Moody's maintains negative outlook on banks

CREDIT RATING agency Moody’s has maintained a negative outlook on the Irish banking system, following the announcement of the Government’s bank recapitalisation programme of up to €10 billion, saying it does not expect the banks’ debt ratings to be upgraded as a result of the plan.

The agency, which assesses the ability of banks to meet their financial obligations, said it viewed the proposal as “a positive development” but did not expect that it would lead to “wholesale rating upgrades in the sector”.

Moody’s said that the Irish banks would benefit from “similar overall support packages as banks in the UK and certain other jurisdictions”.

“Assuming that the Irish Government does provide capital, then the banks are likely to need to comply with certain conditions set by the Irish Government that Moody’s would expect would include their executive compensation policies, as well as commitment to continue lending at a certain level,” the agency said.

Moody’s said that it viewed a capital injection into the six guaranteed financial institutions – Allied Irish Banks, Bank of Ireland, Irish Life Permanent, Anglo Irish Bank, EBS and Irish Nationwide – as “credit positive” given the pressures facing them.

However, the agency said this and any possible mergers in the market would “need to be weighed against the current downward rating pressures from the difficult operating environment, higher medium-term funding costs and the high exposures to real estate.”

Moody’s said the banks had entered the downturn with “relatively low capital bases given their large real estate exposures” and that the financial turmoil is pressuring the funding of the banks.

The agency said the recession would lead to more corporate failures which would hurt the banks’ corporate lending books.