Tuesday 23 May 2017

No guarantee of ratings upgrade for Irish banks - Fitch

Fitch pointed to data released by the European Banking Authority in November which showed that Irish banks were among the EU's most active in reducing stocks of non-performing loans. Photo: iStock
Fitch pointed to data released by the European Banking Authority in November which showed that Irish banks were among the EU's most active in reducing stocks of non-performing loans. Photo: iStock
Colm Kelpie

Colm Kelpie

Fitch's upgrade of Ireland's credit rating does not automatically mean Irish banks will get one as well, the ratings agency said.

The banks' asset quality is a hindrance to an upgrade in the short-term, Fitch said.

"The ratings gap between the sovereign (A/Stable) and the banks is considerable: four notches for BOI (BBB-/Positive) and five for AIB (BB+/Positive)," Fitch said.

"Asset quality is the key vulnerability for these banks and working through the €30bn backlog of impaired loans will take time. In the meantime, this vulnerability constrains their fundamental creditworthiness."

But it argued the banks have made good progress in reducing their stock of bad loans and predicted this would continue.

Fitch pointed to data released by the European Banking Authority in November which showed that Irish banks were among the EU's most active in reducing stocks of non-performing loans.

"Our view is that the medium-term growth potential of the Irish economy is 2pc-2.5pc, which should provide a more favourable backdrop for banks' continued working-out and offloading of impaired asset," the agency said.

Fitch said the chief reason behind the sovereign upgrade to A from A- last week was the improving public debt. Government debt as a percentage of GDP continues to fall, it said, to below 100pc at the end of last year from a 120pc high in 2012.

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