Moody's Expect Irish Banks To Continue Non-Performing Loan Sell-Off

LONDON (Alliance News) - Moody's Investor Service on Thursday said Irish banks will "likely ...

Alliance News 8 November, 2018 | 6:33PM
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LONDON (Alliance News) - Moody's Investor Service on Thursday said Irish banks will "likely continue their shift" towards the sale of non-performing portfolios in order to meet the European Central Bank's expectations.

Moody's believe Irish banks will continue on this course due to legacy mortgage arrears now accounting for most of their remaining non-performing loans.

"The largest Irish lenders will need to shed about EUR9 billion of problematic exposures to bring their ratios of non-performing loans to gross loans into line with the European average, which has now fallen below 4%," said Roland Auquier, Moody's assistant vice president.

Moody's noted that the legacy mortgage arrears take a long time to resolve internally in Ireland due to legal constraints on home repossessions.

Auquier continued: "In our view, banks will further sell non-performing portfolios, given the high share of mortgages within their remaining stock of non-performing loans."

Moody's estimate Irish banks non-performing loans accounted for 9.2% of total exposures, which is expected to drop to 8% by the end of 2018.

"This process is already under way, with several Irish banks selling portfolios of problem loans, including mortgages, during the first half of 2018," said Auquier.

Moody's believe further disposals will be supportive of a "more rapid improvement" in the creditworthiness of Irish banks, reflecting the "faster improvement" in asset quality and "freeing up more capital than could be achieved through internal restructuring alone".

The credit analyst noted non-performing loans have fallen across all asset classes but the warned the pace of decline for residential mortgages "has been much slower" for residential mortgages than for other loan categories.

Moody's added: "As a result, residential mortgages are now the single biggest category of problem loans for Irish banks, accounting for over half of the stock."

In October, Moody's boosted its outlook for the Irish banking sector to Positive from Stable as asset quality was improved through restructuring and disposals, as well as ongoing economic growth.

The credit analyst noted that Ireland reported real gross domestic product growth of 7.2% in 2017. Although this is expected to slow to 5.0% and 3.5% in 2018 and 2019, Moody's explained, it still displays "sustained" economic growth driven by "strong increase in exports and productivity gains".

With close trading links with the UK, Moody's did highlight that the impending exit of the UK from the European Union creates "uncertainty". Nonetheless, the credit analyst believes the impact of this on Irish banks was likely to be "contained".

By Paul McGowan; paulmcgowan@alliancenews.com

Copyright 2018 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article
Security Name Price Change (%) Morningstar
Rating
AIB Group PLC 3.70 EUR -4.64 -
Bank of Ireland Group PLC 6.42 EUR 1.18 -
Permanent TSB Group Holdings PLC 1.87 EUR 0.11 -
AIB Group PLC 3.88 EUR 0.47 -
Bank of Ireland Group PLC 6.48 -
Permanent TSB Group Holdings PLC 1.87 -
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