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Irish banks may be mispricing credit risk, says Honohan 

November 9, 2015

Eoin Burke-Kennedy, The Irish Times

Irish banks may be too risk averse, outgoing Central Bank governor Patrick Honohan has said, while also highlighting the relatively high interest rates being charged by Irish lenders.

Noting rates had come down everywhere in the euro area except in Ireland, he said: “This raises a question as to whether these rates are a consequence of insufficient competition.”

In an address to the Small Firms’ Association, Prof Honohan said loan rejection rates here had not fallen to the same extent as they had in other formerly distressed EU states.

Irish banks may be “mispricing credit risk” resulting in relatively high loan rejection rates, he said. While banks were reckless in assessing risk prior to the crash, the pendulum may now have swung the other way, according to Prof Honohan.

Since the tsunami of credit receded seven years ago, lending conditions have been restricted by the shortfalls of capital on bank balance sheets.

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