DUBLIN Nov 28 Ireland's new insolvency regime
may push losses at participating banks higher in the short term
but the laws are an important part of resolving the crisis in
the sector, the central bank said on Wednesday.
In response to growing arrears among homeowners and outdated
bankruptcy laws, Ireland has proposed new non-judicial routes
for struggling mortgage holders to settle both unsecured and
secured debts of up to 3 million euros ($3.9 million).
The new laws are being passed through parliament and set to
be introduced early next year. The European Central Bank has
warned that the wide scope of the rules could have an impact on
the capital adequacy at Ireland's ailing banks.
"Credit institution losses could conceivably rise in the
short term following the implementation of the new personal
insolvency legislation," the Central Bank of Ireland said in its
biannual macro financial review.
"However, this legislation is an important part of the
solution for managing private-sector indebtedness and promoting
Dublin has to radically shrink its banking system as part of
a European Union-International Monetary Fund bailout in 2010.
Only Bank of Ireland avoided full state ownership
following an unprecedented property crash that quadrupled
The central bank said it was clear that lenders needed to
address the issue of distressed debt in a more structured and
efficient way, and that setting measurable targets of both the
workout and resolution of borrower distress may be required.
It said that while capital ratios throughout the mostly
state-owned sector have held fairly steady since its last review
in March, the outlook for profitability remains weak in the
short term, limiting potential for internal capital creation.
This, together with banks' restricted access to longer term
debt markets, means the future Basel III liquidity requirements
will present significant challenges for Irish banks, it added.