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Irish banks have strong capital positions - DBRS
Bank of Ireland, AIB and Permanent TSB reported combined losses of almost €1.7bn for 2020. Photo: Aidan Crawley/Bloomberg
Irish banks have “sound capital cushions” to help them navigate the current challenging environment, according to ratings agency DBRS Morningstar.
Bank of Ireland, AIB and Permanent TSB recently reported combined losses of almost €1.7bn for 2020 as the pandemic took its toll on their finances.
Bank of Ireland made a €742m net loss, while AIB posted a €741m loss. Permanent TSB made a €162m loss.
The losses were spurred by higher loan loss provisions (LLPs) because of the Covid crisis.
Aggregate LLPs soared to €2.7bn last year at the banks, compared to just €241m in provisions that the banks had on their books in 2019.
“The challenging operating environment driven by Covid-19 put pressure on the banks’ operating income in 2020 which, on aggregate, decreased by 10pc year-on-year,” noted DBRS.
It added that net interest income fell 6pc year-on-year on an aggregate basis, due to lower interest rates and lending volumes. Other income declined 23pc year-on-year, largely reflecting lower fees as a result of the economic restrictions during lockdowns.
DBRS said that while loan provisions soared last year, the Irish banks also applied significant management overlays in order to take account of possible credit deterioration caused by pandemic disruptions and the outcome of payment breaks.
“Irish banks’ asset quality started to deteriorate in 2020 after several years of improvement due to non-performing asset disposals and internal workouts,” noted the agency.
“We consider that Irish banks have been proactive in recognising the vulnerabilities of the current operating environment in their lending portfolios, which has resulted in a high proportion of their loans being recognised as Stage 2 loans,” it added. “Uncertainty remains regarding the degree of Stage 2 loans potentially turning into NPLs [Non-Performing Loans] in the ongoing challenging environment.”
Stage 2 loans are loans that have experienced a significant increase in credit risk.
“The proportion of Stage 2 loans over total gross loans is much higher than at most European peers,” noted DBRS.
However, it said the Irish banks maintained strong capital positions in 2020 despite the challenges they faced during the year.
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