Fitch ratings firm: Backlog of €30bn bad bank loans

Irish banks cannot “automatically” expect to benefit from ratings upgrades in tandem with the improved credit worthiness of Irish government debt, ratings firm Fitch said yesterday.

In a glowing report last week Fitch upgraded Ireland’s sovereign debt to an ‘A’ rating, citing strong economic growth and the faster-than-expected fall in the country’s gross debt levels.

However, Fitch yesterday said that it cannot be read that the ‘A’ grade will lead as a matter of course to it upgrading Bank of Ireland and AIB, because the lenders still carry a large “backlog” of €30 billion in impaired loans on their books.

“The banks’ weak asset quality is an obstacle to upgrades in the short term,” Fitch banking analysts said.

Diarmaid Sheridan, financial analyst at Davy Stockbrokers, however, said that Fitch had made similar comments in the past and that the statement may not have a major effect.

In relation to AIB and the prospects for a sale of an initial 25% stake of the State-owned bank by the government later this year, Mr Sheridan said that investors will look at a number of measures, including credit ratings and the outlook for the economy.

Amid the ongoing slump in stock markets, the Irish Examiner last month highlighted the increasing risks that any sale of AIB shares will face this year.

Fitch said yesterday that the gap opening up between the credit ratings for Ireland and those of the banks was now “considerable”.

“Nevertheless, the banks have made good progress in reducing their stock of impaired loans and we think this trend will continue,” Fitch said.