Irish c.bank increases capital buffer, clamps down on property funds

DUBLIN, Nov 24 (Reuters) - Ireland's central bank increased the amount of capital that banks must set aside as extra protection against future crises and introduced a new leverage limit for property funds to address risks from a growing part of the financial sector.

The bank on Thursday increased the counter-cyclical capital buffer (CCyB) to 1% from 0.5%. It said it still plans to raise it to a target rate of 1.5% by mid-2023 after removing the requirement at the start of the COVID-19 pandemic.

Lenders have a 12-month phase-in period from the time of an announced increase, meaning the initial return to a rate of 0.5% announced in June will only kick in at the middle of next year.

The amount of core tier-one capital that major banks located in Ireland have to hold under another macro-prudential measure - the so-called Other Systemically Important Institutions (O-SIIs) buffer - remained unchanged.

However, the regulator introduced a limit of 60% on the ratio of property funds' total debt to their total assets and said funds should provide for a liquidity time frame of at least 12 months to protect against potential liquidity mismatches.

Property funds have become a key participant in Irish commercial real estate, holding 22.1 billion euros ($23 billion) or around 35% of the investible market, the bank said. They are also more highly leveraged than their European peers, it added.

"As we and other central banks take the necessary steps to bring inflation back to target, there are undoubtedly risks of further asset price falls and, more significantly, potential episodes of disruption in segments of global financial markets," Central Bank Governor Gabriel Makhlouf said in a statement.

"The vulnerabilities accumulated during the period of low interest rates, along with the increasing interconnectedness of the modern financial system, means the full impact of shocks in this period of high volatility is hard to foresee with certainty," said Makhlouf, who is also a member of the European Central Bank's governing council. ($1 = 0.9604 euros) (Reporting by Padraic Halpin; Editing by Edmund Klamann)