Risky business loans, new mortgage rules and how hard Brexit will hit Irish hotels

Risky loans

Regulators have raised the alarm about the threat that risky loans to heavily-indebted businesses pose to Irish banks, the Sunday Times reported.

The paper said that the Central Bank has warned that Irish lenders' €10 billion worth of "leveraged loans" could lead to serious losses in the next downturn.

Leveraged loans allow already highly-indebted companies, backed mainly by US private equity funds, to borrow even more cash. It is a €1.95 trillion global industry, according to the newspaper.

In an echo of the financial engineering that led to the last global recession, the debt is packaged into collateralised loan obligations, which allow investors, including the Irish banks, to buy tranches of the debt. They assume the risk that the borrower won’t repay, but get particularly high returns on the investment.

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The Central Bank estimates that Irish banks hold €10 billion worth of these risky loans. “A reversal in risk appetite of increase in loan defaults in these markets will have direct effects on these exposures,” the State’s financial watchdog warns.

The regulator fears that investors could quickly retreat as global growth slows, triggering steep falls in the value of risky assets such as the leveraged loans, the newspaper said.

Equity release for older homeowners

Also in the Sunday Times, the Central Bank has tweaked mortgage rules to allow older homeowners cash in some of the equity in their properties.

Equity release allows such people to borrow cash secured against their homes, but repayments are frozen until they die or move into care.

Existing Central Bank rules limiting mortgages to 3.5 times most borrowers’ incomes ruled out this option, known as lifetime mortgages.

The newspaper reported that the Central Bank commission, following consultation with the Minister for Finance, Paschal Donohoe, "decided to exempt lifetime mortgages from the loan-to-income limit".

Penalties for employers

Companies falsely designating workers as “self-employed” face increased fines of up to €25,000, the Sunday Business Post reported.

The paper said that the Minister for Social Protection, Regina Doherty, plans to introduce legislation to the Oireachtas increasing the penalties for employers to wrongly designate staff as self-employed, when they are in fact employees, to duck paying social insurance and benefits such as holiday pay.

“It is understood Doherty is looking at raising the maximum fine for companies convicted in the Circuit Court from €13,000 to €25,000. The top fine for companies convicted in the District Court would rise from €2,500 to €4,000,” the paper said.

No-deal Brexit cost to hotels

A new report calculates that a no-deal Brexit could cost hotels in the Republic €52 million next year, the Sunday Independent said. Demand among UK tourists and business travellers could fall 15 per cent or 400,000 room nights next year, according to the annual hotel industry survey from consultants Crowe Ireland, the paper reported. Crowe estimated that this would cost about €45 million in accommodation income and a further €7 million in food and drink. Partner Aiden Murphy predicted that the number of people travelling from Northern Ireland and Britain to the Republic could fall because the increased cost of paying in euro and anticipated travel delays created by a hard border.