| Irish banks outperform European peers |
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| The outlook for Irish banks is to remain stable due to strong financial fundamentals, despite environment of slower economic growth. |
Irish banks continue to enjoy higher profitability than European peers a new report on Ireland’s banking system by rating agency Moody’s Investor Service reveals. Ireland is now ranked in 16th position in terms of financial strength of the banking sector.
Highlighting Irish banks’ good asset quality levels, Moody’s outlook for the sector remains stable and it gives the larger banks an average Aa3/B rating, with smaller banks receiving an average A3/C rating.
Despite the fact that weak global equity markets continue to negatively impact the performance of banks’ life insurance arms and the sales of equity products, and banks’ profit growth and lending growth has slowed down, the report states that barring a further downturn in the global economy, the current levels of profitability appear sustainable.
Even with the net-interest margin correction that took place in 2000, profitability for the sector has only dropped slightly over the past few years, and for some banks has even increased says the report.
However, the report forecasts that loan loss provisions are likely to increase in 2003, but underlying asset quality will remain sound, as banks’ domestic lending is heavily weighted towards residential mortgages and is well spread over a number of sectors.
Liquidity levels are also good in the sector, which according to Moody’s is underpinned by Central Bank requirements. The proportion of banks’ short-term wholesale funding continues to increase as loan growth still outpaces deposit growth, although the Government’s special savings incentive accounts (SSIAs) have contributed to higher deposit levels says the report.
According to the report, one of the Irish banking sector’s key strengths is the standard of asset quality. Moody’s foresees few significant changes in the structure of the Irish banking system in the medium term, and expect the two major banks, Allied Irish Bank and Bank of Ireland to continue to command a very high share of banking business, with the remaining medium and smaller players enjoying significant market shares in their key products. |
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| Article appeared in the January 2003 issue.
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