Central bank tightens lending conditions for Irish banks after looser Covid era

The Central Bank of Ireland will tighten rules relaxed during the pandemic on how much banks are allowed to lend.

The move comes ahead of rate hikes scheduled for July and September and despite growing fears in financial markets of a looming global recession.

The central bank said it is increasing a key capital buffer for lenders to 0.5 percent this year and 1.5 percent by mid-2023 as pandemic risks recede.
In its semi-annual Financial Stability Review, the central bank said the move “should not have a material impact on credit supply and economic activity.”
The so-called countercyclical capital buffer (CCYB) is the proportion of the banks’ capital that has to be held ready for future crises in addition to the basic capital requirements.
It was set at 1 percent when it was introduced in 2018, but was lowered to zero in March 2020 to allow banks to lend more during the pandemic.
“We no longer think this support is necessary,” Central Bank Governor Gabriel Makhlouf said.
“Of course, we will review our position if economic and financial conditions differ materially from our current core expectation.”
Mr Makhlouf said the growth outlook for Ireland’s economy was “positive” but warned that inflationary pressures and the forthcoming European Central Bank rate hike would increase “risks to global asset prices and debt affordability”.
“The economy will continue to grow into next year, albeit at a slower pace and with higher inflation rates than we previously expected, and with greater uncertainty around our key forecast,” he said on Wednesday.
“The domestic economic pressure is also building up, which is particularly evident in real estate prices and in capacity bottlenecks, which lead to increased production costs.”
The central bank said in its review that banks have enough “headroom” to allow for the capital buffer to be increased to 1.5 percent and will not require them to raise more capital.
The central bank announced that the interest rate could be lowered again “with immediate effect” should the risk “crystalize”.
It could also be raised above 1.5 percent if “cyclical risks build up.”
Meanwhile, a review of mortgage lending limits, which limit home loans to 3.5 times the gross wages of homebuyers, is still ongoing.
The European Central Bank will start raising interest rates from July. If interest rates rise by 1 percentage point, the cost of paying off tracker and standard variable-rate customer loans could increase by €65 a month, the central bank estimates.
About 54 percent of outstanding mortgages are variable-rate mortgages, with the average monthly payment for such loans rising from €862 to €927.
The central bank also warned that given short lock-in periods, higher interest rates would impact fixed-rate customers “after a relatively short period of time”.
The Central Bank also continues to review property fund growth in Ireland.
In its latest financial stability review last November, the bank said it intends to introduce credit limits and cash requirements for property funds, which the International Monetary Fund says hold assets worth around 40 percent of Ireland’s gross domestic product.
Both the mortgage measures and the review of the real estate funds are expected to be completed in the second half of the year.

https://www.independent.ie/business/central-bank-tightens-lending-conditions-for-irish-banks-after-looser-covid-era-41756254.html Central bank tightens lending conditions for Irish banks after looser Covid era

Fry Electronics Team

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