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Resolving Non-Performing Loans in Ireland: 2010-2018

Author

Listed:
  • Donnery, Sharon

    (Central Bank of Ireland)

  • Fitzpatrick, Trevor

    (Central Bank of Ireland)

  • Greaney, Darren

    (Central Bank of Ireland)

  • McCann, Fergal

    (Central Bank of Ireland)

  • O'Keeffe, Micheal

    (Central Bank of Ireland)

Abstract

In the last decade, the Irish banking system experienced a systemic crisis, which saw Non-Performing Loan (NPL) ratios rise to among the highest levels in the euro area, followed by a sharp decline in NPL ratios that has not been experienced in many comparable countries. This article highlights the sequence of policy interventions that were implemented by the Central Bank of Ireland as a response to this systemic crisis, beginning with the 2011 stress test and recapitalisation exercise that formed part of the Financial Measures Program. It then outlines how certainty around capital adequacy allowed policy to focus on the operational capacity and incentives of the banks and borrowers to resolve the NPL crisis in Ireland, highlighting the many specific measures adopted and lessons learned during the process. We finish with a discussion of the risks and remaining challenges, with a focus on the large share of late-stage mortgage arrears cases outstanding on Irish banks’ balance sheets in early 2018.

Suggested Citation

  • Donnery, Sharon & Fitzpatrick, Trevor & Greaney, Darren & McCann, Fergal & O'Keeffe, Micheal, 2018. "Resolving Non-Performing Loans in Ireland: 2010-2018," Quarterly Bulletin Articles, Central Bank of Ireland, pages 54-70, April.
    • Handle: RePEc:cbi:qtbart:y:2018:m:04:p:54-70
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    References listed on IDEAS

    as
    1. Kelly, Robert & O’Malley, Terence, 2016. "The good, the bad and the impaired: A credit risk model of the Irish mortgage market," Journal of Financial Stability, Elsevier, vol. 22(C), pages 1-9.
    2. Vítor Constâncio, 2017. "Resolving Europe’s NPL burden: challenges and benefits," Policy Briefs 18821, Bruegel.
    3. David Byrne & Robert Kelly, 2019. "Bank asset quality & monetary policy pass-through," Applied Economics, Taylor & Francis Journals, vol. 51(23), pages 2501-2521, May.
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    5. McCarthy, Yvonne, 2014. "Dis-entangling the mortgage arrears crisis: The rolw of the labour market, income volatility and housing equity," Research Technical Papers 02/RT/14, Central Bank of Ireland.
    6. Nir Klein, 2013. "Non-Performing Loans in CESEE: Determinants and Impact on Macroeconomic Performance," IMF Working Papers 2013/072, International Monetary Fund.
    7. McCann, Fergal & McIndoe-Calder, Tara, 2012. "Determinants of SME Loan Default: The Importance of Borrower-Level Heterogeneity," Research Technical Papers 06/RT/12, Central Bank of Ireland.
    8. Baptista, Rafa & Farmer, J. Doyne & Hinterschweiger, Marc & Low, Katie & Tang, Daniel & Uluc, Arzu, 2016. "Macroprudential policy in an agent-based model of the UK housing market," Bank of England working papers 619, Bank of England.
    9. Kelly, Robert & McCann, Fergal, 2016. "Some defaults are deeper than others: Understanding long-term mortgage arrears," Journal of Banking & Finance, Elsevier, vol. 72(C), pages 15-27.
    10. Kelly, Robert & O'Toole, Conor, 2016. "Lending Conditions and Loan Default: What Can We Learn From UK Buy-to-Let Loans?," Research Technical Papers 04/RT/16, Central Bank of Ireland.
    11. Mr. Jochen R. Andritzky, 2014. "Resolving Residential Mortgage Distress: Time to Modify?," IMF Working Papers 2014/226, International Monetary Fund.
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    Cited by:

    1. McGeever, Niall, 2019. "A profile of non-performing Irish SME loans," Financial Stability Notes 10/FS/19, Central Bank of Ireland.
    2. Moufida Ben Saâda & Yosra Gafsi, 2020. "Does disclosure of internal control system of credit risk improve banks’ performance? Evidence from Tunisian listed banks," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 6(04), pages 1-27, February.
    3. McCann, Fergal & McGeever, Niall, 2018. "Cures and Exits: the drivers of NPL resolution in Ireland from 2012 to 2017," Financial Stability Notes 06-18, Central Bank of Ireland.
    4. Lyons, Paul & Rice, Jonathan, 2022. "Risk Weights on Irish Mortgages," Financial Stability Notes 1/FS/22, Central Bank of Ireland.
    5. McCann, Fergal & McGeever, Niall & Peia, Oana, 2023. "Do non-bank lenders mitigate credit supply shocks? Evidence from a major bank exit," Research Technical Papers 9/RT/23, Central Bank of Ireland.
    6. McCann, Fergal & McGeever, Niall, 2018. "Cures and Exits: the drivers of NPL resolution in Ireland from 2012 to 2017," Financial Stability Notes 6/FS/18, Central Bank of Ireland.

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