WORRIES ABOUT Ireland’s banking sector and the pace of economic recovery have led rating agency Standard & Poor’s (S&P) to downgrade its rating on Irish sovereign debt.
The immediate trigger for the action was a related downgrade by S&P of the Irish banking sector on the back of continuing concern about the ultimate cost of recapitalising Irish banks. The agency said the decline in creditworthiness of the Irish banking system over the past three years had been “one of the most severe we have observed in a major developed economy for many years”.
“Economic recovery in Ireland will likely be later, weaker and more uncertain than previously expected” leading to “persistently weak earnings prospects for the domestic banks”, analyst Giles Edwards wrote on Ireland’s Banking Industry Country Risk Assessment.
Problem loans, in S&P’s view, now amount to between 25 and 40 per cent of borrowings, up from 15-30 per cent previously.
His report on the banking system drops it two notches to Group 6 on a 10-point scale. It now ranks alongside the banking systems of countries such as Turkey, Cyprus and Estonia.
The agency said domestic demand was likely to contract for the fourth successive year in 2011 with export growth continuing to compensate.
