Non-performing loans at AIB and Bank of Ireland are likely to have stabilised ahead of the European Central Bank's comprehensive review later this year, leaving the two largest banks better positioned for the exercise, Fitch Rating Agency has said.

Its comments come as the ECB publishes further details today of how it will examine the balance sheets of European banks before taking over as the euro zone's single supervisor in November.

Risks
In its analysis of the Irish banking sector published yesterday, Fitch pointed out that impaired loans at the two banks, which had been increasing steadily since 2008, had fallen last year and are expected to peak this year.

However, downside risks remained from the ECB’s comprehensive assessment, the agency said, including the high level of forbearances and the fragility of the recovery in asset quality.

While Bank of Ireland and AIB are unlikely to need more capital following the Irish central bank's assessment last year, Fitch noted that the resolution of impaired loans is still a risk for Irish banks.

Restructured
Minister for Finance Michael Noonan said yesterday that, while Morgan Kelly's comments "must be taken seriously," Bank of Ireland has restructured 90 per cent of its SME loans, while AIB has restructured 65 per cent.

"The Central Bank have expressed that they're satisfied at the progress being made," he said, adding that Irish banks had also restructured 85,000 mortgages.

Discussions
Mr Noonan was speaking in Brussels yesterday where he is attending a two-day meeting of finance ministers to try to secure agreement on the single resolution mechanism (SRM), a single, centralised fund for winding-down banks.

Euro zone finance ministers were locked in discussions last night about the scope and nature of the fund. In particular, the borrowing capacity of the single resolution fund was under discussion. The ECB has pressed finance ministers to reach agreement on the SRM in time for this year’s stress tests.

While member states finally reached agreement on a common position in December on the €55 billion fund, under the European Union’s co-decision making process, the parliament must also be in agreement, and remains unhappy with the position set out by member states.

An agreed text must be signed off by April 18th – the last day of the European Parliament's final plenary session in Strasbourg before the European elections in May.

Power
Also at issue is the relative power of the council – member states and the European Commission – in deciding when and how to wind down troubled banks.

As the euro group discussed the progress of the Portuguese, Greek and Cypriot bailout yesterday, news emerged that the governor of the central bank in Cyprus, Panicos Demetriades, had resigned.

A member of the ECB governing council, Mr Demetriades was appointed by the previous Cypriot government in May 2012 as central bank governor.