By Padraic Halpin
DUBLIN (Reuters) - A British withdrawal from the European Union would hurt Irish exports, economic growth and jobs, while the country's financial sector could be significantly impacted, the Central Bank of Ireland said on Tuesday.
Dublin sees the prospect of Britain voting to leave the EU at a promised referendum as a major strategic risk and last month a government-commissioned report found Dublin would have more to lose than any other fellow EU member.
In its first published research on the impact of a so-called "Brexit", Ireland's central bank said the financial sector and economic effects would depend on the terms of any withdrawal agreement and the subsequent evolution of the British economy.
"Analysis undertaken in the Central Bank suggests that Brexit would have a negative impact on exports, GDP and labour market developments in Ireland under a number of different scenarios considered," the bank said in its bi-annual macro financial review.
"The impact on the Irish financial sector, including banks, insurance firms and non-bank financial intermediaries, could be significant if it occurred in a disorderly manner and/or had a large negative impact on the UK (United Kingdom) economy."
The central bank, which is responsible for the supervision of Ireland's financial institutions, said it had engaged with firms across all parts of the sector regarding the risks.
It highlighted the large, mainly property-related exposure Irish banks have to the UK economy which accounts for around 64 billion euros or 21 percent of the country's five retail banks' total assets.
Any slowdown in the UK economy or property market could hurt future growth, loan performance and profitability. The spillover effects to the Irish economy may also be felt through reduced lending to Irish exporters dependent on the British market.
Ireland's insurance sector could also suffer due to the fact that a substantial volume of life and non-life business is written on a cross-border basis between the two countries.
While it acknowledged that Ireland could be a potential home for UK-based financial services firms seeking to relocate in the case of a disorderly exit, the central bank said this could have both significant positive and negative consequences, flagging the risk of new and complex businesses falling under its watch.
"The internal assessment undertaken within the Bank also examined potential implications for the Central Bank's balance sheet in the event of financial market volatility, as well as the impact on the collateral framework and any other developments directly affecting the Bank," the bank added.
"These risks were assessed as being contained under the various scenarios being considered."