How the Irish banks are still so exposed to property loans

Underlying message that Irish banks remain concentrated in one area remains the same

Queries left with the Central Bank press office elicited a response that there were, in fact, errors in the chart – forcing the number crunchers back to the drawing board. Photograph: Alan Betson

Queries left with the Central Bank press office elicited a response that there were, in fact, errors in the chart – forcing the number crunchers back to the drawing board. Photograph: Alan Betson

 

The Central Bank’s six-monthly report on its work looking at potential systemic risks in the Irish financial system, worthy as it is, rarely makes for exciting headlines.

But the regulator’s latest so-called Systemic Risk Pack raised Cantillon’s eyebrows as one of the charts suggested that Irish banks were way more exposed to property-related lending than before the crisis.

The chart showed that such lending – including mortgages – now make up 70 per cent of banks’ loan books, compared to a long-run average of 57 per cent and European median of 60 per cent. It also indicated that property lending made up only 50 per cent of Irish bank’s portfolios at the peak of the market in 2006 and 2007. If only.

Queries left with the Central Bank press office elicited a response that there were, in fact, errors in the chart – forcing the number crunchers back to the drawing board.

Corrected version

The corrected version shows that property lending accounts for 68 per cent of Irish banks’ loan books, down from almost 75 per cent in 2008.

But the underlying message that Irish banks remain heavily concentrated in one area remains the same. It’s probably not helped by the fact, as noted by the three main banks last week as they reported full-year figures, that small- to medium-sized enterprises (SMEs) are largely refusing to take on fresh debt as they fret about Brexit.

Loan books have shrunk

It has to be remembered that the banks’ total loan books have shrunk almost in half over the past decade as they transferred risky loans to the National Asset Management Agency (Nama), sold non-performing loans to overseas funds, and sold off other assets. These included assets that banks no longer wanted, or were forced by the European Commissions to dispose of under restructuring plans, following on from a series of taxpayer bailouts.

The report also highlights that a quarter of bank’s total loans are out to borrowers in the UK, meaning that the impact of the UK exiting the EU could hit the sector.

Investors in Irish banks – whose shares have fallen by 20-29 per cent over the past 12 months – need no reminding of that risk.

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