Sunday 21 January 2018

Moody's upgrades rating for AIB and Bank of Ireland

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Gretchen Friemann

Moody's has adopted a more optimistic stance on the credit worthiness of the State's two biggest banks, although the residue of soured loans from the boom era continues to weigh more heavily on Allied Irish Bank than Bank of Ireland.

While Moody's latest report underscores the progress made by both lenders in reducing their non-performing loan portfolios, as well as improving capital buffers and profitability, the agency stressed the overhang of toxic debt remains "sizeable".

The rosier outlook comes as AIB considers how to accelerate the mop-up of its NPLs as it prepares to return to the stock exchange later this month.

It is understood that close to a €1bn worth of troubled mortgages may be offloaded to investors later this year. Sources said the portfolio sale, dubbed Project Redwood, is in its infancy with advisers yet to be appointed. However the strong appetite for a near €400m bundle of toxic buy-to-let mortgages earlier this year has encouraged AIB to consider a larger selldown of legacy debt.

Moody's improved outlook also comes as opinions continue to shift on the valuation of the government's 25pc sell down in AIB. The ratings agency lifted its view on both the banks' long-term debt and deposit ratings.

It upgraded Bank of Ireland's long-term senior unsecured debt by one notch to Baaa1, while the same assessment on AIB's debt resulted in a one-notch rating increase to Baaa2.

Both banks remain many levels from Moody's top-notch triple A rating.

Irakli Pipia, vice president-senior credit officer at the agency emphasised AIB's "higher stock of problem loans, continues to justify a difference in the base line credit assessment of AIB relative to BOI".

One analyst, who spoke on the basis of anonymity, said the upgrade should help boost deposits at the State-owned bank. Bankers working on AIB's €3bn IPO (sceptics predict it will be closer to €2.5bn) cited the NPL burden as one of the key risks associated with the float.

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