Fitch: AIB and Bank of Ireland ‘unlikely’ to need more capital

Non-performing loans are likely to have plateaued at Ireland’s two largest banks ahead of the ECB’s comprehensive review, according to Fitch Ratings.

The ratings agency said their latest annual results incorporate some of the observations from the Central Bank of Ireland’s recent balance sheet assessment on loan impairment provisions and risk-weighted assets, leaving them better positioned for the ECB review and well placed to return to sustainable profitability.

"Impaired loans had been increasing steadily since 2008, but fell 3 per cent and 2 per cent year-on-year at end-2013 at Bank of Ireland and AIB, respectively."

However, the ratings agency said resolution of impaired loans is still a risk for Irish banks.

“The central bank published mortgage arrears data last week highlighting that the improving economy and loan restructurings are helping to reduce mortgage arrears, but extremely long-term delinquencies continue to rise.”

Following the Irish central bank’s assessment, Bank of Ireland and AIB are more resilient and unlikely to need more capital, it said.

“However, we still see weaknesses in capital composition because Bank of Ireland’s Basel III common equity Tier 1 ratio of 9 per cent and AIB’s ratio of 10.5 per cent under 2017 rules include perpetual preference shares issued as part of the 2009 bank capitalisation that will be derecognised after 2017,” Fitch said.