Banks to take €19bn of bailout, says S&P

THE IRISH banks will absorb €19 billion of the €35 billion set aside within the EU-IMF bailout fund for recapitalisation purposes, according to the credit rating agency Standard&Poor’s.

The remaining €16 billion could be used to fund the deficit in the public finances, the agency said yesterday.

The Government had only “moderate capacity” to provide further capital to the banks and liquidity support through the Central Bank.

Bank of Ireland, AIB and Irish Life&Permanent were removed from “creditwatch with negative implications” after the agency said the Central Bank’s recent “PCar” stress tests would be sufficient to cover their potential loan losses.

IL&P was downgraded by one notch to “BB” as its banking model will “remain challenged” and its profitability will be weakened by “its uneconomic tracker mortgage book”.

The agency left the banks on negative outlook, meaning further downgrades were possible.

There is unlikely to be meaningful growth in deposits up to the end of 2013, when the banks must deleverage by €72 billion in loans and other assets, said the agency.

“The banks’ access to wholesale funding, particularly on an unguaranteed basis, will remain very limited right through the 2011-2013 period.”

There has been “modest progress” in the restructuring and deleveraging but the process “will not be easy . . . It remains possible that progress could be delayed and so end up backloaded towards the end of the 2013 horizon,” the agency said, adding the banks may rely on central bank funding.

Standard&Poor’s affirmed Bank of Ireland’s BB+ and AIB’s BB ratings but cut the extraordinary Government support levels factored into the ratings based on the State’s moderate capacity to provide further support beyond the latest €24 billion capital bill.