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Pandemic’s Impact on Borrowers’ Finances Limited, Despite Economic Shock

Despite the significant economic disruption caused by the pandemic, the impact on borrowers’ financial positions has been surprisingly limited, according to a new report from the International Monetary Fund.

Household Balance Sheets Improve Slightly

The report found that household balance sheets in Ireland have actually improved slightly since the start of the pandemic, largely due to extraordinary public income support measures. This is a testament to the effectiveness of government intervention in mitigating the economic impact of COVID-19.

Non-Financial Corporate Sector Sees Limited Impact

Similarly, the non-financial corporate sector has seen a limited impact on its aggregate financial position, although there was significant heterogeneity across sectors hit by COVID-19. Some industries were severely affected, while others managed to adapt and even thrive in the new economic landscape.

Industries That Thrived During the Pandemic

While some industries were severely impacted, others managed to:

  • Adapt to remote work and online shopping, leading to increased demand for certain services and products.
  • Find opportunities in the new economic landscape, such as increased demand for digital solutions and online entertainment.

Financial Sector Resilience

The report also highlighted the resilience of Ireland’s financial sector, which has maintained strong capital and liquidity buffers despite the economic shock. As of Q3-2021:

  • The average Common Equity Tier 1 (CET1) ratio was a healthy 22 percent.
  • The Liquidity Coverage Ratio (LCR) stood at 178 percent.
  • The Net Stable Funding Ratio (NSFR) was about 150 percent.

Growth in Funds and Insurance Sectors

The funds sector has grown significantly in recent years, with assets reaching €4.5 trillion in 2021 - more than ten times Ireland’s GDP. The insurance sector has also seen significant growth, particularly in the non-life segment, driven in part by Brexit.

Conclusion: Pandemic’s Impact on Financial Sector Limited

The report concluded that while the pandemic was a significant shock to the economy, banks have continued to maintain strong buffers and the financial sector as a whole has shown remarkable resilience. The impact on borrowers’ finances has been surprisingly limited, despite the economic disruption caused by COVID-19.