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Central Bank deputy governor warns it will take years for commercial property issues to ease

Sector has endured ‘very big shock’, says Central Bank of Ireland deputy governor

Central Bank deputy governor Sharon Donnery has a reputation for being one of the more cautious supervisors on the European regulatory landscape. Photograph: Sam Boal/RollingNews

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Tue Jul 2 2024 - 06:00

Sharon Donnery may be heading to the exit door from the Irish Central Bank at the end of the summer, but until then she remains a key figure in Irish financial regulation as deputy governor and her role in European regulation is only growing in advance of her move to the European Central Bank later this year.

In an interview with Bloomberg News on Monday Donnery gave a renewed warning on the downturn in the commercial property market across Europe, noting it has years left to run. “There’s been a very big shock,” she told Bloomberg’s Nicholas Comfort. “I think it’s going to be a couple of years” until that is digested, she added.

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Donnery has long had a reputation for being one of the more cautious supervisors on the European regulatory landscape, but that is both understandable and no bad thing. After all, do you really want a gung-ho regulator of a sector which time and again needs to be saved from itself?

She also warns that banks need to be particularly “forward-looking” on the issue and take a “very robust approach” to provisioning for bad loans tied to the sector. This is perhaps where experience comes to the fore. While new Minister for Finance Jack Chambers was still a teenager when the property crash kicked off in earnest back in 2008, Donnery was entrenched at the centre of the crisis. That experience is feeding her view on commercial real estate now and she sounds a warning at the lack of institutional memory in other countries that didn’t endure the same level of crisis as back then.

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“If you’ve been through a big issue before, you’re more likely to have looked at your systems and controls, and if your supervisor has been a big through a big issue, they are obviously very alert to what’s going on,” she said. “There are banks in some particular jurisdictions that have maybe not had as significant a focus on this.”

It’s hard to argue with that perspective.

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