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The financial resilience of Irish CRE borrowers

Author

Listed:
  • Lambert, Derek

    (Central Bank of Ireland)

  • Mahony, Michael

    (Central Bank of Ireland)

  • McGeever, Niall

    (Central Bank of Ireland)

Abstract
In this Note, we use a range of granular datasets to provide novel insight into the financial resilience of Irish CRE borrowers. We show that the pass-through of tighter financial conditions to CRE borrowers since 2022 has been moderate, with the balance-weighted average interest rate rising by approximately 225 basis points by end-2023. A gradual loan refinancing schedule has also provided borrowers with scope to adjust to the shock. Nonetheless, some borrowers have suffered balance sheet damage due to asset price declines and some are vulnerable to further deteriorations in market conditions. Book leverage estimates suggest that most borrowers have scope to absorb losses on their asset portfolios without encountering acute balance sheet distress. Loan-to-value ratios on bank CRE loans similarly point to balance sheet resilience, though pockets of vulnerability exist, including in the office and retail segments. A further shock, due for example to shifts in interest rate expectations or market dislocation due to fire sales, would test the ability of some borrowers to service and refinance their debts. Measures of borrower distress ticked up in 2023.

Suggested Citation

  • Lambert, Derek & Mahony, Michael & McGeever, Niall, 2024. "The financial resilience of Irish CRE borrowers," Financial Stability Notes 4/FS/24, Central Bank of Ireland.
    • Handle: RePEc:cbi:fsnote:4/fs/24
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    File URL: https://www.centralbank.ie/docs/default-source/publications/financial-stability-notes/the-financial-resilience-of-irish-cre-borrowers.pdf?sfvrsn=4b2f601a_10
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    References listed on IDEAS

    as
    1. Arpit Gupta & Vrinda Mittal & Stijn Van Nieuwerburgh, 2022. "Work From Home and the Office Real Estate Apocalypse," NBER Working Papers 30526, National Bureau of Economic Research, Inc.
    2. Moloney, Kitty & O'Gorman, Paraic & O’Sullivan, Max & Reddan, Paul, 2023. "Non-bank lenders to SMEs as a source of financial stability risk – a balance sheet assessment," Financial Stability Notes 11/FS/23, Central Bank of Ireland.
    3. Byrne, David & McCann, Fergal & Gaffney, Edward, 2023. "The interest rate exposure of mortgaged Irish households," Financial Stability Notes 2/FS/23, Central Bank of Ireland.
    4. David P. Glancy & J. Christina Wang, 2023. "Lease Expirations and CRE Property Performance," Working Papers 23-10, Federal Reserve Bank of Boston.
    Full references (including those not matched with items on IDEAS)

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