The Deputy Governor of the Central Bank has said it is gratifying to hear from more than one bank boss that distressed borrowers who engage with lenders and co-operate can obtain what he called "targeted debt relief".

However Matthew Elderfield cautioned that this would also mean some rise in the level of house repossessions, as banks begin to work their way through the arrears problem.

Mr Elderfield - who is also the Central Bank's head of regulation - was speaking at the Institute of Directors in Dublin.

He warned that wider acceptance of this approach was still needed across the industry.

The regulator said the banks have made big improvements in preparing to deal with the problem of mortgage arrears but the situation is still short of ideal and they need to deliver results now.

The country's heavily recapitalised banks have been slow to deal with residential loans imperilled by high unemployment and falling house prices, and have faced tough criticism from the central bank.

But the regulator, who called a year ago for lenders to make substantial progress on arrears, struck a rare positive tone in his assessment of what he described as an intense period of engagement with the banks, involving a series of reviews.

"While the situation is still short of ideal, this has led to significant improvements from where the system was 15 months ago and so now is the time to see real delivery," Mr Elderfield said as he referred to the banks' strategies on arrears.

The proportion of residential mortgages in arrears for over 90 days was 11.3% at the end of September. While Mr Elderfield said arrears continued to rise, it was at a slower pace and remained within stress levels earmarked in strict tests two years ago.

He added that there had been some encouraging signs for the country's banks, pointing to recent private investment in Bank of Ireland and a limited return to debt markets by lenders.

However he said the outlook for making the banks profitable again, something he described as an essential part of Ireland's economic recovery, remained difficult because of low margins and weak domestic economic activity.

"Clearly the path ahead remains a difficult one and progress will inevitably continue to be slow given the significant dislocation that has occurred to the banking sector and the economy as a whole," he said.

Mr Elderfield again urged consumers to fully engage with their bank, which he said meant being available for contact, making a full disclosure of their affairs and actively working with the banks to discuss possible solutions.

''This is especially important because customers who do not co-operate with their bank are liable to immediate commencement of legal proceedings and rule themselves out of possible participation in the new personal insolvency arrangement,'' he warned.