Banks will profit as bad loans peak, claim Fitch
Bank of Ireland and AIB will likely turn profitable next year, ratings agency Fitch has said.
The ratings agency also predicted the amount of bad loans will peak next year and begin to gradually reduce after that.
But it warned that all banks need to set aside money after the recent balance sheet assessments carried out by the Central Bank.
Fitch said the additional provisions would impact earnings and capitalisation ratios this year, but would provide a level of comfort ahead of Europe-wide stress tests carried out by the European Central Bank at the end of next year.
But it warned there will still be challenges for asset quality.
"A weak commercial property sector and regulatory pressure to resolve a high proportion of forborne loans and long-term arrears could derail improvements to asset quality," the agency said.
"Impaired loans typically have high loan-to-values and rely on collateral, which are difficult to resolve in the short or medium term, so are harder to recover.
"We believe Irish banks will become long-term property managers for many of these loans and keep properties on their balance sheets for some time."