IRISH BANKS will find it a “challenge” to secure funding once the blanket Government guarantee lapses at the end of September, however, the situation is “manageable”, credit ratings agency Fitch has said.
Speaking on a conference call yesterday, Matthew Taylor, senior director in Fitch’s financial institutions division, said some investors may not renew short-term funds held at Irish banks once the guarantee expired. However, he added investors would have known the expiry of the guarantee was approaching, making it difficult to assess with any certainty the possible impact on Irish banks’ funding positions.
Fitch issued its cautious comments on Irish banks on a day of positive sentiment for the European banking sector, as two of Europe’s biggest banking groups – HSBC and BNP Paribas – declared a rebound in profits and more modest levels of bad debt.
By contrast, Fitch said yesterday Irish banks would continue to see high impairment charges and liquidity costs into 2011.
From September 29th, the Government will no longer guarantee subordinated debt, covered bonds, inter-bank debt and debt with a maturity of up to 90 days held at Irish banks, although an extension of the guarantee will apply to senior debt until the end of 2010.
Mr Taylor said Irish banks were both reducing the size of their balance sheets and increasing retail funding, which has the effect of lowering the amount of wholesale funding they require. However, the banks are still likely to need to increase their European Central Bank (ECB) funding in the autumn, he said.
Fitch said it expected Irish banks to be “slow” in reducing reliance on ECB funding. When the European Commission reviews the ongoing need for a Government guarantee on senior debt at Irish banks, it is likely to see a need to renew it, Mr Taylor said.
Over the next few months, the ratings agency expects the banks will issue “sizeable” writedowns on loans not transferring to the National Asset Management Agency (Nama): “While Fitch expects the results to be better in 2011 and show signs of recovery, they will still be subdued.”
Although Irish banks will be more robustly capitalised by the end of this year than they were at the end of 2009, capital levels “look acceptable rather than truly robust”, he added.
Meanwhile, robust profits from HSBC and BNP Paribas helped drive up stock markets yesterday, as both sets of results beat analysts’ expectations.
British bank HSBC saw its pretax profits more than double to $11.1 billion for the first six months of 2010, setting the tone for what is expected to be an upbeat stream of UK bank results this week. Bad debts fell to their lowest level since the start of the financial crisis.
BNP shrugged off a 30 per cent fall in investment banking revenue in the second quarter to report a 39 per cent increase in first-half net profits to €4.4 billion.
Both banks saw provisioning levels roughly halve – a reflection of the improving prospects of loan portfolios. – (Additional reporting, Financial Times)
