UPDATE 1-Irish banks have enough capital to absorb severe shock - central bank

* Capital would fall to 8% from 18.5% in adverse scenario

* Adverse forecasts include rolling lockdowns through 2021

* Counter cyclical capital buffer to remain at 0% in 2021
(Adds details, quotes)

By Padraic Halpin

DUBLIN, Nov 26 (Reuters) - Ireland's retail banks have
sufficient aggregate capital to absorb shocks materially worse
than baseline projections that already forecast a no trade deal
Brexit, a new assessment by the country's central bank showed.

The regulator helped banks to support the economy through
the COVID-19 pandemic by cutting the amount of capital they must
set aside to protect against future risks to zero in April, and
said on Wednesday it did not intend to increase this counter
cyclical capital buffer (CCyB) in 2021.

The adverse scenario in the new study predicts a prolonged
period of COVID-19 disruption through most of 2021 similar to
the lockdown implemented earlier this year, a
slower-than-expected recovery of the global economy and the
potential for banks to amplify the downturn by tightening
lending standards.

Ireland's government intends to end six weeks of strict
COVID-19 restrictions next week, reopening non-essential
retailers and potentially parts of the hospitality sector

"The response of the banking system itself will shape
eventual outcomes. Banks should use the extraordinary policy
support being provided to maintain a sustainable supply of
credit to businesses and households through the recovery,"
Central Bank Governor Gabriel Makhlouf told reporters.

The combined transitional core equity tier 1 (CET1) capital
ratio of Ireland's banks - whose reckless lending pushed the
country into an international bailout a decade ago - would fall
to 12.6% under the baseline scenario and 8% in the adverse
scenario from 18.5% currently, the assessment showed.

The central bank also said on Thursday it did not intend to
begin phasing in an extra layer of capital requirement - the
so-called systemic risk buffer - during 2021.

It will also leave mortgage-lending limits unchanged for the
third straight year in 2021, saying they meant the financial
system was better prepared for the COVID-19 shock compared with
previous crises.

The central bank warned the ability of many firms to survive
would depend on being able to restructure pre-existing and
pandemic-related liabilities, noting the share of small and
medium-sized firms with cash holdings insufficient to cover
three months' operating expenses had doubled to 16% in the
pandemic.
(Reporting by Padraic Halpin; Editing by Jon Boyle and Mark
Potter)