Irish banks are still a good bet for investors, with Bank of Ireland and AIB on course to deliver growth in their share price, according to Davy Stockbrokers.
A report by Davy, which is owned by Bank of Ireland, dismisses fears about the asset quality of the Irish banks, driven by fears that the property market is overheating.
Irish banks have been beneficiaries of the strong economy in recent years. This has led to huge growth in lending and bad debts are at a record low. Davy believes the economic environment will continue to be favourable for the banks, although the rate of growth will be slower.
An examination of the banks' loan books, and stress testing them to see how well they can stand up to sharp rises in interest rates or a significant downturn in house prices, suggests the banks are well placed to weather even extreme pressures.
In its worst-case scenario, AIB's earnings could fall by 22 per cent, while Bank of Ireland's could drop by 19 per cent. Even so, credit ratings on Irish banks would not rise above the European sector average, according to the brokers.
This reaffirms its view that Irish banks offer good potential for share price appreciation. Davy forecasts that Bank of Ireland shares have the potential to rise to €11.40, while AIB could rise to €14.40.
