Moody’s downgrades its outlook on Ireland’s banking system

Ratings agency Moody’s has downgraded its outlook on Ireland’s banking system to “stable” from “positive” as the banks continue their gradual clean-up of problem loans.

The agency’s downgrade come as the banks “consolidate their balance sheets and capital positions...helped by positive but slower economic growth”.

“Our stable outlook for Ireland’s banking system balances the country’s improving operating environment and steady asset risk and funding conditions against a more challenging picture for profitability and efficiency,” said Irakli Pipia, a Moody’s vice-president.

Over the outlook horizon Moody’s believes that Ireland’s economic growth is likely to stem the inflow of new problem loans, while it noted that the majority of the remaining problem loans were residential mortgages. While the country’s stock of problem loans remains high compared to European peers, the ratings agency expects the ratio of problem loans to continue to decline, albeit at a slower pace.

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On the Irish economy, Moody's expects Irish GDP growth to moderate, but it still anticipates that Ireland will outpace most of the euro area over the next 12 to 18 months due to export growth and a strong multinational corporate presence.

Moody’s warned that Irish companies and households were vulnerable to higher interest rates as private debt remained “relatively high”.