Sunday 17 December 2017

No downgrade now as Fitch endorses stress-test results

Peter Flanagan

THE results of the Government stress tests received an endorsement last night, after one of the main ratings agencies said it no longer expected to downgrade Irish debt in the near term. Fitch, the smallest of the "big three" ratings agencies, said it had removed the country from "ratings watch negative" and reaffirmed Ireland's BBB+ rating, three grades above non-investment grade. The outlook remains negative, however.

In a statement, the agency said the Government Prudential Capital Adequacy Review (PCAR) "offers a credible assessment of the additional capital that Irish banks will require to absorb potential further credit losses".

It is too early to say whether the capital injections arising from the PCAR will stabilise banks' funding positions, however. Fitch described the banks as "an ongoing source of concern". The firm's Douglas Renwick described the stress tests as "credible" but warned that the country was not on the road to recovery by any means.

Despite cutting its growth forecast for Ireland last year, the agency said it expects a recovery to emerge in the latter part of this year and into 2012. The economy will expand at a rate of 2.5pc over the medium term. Gross Government debt to GDP is projected to peak at 116pc in 2013 and 2014, gradually declining thereafter.

The agency warned, however, that although the debt could be stabilised Ireland could be vulnerable to "adverse shocks".

"In the absence of a sustained economic recovery, debt could continue to rise and Ireland's sovereign credit profile and rating could deteriorate accordingly,"it said.

Fitch's statement was a fillip to National Treasury Management Agency chief executive John Corrigan, who pointed to the lowering yield on Irish bonds as proof of market approval.

"Market reaction to the stress tests and the recapitalisation has been positive," he said.

"The banking cost has been quantified and investors can now analyse whether Ireland can cope with the extra burden. In that regard debt sustainability is the key question and stabilising the debt ratio is of crucial importance," Mr Corrigan added.

Irish Independent

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