The Irish economy continues to grow at a robust pace,
underpinned by domestic demand. Substantial employment growth
continues to support economic performance, which picked up
significantly during 2016. While the overall growth outlook
remains relatively positive, Brexit has been identified as a
significant risk to the Irish economy, with Central Bank
estimates suggesting that Irish GDP could be around 3% lower
after 10 years in the event of no post-Brexit trade agreement.
This figure is expected to translate into roughly 40,000 fewer
jobs, which may be disproportionately concentrated in specific
regions and sectors.
Overall, positive labour market conditions continue to
support a reduction in household sector debt and mortgage
arrears. Nonetheless, the sector remains relatively highly
indebted and almost half of mortgage arrears cases are very
long term in duration. The Central Bank continues to address
the problem of mortgage arrears through supervisory engagement
Irish retail banks remain profitable in aggregate. The
overall balance sheet of the sector continues to decline as new
lending is more than offset by loan redemptions and asset
disposals. Aggregate fully-loaded capital ratios increased in
2016 as risk-weighted assets continued to decline.
As the designated national authority for macroprudential
policy in Ireland, the Central Bank has implemented a number of
macroprudential measures in recent years with the aim to
increase banking sector resilience. These include capital
buffers for domestically important institutions (O-SIIs) and a
countercyclical capital buffer (CCyB). The CCyB is currently
set at 0% while seven institutions identified as systemically
important will begin to phase-in O-SII buffers from 2019.
In early 2015, proportionate caps on loan-to-value and
loan-to-income ratios for certain new residential mortgages
were introduced, aiming to increase the resilience of the
banking and household sectors to the property market and
protect against bank credit and housing price spirals. The
first annual review of these rules was released in November
2016 and based on this, slight adjustments were applied to the
measures. The second annual review is currently underway.