Irish central bank says lenders may need to increase provisioning

DUBLIN (Reuters) - Questions remain about whether Irish banks have the provisions they need to cope with bad loans, particularly to small and medium-size enterprises, the country's central bank said on Friday.

Ireland pumped tens of billions of euros into its banks after a property crash caused their losses to soar. This week, the central bank advised Bank of Ireland to make extra provisions for loan losses.

The bigger-than-expected drop in the bank's capital ratio followed a review of the entire banking sector. Allied Irish Banks and permanent tsb said they exceeded the minimum capital requirements, without giving details.

"Uncertainties remain about whether banks are sufficiently provisioned to cope with the outstanding stock of distressed loans," the central bank said in its biannual macro-financial review.

Ireland's banks are coming to grips with a mortgage crisis that has left almost one in five homeowners behind in payments. But business loans also needed urgent attention, the central bank said on Friday.

It said the level of impaired SME and corporate loans had risen to 27 percent in the third quarter from 24 percent in the quarter before, and that the problem could undercut a tentative signs recovery.

"While the problem of mortgage arrears is the subject of much attention, the rate of distress in the SME and CRE (commercial real estate) sectors is significantly higher," the central bank said.

(Reporting by Padraic Halpin; Editing by Larry King)