The Irish banking sector has received a boost, with ratings agency Moody's upgrading the deposit ratings of AIB, Bank of Ireland and Permanent TSB. The deposit ratings on KBC and Ulster Bank were confirmed at their existing levels.

The rating actions were “driven by a sharply improved operating environment,” Moody’s announced late on Monday, with Ireland’s economy improving “as well as favourable developments in other credit fundamentals, notably asset quality”.

As part of the rating reviews, Moody’s upgraded its baseline credit assessment of AIB, Bank of Ireland, Permanent TSB (PTSB) and Ulster Bank and affirmed its assessment of KBC. The rating agency upgraded the senior unsecured debt ratings of AIB and PTSB and affirmed the senior unsecured ratings of Bank of Ireland. Improved ratings help the banks to raise money more cheaply on the markets.

“The main driver for the rating actions is the improvement in credit conditions in the banking system following the rapid and material deleveraging of the private sector, as well as stronger funding conditions as most banks have regained the ability to issue different debt instruments,” Moody’s said in a statement.

Progress

It said the rating moves also incorporate the strengthening of the banks’ credit fundamentals, especially the progress they have made in reducing non-performing assets, improving the quality of earnings and strengthening their capital metrics.”

Capital market conditions for the three domestic banks have improve considerably, the agency said, with the three able to issue capital instruments in 2015. “The rating agency believes that Irish banks will continue to maintain their access to the market at competitive prices during 2016, and will potentially increase their debt issuance.”

Private sector debt in Ireland remains “ very high” compared to other European countries, “ but is rapidly declining.”

Irish households’ debt to gross disposable income ratio fell to 170 per cent at end 2015 from 185 per cent a year earlier . It added that “he Irish banking sector remains highly concentrated, which provides banks with pricing power.”