Still, house prices have trended closer to the stress scenario and there are considerable uncertainties regarding the impact of the forthcoming bankruptcy law reform on borrower behaviour, of the economic and employment outlook and therefore of future arrears trends. The banks are also struggling to return to profitability as their Basel 3 requirements loom and will start to feed into future stress tests.
There is also uncertainty about the size of the unsustainable mortgages group, how many of these can be resolved through loan modification and at what cost, and how many instead are likely to be subject to repossession or voluntary surrender. This is an area where we want the banks to make substantial progress during the course of the year.