UPDATE 1-Irish mortgage arrears rise again, central bank frets
* Home loan arrears rise to 12.3 pct in first quarter vs 11.9
* Buy-to-let arrears rise to 19.7 pct from 18.9 pct
* Bad mortgage debt seen as major risk to economic recovery
By Padraic Halpin
DUBLIN, June 21 (Reuters) - Non-performing property loans in Ireland rose in the first quarter, highlighting the failure of the country's banks to tackle arrears on residential mortgage payments and raising eyebrows among policymakers.
Ireland's stock of bad property debt is one of the major impediments to the economic recovery it needs to set in place by the end of this year if it is to exit its EU/IMF bailout successfully and on schedule.
The central bank has given lenders binding deadlines for getting to grips with the arrears, which it views as its biggest domestic policy issue.
Central bank data showed on Friday that almost one in five Irish home loans, worth 25.5 billion euros, were not being fully repaid at the end of March and the proportion of those in arrears for more than 90 days rose to 12.3 percent.
That was up from 11.9 percent in the previous three months and 11.5 percent in the third quarter of 2012.
Lenders, including the Irish units of KBC Bank and RBS, have been ordered to propose sustainable mortgage solutions for 20 percent of distressed borrowers by the end of June and for 50 percent by the end of the year.
They will be forced to write down the value of the loans if measures proposed are deemed unsustainable.
In Spain - another struggling economy on the euro zone periphery - a real estate bubble that burst in 2008 left the country's banks saddled with billions of euros of soured property loans and forced the government to rely on European aid to prop up the sector.
Demonstrating how deep the problem is in Ireland for those who bought houses before a property crash there halved the average price of a home, almost one homeowner in every five stuck in arrears has been behind in payments for more than 720 days.
CHINKS OF LIGHT
But the pace at which Irish households are sinking into the red has slowed as battered property prices stabilise and unemployment, though still high, is back around the levels of three years ago.
"The data for unemployment was good in quarter one. If that continues, you would expect that to ease the pressure on arrears but the economy is still stuttering along and the jobless rate is still too high for comfort," said Alan McQuaid, economist at Merrion Stockbrokers.
"You would expect things to remain difficult for the immediate future. However, the fall of those in early arrears is encouraging."
The level of customers in arrears for less than 90 days fell for the second quarter in a row, although the quarter-on-quarter decline was a mere 0.7 percent.
From the end of this month, distressed borrowers will be able to apply to a new insolvency service, which the government hopes will speed up engagement with creditors and the striking of deals to restructure debt.
The bank released detailed figures for problem loans of property investors for the first time late last year and said on Friday that the proportion of buy-to-let mortgages in arrears rose to 19.7 percent from 18.9 percent at end-December.
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