These were key observations from a largely positive commentary issued by S&P yesterday as a supplementary analysis to a research update on the outlook for Ireland that it published last month.

S&P noted that our banking sector still has very high levels of non-performing loans – at more than 25 per cent of the domestic loan book, and rising.

It said recent Government legislation had removed legal obstacles to repossession and had introduced a new personal insolvency regime, while a revised code of conduct that governs how lenders must treat struggling mortgage borrowers has also been introduced.

Long-term arrears
"Given these recent developments, we expect banks will now move more rapidly to try and resolve cases of long-term arrears following targets set by the central bank, which will likely lead to a large number of foreclosures in buy-to-let properties," S&P said.

“Partly as a result, we do not expect Ireland’s larger banks to return to profitability in 2013 and, in some cases, probably not until 2015. We also believe they will remain reluctant to lend to the domestic economy.”

More broadly, S&P said Ireland’s economic recovery is “under way” although the country remains vulnerable to external shocks and it expects growth to remain slow in 2013 and 2014.

“We believe there is upside potential for Ireland to recover more rapidly, should external demand recover,” S&P said. “We are also of the opinion that Ireland’s potential growth rate is greater than 2 per cent, benefiting from its favourable demographics, its openness, and its labour and product market flexibility.”

S&P said there was a more than one-in-three probability that it could raise its long-term ratings on Ireland in the next two years.