By Conor Humphries
DUBLIN (Reuters) - Ireland's lenders are taking too long to deal with loan arrears and the delays are interfering with government efforts to sell off bank stakes nationalised during the financial crisis, Central Bank Governor Patrick Honohan said on Monday.
The government sold a 35 percent stake in its largest lender, Bank of Ireland, in 2011. But Allied Irish Banks (I:ALBK) and permanent tsb (I:IPM) remain in state control and around one in five home loans in Ireland is still in distress.
"Perceptible progress in dealing with arrears is now undeniable. But it is still too slow," Honohan said in a speech to students in University College Dublin.
"The persistence of chronic arrears cases inhibits the ability of government to attract buyers for the banks that have been nationalized and results in higher imposed capital requirements than would otherwise be necessary," he added.
The Central Bank of Ireland said on Friday said that banks had concluded deals to improve repayment terms for over a third of the more than 100,000 mortgage holders in arrears, a large majority of which should be sustainable.
But it said one in five home loans, worth some 23 billion euros (£18 billion) combined, were in distress in Ireland and a further 11 billion euros of investment property loans were also not being fully repaid.
In a bid to limit imprudent lending in the future, Honohan said the central bank would on Tuesday outline "novel" new limits on loan-to-income and loan-to-value ratios on new mortgages which may be in place by the start of next year.
The measures come in the wake of rapid increases in property prices, which rose by 25.1 percent in Dublin in the 12 months to August, although prices in the capital remain 41 percent below their 2007 peak.
'GOOD SOLID BUDGET'
Speaking a week before Ireland is to unveil its 2015 budget, Honohan called on the government not to squander the windfall from growth which the government now expects to be 4.5 percent this year.
While the government said it will stick to an EU target of bringing its budget deficit below 3 percent of gross domestic product by the end of next year, it has said earlier plans to introduce 2 billion euros of spending cuts and tax hikes were no longer necessary.
"It is very important for us that they bring in a good solid budget.. not to splash it out in 2015," Honohan told journalists in a briefing before the speech.
"I would like that (the deficit) to be very comfortably below 3 percent," he said.
(Reporting by Conor Humphries; Editing by Hugh Lawson)