Featured Product

    IMF Publishes Reports on 2019 Article IV Consultation with Ireland

    June 17, 2019

    IMF published its staff report and selected issues report under the 2019 Article IV consultation with Ireland. The IMF Directors welcomed the proactive use of macro-prudential policy tools, endorsed the expansion of the toolkit with a systemic risk buffer and debt-based measures, and stressed that continued efforts to improve asset quality remain a priority. They encouraged the authorities to further improve data collection, closely monitor risk build-up, and develop system-wide stress testing. In view of the sector’s global reach, Directors emphasized the need for continued engagement in international cooperation, with the need for continued close cooperation with EU and UK to avoid cliff-edge risks related to Brexit.

    The staff report highlighted that size of the financial sector in Ireland has surpassed its pre-crisis level, as bank deleveraging was more than offset by the expansion of the non-bank sector. Domestic banks are well-capitalized and liquid. The capital ratios of these banks have somewhat declined in 2018 but remain among the highest in Europe. The common equity tier 1 ratio for the three largest domestic banks, at 17.8%, is well above the regulatory requirements and the EU peer average. Irish banks also fared well in the EU-wide banking stress tests of November 2018. The liquidity coverage ratio of banks continues to be in line with that of the international peers and is well above the minimum requirements. However, the high stock of non-performing loans (NPLs) and other crisis legacies continue to weigh on bank profitability. Moreover, the average margins of Irish banks continue to be weighed down by the high level of NPLs, a sizable portfolio of low-rate tracker mortgages, regulatory requirements to build up loss-absorbing liabilities, and elevated operational costs. Efforts to improve banks’ asset quality need to continue, building on recent progress.

    The NPL ratio for the three largest domestic banks declined to 8.1% in 2018 from 10.7% at end-2017, helped by portfolio sales, improved economic conditions, and stepped-up resolution activities. NPLs have declined across all market segments with the largest absolute decline in mortgages on primary residences. Continued loan-restructuring efforts, accompanied by strengthened borrower-creditor engagement, accelerated legal proceedings, and enhanced supervisory efforts are needed to reduce the NPL ratio to the 5% target by 2020. Macro-prudential policy settings appear appropriate, but the toolkit should be expanded. Given that there are no signs of deterioration in lending standards, the current macro-prudential stance appears appropriate. The countercyclical capital buffer (CCyB) increase to 1%, which was announced last year, will come into effect in July and constitutes an appropriate policy buffer in view of the advanced business cycle and risks to the outlook. The IMF assessment points out that expanding the toolkit with a systemic risk capital buffer is important to bolster system resilience. 

    The financial-sector preparations for Brexit appear broadly adequate to mitigate major disruptions. The Central Bank of Ireland continues to closely monitor Brexit contingency planning of Irish financial firms. According to the latest report by the Task Force on Brexit, the majority of Irish banks, insurers, and brokers provided their assessment and contingency plans, which the Central Bank of Ireland deemed to be adequate in most cases. The central bank cooperates closely with the institutions in EU and UK to ensure business continuity and avoid cliff-edge risks in the financial sector. Given continued uncertainty, it is essential that banks and other financial institutions remain conservative in their internal stress tests and risk assessments. It is also important to analyze the potential impact of Brexit-related financial market shocks, including on the nonbank financial sector. More than one hundred UK-based firms have been seeking authorization from the Central Bank of Ireland to relocate some of their activities to Ireland to continue business in EU after Brexit. The IMF staff encourages the Central Bank of Ireland to continue to devote adequate resources to guarantee a high-quality authorization process.

     

    Related Links

    Keywords: Europe, Ireland, Banking, Insurance, Securities, Systemic Risk, NPLs, Stress Testing, Brexit, Macro-Prudential Policy, CCyB, Article IV, IMF

    Featured Experts
    Related Articles
    News

    FINMA Approves Merger of Credit Suisse and UBS

    The Swiss Financial Market Supervisory Authority (FINMA) has approved the takeover of Credit Suisse by UBS.

    March 21, 2023 WebPage Regulatory News
    News

    BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks

    The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.

    March 13, 2023 WebPage Regulatory News
    News

    OSFI Finalizes on Climate Risk Guideline, Issues Other Updates

    The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.

    March 12, 2023 WebPage Regulatory News
    News

    APRA Assesses Macro-Prudential Policy Settings, Issues Other Updates

    The Australian Prudential Regulation Authority (APRA) published an information paper that assesses its macro-prudential policy settings aimed at promoting stability at a systemic level.

    March 07, 2023 WebPage Regulatory News
    News

    BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending

    BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.

    March 03, 2023 WebPage Regulatory News
    News

    HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks

    The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.

    March 02, 2023 WebPage Regulatory News
    News

    MFSA Sets Out Supervisory Priorities, Issues Reporting Updates

    The Malta Financial Services Authority (MFSA) outlined its supervisory priorities for 2023

    March 02, 2023 WebPage Regulatory News
    News

    German Regulators Issue Multiple Reporting Updates for Banks

    Deutsche Bundesbank published the nationally deactivated validation rules for the German Commercial Code (HGB) users on the taxonomy 3.2, which became valid from December 31, 2022

    March 02, 2023 WebPage Regulatory News
    News

    BCBS Report Examines Impact of Basel III Framework for Banks

    The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.

    February 28, 2023 WebPage Regulatory News
    News

    PRA Consults on Prudential Rules for "Simpler-Regime" Firms

    Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.

    February 28, 2023 WebPage Regulatory News
    RESULTS 1 - 10 OF 8806