No need to fear an ill wind if your haystacks are tied down. Irish banking bosses will remember the local proverb with an economic storm on the way.
Loose bindings caught predecessors out during the Great Financial Crisis. A property collapse threatened to blow the Irish banking system out of the water. More than a decade has elapsed since then. Ireland now has one of the strictest regulatory regimes in Europe. Markets are correspondingly sanguine.
The government will make the most of this by selling a further 5 per cent of its holding in bank AIB back to the market. It sold down the entirety of a smaller stake in Bank of Ireland in September. That netted taxpayers a €2bn profit.
Tightening financial conditions will make AIB a tougher sell. It helps that NatWest is leaving Ireland with large asset disposals from its subsidiary Ulster Bank. The UK government, for its part, still owns a large stake in NatWest, showing how hard such shareholdings are to shift.
Rate rises by the ECB provide another boost. Net interest income rose 10 per cent in the first nine months of this year at AIB. Its loan to deposit ratio of 61 per cent equates to roughly €40bn parked at the ECB, collecting the benefit of rising deposit rates.
Borrowers are barely feeling the sharp end of higher rates. AIB was the first Irish bank to increase rates on new fixed mortgages last month. But rates on five-year fixed deals remain below 3 per cent.
Just a tenth of the Irish mortgage stock is tied to rising rates. Pressure on borrowers is far lower than in the GFC, when the proportion was much higher. Tighter lending standards have contained house prices, which only surpassed their pre-GFC peak this year.
That also meant low returns for shareholders. Irish banks have outperformed by a third since the start of 2020. A growing cost of living crisis will limit further gains. But the last banking crash was too recent for Ireland to tolerate a repeat performance.
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