Business Irish

Sunday 25 March 2018

Fitch says Irish banks' outlook is good despite problem loans

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Colm Kelpie

Colm Kelpie

The outlook for the Irish banking sector is positive, based on ongoing improvements in the banks' asset quality, business prospects, profitability and capitalisation, ratings giant Fitch has said.

Fitch said the positive outlook partly mitigates the high proportion of problem loans, including either non-performing or low yielding loans as well as restructured impaired or defaulted, that are still on the banks' balance sheet.

The ratings agency said it expects the improvements in profitability seen this year to stabilise in 2016, as new lending growth at firmer margins, and low loan impairment charges and funding costs are counterbalanced by lower gains on sale on securities.

"We expect improving asset quality to be supported by continued restructuring of problem loans and large asset disposals, although the pace of the latter is subject to continued investor appetite," Fitch said. "Capital ratios have risen steadily across the sector, as a result of deleveraging and improved internal capital generation and we expect this trend to continue in 2016."

Meanwhile, Moody's Investor Service said the Irish prime residential mortgage-backed securities (RMBS) market continued to improve in the three-month to the end of October.

"Low interest rates and declining unemployment have supported transactions' performance," lenders said.

It added that "enders' forbearance measures also contributed to lowering arrears, which will nonetheless stay high".

It warned that arrears of more than 90 days in Irish RMBS will not drop markedly until "the incentives to moral hazard are reduced" and "severely delinquent loans are repossessed or resolved in other ways, such as by debt forgiveness".

"The rapid rise in Irish house prices could be an indication of over-heating, but the more likely explanation for the increase is a quicker recovery following the market's more dramatic fall in 2008-12 relative to other European countries," Moody's said.

It comes just a day after AIB chief executive Bernard Byrne said AIB is ready to be floated on the public markets and it is up to the Government to decide the timing of an IPO. Mr Byrne said market sentiment to Ireland was "very friendly" at present and warned sentiment can turn quickly.

He was speaking after AIB shareholders backed a capital reorganisation plan that will see the lender repay the first tranche of its bailout funds to the Government.

Irish Independent

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