Irish bank shares fall after Draghi's warning that sector still has problems
IRISH bank shares have fallen after the president of the European Central Bank (ECB) gave the latest warning that problems remain in the sector.
ECB chief Mario Draghi said a number of outstanding issues remain to be addressed in the Irish banking system – including the "still very large stock" of problem loans, completion of banks' restructuring and reform and ensuring what he called the "viability of all nationalised banks."
Following mergers and bank closures, AIB (which includes EBS) and Permanent TSB are the only remaining nationalised banks. Both are still waiting for European sign-off on their ultimate restructuring plans.
Mr Draghi's comments were contained in a letter to Fianna Fail's finance spokesman Michael McGrath, in response to his earlier letter to the ECB boss.
"Resolving these issues will be crucial in order to ensure the emergence of a sound banking sector that will support the domestic economy in the coming years," Mr Draghi wrote.
On Friday, rating agency Moody's warned that Europe- wide "stress testing" of the banking system later this year could potentially see banks here with capital shortfalls.
In that scenario, Bank of Ireland might be able to raise money on the markets, according to Moody's – but the other banks could face challenges raising cash. Ultimately that could see them falling back on the "system" meaning taxpayers, or "bailing in" investors by allowing losses to fall on bond holders, for example, according to the report.
AIB, Bank of Ireland, Ulster Bank and Permanent TSB, and the Irish-based operations of global bank Merrill Lynch, will be "stress-tested" as part of European-wide probe of banks carried out by the ECB later in the year.
The stress test process is aimed at uncovering any hidden risks or losses in the banks by the end of October, before the ECB takes responsibility for overseeing them in November.
Domestic Irish banks went through so-called asset quality reviews (AQR) late last year as a prelude to the main tests.
Mr Draghi pointed out that the stress tests this year will be different from the AQR, looking not just at the strength of banks' at one moment in time, but also at their ability to cope with a further financial shock.
Mr Draghi said any further details on the results of the AQR would have to be released by the Central Bank.
Shares in Bank of Ireland closed down 4pc yesterday, slipping below 30 cents each. The bank's shares have fallen by around 25pc since the end of February. Shares in AIB closed down 4.6pc yesterday, at 14.5 cents each.