S&P improves outlook on raft of Irish banks

Ratings agency warns it isn’t ‘overly optimistic’ on future prospects for banking system

S&P cautioned against the “potential for economic imbalances if the brisk rate of house price inflation persists. Photograph: iStock

S&P cautioned against the “potential for economic imbalances if the brisk rate of house price inflation persists. Photograph: iStock

 

Ratings agency Standard and Poor’s (S&P) Global said its outlook improved on a raft of Irish banks but warned that it isn’t “overly optimistic” on the future prospects for the country’s banking system as a whole.

S&P raised its “long-term issuer credit ratings” on AIB, KBC Bank Ireland and Permanent TSB, adding that the outlook for each bank is “stable”. The rating assesses the creditworthiness of the various banks.

It also reaffirmed its ratings on Bank of Ireland and Ulster Bank, adding that the outlook on both banks remains “positive”.

The agency’s updated view of AIB, KBC, and PTSB reflected their improved access to wholesale funding and the proactive approach to the sell-down of problematic loan portfolios.

However, S&P cautioned against the “potential for economic imbalances if the brisk rate of house price inflation persists, especially if it becomes credit-fuelled”.

While the annual rate of house price growth has cooled to 8.4 per cent, S&P is forecasting growth of 8 per cent in 2019 and 7 per cent in 2020.

“On this measure, Ireland ranks meaningfully higher than most similar ranked countries,” it said.

Maintain access

Additionally, S&P said it is “mindful of the potential risks to Ireland from its close trading partner, the UK, leaving the EU”.

Although the agency flagged that the stock of non-performing loans remains large, it said the fact they have reduced across all banks allows them assume that investors will maintain wholesale funding access for the banks.

On AIB specifically, the agency noted that its stable outlook reflects the expectation that AIB will continue to reduce its non-performing exposures and maintain its market position in Ireland over the coming two years.

Investec banking analyst Owen Callan said AIB’s upgrade to investment grade is an “important milestone for the group given the significant level of non-performing loans that it continues to work to reduce”.

Bank of Ireland, meanwhile, stood unchanged because S&P doesn’t “believe that its greater geographic diversity relative to Irish peers sufficiently adds to the improved Irish industry risk assessment”.

Nonetheless, the “positive” outlook reflects the bank’s “superior asset quality track record relative to domestic peers”.