UPDATE 1-Irish banks have enough capital to absorb a severe shock – Central Bank

* The capital would fall to 8% against 18.5% in the event of an unfavorable scenario

* Adverse forecast includes phased lockdowns through 2021

* Countercyclical capital buffer will remain at 0% in 2021 (add details, quotes)

DUBLIN, Nov.26 (Reuters) – Irish retail banks have sufficient overall capital to absorb significantly worse shocks than baseline projections which already called for a no-deal Brexit, a new assessment by the central bank of the country.

The regulator helped banks prop up the economy during the COVID-19 pandemic by reducing to zero in April the amount of capital they need to set aside to protect against future risks, and said on Wednesday it did not did not intend to increase this counter-cyclical capital buffer (CCyB) in 2021.

The unfavorable scenario of the new study predicts an extended period of COVID-19 disruption for most of 2021, similar to the lockdown implemented earlier this year, a slower-than-expected recovery in the global economy and the potential for banks amplify the slowdown by tightening lending standards.

The Irish government intends to end six weeks of strict COVID-19 restrictions next week, reopening non-essential retailers and potentially parts of the hospitality industry.

“The response of the banking system itself will shape the eventual outcomes. Banks should use the extraordinary political support provided to maintain a sustainable supply of credit to businesses and households through the recovery, ”Central Bank Governor Gabriel Makhlouf told reporters.

The combined Tier 1 (CET1) core transitional capital ratio of Irish banks – whose reckless lending pushed the country into an international bailout ten years ago – would fall to 12.6% in the scenario of benchmark and at 8% in the unfavorable scenario against 18.5% currently, the assessment showed.

The central bank also said on Thursday that it did not intend to start phasing in an additional layer of capital requirements – the so-called systemic risk cushion – in 2021.

It will also leave mortgage loan limits unchanged for the third year in a row in 2021, saying it meant the financial system was better prepared for the COVID-19 shock compared to previous crises.

The central bank warned that the ability of many businesses to survive would depend on their ability to restructure pre-existing and pandemic-related liabilities, noting that the share of small and medium-sized businesses with insufficient cash flow to cover three months of spending from exploitation had doubled. at 16% in the pandemic. (Reporting by Padraic Halpin; Editing by Jon Boyle and Mark Potter)

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