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Central Bank plans 'deeper dive' into SME loans in next year's stress testing

THE Central Bank is planning to carry out a 'deeper dive' into small-business loans in next year's banking stress tests.

The news comes as the SME sector continues to reel from the worsening economic outlook and the overhang of property debts from the boom.

The more detailed exploration of the SME book is not expected to trigger a demand for more capital, since extensive levels of SME losses have already been provided for.

Instead, the analysis is expected to offer insights into the interconnectedness between SME loans and other loans on the banks' books, including residential and investor mortgages.

That information could help banks better understand the relationships between different parts of their books and assist in formulating strategies for dealing with borrowers in distress.

Sources from across the banking landscape said there was no evidence that losses at the banks would go beyond the "stressed" scenario modelled in last year's tests.

The tests triggered a €24bn recapitalisation of AIB, Bank of Ireland, EBS and Irish Life & Permanent, in what has been billed as the "final" bailout.

Market sources say it would be devastating for Ireland's reputation if a further capital call was made after the next round of stress tests in March.

Meanwhile, the Central Bank is also developing an updated code of conduct for how banks should engage with SME borrowers who are in arrears.

The code covers the banks' obligations on information and appeals. LAURA NOONAN

Irish Independent