Banks abandon small business and farmers to vulture funds
Expert says it will take years to deal with mortgage arrears ■
VIABLE farms and business are being left at risk of seizure from vulture funds because the main banks no longer develop real relationships with their borrowers, the State’s credit watchdog has warned.
The call to protect business borrowers came as the Central Bank said it would challenge what it called “evil nudges” from banks – a reference to advertising and communication subtly encouraging consumers to take out products not in their best interests.
It is part of the response to the €1bn tracker mortgage scandal, which saw tens of thousands of ordinary borrowers lose out on the best deals and instead were stuck with brutally high mortgage interest bills.
Banks’ approach to small businesses and farms is now dominated by “numbers, ratios and credit bureau history,” said John Trethowan, the head of the Credit Review Office, yesterday.
The experienced banker was picked to set up the Credit Review Office after the crash to make sure rescued banks used their bailouts to keep credit flowing.
He has now warned that branch closures and desk-based decision making means “minimal reliance is placed on the borrower’s track record”.
Even viable small businesses were struggling to refinance loans away from funds that bought the debt, and were getting harder to deal with, he said.
“The feedback we have got over the last few months is that some of the funds are getting harder to deal with. The settlements or the discounts they’ll take aren’t as good as they would have been a year ago.”
Rising property prices can mean seizing farms and business is becoming more attractive.
“There are quite a few businesses coming to us and we will do our very best and we’ll try to make the argument to get them refinanced, but ultimately the threat is the fund has a charge over the assets, the farm or the business.”
THE Central Bank has revealed it is probing banks and other finance firms to stop them using “evil nudges” to push consumers into making bad choices.
The move is part of a plan to improve the culture of the banks after the tracker scandal.
Central Bank director general for financial conduct Derville Rowland said in a speech that regulators were now using behavioural economics to come up with ways to prevent firms taking unfair advantage of consumers.
She said the tracker mortgage scandal had raised serious questions about the culture in our lending institutions.
“We want to prevent so-called ‘evil nudges’ that push consumers to make poor choices,” she said. “The Central Bank of Ireland has learned a lot in the 10 years since the markets crashed in 2008. We are now increasingly insisting that firms comply not only with our regulations and codes, but also that the people who lead those firms set about building a culture that serves their customers, their shareholders and the wider economy in which we license them to operate.”
The revelation of the new attempts to get banks to operate ethically came as figures show a fall in mortgage arrears. The fall in the level of home-loan arrears will not be any faster if the loans are sold by banks to vultures funds.
The comments came as the Central Bank said the numbers of homeowners in mortgage arrears are continuing to fall but at a slow pace.
Despite the fall there are still almost 29,000 households that missed payments for more
than two years. Arrears are missed payments that have not been made up. A borrower who missed six payments three years ago but has made every payment since will be six months in arrears.
These people are at risk of being repossessed, or having their mortgages sold to vultures.
Overall, just short of 70,500 residential mortgage accounts are in some form of arrears, according to the figures for the last three months of last year.
This represents one in 10 of all mortgage accounts. Five years ago the numbers of home mortgages in arrears was double that amount at 140,000.
Arrears began falling after peaking in 2013 as the economy began to improve, but the pace had slowed.
Economics lecturer in University College Cork Seamus Coffey said at the current rate it will take three to four years for arrears to fall back to “normal” levels.
Mr Coffey, chairman of the Fiscal Advisory Council but speaking in a personal capacity, said given the size of the mortgage market here, a reasonable level of arrears would be around 20,000 mortgages.
“It will definitely take three to four years to get arrears down from the elevated level there are at,” he said.
Meanwhile, Permanent TSB’s chief executive Jeremy Masding warned that any attempt by the Government to block the sale of some 14,000 impaired home loans may imperil the bank’s ability to fully repay the €4bn bailout it received from the taxpayer during the crash.
In at times abrasive exchanges between the State-backed lender’s senior management and members of the Oireachtas Finance Committee, Mr Masding argued PTSB’s share price continues to suffer from the steep overhang of non-performing loans on its balance sheet.
The State-backed bank also came under fire from politicians for its decision to inject 4,300 split mortgages into its €3.7bn loan portfolio sale, known as Project Glas.
Politicians harangued the bank for not working assiduously on this and pointed to AIB’s ability to drastically reduce its non-performing loan burden by such methods.
The commitee’s chair John McGuinness accused the bank of not working hard enough and said Permanent TSB should extract the split mortgages from Project Glas if the regulator agreed to their reclassification.