Mr. Gary Tobin:

Given that we have two opening statements, I intend to be relatively brief so that the committee can have as much time as possible for questions. I thank it for the invitation to attend. I am joined by my colleagues, Mr. Brian Corr, Mr. Brian Fee, Mr. Timmy Hennessy and Mr. Eric Gargan.

As the committee will be aware, the European Commission published a package of proposals in March to address NPLs. This followed on the agreement by ECOFIN Ministers in July 2017 of an action plan to tackle NPLs in Europe. As with any complex proposal, detailed analysis is required to understand the implications for Ireland and to inform our advice on Ireland's approach to these proposals. Work is under way within the Department and the Central Bank on this. The proposals are likely to change shape during the months of negotiation that are ahead. We will engage constructively with that process, as we always do.

The Commission has put forward a package of proposals to accelerate the resolution of NPLs and prevent their renewed build-up. The package includes a proposal for a regulation amending the capital requirements regulation and one for a directive on credit servicers, credit purchasers and the recovery of collateral. The proposals follow on from the Council conclusions and the legislative processes are at an early stage, with only one working group meeting having occurred so far. The proposals are being prioritised, with the European Commission seeking completion before the end of the current Commission's term if possible, particularly of the regulation on minimum loss coverage. The proposals interact with other proposals, agreed by ECOFIN last Friday, on risk reduction as part of the completion of the banking union.

I will summarise the proposals and briefly outline our preliminary views on each of the three aspects in the two legislative proposals. The proposal for a regulation amending the capital requirements regulation would introduce common minimum coverage levels and require banks to put aside sufficient funds when new loans become non-performing. The proposals are designed to ensure that in future there is not an excessive build-up of NPLs without sufficient loss coverage on banks' balance sheets. Existing accounting rules and supervisory powers currently ensure that bank supervisors have several tools at their disposal to address NPLs in individual banks, and the existing regulations require banks to set aside capital to address NPLs. The new regulation aims to complement this prudential framework and ensure consistency across the EU by introducing a common definition for NPLs and a common minimum backstop coverage level for newly originated loans that become non-performing. The proposal will apply to new lending only and is designed to ensure that banks set aside sufficient resources when new loans become non-performing.

It is likely that, in the course of negotiation, there will be debate about a number of elements of the proposal. For example, the regulation as drafted would require banks to provision NPLs for loans issued after mid-March 2018 up to 100% of a secured exposure after eight years and an unsecured exposure after two years. It is the Commission's assessment that banks will move to address NPLs more efficiently, subject to appropriate safeguards for borrowers. This is because, should the regulation be implemented in the manner proposed, it would increase the cost of holding NPLs over an eight-year time horizon and could entail banks amending their NPL reduction strategies, possibly by way of restructuring, implementing collateral enforcement and-or earlier loan sales.

This in turn leads us to the directive on credit servicing, credit purchasers and recovery of collateral, which can be broken down into two core elements: credit servicing and recovery of collateral. The directive is intended to contribute to the development of secondary markets for NPLs by removing undue impediments to loan servicing by third parties and to the transfer of loans to loan purchasers while fully respecting existing civil law and member states' consumer protection rules. The proposal sets common standards to ensure proper conduct by and supervision of credit servicers while allowing more competition by harmonising market access rules. The directive provides that credit servicers authorised in a member state can provide their services across the EU, provided they are in compliance with the directive. The proposal has limited rules for credit purchasers, including that they have to employ an EU-regulated credit servicer, have an EU-based representative and notify regulators of enforcement action. The proposal, if implemented, would not allow any member state to impose additional rules on credit purchasers.

The proposal on recovery of collateral is intended to increase the efficiency of debt recovery procedures through the availability of a distinct common voluntary procedure, AECE, which is a tool to recover money from secured loans to business borrowers out of court. This extrajudicial procedure would be accessible only when agreed upon in advance by both the lender and the borrower. It will not be applicable to consumer loans or secured credit agreements concluded between creditors and business borrowers that are secured by the primary residence of the business borrower. The proposal is designed so as not to affect preventive restructuring or insolvency proceedings and not to change the hierarchy of creditors. We understand that the Irish legislative framework in this area is well functioning and, as a result, our priority is to ensure that the current framework is not negatively impacted upon.

Taken together, these legislative proposals comprise the core actions for the European Commission from the Council conclusions. They will have limited impact in the short term, given that they apply to new loans, and on the current stock of NPLs, but they are intended to impact positively on the resolution of new NPLs in the future.

We are happy to take questions.