Ratings agency Moody’s still expects “substantial” losses on the mortgage books of the banks but believes bank profits will improve when the bank guarantee is removed at the end of this year or next year.
Ross Abercromby, banking analyst at Moody’s, the ratings agency with the most pessimistic outlook on Ireland, said that it will continue to closely monitor the banks’ roll-out of long-term forbearance mortgage products for the worst cases.
The agency will also closely watch the effect of the new personal insolvency regime which paves the way for the write-down of mortgage debt in out-of-court settlements if the majority of the lenders approve.
“We still think that expected losses on mortgage debt will be substantial and incorporate that in our analysis of the banks,” said Mr Abercromby.
Asked how soon the banks could come off the Eligible Liabilities Guarantee and the effect on Ireland’s creditworthiness, he said: “We expect that the ELG will be removed either at end-2012 or in 2013.”
Bank of Ireland took another step to self-sufficiency last week by raising €1 billion on the sale of a covered bond, its first public bond sale in two years.
The Irish banks have tried to wean themselves off the costly guarantee by not automatically applying the guarantee to certain deposits and removing UK deposits from the ELG scheme.
Billionaire US investor Wilbur Ross, a 7.7 per cent shareholder in Bank of Ireland, has said that the guarantee should not be renewed when it expires at the end of the year.
The high cost of the guarantee was “severely impeding” a recovery in the banks, Mr Ross told the Sunday Business Post in a report published yesterday.
