Dr. Cyril Roux:

Very good. Mr. Sibley's speech last week focused on the difficulties with regard to the non-performing loans and the problems they cause for borrowers, banks and the wider economy. He noted that the number of non-performing loans had significantly reduced and is expected to continue to reduce. However, these loans remain elevated at the level of €45 billion across five domestic lenders. We think that efforts need to be redoubled to continue to bring them down to more normalised levels, in particular for mortgage loans. Mr. Sibley noted, and this is what attracted the attention of this committee, that the memories of some people, both inside and outside the banks, appear to be short. We have already seen some evidence of a return of more aggressive lending practices and cultures. However, that is not to say that the banks are out of control, they are not, or that they are returning to pre-crash practices, they are not. We need to remain vigilant in respect of the risk that the lessons from the failures of the period up to 2000 are not heeded.

In our recent supervisory work and on-site inspections, we have identified weaknesses in new lending practices and in controls in some of the domestic lenders. They include, for example, a need for better oversight and challenge from the boards of banks in terms of banks' risk appetites, which are used to govern and quantify lending decisions. We have seen strategies that are focused on deriving increased volumes of lending without sufficient consideration of risk factors involved. We have seen their return to the use of league tables to incentivise staff to drive lending volume without sufficient consideration of quality and we have seen issues with pricing models that take insufficient account of the underlying risks. It is disappointing to see these issues emerging but they are only emerging trends and we notice them as they emerge.

The banks and the supervisory regime are entirely different from what they were in 2008. Again, we identified these issues as they began to emerge and we require them to be remediated now. We challenge the business models and strategies and have ensured greater bank capitalisation and a better funding position. As we do in insurance, we constantly challenge the banks to ensure that they do proper underwriting. In this context, it would translate into effective credit risk management arrangements. We require the weaknesses that we saw in our on-site inspections and other work to be remediated and we also use macro-prudential instruments. We use counter cyclical buffers and other buffers. We use mortgage measures, the loan-to-value, LTV, and loan-to-income, LTI, measures, that constrain the risk that banks and borrowers take. It is in that context that I assure the committee that we are vigilant in ensuring the mistakes of the past are not repeated, especially in the context of the high level of indebtedness in Ireland and the challenges of the banking sector.