Moody’s positive on Irish banks as it sees impact on them from Brexit ‘contained’

Credit ratings firm Moody’s has raised its outlook for Irish banks to “positive” as the quality of their loans improves with a growing economy. The ratings agency expects the impact on the sector from Brexit likely to be “contained”.

"The change in the outlook on the Irish banking system is driven by our expectation that asset quality will improve as the economy continues to grow, and banks restructure and dispose of problem loans," said Roland Auquier, an analyst with Moody's, which previously had a "stable" outlook on the sector.

Moody’s sees Irish economic growth – measured by gross domestic product (GDP) – moderating to 5 per cent this year and 3.5 per cent in 2019 from 7.2 per cent in 2017.

"While the United Kingdom's vote to leave the European Union creates uncertainty given its close trade links with Ireland, Moody's expects the impact on Irish banks to be contained," Moody's said.

Ex-Bank of Scotland mortgage filings reveal extent of risky interest-only loans

---

Half of Central Bank's Brexit applications from asset managers

---

Mortgage hunters: Time to look beyond the five main banks?

---

JP Morgan to pay $5.3m over allegations of violating sanctions

---

Bank of Ireland is the most directly exposed Irish lender to the UK, which accounts for about 40 per cent of the group's loan book. However, the wider industry would be affected by the knock-on impact of a UK economic slowdown on the Republic. EU leaders will meet next week for crucial talks on Britain's exit from the the union.

Meanwhile, the Republic is among the main euro-area banking systems in focus as the European Central Bank presses lenders to lower their non-performing loans (NPLs) to the 5 per cent EU average. At the end of June, the Irish NPLs averaged 13.9 per cent, according to Moody's.

Agreed deals

AIB and Permanent TSB, both more than 70 per cent State-owned, have agreed deals to sell €3.2 billion of NPLs between them so far this year. Bank of Ireland indicated in July it is considering selling of its remaining soured loans, while Belgian-owned KBC Bank Ireland and UK-owned Ulster Bank have also moved to sell NPLs this year.

Central Bank governor Philip Lane told the Oireachtas Finance Committee last Thursday that loan sales "can play an important role in transferring risks from the banks to other types of investors, which reduces the vulnerability of the Irish banking system".

Moody’s said that Irish banks, which suffered multibillion-euro deposit outflows and the loss of access to bond markets at the height of the financial crisis, have “maintained a sustainable funding profile in recent years by deleveraging their balance sheets, reducing their reliance on Central Bank funding and increasing their reliance on customer deposits”.