DBRS flips outlook on Irish banks to negative amid Covid-19 crisis

Bank of Ireland, AIB and PTSB facing huge challenges, says debt ratings agency

Debt ratings firm DBRS Morningstar has moved its outlook on Bank of Ireland, AIB and Permanent TSB to "negative" as they grapple with the spectres of rising bad loans and decreased lending and other business due to the coronavirus crisis.

"The rating actions reflect an increasingly challenging operating environment in Ireland due to the economic shutdown and market disruption caused by the coronavirus disease pandemic, which is adding pressure to the banks' profitability, asset quality and capital," DBRS said as it became the latest ratings firm to take a more cautious view of the sector.

“Whilst the full impact on the economy and banks remains uncertain, it will depend on the evolution of the outbreak as well as the timeline and the extent of the economic recovery after the lockdown. However, downward rating pressure would intensify should the crisis be prolonged.”

AIB, Bank of Ireland and Ulster Bank set aside more than €500 million of initial loan impairment charges in the first quarter of the year as they eye an expected surge in bad loans. Bank of Ireland and AIB see gross domestic product (GDP), originally projected to grow almost 4 per cent this year, contracting 7.5-8 per cent this year, and unemployment averaging 13.5 per cent.


The loan charge sent the industry into a loss-making quarter for the first time since 2013 – an era when the Republic was still a ward of the bailout troika comprising the EU, International Monetary Fund and European Central Bank.

Small profits

While the mortgage-focused Permanent TSB and KBC Bank Ireland scraped out small profits for the quarter as they held off taking large Covid-19 provisions, they warned that charges will rise as the year progresses.

“We recognise that these banks start the crisis from a significantly stronger position than the previous crisis,” said DBRS. “Since the last crisis, the banks have materially reduced usage of central bank funding and have strong funding and liquidity positions, with all of the banks having a loan-to-deposit ratio below 100 per cent.

“The Irish banks also enter this challenging environment with strong capital levels and sound capital cushions to absorb credit losses. Moreover, the banks have made significant progress in de-risking in recent years, and the level of non-performing loans (NPLs) has significantly reduced from 2014 levels, although the NPL ratios of the banks are still above the average of European banks.”

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times