Central Bank: 2012 Macro-Financial Review Post author By Philip Lane Post date November 28, 2012 available here. Categories In Uncategorized 25 Comments on Central Bank: 2012 Macro-Financial Review ← Louis Smith R.I.P. → Report on SME Credit Demand 25 replies on “Central Bank: 2012 Macro-Financial Review” Chart A1 on page 1 of the Overview – Ridiculous. The improvement in the Irish bond yields is a good enough story without trying to misrepresent it. If were up to me, the editor of this report would be sacked for Chart A1. No questions asked. But since economics is apparently propaganda now, I assume they will in fact be promoted. Does the CBI stand behind this sort of thing? And in case anyone jaws on about “Considering the report as a whole” or whatever. Chart A1 is the first thing on the first page of the first section. This report opens by taking its own credibility and dragging it though a slurry pit. How can anyone be expected to take the rest of it seriously, let alone trust it? whenever I read a note that has Something as misleading as chart 1a in it, I immediately become suspicious of everything else in it. That chart is embarrassing. If it was accidental, it wAs because the author selected daily yield data rather than weekly or even monthly, which would have sufficed and removed a lot of the clutter from the chart, making it perfectly feasible to put all the data on one scale. I scanned past that first chart without noticing. Just looking at it now. Truly bizarre. The central bank should reissue the report with the chart amended so that all countries appear on the same y axis. Steady on chartists! There are far more serious issues in this report that chart scaling. Box 6; Chart A looks very bleak. As I read it over 60% of mortgages in arrears are held by people working. Chart 30: Domestic bank credit exposure: Impairment as % of lending; Not quite the 72 steps of the Philadelphia Museum of Art, but getting there. Provisions as a % of lending well behind but keeping pace. @ Joseph, Re Box 6: Surely, the finding that 66% of mortgage holders with arrears are in employment, with a further 16% having some employment is a good thing. I would think higher unemployment would be even bleaker! And for Chart 30, that is bleak. But note the red line 17.5% of 320 = 56.0 27.5% of 260 = 71.0 Box 6; Chart A looks very bleak. As I read it over 60% of mortgages in arrears are held by people working. Well I read Chart B as stating that ~40% of people in 90+ day arrears had mortgage repayments which were less than 25% of their monthly income. So I guess these guys are the infamous “Won’t Payers”. Still in jobs, still able to pay, but just not doing so. Then again how can we believe anything these charts are telling us? If we get a correction and retraction, I’ll think differently. Not before. @Seamus The fact that such a large % of the arrears category are working is good for everybody. But one has to form the conclusion that the income from the employment of that sizable % is insufficient to enable them to discharge their mortgages. That is the bleak factor. On the reduction in total lending, I tend to take the opposite view to almost everybody. i.e that it not good for the economy because money is being taken out of the economy and out of the country that might otherwise be spent. People need to ask the question, why is such a level of develeraging necessary? To whose advantage is it? Is it in the national interest at this time?. I am not convinced that it is. The merits of deleveraging need to be questioned more fully imho. @OMF “Well I read Chart B as stating that ~40% of people in 90+ day arrears had mortgage repayments which were less than 25% of their monthly income…. So I guess these guys are the infamous “Won’t Payers”. Still in jobs, still able to pay, but just not doing so.” There may be some, but that would not be my reading of that data. There are many many people working long hours either for very low wages in absolute terms or for very low wages relative to the mortgages that they took on. There would be few enough ‘won’t payers’ when it comes to the homes they are living in, unless there are extraneous reasons such as half finished or derelict sites or issues of a personal nature. @ Joseph, Arrears do not tell us what is happening to mortgage accounts now. For example, if a person currently in employment was between jobs in 2010 and missed three monthly payments they will be in the 90 days arrears category. They have resumed earning and may also have resumed making their full mortgage repayment. Unless they make good the arrears built up they will remain in the arrears category even though they are making their full repayment. Using the arrears statistics we cannot say for those in employment “that the income…is insufficient to enable them to discharge their mortgages”. We really just don’t know. There may be some people who are like the scenario above, i.e. fell into arrears but are now back on track. Then again there may be very few people in that position. Being in arrears does not tell us a whole pile about whether a borrower is able to discharge their mortgage. The pattern of arrears clearly tells us the position is deteriorating but it is hard to infer much about ability to repay or current loan performance. Which of these borrowers are in arrears? off thread ..but its wonderful to get reassurance from Angela Merkel as reported by the Telegraph.. “14.19 Angela Merkel has said this afternoon that she’s “very optimistic” that the eurozone crisis will be solved in her lifetime. That’d be more reassuring if she wasn’t just 58, and the avearge life expectancy in Germany wasn’t as high as 80. “ Did Spain get a “special ” deal… “09.31 Spain’s economy minister has said that the country’s banks will be receiving €40bn in bailout cash, and that the cost of that aid will be less than 1pc – that’s not a bad rate for a loan. ” daily telegraph Remind me of the cost of our bank bailouts. Looks like Rajoy has played his cards very well..in contrast to… ‘The labour market remains weak’ + Chart 4 @ >400%GDP P.4 says it all really. Report production aesthetically superb! I can’t seem to find the word .. er … er … MANAGEABLE … er .. anywhere in this report … @Seamus I do take the point you are making. It is a valid, but fine point. One would have to invent two further words to cope with the respective conditions of ‘going into arrears’ and ’emerging from arrears’ in order to capture the position fully. [Perhaps arrearing and errearing, both adjectives to the noun, mortgages in this case]. A point of today news re AIB and indeed that from BOI a few weeks ago. If banks can borrow on the markets at ~3% with ELG in place, albeit collateralised debt, what further advantage is there to the State to release these banks from the cost of ELG, thereby losing the State approx ~1billion in revenue each year? Abd how is this losss to capital receipts to be replaced. @ Joseph Ryan Conventional wisdom says Ireland inc needs to deleverage so that we can ween the irish banks off foreign borrowing, so that they fund themselves with irish based deposits, so that we don’t have an economy on steroids. It also means their fate is more closely linked to the economic realities of the country. @Rory I think the radio said ~90% of the AIB bond was sold to ‘foreigners’. The Irish based funding is nowhere to be seen. @fiatluxjnr It could be the cheapest bank bailout in history? Well, since Ireland’s cheapest bank bailout in history anyway. @ Joseph Ryan Fair point, although wasn’t it BOI? Anyhow hopefully their collateral is all their good loans! Would it be too much to ask that the funds will be lent wisely? Arrears do not tell us what is happening to mortgage accounts now. For example, if a person currently in employment was between jobs in 2010 and missed three monthly payments they will be in the 90 days arrears category. They have resumed earning and may also have resumed making their full mortgage repayment. Unless they make good the arrears built up they will remain in the arrears category even though they are making their full repayment. Any way you state this, you are basically advocating throwing out a well established metric for a mortgage which is not going to make it. If we replace 90 (dpd?) arrears with a new metric, we will simply be “normalising” a situation which was regarded as unsustainable less than 5 years ago. I don’t regard “interest only” or “interest + 1 cent” mortgages as something which should be regarded as sustainable. If people are not moving out of the 90 day arrears category, then that means their balance is not going down–as far as we can tell–by any appreciable amount. That 90 day arrears figure remains an accurate and alarming metric for just how bad the mortgage situation is in this country. We’ve already left the 30 and 60 day limits behind and I don’t advocate moving to a 180 or 360 or hell, 1024 arrears metric or whatever else just for the sake of appearances papering over the ever growing cracks. We should stick with 90 days arrears because it is a good metric for telling us how bad things are and we need a good metric to tell us that — preferably daily. @ OMF I am not saying that the “90 days arrears” measure should be discarded. I am simply pointing out that care must be taken in interpreting what it actually means. As things stand a borrower who made every payment up to December 2009, missed their full payments for the first three months of 2010, and has made every full payment since then will be in the 90 days arrears category. Should we be worried about this borrower? Not really. How many such cases are in the arrears statistics as they are currently presented? We simply do not know. I think a measure of distress based on whether a borrower’s balance has declined over the past 12 months would be more appropriate. This would show who are meeting the interest charge on their loans and who is making payments in excess of that. I too question long-term viability of interest-only solutions. You say: “If people are not moving out of the 90 day arrears category, then that means their balance is not going down–as far as we can tell–by any appreciable amount.” This is not true. The balance for the sample borrower above will have been declining at the required rate in every month bar the first three months of 2010. Being in arrears does not mean the balance is not declining. It simply means that the borrower is behind relative to somewhat arbitrary contract obligations. Above I asked which of a set of five borrowers are in arrears. Here is the answer. The borrower who is counted as being “in arrears” is the one I would have the least concern about. These examples are all a bit arbitrary. The point is that we really cannot tell what it going on with individual loans using the arrears statistics. What we can tell though is that the continued deterioration in the arrears numbers tells us that things are continuing to get worse. I feel that the chronic nature of the crisis is shifting perceptual goalposts here, albeit slowly. As the crisis gets worse we are lower our perceptions more and more, and in so doing we run the risk of becoming complacent dire situations. When it comes to things like this, I often reflect on the homeless people who litter the street around government buildings nowadays. That didn’t happen overnight. People gradually accepted their presence as normal instead of trying to deal with the problem. How many such cases are in the arrears statistics as they are currently presented? We simply do not know. The banks know the figures down to the last cent, yet they are not releasing them to the Central Bank apparently as the CBI is relying on surveys. This is a very great scandal. The banks should be obliged to hand over their data to the CSO at least. I think a measure of distress based on whether a borrower’s balance has declined over the past 12 months would be more appropriate. A proper metric for those in arrears would be “change in total days in arrears per month”, rounded to the days based on what was being paid back. Again the banks possess this data but are not releasing it to the central bank for some reason. We can’t chart a course out of these waters without a compass. I’m no expert at ‘sums’ – if Spanish buy-to-let and residential mortgages in arrears were to hit the same % levels as Irish mortgages would it make their current estimates for bank bailouts look a bit on the low side? The report repeats a point previously made about competitiveness indicators by Prof Honohan: “these standard international measures of competitiveness and productivity growth overstate the degree of improvement which has occurred. The sectoral shift away from low productivity sectors in recent years has led to an overstatement of the recorded improvement.” However, it sticks to the official mantra on exports. But where are the jobs? Here is a Reality Check: Irish Economy: Pharmaceutical patent cliff no growth threat; High exports have low impact http://www.finfacts.ie/irishfinancenews/article_1025257.shtml @Michael Hennigan The Governor, if not the spinning politicos, supports the Finfacts interpretation of the capital intensive and “capital transfer” nature of such “productivity” – as I do and most who know anything of substance about industrial production do. Such a statement would “not” have been made by previous governance in the Irish Central Bank. Comments are closed.