In April 2017, the Department of Finance released an update on the Irish economy with a particular focus on its involvement in the domestic banks. While many of the indicators are positive, much work still needs to be done.
State involvement in the banking sector
During the aftermath of the global economic crisis, the Government took corrective fiscal and banking policy action to safeguard AIB, BOI and PTSB. The State's ultimate aim remains to restore the ownership of banks to the private sector. So far, the State has recovered €15bn of the €29bn invested in the above banks. The Government remains optimistic that it will be able to recover its full investment.
Exit strategy for the residual State shareholding
The Government has been taking a careful and steady approach and it has agreed not to allow for the sale of more than 25% of any bank before the end of 2018. The State is also no longer under pressure to recover its investments and its action will depend on market conditions.
Milestones already achieved
There have already been considerable milestones achieved in recovering taxpayers' investment in the banks. Contingent liabilities for the State have been effectively eliminated. Bank guaranteed liabilities and ECB funding have also been returned to normal levels. NAMA is also well on track to repaying the remaining €500m debt.
Progress made in reducing debts since crisis
Almost a decade after the dark days of the crisis, there has since been considerable success in reducing and restructuring personal and corporate debts. After a long period of deleveraging (downscaling banking operations), lending is finally starting to pick up. Non-performing loans ("NPLs") across three domestic banks are down almost 60% from their peak. However, these remain a continuing source of uncertainty. Mortgage arrears for private rented dwelling homes ("PRDs") are down from the peak of 17.3% in 2013 to 11% in 2016.
Demand for credit picking up
The economic rebound to date has been largely 'credit-less' with banks imposing tight lending conditions in the bank loan market. However, signs of credit demand are picking up with mortgage approvals up 52% in February and 68% in value terms but loan stock is still shrinking. Similarly, SME lending is up but overall stock continues to shrink. Therefore, much work lies ahead for policymakers and the banking sector needs to be strong enough to meet any new demand.
Conclusion
The broader question remains as to what is on the horizon for the Irish banking sector in the coming years. A brighter overall financial future now seems to lie ahead as a result of the Government's various crisis management initiatives, but much work still needs to be done to ensure that banks will be able to replenish their loan stocks.
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