Agency notes progress of banks

RATING agency Standard & Poor’s yesterday said the country’s two main banks, AIB and Bank of Ireland, have made progress on the financial restructuring in recent months.

In a note, the agency said both banks made progress in recent months on the substantial refinancing of their respective balance sheets.

AIB, which is under pressure to raise €7.4 billion, announced the sale of its Polish operations for €2.5bn to Santander, the Spanish banking giant.

S&P said AIB still faced “considerable hurdles” to get the full restructuring in place before the end of this year. The slower progress at AIB partly reflects the greater complexity of the task, “but we believe that it has now started to execute on its capital strengthening,” S&P’s credit analyst Giles Edwards said.

The effect on AIB and BoI’s financial profiles following their exposure to the collapsed property sector “has been acute,” he said.

That led to high credit losses and the erosion of their capital bases.

Profitability was also seriously undermined, but the commitment of the state to stand behind the two banks “has shown strong willingness to support these highly systemically important institutions,” Mr Edwards said.

Apart from the funding support, the Government has injected capital into both AIB and BoI and has been instrumental in removing their weakest quality loans through asset sales to NAMA.

Mr Edwards said the initial acquisition of loans by NAMA was slow to start, but it has since acquired two tranches of loans and “appears to be on track to complete the process by the February 2011 deadline”.

Bank of Ireland successfully completed its equity capital raising in June, which, combined with a debt management exercise in February, increased equity capital by €3.3bn. It also secured final approval from the European Commission for a restructuring plan that is likely to enable BoI to maintain its strong domestic franchise and useful overseas presence, despite the forced divestment of its New Ireland life assurance business, S&P said.

As the agency expected, progress at AIB has been slower, but it has started to deliver on the €7.4bn of capital raising that the financial regulator would like to see completed before or around the end of 2010.

In a separate development credit rating agency Fitch yesterday downgraded Anglo Irish Bank to BBB+ and also put the bank on negative watch, meaning it could face a further downgrade.

This followed Finance Minister Brian Lenihan’s announcement of the new proposal that will turn Anglo into an Asset Recovery Bank and a Funding Bank.