CREDIT rating agency Moody's has warned that the future for Irish banks remains bleak.
The rating agency said its outlook for the banks has remained unchanged since 2008 because the Irish banking system has not stabilised.
Moody's said Irish banks will remain under pressure over the next 12 to 18 months because of the mortgage crisis, the continued dependence on Central Bank funding, and weak profitability and internal capital generation.
Moody's added that Ireland's growth prospects remain weak because of budget cuts, on-going deleveraging in the private sector and subdued external demand.
"Additional factors that will exacerbate the banks' challenging operating environment and constrain a return to banking stability are the uncertain economic outlook for key trading partners, especially the UK and the euro area, and the ongoing euro area crisis," Moody's said.
The rating agency said that ongoing liquidity support from the European Central Bank (ECB) remained vital and that the removal of the bank guarantee will provide further evidence of the recovery. It said that while the removal could lead to some people taking out their money, it does not expect this to be substantial.
Moody's also said that it expects bank asset quality to remain weak as it will likely take banks several more years to fully resolve the legacy issues from the crisis.
Credit rating agency Fitch raised the viability rating for Bank of Ireland by one notch to 'B' earlier this week.
The rating for AIB was raised to 'B-'. Permanent TSB's rating was cut to 'CC'.
Viability ratings are one of the measures considered in the main issuer default ratings of the banks.
They are based on the standalone credibility of each bank.
Fitch also yesterday assigned AIB Mortgage Bank's (AIBMB) Series 24 €500m bond an 'A' rating with a negative outlook.