Irish banks at less risk with loan books set to grow, says S&P

Economic risks have decreased for Irish banks despite a large stock of non-performing loans and the still-high level of mortgage arrears, according to a new report from ratings agency Standard & Poor’s.

The agency, which has revised its economic risk score for Ireland to “5” from “6”, said brisk economic growth and a sustained recovery in property prices were helping to reduce past economic imbalances.

“We now believe that the Irish economy has moved into an expansionary phase from a correction phase. Over the next two to three years we assume relatively robust economic growth and continued property price inflation,” it said.

The agency, which also revised its “economic risk trend” rating for Ireland to stable from positive, said 2016 was likely the last year of material loan book deleveraging with growth expected to turn positive by 2018.

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Non-performing loans

S&P said while it expected to see a further reduction in non-performing loans – from 16 per cent last year to about 12 per cent in 2018 – this will be limited as the remaining stock represents the more difficult cases.

While non-performing loans are down from a peak of about 35 per cent in 2013, the agency said legal bottlenecks and the slow process of creditors being able to recover collateral were acting as hurdles to a rapid reduction.

According to S&P's latest EMEA Financial Institutions Monitor, overall credit conditions in Europe are encouraging despite political risks remaining high.

“The economy has been resilient and performed stronger than we expected in 2016. Consumer confidence indicators across Europe remain largely in positive territory. Inflation is also picking up (albeit primarily due to external factors), holding out the possibility of a gradual reduction in monetary stimulus sometime in the future,” the report says.