Irish banks will need to set aside more money to cover potential losses as the European economy remains in the doldrums, the credit ratings agency Moody’s has warned in its global banking outlook for 2013.
“We believe that many banks, in particular in Spain, Italy, Ireland and the UK, require material amounts of additional provisions to fully clean up their balance sheets,” Moody’s analysts Robard Williams and Nicolas Charnay wrote.
The report highlights “a number of broad pressures” on the creditworthiness of banks, including the prospect of continued weak, fragile global economic recovery” and “elevated sovereign risk in many European countries”.
The risks related to the euro zone sovereign debt crisis “remain most immediate”, while the risk of “generalised financial contagion and investor retrenchment”, even in the absence of an actual sovereign default, remains “significant”, Moody’s said. Austerity measures across Europe will continue to shake consumer confidence, it added.
“Many European systems, in particular, face continued deterioration in sovereign strength, with fiscal consolidation dampening consumer and business confidence, creating uncertainty and a reluctance to increase spending, particularly among consumers.”
Moody’s also described investor confidence as “still fragile”. It said it expected the European Central Bank would continue to act as a lender of last resort to many banks until 2014 “and likely beyond” that date.
“Investor appetite for bank debt will remain subdued and volatile, keeping many banks dependent on central bank funds.”
However, the planned transfer of banking supervision to the ECB will “likely improve consistency, and possibly the rigour” of how they are regulated, Moody’s said, describing this as “credit-positive” for banks.
