Recovery from the Covid-19 crisis for Irish banking is not likely to be achieved until 2024, although the carve-up of the Ulster Bank loan books is likely to present "a wild card" for growth for some lenders.
AIB, Bank of Ireland, and Permanent TSB will reveal next week the big hit taken in loan impairments from the Covid crisis so far when they publish their 2020 financial figures.
All three lenders — in which the Government owns majority and minority shareholdings — will report significant losses and likely accelerate plans for cost-cutting, including shutting bank branches across Ireland.
Moreover, the banks are expected only to return to some sort of profitability next year, with their financial recovery gathering pace in 2023, but only reaching pre-Covid levels of profitability in 2024.
However, leading analysts said there was "a wild card" for some of the lenders who benefit from the exit of Ulster Bank from the banking market and the carve-up of its €20bn loan book.
Moreover, the reduction in banking competition will also help to boost the lenders participating in the Ulster sale. Growing their loan books has eluded the banks despite the strong economic recovery from the last financial crisis having begun six years ago.
So far, AIB — which is 71%-owned by the Government — is in pole position to benefit from the €20bn carve-up with a preliminary agreement struck with Ulster parent, NatWest to acquire €4bn in corporate loans.
Permanent TSB, of which the Government owns 75%, is also in talks to acquire a significant amount of Ulster's mortgage as well as small business loans.
Bulking up Permanent TSB to acquire a large slice of Ulster's €15bn mortgage book would likely require the State injecting more money into the lender, as well as possibly diluting its shareholding.
Other banks potentially participating in the carve-up of the Ulster Bank loan books, including Bank of Ireland, in which the Government holds a minority 14% stake, is not known at this stage.
For Irish banking, the road to matching the returns of their European banking peers is likely to take a few years, leading bank analyst at Davy, Diarmaid Sheridan, has said.
Irish banks have battled through headwinds in dealing with legacy loans from the financial crisis and have faced challenges for all lenders in making money during a time of low or negative interest rates, even before the onset of the Covid-19 crisis.
Mr Sheridan said, however, that Irish banks may not face the multi-year fallout as they did from the financial crisis, because the Government has pumped in billions to protect household incomes and businesses from collapse during this crisis.
Eamonn Hughes, senior bank analyst at Goodbody, estimates AIB will report next week an overall net loss of €925m for 2020, while Bank of Ireland will post a net loss €973m.
For the smaller Permanent TSB, Mr Hughes estimates the lender will post a total net attributable loss of €143m.