According to a new study done by stockbroking firm Davy, Ireland’s banks can expect to see a slowing in recovery and business activity within the first quarter as the government extends the current lockdown that is Level 5 until foreseeable, March 5th. Even though recently, large banks such as AIB and the Bank of Ireland has reported that in the last quarter of 2020, the lending and other business activities have recovered more than projected from the slump at the start of the quarantine. Still, Davy’s analysts report that they do not expect lenders to book material additional to loan-loss provisions after last year as many of the consumers are looking at these on a case-by-case basis.
The extension of the lockdown and corresponding restrictions are likely to impact the recovery seen in Q3 and Q4 of 20-20, and will likely hit Q1 of 2021, which is seasonally the weakest quarter for new lending in Ireland. House buying will probably require a conservative approach from businesses to limit risk in the new market of loosening restrictions. Individual buyers and businesses should beware and look at the market to see sudden changes and to predict when would be a suitable time to enter the market. The good news is that businesses should not expect the economy to be hit as hard as it was globally last year’s Q2 since businesses have adapted to the quarantine style.
Last year, in anticipation of the shutdown, many banks including the KBC Bank Ireland and the Ulster Bank, set aside billions of euros in provisions to absorb the losses that would come with the economic shock. And with that, many of the lenders would up taking losses up to €3.6 billion. By the end of December of 2020, nearly 97% of the 146,000d industry-wide households and businesses had recovered from the initial COVID shock that happened early last year.
In the upcoming months, we can expect to see much uncertainty in the long-run effect and impact of lifting restrictions on the global market and especially the banking industry. There is also much volatility in the housing market and many of the homeowners during the pandemic are looking to either sell or purchase a new mortgage in light of the pandemic lifting. This could mean a large increase in demand in the housing market while supply may not be enough to match.
Lucas Zhang was a Finance major at Ohio State University. He writes about finance, mortgages, and technology for Irish Mortgage Brokers.