S&P says banks pose less of a risk to economy

The Irish banks pose less of a risk to the wider economy as the sector is buoyed by robust growth, according to Standard & Poor’s.

The ratings agency upgraded the outlook for Bank of Ireland from negative to positive, while affirming its ‘BB’ rating.

The other domestic banks had their ratings reaffirmed. S&P maintained Permanent TSB’s CreditWatch with negative implications on its ‘B+’ rating.

AIB has a ‘BB’ rating with a negative outlook and Ulster Bank has a ‘BBB’ rating with a negative outlook with the agency.

S&P lowered the bank sector’s economic risk score from 7 to 6 as the imbalances that led to the crisis are gradually corrected.

“The rating actions reflect our view of decreasing economic risks for Irish banks. We believe that banking system credit losses resulting from Ireland’s continued correction of economic imbalances accumulated before the crisis are declining and will pose less of a risk to sector profitability over the next two to three years than we had previously anticipated,” said S&P.

However, the sector faces many challenges and still has a long way to go before it establishes a track record of pre-provision profitability and a moderate appetite for risk, added S&P.

The agency noted loan losses at the banks continue to decrease. Moreover, profitability across the sector will be enhanced by tax loss writebacks over the next few years.

The two pillar banks — AIB and Bank of Ireland — passed the ECB’s comprehensive assessment of the banking system announced last month. PTSB failed the stress tests and has to raise €200m to plug a capital hole.

The economy continues to improve and is on course to posting the fastest growth rate among the 28 EU members states over the next two years.