Car finance risk to major banks is low, says Lane

There is little risk to major Irish banks from personal contract plans sold by car dealers to car buyers and the stability of the secondhand car market is not threatened, says Central Bank governor Philip Lane.

Speaking following a visit to Scoil Mhuire in Cork, Mr Lane told the Irish Examiner the regulator was studying the market carefully but there was no immediate cause for concern.

The potential exposure for Irish banks in the €1.5bn personal contract plans car market, as well as consumers and car dealers, was highlighted recently by the Central Bank’s economists who said negative equity may be of particular concern in the market.

The car market has been in turmoil following the 15% drop in the value of sterling against the euro following the UK vote in the summer of 2016 to exit the EU.

That’s because a flood of secondhand car imports will potentially hit future second-hand car prices and therefore push existing contracts into the red. However, Mr Lane said that the fears may be overdone.

“Secondhand prices of cars have always been volatile. They have gone up and they have gone down. Consumers and the financial system have to be robust against those fluctuations in value. Our assessment is that personal contract plans have some risk factors so it is important that consumers are well educated in taking out these contracts,” he said.

Of course the customer may find this gap in the resale value. But that element, the fluctuation in retail values, is nothing new. We’re looking at this market carefully, but let me emphasise a lot of banks involved in personal contract plans are not the main retail banks. The risk factor is not concentrated in the main Irish retail banks,” he said.

Car manufacturers such as Volkswagen offer personal contract plans through their own banks. Bank of Ireland, which is a major car finance lender, including to sellers of Ford, Toyota, Opel, Hyundai, and Kia, has said it has “continuously extremely low arrears”.

Mr Lane said the major banks had to invest in IT systems. While not commenting specifically on Ulster Bank, which has had major IT glitches in recent weeks, Mr Lane said: “We at the Central Bank, across Europe and indeed globally, identify now that banking is very much an IT-driven business, so a top priority for us is to make sure IT systems are appropriate, up to date, and do not suffer these flaws. Many banks have legacy systems that require updating.

“During the crisis when profits were low, there was maybe under-investment in IT. A major priority for us is to get these IT systems to where they should be and to really hold failures to account,” he said.

Mr Lane also said that he was confident that the vast majority of accounts caught up in the tracker mortgage scandal had now been identified, but said there will be more.

Some 37,100 have so far been identified by the watchdog as part of its review into the scandal.

“We think there will be more because what we are doing now is quality assurance, checking that each [lender] included all the cases that they should have.

“We are near the end, but the vast majority have now been included, but we are still working to make sure every last case that should be included is,” he said.