Business Irish

Tuesday 15 October 2019

Central Bank to keep capital buffer at 1pc

Figures: The Central Bank reported low mortgage growth and record savings deposits. Photo: Bloomberg
Figures: The Central Bank reported low mortgage growth and record savings deposits. Photo: Bloomberg

David Chance

The Central Bank of Ireland said on Tuesday that it stands ready to cut the amount of reserves it requires banks to hold if there is a shock to the economy.

In an announcement that was widely expected, the Bank said it would keep the so-called countercyclical capital buffer (CCyB) for banks at 1pc for the present.

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A cut would have meant banks could lend more to households and businesses, boosting the economy.

The decision is made on a quarterly basis and comes after data released by the Central Bank earlier this week showed that mortgage growth continued to be lacklustre and that consumers were squirrelling away record amounts in savings.

The Bank acknowledged there were risks to the economy from Brexit and said it stood ready to adjust the capital buffer to support a "sustainable supply of credit to the economy".

"In contrast to announced increases in the buffer rate, which by default have a 12-month implementation phase, any reduction in the CCyB would take effect immediately," the Bank said in a statement.

The Bank said that the buffer needed to remain in place due to a gradual build-up of cyclical systemic risk and the exposure of Ireland to the global financial cycle.

The recent data from the Bank appeared to paint a picture of consumers being reluctant to take on debt and saving more money, a sharp reversal of the mortgage-fuelled housing boom that ended in crisis.

Deposits by households in the month of August hit €653m, a full €200m more than in August last year, and the pace of growth was fastest in the past 12 months, at 6.4pc. Deposits totalled €109bn.

By contrast, mortgage lending eked out a gain of just 1.5pc over the year and was €1.1bn higher than 12 months ago at €75.6bn.

In its announcement yesterday, the Bank noted that residential property growth continued to slow, although prices remain above historical averages.

Irish Independent

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