Moodys has lowered its outlook on the Irish banks from Positive to Stable, citing the pressures from lower interest rates on future profitability.
The agency indicates that this headwind is balanced by the ongoing de-risking of balance sheets as Non-performing exposures (NPEs) reduce, though they still remain sizeable.
Moody’s anticipate NPEs will continue to reduce and enhanced risk management and the macro-prudential mortgage rules will continue to hold back new problem loan formation.
On Brexit, Moody’s notes that it is creating economic uncertainty, but its impact on the banks should be modest given their capital levels and funding mix which is largely made up of deposits.
According to Goodbody Stockbrokers, "The reduction in the outlook is a little disappointing, but Moody’s is obviously balancing the interest rate headwinds against the de-risking of balance sheets. The interest rate headwinds have been well flagged by the banks, most comprehensively at the H1 results with reduced NIM guidance across the sector."