The head of the European Central Bank's Supervisory Board has said Irish banks may be able to reclassify some of their split mortgages as performing loans.

Responding to a question by Fine Gael MEP Brian Hayes, Danièle Nouy said the ECB would be willing to let banks classify some of their split mortgages as long as certain conditions were met.

Split mortgages have been used by a number of Irish banks, including AIB and Permanent TSB, as a solution for borrowers in arrears on their homeloans. In certain cases, where a borrower can make partial repayments but can't afford the full mortgage payment each month, the debt is split in two. The borrower makes payments on part of the loan with the remainder of the mortgage set aside or "warehoused" until their financial position improves.

Permanent TSB has been seeking approval to reclassify some €900m of its split mortgages. Effectively this would see the part of the split mortgage where the revised payment terms are being met considered as a separate, performing loan. 

"Currently these split mortgages are considered as non-performing loans, which means that they block up capital that could be used for other purposes and they impact on banks' financing costs," Brian Hayes said. "Danièle Nouy confirmed during a European Parliament hearing that the ECB is willing to reclassify split mortgages as performing as long as the loans meet certain requirements".