Quarterly Bulletin Signed Articles 

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DateTitle and Description
QB2 2016 Enhanced Interest Rate Statistics Article30/03/2016QB2 2016 Enhanced Interest Rate Statistics Article
Accurate, detailed and timely interest rate statistics are an important input into both monetary policy decision-making and domestic policy initiatives. An enhanced interest rate statistics framework was implemented in Ireland and across the eurozone at the beginning of 2015, facilitating a more precise assessment of household and NFC developments. These showed that new business mortgage rates for Ireland were significantly impacted by renegotiations. Similar trends were not evident across the euro area, reflecting the structural differences in euro area mortgage markets. In terms of new business NFC loans, the impact of renegotiations on the corresponding Irish interest rates series was negligible. Furthermore, the latest data for Ireland highlight a shift from floating rate to fixed rate mortgages, which have recently begun to offer lower rates. New data for SMEs show significant differences in rates applied to different types of economic activity. In general, new business rates to SMEs are elevated when compared to rates on existing loans. The new series indicate that rates in Ireland are generally higher than euro area equivalents for both household and SME loans.
QB2 2016 Irish SME Economic Investment in Economic Recovery Article30/03/2016QB2 2016 Irish SME Economic Investment in Economic Recovery Article
Following dramatic declines during the crisis, capital investment expenditure is increasing rapidly in Ireland. However, little is known about SME investment levels, the extent to which this is driven by improved economic conditions, and how their investment is financed. Using cross-sectional survey data, we find that the share of SMEs investing has increased steadily since 2012, and currently about a third of SMEs are investing in each six month period. Larger firms, exporters and innovators are more likely to invest. However, over the last three years, the share of smaller, domestically-focused enterprises investing has increased at a faster rate. We find a strong link between regional unemployment rates and SME investment. However, this relationship only holds for more domestically-orientated firms. As the unemployment rate has decreased, these findings provide some evidence to link macroeconomic improvements to the observed pick-up in investment activity of SMEs. Finally, we explore the funding mix for new SME investments. Internal funding/retained earnings account for the highest share, with bank financing and leasing together accounting for less than twenty per cent.
QB2 2016 Understanding SME Interest Rate Variation Across Europe Article30/03/2016QB2 2016 Understanding SME Interest Rate Variation Across Europe Article
The cost of credit for small and medium enterprises (SMEs) differs considerably across the EU. This research begins by exploiting firm-level survey data to test whether differences in the characteristics of borrowing SMEs can explain cross-country variation in the cost of credit on new lending in 2014 and 2015. We find that new overdraft interest rates across the EU are lower for larger and older firms, and for those experiencing recent improvements in trading performance. However, controlling for such characteristics does not, in general, explain much of the overall difference in interest rates across countries. We extend the analysis by examining whether cross-country interest rate variation is associated with differences in the following key factors: banking sector cost efficiency; institutional factors relating to recoverability of collateral; existing and predicted default rates on SME lending; competition in the banking sector; banking sector risk and cost of funds; general macroeconomic performance. Using simple univariate correlations, we observe a significant positive relationship between interest rates and past/predicted SME loan defaults, and a negative relationship with the level of bank competition. Interest rates are also higher where banking stress is high and where unemployment is above historical levels. We find no correlation with banking sector profit/cost ratios, the cost of funds, or the efficiency of the insolvency system.
Interconnectedness of the Irish Banking Sector with the Global Financial System25/01/2016Interconnectedness of the Irish Banking Sector with the Global Financial System
Financial innovation and closer integration of international financial systems have created an environment where banks are highly connected, with each other and with the global financial system. These connections can have both positive and negative effects and understanding these interlinkages is an important area of focus for policymakers. While a full understanding of the connections within the wider financial system is constrained by a lack of complete data, regulatory data sources for the banking sector provide a wealth of information which can be used to analyse the interlinkages of this sector. This article examines a number of regulatory data sources to assess how interconnected Irish-authorised banks (both domestic and international) are with the financial system. It finds that banks with a domestic retail focus have much lower levels of interconnectedness with the financial sector than the internationally-focussed foreign-owned banks, at least partly due to the intragroup exposures of the latter. An analysis of the network of bilateral interbank credit exposures using available data shows that this network is relatively sparse, with just a few key hubs, all of which are large global banks. However, the available data do not capture all exposures and future data collection enhancements will be important for further analysis.