Irish banks are facing into difficult times that will reduce their allure for investors, according to new research from Goodbody Stockbrokers.

The broker's report argues that while the banks have done well to display their defensive qualities in the past, they are now entering a period of slower earnings momentum and "lacklustre" top-line growth.

The authors of The Challenge of Revenue Growth identify revenue growth as the biggest challenge lying ahead for the banks, as low interest rates support asset quality and scope for cost savings disappears. Its authors express particular concern about the impact of slower economic growth on competition within the banking sector.

Using the mortgage market as a proxy for revenue expansion, Goodbody concludes that as largely retail, credit-driven banks, the domestic financial sector could be vulnerable going forward, leaving investors to look for alternative opportunities abroad. Slower economic growth and consequent weakness in lending volume could leave the main players fighting for market share within a decreasing pool of business, Goodbody suggests.

"Having proved their defensive qualities in a downturn, the domestic franchises now need to turn their attention further up the P&L account to top-line revenues," the broker recommends.

In such a context, Goodbody singles out its parent, AIB, as being best-placed to sustain its current rating, citing the bank's domestic retail franchise, gains in UK market share, revenue synergies in the US and potential growth in Poland as crucial factors. Bank of Ireland could find it more difficult to maintain current strength, according to Goodbody, with the broker noting the potential for margins to be squeezed by shifts in the yield curve and funding mix, thus hitting growth in credit-driven revenues.