Moody’s warns over bank markets

CREDIT ratings agency Moody’s has warned that Irish banks could remain outside regular inter-bank lending markets if bondholders are forced to share the burden of losses.

Moody’s yesterday downgraded the unsecured senior debt ratings of six Irish banks — AIB, Bank of Ireland, Irish Nationwide, Anglo Irish Bank, the EBS Building Society and Irish Life & Permanent — over concern that bondholders will have to share in the cost of bailing out the country’s banking system.

The agency warned that Ireland’s main banks could remain “locked out” of inter-bank lending markets if the incoming Government imposes losses on the aforementioned debt.

The outgoing Government and the opposition have argued that the banks’ senior debt-holders — who aren’t covered by State guarantees — should bear some of the brunt, in the aftermath of the EU/IMF bailout and the amount of money already pumped into the banking system.

Moody’s said that such a move would make it harder to wean the Irish banks off State and ECB funding.

“The banks are hugely reliant on central bank funding, and that’s not going to go away anytime soon.

“By potentially burden- sharing with senior debt holders, you are obviously potentially putting back the ability of banks to fund again in the market,” Ross Abercromby, Moody’s lead Irish banking analyst said yesterday.

Meanwhile, latest Central Bank figures show that Irish banks’ reliance on ECB funding eased for the second consecutive month in January, with €126bn being borrowed from Frankfurt compared to the €132bn which was drawn down in December.

However, the Central Bank’s ‘special funding’ stood at €51.1bn, as of the end of January.

This measures “exceptional liquidity assistance lending” for the Irish banks, which gives an indication of just how much the State has put into the banking system.