Business Irish

Thursday 23 November 2017

Moody's warns of further bailouts if banks fail to come clean

Donal O'Donovan

Donal O'Donovan

MORE money will have to be found to cope with losses at the banks, Moody's rating agency has warned.

The gloomy warning for banks in Spain, the UK and Ireland comes as the agency said that many banks were still not coming clean about the extent of their bad loans.

"We believe that many banks, in particular in Spain, Italy, Ireland and the UK, require material amounts of additional provisions to fully clean up their balance sheets," Moody's said in its global banking outlook for 2013.

"Some banks have in recent years delayed full recognition of embedded loan losses, partly by restructuring loans," the report said.

Parts of the report echoes last week's complaint by the Central Bank's Fiona Muldoon, who said banks were still not being realistic about debts that would never be repaid.

"This strategy of buying time (often tolerated by regulators) limits a bank's capacity for new lending and poses risks for creditors of European banks," Moody's said.

The report was short on detail and gave no indication of just how much the banks could need.

"There is a lot of uncertainty still around the banks, but it is possible that AIB in particular will overshoot its adverse scenario (the worst case predicted when the strength of the banks was last thoroughly tested)," according to Emer Lang of Davy Stockbrokers.

Even if loan impairments rise, this could be mitigated by better news in other parts of the banks, including better-than-expected results from sales of non-core assets, Ms Lang said.

However, getting to grips with the extent of loan losses remained difficult, she said.

The Financial Regulator here is understood to be conducting a "deep dive" to examine the quality of loans made in the boom years to small and medium enterprises (SMEs).

The personal insolvency regime will have an impact on mortgages, but it's not yet clear how that will play out.

New stress tests that will include an external probe of each of the banks' assets are scheduled for later this year, probably in September.

The Central Bank is expected to bring out some of its own research in the meantime, and BoI and AIB will publish their own financial results in March.

With some many unknowns remaining each set of data will be scoured for signs of either weakness or growth.

Moody's believes 2013 will be a volatile year for Europe's banks, but expects their credit ratings to remain relatively stable after a raft of downgrades in 2012.

Irish Independent

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