Credit rating agency Moody’s has upgraded the long term debt and deposit ratings of Irish Banks: Bank of Ireland (BOI) and Allied Irish Banks (AIB). It also upgraded each bank’s baseline credit assessment by one level. Irakli Pipia, Vice President-Senior Credit Officer at AIB said “the rating upgrades reflect a range of positive factors, including further reduction in non-preforming loans, improved capital ratios and achievement of stable core profitability”.
From the end of 2015 to the end of 2016, BOI’s problem loan ratio fell from 11% to 7.9% and the loan to deposit ratio fell from 112% to 108%, signalling improvements in asset quality and a better funding ratio. The bank’s BAC was upgraded from ba1 to baa3, the 10th tier of Moody’s rating scale.
Moody’s also bumped its baselines credit assessment of AIB by one tier from ba1 to ba2. It cites a reduction in the percentage of the bank’s problem loans from 18.6% last year to 14% at the end of 2016 and the bank’s more liquid position.
Various other ratings were also affected in the upgrade, reflecting the overall better creditworthiness of both Bank of Ireland and Allied Irish Banks. This signals confidence to investors and the public, as they regain some of the confidence and trust lost in the banks during the financial crisis.
Despite the positive outlook on credit ratings, Moody’s stresses that AIB still retains a stock of problem loans and BOI stocks of non-preforming and forborne loans that are much higher than that of other countries across EU. These are all factors which could potentially endanger the bank’s ability to recover.