Fitch upgrades Bank of Ireland and AIB as profits improve

Fitch, one of the world's three main credit rating agencies, has upgraded its ratings for Bank of Ireland and AIB as both lenders' profitability and asset quality continue to improve.

The agency raised its rating for Bank of Ireland by one level to BBB, which still ranks eight levels below its top-notch AAA stance, saying it views the bank’s “strong domestic franchise and diversified business model across retail and corporate banking and into the UK market as a rating strength for the group.”

While it noted that profitability at the bank is improving as funding costs and loan impairment charges decline.

“However, revenue and profitability remain challenged by muted net loan growth and a still large exposure to low-yielding tracker mortgages,” it said. “We expect profitability to remain under pressure from increasing competition, lower releases of loan loss provisions and increased costs relating to investment in technology and digitalisation.”

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Fitch raised its rating on AIB from junk status to BBB-, or what it calls investment grade, noting that the lender’s level of impaired loans fell to 12.2 per cent of gross loans at the end of June from 14 per cent in December.

“We expect this positive trend to continue over the medium term, albeit at a more moderate pace, as the bank works through smaller exposures – namely residential mortgages,” it said.

Fitch has a “stable” outlook on Bank of Ireland’s ratings and a “positive” one on AIB, suggesting it is more disposed to upgrading the latter again in the near term.