Irish system reacting to turmoil - OECD

The Irish financial system has identified issues raised by international market turmoil and responded to them, according to an OECD report on the country's economy published today.

Noting that deposit growth has lagged lending growth, the OECD states the Central Bank and Financial Services Authority of Ireland (CBFSAI) have recognised strong credit growth and rising indebtedness as major systemic vulnerabilities.

It observes that the CBFSAI published a new Consumer Protection Code, introduced a “forward-looking” liquidity regime just before the international turmoil struck, and increased the risk-weighting for high loan-to-value mortgages for owner-occupiers and speculative commercial real estate lending.

Property-related lending accounts for more than half of bank lending, the survey points out.

Rising funding costs for Irish banks and tightening lending standards are likely to reduce banks’ willingness to supply loans, and bank lending has decelerated sharply, the report says.

According to the OECD, Irish banks are highly profitable and well-capitalised, however, and should have considerable shock-absorption capacity.

A survey of the major banks in the State shows they have little exposure to the sub-prime market, hedge funds and the private equity sector, the OECD observes, and it advises these reports become a regular occurrence.