Risk Weights on Non-Financial Corporate Lending by Irish Retail Banks

Paul Lyons and Jonathan Rice
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Paul Lyons: Central Bank of Ireland

No 4/FS/22, Financial Stability Notes from Central Bank of Ireland

Abstract: Risk weighted assets reflect the risk profile of a bank’s lending. In this Note, we look at the risk weighted assets of the non-financial corporate (NFC) exposures of Irish and European banks. We find that Irish NFC risk weights are higher than those in most other European countries. Factors that explain these higher risk weights include the measurement approach used and the higher default rates for Irish NFC loans, particularly during crisis periods. Overall, the evidence suggests that the current risk weights on Irish NFC lending are reflective of the relatively higher risk of Irish retail banks’ NFC exposures.

Date: 2022-06
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