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Tuesday, July 7, 2020

S&P downgrades outlook for Irish banks

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The rating agency S&P Global Ratings has downgraded its outlook for three of the main Irish banks from stable to negative, saying that the downside risks to the financial profiles of banks remain significant.

However, the agency confirmed the current ratings of AIB, Bank of Ireland, Permanent TSB and KBC Bank Ireland.

He also hasn’t changed the outlook for KBC as he believes his parent group will be willing and able to provide continued and extraordinary support over the next 18 to 24 months.

The agency said that European economies, including ours, are facing an unprecedented economic challenge due to the global downturn in business and trade, despite government efforts to contain the coronavirus pandemic.

“We continue to expect Ireland’s large related fiscal and monetary measures to significantly ease this extraordinarily acute cyclical shock, thereby supporting the banking system in its key role as a vehicle for fiscal and monetary support,” said the S&P. said.

But he added that, even in his basic scenario of an economic recovery starting in the third quarter of this year, he expects bank profits, asset quality and, in some cases, capitalization. ” weaken significantly during the rest of the year. and following.

“We could take further negative rating measures if we expect the cyclical economic recovery to be significantly weaker or delayed, as this would have a much more negative effect on the creditworthiness of the banks,” he said. said in a statement tonight.

“The stocks could also follow idiosyncratic negative developments in individual banks.”

Actions following a review by S&P of banking systems in Western Europe following the start of the coronavirus crisis.

“The Irish economy is small and open, making it vulnerable to economic cycles and external shocks, such as those caused by the COVID-19 pandemic,” he said.

“We expect the Irish economy to contract in 2020 and recover only gradually from 2021. However, despite the expected recovery, we believe there will be significant pressure on the operating environment and Irish banks’ earnings outlook over the next two to three years. “

It indicates that profitability is under increasing pressure from Irish banks due to their high cost base, their reduced interest margins and their investments in business transformation and their increased digital capacity.

S&P considers the growth opportunities to be modest and says the competition is tough.

“The rating measures we have taken reflect the fact that the profitability of Irish banks remains structurally weak for at least the next two years, with a low return on equity,” said the report.

He says that even in his economic hypothesis, the political responses taken in Ireland might not succeed in avoiding permanent economic damage later.

Earlier this month, the rating agency Fitch downgraded its outlook for AIB and Bank of Ireland from negative to stable due to the challenges posed by the Covid-19 pandemic.

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