The ‘Banking Supervision: Our New Approach’ report outlines how the Central Bank will introduce a more ‘intrusive’ approach to overseeing institutions, as well as introducing credit limits for consumers.

Read the Central Bank’s report

The report says that while banks may not be popular after the actions over the last decade, when they borrowed imprudently and lent recklessly, they remain essential to the functioning of the economy.

The Central Bank says its new ‘intrusive’ model of supervision means that it will have regular, detailed contact with banks, including attendance at board meetings and key risk management committees.

During the second half of the year, the Central Bank will also commission reviews of governance and risk management arrangements at the major retail banks.

These will look at such issues as the skill and experience of bank board members and the range of measures banks have taken to address weaknesses in practices and processes, which were exposed during the recent banking crisis.

Today’s report says that the Central Bank is reforming its approach to supervision of Ireland’s banks, mortgage credit standards and funding risks.

Banks have been asked to provide data on new mortgage and sales targets, arrears levels for the past year, mortgage drawdowns and risks to future lending.

The report says that when the Central Bank identifies risks in an institution, it will now insist on action to mitigate that risk.

Where banks can not, or do not, take appropriation action, the Central Bank warns that it will use its supervisory powers to force a solution.

The banks will also be expected to broaden their lending capabilities and the Central Bank says there is an ‘economic imperative’ to lend to growth businesses and sectors.

Introduction of Credit Register

The Central Bank also wants to see the introduction of a Credit Register, which it says is a key resource for any banking system and operates in most other European countries.

The register would be able to check a bank’s exposure to loans, as well as multiple borrowings by a consumer.

It says it ‘could be made responsible for making the connections which would act as a check on the credit institution’s compliance with large exposures limits and reporting’.

The register would be an important tool for both regulatory authorities and the banking industry and would also bring major benefits to consumers, the Central Bank says.

It would also allow for greater competition both from existing banks in Ireland and new entrants to the market.

The Central Bank says that legislation may be required to provide a suitable framework and data protection issues would need to be fully addressed.

On corporate governance, today’s report says that the Central Bank will introduce, under its statutory powers, standards designed to strengthen the Irish regulatory regime.

Among other requirements, the new rules will impose a minimum number of directors, a review of board membership every three years and a clear separation of the role of chief executive and chairman.

Examination of pay levels

The bank will also examine pay levels for executives in the country’s financial institutions.

The report states that, in the past, resources for supervision were far below what was required.

To this end, the Central Bank is to recruit 150 extra staff this year, bringing overall staff there to 1,300.

It also plans to increase regulatory staff by as much as another 200 over the next two years.

It wants to have a minimum of ten supervisory staff per firm for major banks and building societies and improve specialist expertise by recruiting staff with director business/banking experience.

A compulsory training programme for all new and many existing Central Bank staff will also be held.

The Central Bank is also to set up a risk experts panel, who will prepare reports on key risks as they evolve and provide advice on proposed rules and regulation.

The report says that lending by commercial banks in Ireland needs to return to sound fundamentals and lending standards or what it calls a traditional form of banking.

It said that as lending to property developers at the height of the Celtic Tiger grew, banks increasingly focused on complex deals, profit sharing and personal guarantees to justify lending decisions.

‘Credit institutions must return to more prudent lending standards, in an economy that will not be driven by property,’ today’s report states.

It says that credit granting will be based on sound and well-defined criteria, while banks have to ensure that valuations are prudent and up-to-date.

ISME – the organisation representing small and medium enterprises – has carried out a survey which it says indicates that banks are continuing to refuse lending to a majority of business applicants.

ISME says that Government calls for an increase in lending by banks to business have fallen on deaf ears, and that a lack of credit has created critical conditions for many business owners who are now, the survey says, desperate.

The organisation claims that banks are putting the future of thousands of small and medium businesses and their employees at risk, and wants to see bank staff being re-educated about business lending practices.

ISME says that of the over 800 business surveyed, the majority revealed that they were refused bank credit in the past three months. A similar figure was recorded for the first three months of this year.

A quarter of respondents said that the possibility of putting a family home up as collateral was raised. One in eight said their bank requested that such collateral be provided.

ISME warns of what it calls ‘a sinister return by some banks to outlawed actions’ and says that tough action is needed to counteract what it calls a ‘two fingered’ policy response by bankers.

IBF questions ISME figures

The Irish Banking Federation has said it seriously questions the representativeness and accuracy of the ISME research.

The IBF says the only authoritative, independent study commissioned by the Government was that undertaken by Mazars, which shows principally that eight out of ten credit applications are approved and that one-third of existing SME loans are on the watch list (ie they are impaired), which is the factor essentially accounting for strains on credit supply to the SME sector.

The Credit Review Office was set up by Government as an ongoing appeals process for business credit applications that have been rejected.

The first set of figures are due to be published by that office later this week and the IBF believes that these figures will simply not reflect the sort of misrepresented trend in the ISME survey.

Irish Life & Permanent, which is loss-making, said there were signs the number of people starting to get into difficulties with their mortgage repayments was levelling off.

However people already in difficulty with their mortgages are getting into deeper water.

Around 4% of Permanent TSB’s mortgage book is in arrears.

It said salary cuts and joblessness is causing damage in the pensions’ market with premiums into corporate pension schemes down by almost one third.

Irish Life & Permanent is holding its annual general meeting later this morning.

Shareholders will hear updates on the company’s plans to shed its loss-making Permanent TSB brand, which is now damaging the wider group.

The survey also finds that 78% of first-time buyers now have the funds required to pay a deposit, which is up 20% from last September.

A similar number have either received or are seeking mortgage approval.

In his analysis of the results, independent economist Paul Murgatroyd, said first-time buyers clearly do not expect market and economic conditions to deteriorate significantly within the next 12 months.

Managing Director of MyHome.ie Angela Keegan said: ‘It is clear that Dublin will be the first market to see increased activity as 64% of first-time buyers wish to buy in the capital.

‘A further 13% are focused on purchasing in the traditional commuter counties of Meath, Wicklow and Kildare.’

However, in an opinion piece in today’s Irish Independent, economist David McWilliams argues that buying a house now makes no economic, financial or social sense, as he believes that houses are still substantially overvalued.

Its quarterly bulletin warns, however, that lower incomes and increased unemployment are likely to continue to hold back consumer spending.

It says there are signs that the economy is stabilising, but it warns that it will be 2011 before growth is strong enough to start bringing unemployment down.

It also says the timing and strength of a recovery very much depends on the performance of the worldwide economy, which will influence demand for Irish exports.

The Central Bank praises the Government’s measures taken so far to deal with the public finances, but warns that any ‘slippage’ from these would damage confidence.

It also urges the Government to give greater detail on how it plans to cut the budget deficit over the next few years.

The report refers to concerns about home owners struggling to pay their mortgages, saying any measures to help them should not

Bank of Ireland said it is raising its standard variable rate by 0.5%. The rate change is effective from 16 April.

Existing Bank of Ireland mortgage holders on standard variable rates will see repayments increase by between about €80 and €90 a month on a €300,000 mortgage.

Bank of Ireland said that while the increase is ‘regrettable’, it had no choice but to make the move.

The bank said that the cost of funding mortgages has become increasingly costly, as it is paying more to customers for deposits than it is receiving for mortgages. ‘As a result of this, our current mortgage pricing is unsustainable’, it stated.

AIB raised its variable mortgage interest rate by half a percentage point last month, following a similar move by Permanent TSB in February.

Announcing pre-tax losses of €1.8bn for the nine months to the end of last December, Bank of Ireland indicated last week that it planned to increase mortgage rates in the near future.

The move follows the transfer of the bank’s initial tranche of commercial property loans to the National Asset Management Agency, and comes a day after the European Central Bank announced it was keeping euro zone interest rates unchanged at 1%.

ICS Building Society, which is owned by Bank of Ireland, also announced interest rate increases across their variable rate mortgages. The changes are also effective from 16 April.

Meanwhile, the EBS has said that it will increase its standard variable rate by 0.6% from 1 May.

The building society said the current rate was no longer sustainable and that the increase would help meet the cost of funds from retail, corporate and wholesale markets.

The Chief Executive of the Consumers’ Association of Ireland has said that Bank of Ireland’s decision ‘beggars belief’.

Dermot Jewell said consumers would find the bank’s announcement ‘upsetting and sickening’ because of the role taxpayers had played in bailing out the banks.

Mr Jewell has predicted that the economy will suffer if the banks continued to raise their rates.

According to Daft, the national average asking price last month was €234,000, a total of €120,000 or 33% below the peak in 2007.

In Galway, prices fell by over 8% in the first three months of the year, while in Dublin, Wicklow, Waterford and Cork the falls were more in line with the average of 3.4%.

It now takes on average ten months to sell a house.

Price falls in early 2010 were largest in Dublin’s commuter counties, Galway city and north Co Dublin.

The report says that prices in Louth have seen some of the largest falls in the last three years, with the typical property now €200,000.

Daft says that while prices continue to fall and the total number of houses on the market is high, there is a steady decrease in the number of houses on the market.

The lenders were written to by the Financial Regulator today informing them the new measures will come into effect from 17 February this year.

The measures now cover sub prime lenders, which had not been covered by a voluntary code of conduct.

In a statement, the Regulator said ‘the 12 month requirement does not apply where the borrower is deliberately not engaging with the lender.’

It added ‘The Financial Regulator is of the view that lenders should only seek repossession in less than 12 months in very exceptional circumstances and when all reasonable attempts to encourage engagement by the borrower have failed.’

Companies which fail to comply face the threat of fines of up to €5 million.

However depositors have objected to the scheme and say they are being treated unfairly.

They want the High Court to change their status as creditors which could mean they receive 6% in refunds.

One depositor told the court to be offered a 1% refund was ‘an insult’.

Many said they had lost their savings and could no longer qualify for a mortgage. The case is ongoing.

The figures for April from the Central Bank confirm the property market has slowed to a trickle.

It is the first time that repayments on existing mortgages has been greater that new mortgage lending since the Central Bank began this monthly statistics series in 1990.

The figures show that overall, mortgage lending fell by over €100m last month.

The amount of money loaned out in the rest of the economy also fell, reflecting concerns raised by many business groups about accessing credit.

People are also spending less on credit cards. The amount of money spent on credit cards by consumers in April fell by €180million compared to April of last year.