DUBLIN: Ireland’s banks face challenge delivering a “material” increase in their earnings as their loan books have shrunk since the onset of the financial crisis and the scope of releasing provisions previously set aside for bad loans has largely run its course, according to ratings firm Standard & Poor’s (S&P).
In 2017, became the last of the five main Irish retail banks to return to profitability since the industry nearly collapsed during the financial crisis, with lenders helped last year as they continued to release bad-loan provisions or take very low new charges.
“Even so, we believe that Irish banks are still not back to ‘business as usual’,” said S&P. “The 2017 results highlighted that Irish banks continue to work through legacy problems while new challenges are emerging.
However, it said that shrinking bank balance sheets “on its own cannot lead to glory”, especially as the scope for lenders to increase their net interest margins – the difference between the average rate at which they borrow and then lend on to customers – “has now passed”.
While S&P sees Irish lenders beginning to grow their loan books this year for the first time in a decade, “we consider that a material improvement in earnings will be difficult to achieve” because of the extent to which banks’ assets have shrunk over the period by about 25 per cent.
