AIB, Bank of Ireland and Permanent TSB will likely report a combined €2bn in soured loan provisions and generate €1bn in losses this year but the outlook will likely be less grim than appeared at the height of the economy-wide lockdowns, according to broker Davy.
All three banks, which to a larger or lesser degree are owned by the Government, are preparing to report the first effects of the Covid-19 fallout on their loan books when they report half-year earnings in the first week of August.
The earnings are closely anticipated for the commentary of the bank chiefs on how quickly they expect the Irish economy to recover from the severe and sudden economic slump.
Financials analyst Stephen Lyons at Davy said that the bank chiefs may likely decide to set aside large amounts of loan-loss provisions this year to take account of the Covid-19 stress caused to households and businesses and the rebound in their financial health may be sharper next year than thought a few months ago.
The Government’s credit-guarantee scheme could play a part in the recovery of the banks and for the economy as a whole, if the scheme's interest rates and terms are attractive to both borrowers and lenders, Mr Lyons said.
Many economists and business groups have urged the Government to hugely expand its €2bn credit-guarantee scheme to meet the needs of small businesses with zero-interest rate loans, after an overhaul made an equivalent scheme in the UK hugely successful.
Davy forecasts the lenders' losses are based on the early weeks of the Covid-19 lockdown.
AIB will report €466m in impairment charges for the first six months and a net loss of €170m, according to Davy.
For the full-year, AIB will have impairment charges of €917m and post a net loss of €538m, the broker says.
Bank of Ireland will report a net loss of €290m for the first six months, Davy says.
For the full year, the bank will have impairment charges of €1bn and a net loss of €453m. It sees Bank of Ireland generating a net profit of €97m in 2021 and €328m of profit in 2022.
Permanent TSB will post a net loss of €26m in the first six months and a loss of €63m for the full year, Davy says. It sees the bank posting impairment charges of €108m this year and €72m in 2021.
Meanwhile, DBRS Morningstar forecasts Irish GDP will fall 5.5% and unemployment will average 9.5% this year under its “moderate scenario” for the disease.
However, GDP slides 9% and unemployment averages 14% under an “adverse scenario” which assumes some localised outbreaks in parts of the world early next year.
“Although Europe appears to be in a relatively good place with regard to disease containment, we have revised 2020 growth further downward for a few of the countries hardest hit by the initial wave of cases, namely Italy, Spain, France, and the UK,” Morningstar said.
"Spain has also had some renewed clusters of COVID-19 infections, centered in the Catalonia and Aragon regions, which may further damage the tourist season," the ratings firm said.