Sunday 25 September 2016

Irish banks have contingency in place ahead of Brexit vote, says Central Bank

Published 15/06/2016 | 02:30

John McGrane, director general of the British Irish Chamber of Commerce, and Deirdre Ardagh, its director of policy, at Brexit toolkit launch. Photo: Naoise Culhane
John McGrane, director general of the British Irish Chamber of Commerce, and Deirdre Ardagh, its director of policy, at Brexit toolkit launch. Photo: Naoise Culhane

Banks here are ready for a Brexit, the deputy governor of the Central Bank said.

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With just over a week to go until the crucial UK vote, Sharon Donnery said disruption and volatility in the financial markets is the chief short-term risk posed by a possible vote by the UK to withdraw from the EU.

Irish-based banks and finance firms with exposure to the UK have contingency plans in place to deal with the short-term fallout from a British exit from the European Union, the deputy governor said.

Sterling skidded 1pc lower against the dollar yesterday to hit its lowest level in two months, after another poll put the 'leave' campaign clearly ahead, and 'The Sun' newspaper backed a Brexit.

The UK currency hovered around the 79 pence to the euro mark.

Safe-haven German Bund yields fell below zero for the first time and global equity markets slid for a fourth day running as markets increasingly factor in risks many had expected to fade as polling day approached.

The ISEQ slipped below the 6,000 mark.

Read more: Ireland faces four big issues. Three of them are out of our hands

At the launch of the Central Bank's Macro Financial Review yesterday, Ms Donnery said volatility in the euro/sterling exchange rate could provide challenges if the UK votes to leave.

"Over longer-time horizons, a negative impact on Irish exports to the UK could be expected," Ms Donnery said.

"The overall effects on the profitability and business models of Irish-based financial institutions could be material and will vary across firms and sectors.

"The effect will depend on their exposure to UK markets and the nature of the "new relationship" agreed between the United Kingdom and EU.

Ms Donnery said the Central Bank had also been engaging with financial sector firms to assess their preparedness for the risks associated with Brexit.

The bank said the effects on the profitability and business models of financial firms in Ireland, including banks and insurers, could be "material", and could vary between firms and sectors depending on the nature of the new relationship agreed between the UK and EU and their exposure to UK markets.

Asked if the bank believes that firms are prepared, she said: "I would say that in relation to short term contingency planning for any events that would happen immediately after a referendum, we'd be happy that all contingencies have been prepared for."

She said officials in Dame Street had been working to prepare for all contingencies.

"Work is in hand in relation to that regardless of what those contingencies might be," Ms Donnery said.

The latest survey, from market research company TNS, has British support for leaving the EU seven-points ahead, adding to a string of polls that put the Brexit campaign ahead.

Betting markets, in response, raised the chances of the country voting to leave the EU, causing anxiety among investors.

The implied probability of a vote to remain inside the bloc fell to around 60pc yesterday, down almost 20 percentage points from last week, according to Betfair. "It (Brexit risk) is becoming a much broader issue than just sterling weakness," said RBC Capital Markets strategist Adam Cole.

Meanwhile, the British Irish Chamber of Commerce has unveiled its 'Brexit Toolkit for Employers'.

The guide looks to set out the implications for trade agreements, business stability and job security.

(Additional reporting Reuters)

Irish Independent

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