Ireland is among fifteen countries which ‘display troubled credit quality’, according to Standard & Poor’s in its latest report on ‘Global financial system stress’. The Irish economy ‘continues to show signs of overheating’ and despite higher disposable incomes, ‘some segments of the private sector are continuing to rely on strong income growth to maintain debt affordability’ says the international ratings agency.
In its report, S&P groups Ireland in a second tier of countries with ‘gross problematic assets’ of 10 to 20 per cent of domestic credit to the private sector and non-financial public enterprises. Other European countries in this group are Austria, Finland, Italy, Norway, Portugal and Spain.
While the engagement of banks in more proactive risk management, including greater use of stress testing, is ‘positive’, S&P says it ‘does not offset concerns about the continued growth in private sector leverage’.
The other fifteen countries with troubled credit quality include the Netherlands, which has seen rapid private sector credit growth, the United States, Japan, the Czech and Slovak republics.
The agency says gross problematic assets are estimated in a reasonable worst-case economic scenario with the assumptions behind the cases considered ‘severe’. S&P says it expects that most of the fifteen countries in its report ‘will not experience such conditions in the coming year’.
S&P notes that private sector credit growth in Ireland has been 24.5 per cent in the year to end-May 2000, down from 30 per cent in the year to March 31, 2000. Credit to the private sector and non-financial public enterprises is now an estimated 96 per cent of GDP, up from 69 per cent of GDP in 1994, the rating agency says. It is estimated to have been 111 per cent of GNP for 1999, S&P says.
This contrasts with a ratio of to GDP of 131 per cent in the Netherlands, 124 per cent in the UK and 142 per cent in the US and 174 per cent in Switzerland. The long term rating of bonds of each of these countries is AAA, higher than Ireland’s AA+ rating. |
