Moodys upgrade a vote of confidence for EBS

The international credit rating agency, Moodys, has changed its outlook for the EBS building society from positive to stable to reflect its financial strength.

In a new report, the agency said the outlook change reflected the society's continued sound financial position, ongoing ability to maintain a strong market share in the Irish residential mortgage-lending market and good asset quality.

The agency said it has also taken into consideration EBS's five-year strategic investment programme, which is yielding visible benefits in terms of efficiencies and revenue-generating capacity. More specifically it states that this strategic initiative has been reflected in the upgrading of the branch network, the redesign of existing and new products and a review of risk management processes.

Moodys said it believes the society is laying the foundations for more efficient operations in the future. "In tandem with the aforementioned strategic initiatives, the society has also been clearly communicating its commitment to mutuality, which in turn underlines greater strategic clarity" it stated.

While the building society's reliance on income earned from its core savings and lending operations leaves it vulnerable to greater pressure on its profit margins than many of its peers, Moodys suggests it is demonstrating an ability to weather this issue.

Proposed changes in the legislation governing Irish building societies, which are now expected to be adopted in the autumn at best, will help the EBS to broaden and develop its range of products, according to Moodys.

"This in turn should enable EBS to grow its share of non-interest income and therefore contend better with price competition on savings and mortgages," it stated.

The quality of its assets remain sound and Moody's has noted that the EBS's underwriting standards appear to be good.

In the event of an economic downturn, the rating agency would view the society's buy-to-let and commercial portfolios as being the most vulnerable components of EBS's asset book.

"Despite the high rate of growth in house prices in recent years, attendant asset quality risks are mitigated by continuing low levels of unemployment and low interest rate environment," according to Moodys.