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Irish banking sector outlook slips on Brexit uncertainty: Fitch

Xinhua, December 8, 2016 Adjust font size:

The Fitch credit rating agency on Wednesday revised the outlook for the Irish banking sector to stable from positive.

The rating agency said it made the revision as Britain's withdrawal from the European Union (EU) had increased uncertainty for Irish banks' operating environment.

But it said Ireland's economic recovery should remain strong in the short term, underpinning the stable sector outlook.

"The rating outlook on Irish banks is positive, reflecting our expectation that improving bank credit fundamentals should outweigh these challenges," the agency added.

Fitch said Brexit is negative for Ireland's long-term economic and political prospects, putting pressure on GDP growth and creating uncertainty around relations with Northern Ireland.

It said the extent of any weakening of the bank operating environment, triggered by a slowdown of GDP growth in Britain, sterling depreciation, or potential trade barriers, will become clear only as EU-Britain negotiations develop.

A deterioration in the operating environment could slow any improvements in the asset quality and capitalisation of Irish banks, the agency warned.

Fitch also said the asset quality of Irish banks is sensitive to the performance of the real-estate sector.

Ireland's house prices have increased in recent years, although the introduction of loan-to-value and loan-to-income limits by the country's central bank in 2015 did slow the market.

"We expect residential property prices to grow 3 percent-4 percent for 2017, supported by continued housing shortages and an improving economy," it said.

Fitch said capitalisation, although improving, remains vulnerable.

"We expect capital ratios to strengthen in 2017, despite pressure from volatility in pension fund deficits and foreign-exchange markets," it said.

"Although uncertainty as regards the operating environment has increased, we believe credit fundamentals will improve in 2017, as the sector continues to work through its backlog of impaired loans," the agency concluded. Endit