Moody’s questions profits outlook for Irish banks

Low-interest rates will weigh on the profitability of Irish banks even as the Brexit risk to their loans looks “modest”, Moody’s Investors Service said as it lowered its outlook to stable from positive.

“Profitability will decline. Irish banks’ high reliance on net interest income makes them sensitive to low-interest rates,” said the ratings agency.

“High exposure to low-margin tracker mortgages, rising costs due to increased debt issuance, losses from PL (performing loans) sales, and Brexit uncertainty are further headwinds.

Expenses will remain high due to IT costs, regulation, and pending fines.”

Brexit will likely weigh on economic growth but the effects on the banks will “be modest”, it said, as it projected GDP will expand 3.2% in 2020 and by 3% in 2021.

It believes banks will continue to sell off and restructure more soured loans but Central Bank mortgage rules will put some sort of brake on new lending.

Shares in AIB and Bank of Ireland fell by up to 1.4% and Permanent TSB gained 3.4%.