Ireland's banking system remains well-placed to withstand financial shocks even though the risks to financial stability have increased over the last year, the Central Bank Governor John Hurley said today.
Speaking at the publication of the bank's Financial Stability 2007 report this morning Mr Hurley said "the domestic banking system reports no significant direct exposures to US sub prime mortgages and essentially negligible exposures through investments and through links with other financial companies or special purpose vehicles".
Mr Hurley, who is also a member of the European Central Bank's rate-setting governing council, added that the "stress-testing of the banking system and our extensive financial stability analysis indicate that Irish banks are solidly profitable and well-capitalised".
Central Bank Governor John Hurley
Over the last year, a number of the domestic risks have eased with a moderation of residential property prices, a slowing of private sector credit growth and an easing of repayment burdens.
"Regarding future house price developments, factors such as investors' participation in the property market, the sustainability of current rates of immigration, the cost of borrowing and the performance of the labour market are all important," he said.
Mr Hurley said the construction sector's contribution to overall economic growth was expected to decline gradually in the coming years although cautioned that it was one of the main domestic risks facing the Irish economy.
He repeated the bank's view that a reduction in residential building was expected to be compensated in part by strong growth in public-sector and private non-residential construction.
However, ht notes that in the commercial property sector strong price rises over recent years was leading to a concern that capital values appear to be moving out of line with rents.
Mr Hurley said higher rates of inflation, an appreciation in the euro and lower productivity were also contributing to a deterioration in Ireland's competitiveness.
"While the overall competitive position of the economy does not appear to be too strained, a continuation of these trends could have a more significant economic impact in the longer run," he said.
On the positive side, Mr Hurley said Ireland continued to have a good budgetary position, strong employment growth, and an adaptable economy even if economic growth was expected to decelerate in 2008.
"As economic growth slows somewhat, some upturn in the unemployment rate is likely. However, this is expected," he said.
