IRISH BANK losses on personal loans, lending to small and medium-sized enterprises (SMEs) and residential mortgages will continue to rise, according to a senior analyst at ratings agency Moody’s.
Speaking to The Irish Times at a credit risk conference hosted by the agency in Dublin, analyst Ross Abercromby said: “With unemployment rising, we are expecting the credit losses on those loans to be higher. They are already rising quite substantially and we would expect that to continue.”
Mr Abercromby said that if the Government paid the €47 billion market value for bank loans being acquired by National Asset Management Agency (Nama) – instead of the proposed €54 billion purchase price – it would need to invest more money to recapitalise the banks. “It would be almost like taking money out of one pocket and putting it in the other,” he said.
Nama would increase the amount of liquidity and the flow of credit in the market, he said, and this was one benefit of the agency that was often overlooked.
Mr Abercromby said Nama would enable the two biggest banks, Allied Irish Banks and Bank of Ireland, to raise capital from private investors as the Government has made it clear that it will not nationalise the banks.
“Without Nama, rights issues would have been very difficult and it is a slightly different scenario once it is clear that the banks won’t be nationalised,” he said.
Nama would leave the smaller lenders requiring State capital which is likely to lead to consolidation in the sector, he said. Mr Abercromby said this would lead to the creation of “a fourth force” in Irish banking as Moody’s already views Ulster Bank as the “third force”.
He expects the Irish banks to increase interest rates to improve their margins but lenders have to be careful not to put customers under too much pressure. “It’s a fine line,” he said.
Dietmar Hornung, Moody’s analyst of Irish sovereign debt, said that if the Government failed to secure cuts in public expenditure in the upcoming Budget, it would increase the risk of Ireland’s credit rating being downgraded again.
“Given the challenging situation in the banking system the authorities have been proactive and Nama is an appropriate set-up to deal with the issues,” he said.
