Ireland is only at the end of the beginning of the current economic shock caused by Covid-19 and the future scale of its economic impact is uncertain, the Governor of the Central Bank of Ireland (CBI) has said.
Speaking today on the publication of the CBI's Stability Review 2020, Governor Gabriel Makhlouf the challenges faced by households and businesses as a result of Covid-19 shock are significant and could result in solvency issues emerging in the longer term.
However, Mr Makhlouf said the current economic difficulties were very different from what Ireland experienced from 2007 on.
"Unlike the experience of a decade ago, the financial system is not the origin of the current challenges but, like the rest of the economy, it is affected by them," he said.
"The Covid-19 pandemic has been an exceptional shock triggering the materialisation of long-identified risks to financial stability and a collapse in global economic activity. The full transmission of these risks to the real economy and the financial system will take time."
The review published today outlines the Central Bank’s assessment of the key risks facing the financial system, the resilience of the economy to adverse shocks, and the policy actions being taken to safeguard stability.
Mr Makhlouf said that minimising the extent to which liquidity issues are followed by solvency issues will be important but accepted that households and businesses will be severely impacted.
"Some people will struggle to meet their financial commitments and some firms will not re-open," he said.
The CBI reiterated its stance on the role of the banking system and said the temporary payment breaks on loans and mortgages will have to replaced with longer-term solutions in some cases.
"In such cases, the Central Bank expects lenders to ensure appropriate solutions, including forbearance, are available. We expect lenders to engage with borrowers well in advance of the expiry of the payment break to support customers, and our existing arrears handling frameworks.