Brexit uncertainty could hurt Ireland’s banks, warns Fitch

UK exit bad for ‘long-term economic growth and political prospects’, agency says

Houses for sale: Fitch predicts that house prices will grow by 3-4% in 2017. Photograph: David Cheskin/PA Wire

Houses for sale: Fitch predicts that house prices will grow by 3-4% in 2017. Photograph: David Cheskin/PA Wire

 

The pressure on growth and political uncertainty likely to follow Brexit could hit the Republic’s banks, according to ratings agency Fitch.

Fitch, which measures the ability of business and organisation to pay their debts, has revised the outlook for Irish banks to stable from positive.

“Brexit is negative for Ireland’s long-term economic and political prospects, putting pressure on gross domestic product growth and creating uncertainty around relations with Northern Ireland, ” the agency said on Wednesday.

The impact of a slowdown in UK growth, sterling depreciation or potential trade barriers on the banks’ operating environment would only become clear as Brexit talks develop, Fitch said.

“A deterioration in the operating environment could slow any improvements in the asset quality and capitalisation of Irish banks,” the agency warned.

Rising house prices

Fitch expects house prices to grow by 3-4 per cent next year, aided by the continuing shortage of properties and the Central Bank’s decision to revise its borrowing guidelines.

Strong demand for commercial property and increased prices have allowed banks to dispose of a large number of their problem loans. Fitch predicts that the quality of their assets will improve next year.

However, though the banks’ capitalisation, which determines their ability to meet liabilities, is improving, it remains vulnerable, Fitch noted.

More improvement in asset quality and capitalisation would improve banks’ risk profiles and could result in the agency upgrading them.

“Although uncertainty as regards the operating environment has increased,” Fitch said, “we believe credit fundamentals will improve in 2017, as the sector continues to work through its backlog of impaired loans.”