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Banks in Ireland required to hold three times more capital for mortgages than European counterparts despite vast increase in higher quality loans

Capital requirements for Irish banks trapped at financial crisis levels driving up the cost of lending and mortgages

Tuesday 16th February 2021 – A new extensive study of over 600,000 mortgages totalling €83 billion across the five Irish retail banks has found that retail banks in Ireland are required to hold about three times more capital for the perceived higher risk in their mortgage loans books when compared to average capital requirements in Europe, impacting the cost of lending and the cost of mortgages. The report estimates this extra capital is about €2.5bn.

Commissioned by Banking & Payments Federation Ireland and conducted by Martello Strategic Consulting, the report shows that while the introduction of stricter mortgage lending rules in recent years has led to a vast increase in higher quality loans and a significant reduction in problem loans, the banking system in Ireland is not fully seeing the benefit of this reduced risk, with capital requirements effectively trapped at levels of the financial crisis.

Improvements in mortgage book quality having little or no impact on capital requirements

Commenting on the findings of the report Brian Hayes, Chief Executive, BPFI said: “Despite the major improvements in the quality of the overall mortgage book in Ireland since the introduction of much more robust mortgage lending rules in 2016, this is having little or no impact on lowering capital requirements levels for retail banks here.”

Newer mortgages with stricter lending rules still requiring more capital than European countries

Mr Hayes continued: “Even when we take mortgages issued in recent years which have significantly better underlying quality, Irish banks are required to hold more than twice the level of average capital of European banks. In Austria or Belgium, consumers can borrow up to six times their income level compared to 3.5 times in Ireland, based on a similar Loan-to-Value ratio. However Irish banks who are using stricter mortgage lending rules are required to hold more than twice the level of capital than banks in these two countries.”

Recovery of security

Mr Hayes said: “The report argues that this is mainly due to the low levels of recovery of security for mortgages in Ireland. This is supported by recent findings by the EBA which show that that Ireland has one of the worst outcomes in Europe in the recovery of security for mortgages under judicial processes. In Ireland, the average recovery rates at the end of enforcement through the judicial process is around 11% compared with 46% in Europe.” 

Furthermore, the report forecasts that over the next five years (excluding the impact of COVID) that even as better-quality mortgages continue to replace older riskier loans, the higher capital requirements for banks in Ireland may only fall slowly with Irish mortgages continuing to attract much higher capital requirements than other European countries.

Brian Hayes concluded: “There is an ongoing debate on the exceptionally high levels of capital Irish banks are required to hold against mortgage loans and the impact this has on interest rates and ultimately the cost of mortgages here when compared to our European counterparts. This report lays out in extensive detail the yawning gap between Ireland and EU banks, despite the increasing quality of the loan book in Ireland in recent years. This is having a direct impact on the mortgage market in Ireland. This is a ground-breaking piece of research that gives us an extensive set of data and allows for an assessment of the factors at play in the mortgage market in Ireland, particularly from a capital requirements perspective.”

This report is the first major study of Irish banks undertaken on this issue, using detailed data from Irish retail banks, data from the ECB and the EBA, primary research and interviews with retail banks participating in the study. The research covers around 12 million data points across 613K mortgage accounts within the retail banks in Ireland across €83 billion of mortgage loans. This work was supported by additional analysis of ECB and EBA was conducted between June and December 2020. The project has benefited from the cooperation of all the five banks in Ireland who provide mortgages (AIB, Bank of Ireland, Ulster Bank, Permanent TSB and KBC), in sharing a level of data for the period ending 31st December 2019.

A copy of the ‘Irish Mortgage RWA Density Analysis Project Report’ can be found here

The summary of the report can be found here


Contact: Jillian Heffernan, Head of Communications, 087 9016880 or

Notes: Banking & Payments Federation Ireland (BPFI) represents the banking, payments and fintech sector in Ireland.  Together with its affiliates, the Federation of International Banks in Ireland, and the Fintech & Payments Association of Ireland, BPFI has some 100 member institutions and associates, including licensed domestic and foreign banks and institutions operating in the financial marketplace here.