Recovery can be “bumpy and uneven”
Central Bank Governor Gabriel Makhlouf said the economic recovery could be “bumpy and uneven” and some sectors will thrive while others continue to struggle.
He also warned that a lack of housing supply means there is potential for significant house price growth this year and next.
Governor Makhlouf was speaking today during the publication of the Central Bank’s Financial Stability Review.
The Central Bank’s Financial Stability Review broadly examines the risks facing the country’s banks, businesses and households.
The review notes that government support programs have been essential in avoiding or delaying financial distress.
He also notes that unlike the global financial crisis ten years ago, the banking system absorbed the shock of Covid-19 and left the main capital reserve requirements for banks unchanged today.
However, he warns that the viability of some companies will be tested when support is reduced.
He also cautions that public debt is now much higher and vulnerable to a shock if conditions in international financial markets change.
The central bank governor said the full impact of the economic shock from the pandemic is yet to come, and businesses that were not viable before the pandemic “will likely fail” when government support ends.
Gabriel Makhlouf told News at One that the challenge is to manage the fallout from the pandemic in the most effective way possible to avoid exacerbating a difficult situation.
We need your consent to load this rte-player contentWe use rte-player to manage additional content that may place cookies on your device and collect data about your activity. Please check their details and accept them to load the content.Manage preferences
He said banks, lenders and creditors must work in tandem with withdrawing government support to ensure as balanced a return to “more normalcy” as possible.
Mr Makhlouf said the Central Bank expects these lenders to play their role as they once have, offering forbearance and allowing payment interruptions.
He said the supports and actions of banks and other lenders and creditors to date have helped manage the financial distress felt by businesses and households.
The Central Bank’s Financial Stability Review shows that the financial system has the capacity to support households and businesses in crisis, reflecting improvements in the system since the last financial crisis.
Mr. Makhlouf said that a precipice should be avoided in the withdrawal of aid to businesses and households, adding that the government program in this regard until the end of the year is “consistent” with a gradual decrease in aid .
The Central Bank also said today that it is undertaking a review of its mortgage lending rules.
In this context, members of the public are invited to participate in an online survey to give their opinion.
The mortgage measures, first introduced in February 2015, aim to strengthen the resilience of borrowers and the banking sector.
The measures set limits on the size of mortgages consumers can borrow through the use of loan-to-value (LTV) and loan-to-income (LTI) limits.
Governor Makhlouf said the revised mortgage rules will ensure that the rules play a role in addressing ongoing supply issues in the real estate market.
He said the rules have been successful in limiting mortgage borrowing and are designed to prevent reckless lending and borrowing.
“The role of mortgage measures in guarding against household debt overhang and protecting financial stability is clear,” said Gabriel Makhlouf.
“However, as a permanent feature, it is important that we not only maintain the good practice of regularly reviewing the calibration of the policy, but also that we take into account the overall framework,” he said.
“It has now been almost seven years since the introduction of the measures and a review of the framework will allow us to examine the overall approach of our toolbox and our strategy to ensure that they remain fit for purpose. given the constant evolution of our financial situation. system and economy, ”he added.