IMF: Irish banks weather Covid crisis but 'pockets of vulnerabilities remain'

The IMF wants a number of stress tests to be continued to be applied to the Irish banking system

The IMF found that while Irish and international banks based here weathered the pandemic with strong reserves, that nonetheless "pockets of vulnerabilities remain" and further challenges lie ahead. 

The Irish banking system has emerged from the Covid-19 crisis in good shape, but it faces numerous challenges including from property valuations, climate change, and the battle to secure long-term profitability, according to an IMF report. 

The report is part of the fund's regular analysis of the banking system since the financial crash and assesses how well banks and insurers here would cope with certain economic stress shocks.                                       

It found that while Irish and international banks based here weathered the pandemic with strong reserves, that nonetheless "pockets of vulnerabilities remain" and further challenges lie ahead.     

The report identified that Irish lenders face "meaningful exposure" to commercial property where valuations have weakened during the pandemic, as well as from small firms that had relied on significant Government supports during the crisis.    

"Going forward, profitability challenges and long-term mortgage arrears by retail banks, high exposure to the CRE (commercial real estate) segment, and significant off-balance sheet exposures of large international banks may expose banks to both domestic and cross-border challenges," it said.  

It recommends that regulators and lenders examine ways to measure the effects of reducing carbon and climate risks on Irish banks and seeks a number of stress tests to be continued to be applied to the banking system. 

Long-term non-performing loans since the financial crash "remain a non-trivial portion of the retail banks’ lending book", according to the report. 

The report finds that insurance firms also emerged from the crisis in good financial shape. 

However, "uncertainties remain as to how the pandemic and its aftermath will further impact the sector, particularly regarding: Further market volatility and potential changes in investor sentiment, economic downside risks, long Covid effects on mortality and morbidity, and the impact of the pandemic on future lapse rates and premium income," it said.