Irish banks are “largely recovered” from the crash, ratings agency Standard & Poor’s said yesterday.
However, “scope for profit growth” may be limited because provisions that were made against bad loans during the financial crisis have already been released, and there is now less of that money to come.
Irish banks’ capital and liquidity positions are “both satisfactory and resilient”, the wide-ranging report said.
Bad loans remain elevated, however, and lenders here still have a some way to go to match the levels of creditworthiness of most other Western European banking.
Mortgages arrears which hit extraordinary levels during the recession will remain a drag on Irish banks’ creditworthiness.
The S&P report, titled ‘Getting Back to Where They Once Belonged’, says that the anchor, or starting point for rating an Irish bank is now investment grade, having been speculative grade – known informally as “junk” – for several years until January 2017.
“Full-year 2016 results confirmed our belief that Irish banks will remain profitable and that their balance sheet profiles will continue to improve,” S&P said. Four out of the five main banks were profitable last year, the report notes. The outlier was Permanent TSB, which clocked up a full-year loss driven by a financial hit associated with its sale of non-core UK assets.
The Irish banking sector has “largely recovered” from the “severe ruptures” of the financial crisis, S&P said. The wider Irish recovery is now the main driver of improving creditworthiness. The report also warns on the potential impact of Brexit.
One legacy of the crash is that the level of disclosure by Irish banks about their mortgage books is now unusually high by international standards.
S&P noted that 90pc of Permanent TSB mortgages date from before 2009, compared to 70pc at AIB and 69pc at Bank of Ireland. That suggests PTSB, headed by Jeremy Masding, which also has a greater share of tracker home loans at 63pc of its mortgage book, remains more exposed to the after-effects of the boom than its bigger rivals.
Its significant business in the UK means that Bank of Ireland’s loan book is the “most diverse” .
The combined loan books of AIB, Bank of Ireland and Permanent TSB were 30pc less at the end of 2016 than in 2011.
As a result wholesale funding balances have fallen dramatically, but debt issuance is tipped to rise as existing debt is refinanced with so called ‘bail-in’ bonds to meet new European rules.
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