A report from the Central Bank has again warned about high debt levels, though it is now less worried about the possibility of a sharp fall in house prices.
The bank's 2005 Financial Stability Report says the banking system is in a good state of health, and is well placed to cope with pressures from any shocks to the economic system.
It says the risk of a sudden fall in house prices, identified in last year's report, may have receded, though it cannot be altogether dismissed.
But it says a 'sharp correction' in the domestic building sector cannot be ruled out.
This could affect employment and growth in the wider economy, and would also have a significant impact on the public finances.
The report warns, however, that the main vulnerability is the 'high and growing level of indebtedness'.
It says debt levels have accelerated since last year's report, with all categories rising at rapid rates. Ireland's ratio of private debt to economic output is moving close to the top of the European league.
The bank says residential mortgage lending accounts for around 80% of household debt.
It says slowing house price growth and lower levels of house building over the next few years should contribute to a slowdown in mortgage credit growth. 'Concern will remain until evidence of this emerges,' it says.
The report says the high proportion of bank lending linked to property raises some concerns. It adds that although the lending is spread across different sectors of the property market, these could all be affected if there were a serious and widespread downturn.
