Banks will see an increase in non-performing loans but profitability will stabilize

Irish bank profitability will stabilize at a higher level this year despite continued pressure on margins, aided by lower loan loss provisions and a pick-up in new loans.

That’s according to Moody’s, which kept its outlook at A2 Stable on the Irish banking system in a new update.

The rating agency said it expects asset risk to hold, with early period allowances absorbing a likely increase in non-performing loans (NPLs) this year as the government phased out supports related to the pandemic.

“Positively, most borrowers on repayment leave have resumed debt service in 2020, and banks will likely resume selling portfolios of non-performing loans in 2021 after a coronavirus-related hiatus last year. Stable house prices, a decline in the number of mortgages that exceed the value of the property and previous regulatory measures designed to curb subprime lending are also favorable, ”he said.

Moody’s expects the economy to grow 3% this year, up from 2.8% in 2020 and 5.9% in 2019 before the pandemic sets in.

Domestic demand

He said domestic demand is expected to increase by 2.9% after contracting 7.1% last year, which will lead to higher loan growth but which will be tempered by an expected increase in unemployment as the loans end. government support measures.

Irish banks’ stable and diversified customer deposits will continue to be their main source of funding. However, market funding will increase as banks resume issuing loss-absorbing debt to meet minimum regulatory thresholds, Moody’s said.

Fitch also recently forecast an increase in NPLs this year due to the end of Covid support measures, but said the deterioration would be much less severe than in the aftermath of the 2008 crisis.

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