Saturday 22 July 2017

Outlook for Irish banks is still ‘negative’ – Moody’s

Irish banks continue to rely on short-term central bank funding from the European Central Bank and in some cases from the Central Bank of Ireland
Irish banks continue to rely on short-term central bank funding from the European Central Bank and in some cases from the Central Bank of Ireland

WEAK funding and very challenging operating conditions means the outlook for the Irish banking system remains ‘negative’, Moody's Investor Service said today.

The 'negative' outlook has been in place since 2008 and continued to reflect the banks' weak funding and liquidity profiles as well as the very challenging operating environment.



The profitability of Irish lenders is also expected to remain weak.



“The substantial weakening in the funding and liquidity profiles of the banking sector is a key driver of the negative banking system outlook,” Moody’s said.



“The banks continue to rely on short-term central bank funding from the European Central Bank and in some cases from the Central Bank of Ireland.”



"We expect the operating environment for Irish banks to remain very difficult over the outlook period, primarily as a result of government's considerable austerity efforts, the continued financial market turmoil in the euro area, and deterioration in the global economic environment," said Ross Abercromby, a senior analyst at Moody's.



Support for the troubled banking sector in recent years has significantly weakened the government’s own credit profile, the agency added.



And the banks now have to deal with the implications of this as the government aims to reduce its debt burden and restore its financial flexibility.



According to Moody's, the substantial reduction in the government's net spending between 2011-2015 is likely to place considerable pressure on the country's recovery prospects.



Last month Moody’s downgraded the deposit rating of Bank of Ireland’s British division amid growing speculation that if the operations encountered problems, the Government there would not provide support.



The banks mortgage division there has is worth about €30bn and its large exposure to the UK, where property prices have also fallen, is perceived as a disadvantage.



Moody's said its decision to cut to Ba1/Not-Prime with a negative outlook from Baa3/Prime-3 follows is general cut in British banks ratings.



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