Conference on Exchange Traded Funds

The Central Bank of Ireland will be hosting a Conference entitled “ETFs – Stability and Growth” on 29 November 2017 in the Convention Centre Dublin.

Are ETFs still the safe, simple, transparent product they are understood to be? Is the ETF structure appropriate for any type of product? Should there be limits? What impact do ETFs have on their underlying market and what liquidity concerns are relevant and valid in an ETF context?

Participation is free of charge and you can register your interest in attending by emailing ETF@centralbank.ie

Final details will be available on our website.

We look forward to seeing you and to engaging in a frank and open discussion on ETFs!

Developments in enterprise credit in Ireland

The Bank published the 2017 H1 edition of the SME Market Report last week.

Highlights from the report include:

  • Gross new lending to non-financial, non-real estate SMEs continues to grow. Annualised new lending to Q1 2017 was €3.6bn, a 32 per cent increase since Q1 2016. By way of context, between 2010 and 2013 this number ranged between €2bn and €2.5bn.
  • Despite this growth in new lending, the outstanding stock of credit to SMEs continues to contract. In Q1 2017, the stock of SME credit declined to €16.6 bn, down 8.2 per cent from the previous year. This reflects the fact that loan repayments, loan sales and liquidations are still more than offsetting new lending flows.
  • The SME lending market remains highly concentrated, with the market share of the three main lenders in new bank lending flows being 82 per cent.
  • The current application rate for bank finance is 20 per cent, which is lower than at any point since 2011. However, the share of these applications going to new loan and overdraft facilities continues to grow, while the share going to renewal and restructuring of existing facilities continues to fall.
  • The rejection rate on SME loan applications has risen slightly in the last year for Micro and Small firms, but continues to fall for Medium-size firms.
  • The default rate on SME loans in Ireland is currently 18.7 per cent. This rate is highest in the Construction and the Hotels and Restaurants sectors, while it is lowest in the Agriculture, Manufacturing and the “Other Community, Social and Personal Services” sectors.
  • Irish SMEs continue to pay a significantly higher interest rate on bank credit than other euro area SMEs. The premium paid on small versus large loans in Ireland also continues to remain significantly higher than that in comparator countries.

Link to the report can be found here.

The recovery in the public finances in Ireland following the financial crisis

Last week Diarmaid Smyth of the Central Bank presented a paper to The Statistical and Social Inquiry Society of Ireland (SSISI) on Ireland’s recovery from the economic and financial crisis. The paper and presentation provide a rich recent history of developments in Ireland’s public finances during the crisis and recovery.

Interested readers might also be interested in a follow-up piece by Brendan Keenan, titled ‘Foreign help and native skill all part of the recovery story’ in the Irish Independent citing both this work and research from Aidan Regan and Samuel Brazys (UCD) on the role played by FDI in enabling Ireland’s recovery.

Links

Paper:

http://www.ssisi.ie/Public_Finances_and_the_Crisis_in_Ireland_v1_8.pdf

Presentation:

SSISI Presentation_250517

Keenan article:

http://www.independent.ie/business/irish/foreign-help-and-native-skill-all-part-of-the-recovery-story-35775749.html

Brazys and Regan:

http://www.ucd.ie/geary/static/publications/workingpapers/gearywp201701.pdf

 

Barrington Prize – Statistical and Social Inquiry Society of Ireland

On behalf of the SSISI, please be advised that applications for this year’s Barrington Prize are now open.

Submissions should be based on a paper of not more than 7,500 words addressing a topic of relevance to economic or social policy and of current interest in Ireland.

Submission deadline: 8th September 2017.

Previous winners of the prize include Rebecca Stuart (Central Bank), Ronan Lyons (Trinity College), Mark McGovern (Queens) and Yvonne McCarthy (Central Bank).

Submission details here

The income distribution and the Irish mortgage market

How concentrated are mortgage originations among those on higher incomes? Has this pattern changed through expansion and contraction in the Irish housing market? Combining for the first time information on the incomes at origination of a large sample of Irish mortgage holders with survey information on the population income distribution in each year, my colleague Reamonn Lydon and I address these issues over the period 1994 to 2014 in an Economic Letter released recently by the Central Bank.

In the work we highlight that the income profile of borrowers entering the First Time Buyer, Mover-Purchaser (also referred to as Second and Subsequent Buyer), and Buy to Let markets is markedly different.

The first chart below shows the evolution of the share of new First Time Buyer mortgage originations going to each population quintile between 1994 and 2014 (income distribution data were not available to us for 2015 at the time of carrying out the work). A number of patterns are evident:

  • The share of those in the top income quintile fell from over 40 per cent in 1994 to around 12 per cent by 2008.
  • The share of those in the middle income quintile rose from 15 per cent to over 40 per cent over the same period.
  • There has been a slight reversal of this pattern since the financial crisis; however, the share of originations going to the middle quintile is still well ahead of the top quintile.
  • Those in the bottom 40 per cent of population incomes have generally accounted for less than ten per cent of mortgage originations in a given year.

ftb

Next we examine the Mover-Purchaser or SSB market, and find that:

  • There was a similar convergence in the market shares of the 5th and 3rd quintiles over the Celtic Tiger period.
  • The reallocation towards the top income quintile in this market has been much sharper since 2008, with the market share standing at above 60 per cent for 2014.

ssb

The findings suggest that the crisis has been associated with some significant structural shifts in mortgage market participation. In the case of the SSB market, it is possible that the role of negative equity in impeding mover-purchases has been much more prevalent in recent years outside of the top quintile of the population income distribution. In the case of First Time Buyers, where the changes have been relatively less pronounced, the shifting age profile, where borrowers are entering the market later in life, may also explain the shift towards higher-income purchasers. Our research does not attempt to definitively quantify the role of supply side (such as bank lending policies) and demand side factors in explaining these changing patterns.

Other related research was also released in the Bank’s recent Quarterly Bulletin: The balancing act: household indebtedness over the lifecycle, by Apostolos Fasianos, Reamonn Lydon and Tara McIndoe-Calder. Finally, another related piece came out as a Research Technical Paper on the Great Irish (De)Leveraging by Reamonn Lydon and Tara McIndoe-Calder.

Conference notification

The Central Bank and the European Investment Bank will jointly host a conference on “Investment and Investment Finance: Funding Growth and Recovery in Europe” on the morning of April 10th in the Bank’s new premises, North Wall Quay.

The following speakers are confirmed, and a full programme will be available on the Bank’s website in the coming days:

  • Michael Noonan, T.D., Minister for Finance
  • Prof. Philip R.Lane, Governor of the Central Bank of Ireland
  • Andrew McDowell, Vice-President, European Investment Bank
  • Gabriel Fagan, Chief Economist, Central Bank of Ireland
  • Debora Revoltella, Chief Economist, European Investment Bank
  • Danny McCoy, CEO, IBEC

Further information is available here.