Ratings agency Standard & Poor’s has reiterated its negative view on Ireland and warned that our banks might need “yet more capital” before returning to normalised lending.
In a report released yesterday, S&P noted “investor appetite for Irish sovereign and bank debt appears to be returning”.
But it added 2013 would be “another challenging year for the Irish banking system”.
“We do not expect the Government will be able to quickly exit or reduce its support for its banks – not least because we think the banks need yet more capital,” S&P said.
“We consequently believe that the very close relationship between the Irish sovereign and its banks will continue for several years.”
S&P has a BBB+/A-2 rating with a negative outlook on Ireland. The agency said there remain “prevailing downside risks” to the stability of the financial sector here given the size of our national debt, uncertainty over economic growth and the high levels of unemployment.
S&P said that while a “modest recovery” in the economy is under way “fiscal consolidation, private sector deleveraging and weak investment, labour and property markets will continue to weigh on Ireland’s growth prospects”.
The agency expects residential property prices to be 1 per cent lower this year than last and suggests they “could be flat” in 2014.
It warned it could downgrade Ireland’s rating if the country “underexecutes” on its IMF-EU bailout programme or it achieves weaker growth due to issues around the euro zone financial crisis.
S&P said its rating might “stabilise” if the State can sell its stakes in the domestic banks to the European Stability Mechanism, which would allow the Government to bring down its debts to below 100 per cent of GDP. Transferring tracker mortgages off bank balance sheets would also be helpful, S&P said. It added that residential mortgage books remain an area of “uncertainty and concern”.
It said an injection of capital into the Irish financial sector from abroad would strengthen their ability to provide credit to businesses and enable the labour market to improve.
It said a restructuring of the Anglo Irish Bank promissory notes would also be “positive” for our rating.
S&P noted that progress has been made on access to funding on global markets in the second half of 2012 but predicted Irish banks would remain “heavily reliant” on support from the European Central Bank. A return to normal funding conditions “remains some way off”, it added.
The Department of Finance declined to comment on S&P’s report.
