Moody’s upgrades top Irish banks as AIB flotation nears

Moody's has upgraded its view of the creditworthiness of Bank of Ireland and AIB as they continue to reduce their bad loans and rebuild their profitability.

The ratings agency raised its rating on Bank of Ireland’s long-term senior unsecured debt late on Tuesday by one level to Baa1, which remains seven levels below its top-notch Aaa stance. It upgraded its stance on similar AIB debt by one level to Baa2.

Moody's said that its more positive view of Bank of Ireland reflected the fact that its problem loan ratio fell to 7.9 per cent at the end of last year from 11 per cent a year earlier, while its "core profitability" had also improved and become less reliant on one-off items.

However, Moody’s said the bank’s level of non-performing loans remained “sizeable”, with a significant level of loans that have had their terms eased, and that the rate of improvement in troubled loans was likely to slow in the future.

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Strategy

The ratings firm noted that AIB’s percentage of soured loans had fallen to 14 per cent from 18.6 per cent last year.

Cantor Fitzgerald’s head of fixed income strategy in Ireland, Ryan McGrath, said the upgrade to AIB’s rating was “very timely” as the Government was in the process of seeking to sell an initial 25 per cent stake in the bailed-out bank as it continues to recover its €20.8 billion rescue bill.

Moody’s also noted that both banks’ level of problem loans compared unfavourably to European peers when measured against total loan loss reserves on their balance sheets. Bank of Ireland ratio of troubled loans to loan loss reserves was 60 per cent at the end of last year, while AIB’s was 69 per cent.

AIB's higher stock of problem loans, "continues to justify" the bank having a lower credit rating than Bank of Ireland, according to Irakli Pipia, an analyst with Moody's.