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Ireland's three pillar banks can absorb capital buffer - agency

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Toolkit: Finance Minister Paschal Donohoe aims to tackle  economic risks

Toolkit: Finance Minister Paschal Donohoe aims to tackle economic risks

Toolkit: Finance Minister Paschal Donohoe aims to tackle economic risks

BANK of Ireland, AIB and Permanent TSB have sufficient capital cushions to meet the introduction of the systemic risk buffer by the Central Bank, according to ratings agency DBRS.

The agency also said in a report that the banks' capital positions remained significantly above minimum requirements, even after taking into account new capital buffers introduced last month.

The systemic risk buffer will allow the Central Bank to force lenders to hold capital above existing requirements, in order to safeguard against risks that could cause significant damage to the country's financial system.

Implementing the systemic risk buffer is at the discretion of EU member states.

Last month, Finance Minister Paschal Donohoe said the buffer will ensure that the Central Bank has the "complete macro-prudential toolkit at its disposal" to enable it to "adequately assess and take appropriate measures to address the systemic risks faced by Ireland's small, highly globalised economy".

The systemic risk buffer has already been implemented in 16 EU countries, with rates that range between 0.5pc and 3pc of capital.

"Nevertheless, DBRS considers Irish banks to have sufficient capital cushions to meet the introduction of an SRB," noted the ratings agency.

At the end of June, Bank of Ireland, AIB and Permanent TSB had Common Equity Tier 1 ratios - a key measure of a bank's financial strength - that were significantly above their minimum capital ratios, according to DBRS. That is when additional buffer requirements introduced last month are also included.

"These buffers were introduced to partly mitigate the key risks that the Irish economy currently faces, including a tightening in global financial conditions, an abrupt fall in Irish property prices, and the possibility of elevated risk- taking behaviour in the banking sector," noted DBRS.

"However, current capital buffer requirements do not incorporate the risk of a disruption in financial services between the EU and the UK following a potential disorderly Brexit," it said.

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DBRS said that the stock of non-performing loans at the three pillar banks had declined by €39.3bn, or 79pc, since the end of 2014. It expects the banks to further cut their stock of such loans this year.

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