consist of an asset quality review and a review of the appropriateness of banks’ risk-weighted asset (RWA) calculations for determining regulatory capital requirements. This work will form part of the preparations for the bank stress test. The timeline for this was previously linked to that of the EU-wide European Banking Authority (EBA) stress test. However, in light of the evolving calendar of the next EU-wide bank diagnostic exercises, in the lead-up to the Single Supervisory Mechanism (SSM), it has been agreed to modify the stress test timeline under the programme. A stress test of the Irish banking sector will now be conducted ahead of, but in close proximity to, the EU-wide exercise in 2014. Other work to be progressed over the coming months includes an exploration of options to lower the cost of banks’ tracker mortgage portfolios, a comparative assessment of banks’ fee income and an external review of the regulation of these fees. An analysis of current eligible regulatory capital under Basel III/the Capital Requirements Directive IV (CRD IV) will also be undertaken. The Central Bank (Supervision and Enforcement) Act 2013, has been enacted. This will strengthen the Bank’s powers in a range of areas, including investigation, direction and enforcement. Steps to establish a Central Credit Register are also on-going. 7 http://www.centralbank.ie/regulation/processes/consumer-protection-code/Documents/2013%20CCMA.pdf 8 http://www.centralbank.ie/regulation/industry-sectors/credit-institutions/documents/impairment%20provisioning%20guidelines%20 may%202013.pdf 9 AIB, Bank of Ireland and Permanent TSB.
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JULY 13 Q3 Central Bank Quarterly B
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Contents Section 1 Forecast Summary
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Section 1 Quarterly Bulletin 03 / J
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7 Comment Annual National Accounts
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9 The Domestic Economy Overview n A
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The Domestic Economy Quarterly Bull
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Page 23 and 24: The Domestic Economy Quarterly Bull
Page 33 and 34: 31 An Timpeallacht Gheilleagrach Le
Page 35 and 36: 33 Financing Developments in the Ir
Page 37 and 38: Financing Developments in the Irish
Page 55 and 56: 53 Developments in the Internationa
Page 57 and 58: Developments in the International a
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Page 79 and 80: 77 Developments in EU Financial Ser
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Page 87 and 88: Analysis of Recent Monetary Operati
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Quarterly Bulletin Q3 2013

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