A quar­ter of Ir­ish bank lend­ing is to UK bor­row­ers, warns the Cen­tral Bank

Irish Independent - - News - Donal O’Dono­van

MORE than a quar­ter of lend­ing by the main Ir­ish banks is to bor­row­ers in the UK, leav­ing the fi­nan­cial sys­tem here hugely ex­posed to a Brexit down­turn, the Cen­tral Bank has warned.

UK-based bor­row­ers ac­count for 26pc of lend­ing by re­tail banks here, ac­cord­ing to the Cen­tral Bank of Ire­land’s lat­est Macro-Fi­nan­cial Re­view.

That’s un­der­stood to mostly be made up of UK bor­row­ers against UK as­sets, in­clud­ing homes, rather than cross-border in­vestors.

It means there’s a dan­ger eco­nomic shocks in Bri­tain from the UK crash­ing out of the Euro­pean Union could hit the prof­itabil­ity of banks here and have a ma­te­rial im­pact on their abil­ity to be re­paid.

Cen­tral Bank deputy gover­nor Ed Si­b­ley said AIB and Bank of Ire­land are the two lenders most ex­posed.

Both have sig­nif­i­cant lend­ing ac­tiv­i­ties in the UK, in­clud­ing in North­ern Ire­land, that could be di­rectly af­fected by Brexit.

How­ever, he was “rea­son­ably con­fi­dent” in the banks’ abil­ity to cope with a Brexit cri­sis.

Both AIB and Bank of Ire­land have UK sub­sidiaries struc­tured with their own cap­i­tal, sep­a­rate to the Ir­ish par­ent banks, he noted.

Reg­u­la­tors have not sought spe­cific reme­dies to bet­ter equip banks to deal with a

Brexit cri­sis, Cen­tral Bank deputy gover­nor Sharon Don­nery said.

How­ever, she said reg­u­la­tors here and in the UK had lifted banks’ re­quire­ment to hold cap­i­tal – es­sen­tially a buf­fer against fu­ture losses – over the sum­mer.

Brexit is a “key risk” for Ir­ish econ­omy gen­er­ally, the re­port said, cre­at­ing a wide range of po­ten­tially neg­a­tive ef­fects.

“What­ever form it takes, Brexit will be neg­a­tive for Ire­land. Even in the event of a deal, much un­cer­tainty still sur­rounds the post-tran­si­tion en­vi­ron­ment and this could con­tinue to put pres­sure on in­vest­ment that is vi­tal for jobs and eco­nomic growth,” said Ms Don­nery.

That in­cludes the knock-on im­pact of a de­cline in ster­ling, in­clud­ing on small and medium en­ter­prises (SME) that rely on ex­ports to Bri­tain.

The econ­omy here has con­tin­ued to grow strongly in the two-and-a-half years since the Brexit vote.

This has hap­pened de­spite sharp falls in ster­ling.

Ms Don­nery said she did not be­lieve busi­ness here had be­come com­pla­cent in re­la­tion to the is­sue, al­though growth had masked some of the ef­fects.

“There’s cer­tainly no com­pla­cency, from what we hear there’s con­cern and frus­tra­tion,” she said.

Fur­ther weak­en­ing of ster­ling would make Ir­ish ex­ports to the UK more ex­pen­sive, and in a hard Brexit that could be com­pounded by tar­iffs.

In re­la­tion to the do­mes­tic econ­omy, house prices are “close to or above what would be consistent with broader eco­nomic de­vel­op­ments”, the Cen­tral Bank said.

In essence it means the bank thinks prices are jus­ti­fied – but based on the cur­rent lack of sup­ply, which could change.

‘Neg­a­tive forIre­land’: Sharon Don­nery from the Cen­tral Bank

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