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Bank of Ireland Falls as Moody’s Sees Credit Risks

Bank of Ireland Plc fell in Dublin trading after Moody’s Investors Service said the nation’s lenders’ balance sheets face credit and capital risks as they head into European Central Bank stress tests this year.

Bank of Ireland, the country’s largest lender by assets, fell 2.9 percent to 30.2 euro cents at 10 a.m. in Dublin. Irish banks’ lending quality, with almost 30 percent of the total rated as “problem loans,” is among the worst in Western Europe, Moody’s said in a report published after European markets closed on March 21.

“The sheer scale of impaired assets in the system presents material credit risks for the banks, whose capital levels have weakened significantly since their recapitalization in 2011,” Moody’s said.

Irish banks, which received 64 billion euros ($88 billion) of taxpayer bailouts since 2009, were pressed by the Irish central bank to set aside more provisions to cover soured loans after a central bank assessment in the fourth quarter. The ECB may ask the banks to set aside further provisions after it carries out its review this year, Moody’s said.

“The regulator will require banks to cover capital shortfalls within a timeframe, but with the exception of Bank of Ireland, we believe banks may face challenges raising capital in the markets,” Moody’s said. “As a result, any potential capital shortfalls are likely to either require parental or systemic support, or the bail-in of creditors.”

‘Adequate Capital’

While Irish banks’ level of new loan impairments will probably decrease and profitability will gradually improve, their balance sheets have “limited capacity” to deal with further deterioration of asset quality, it said.

Bank of Ireland and Allied Irish Banks Plc, the nation’s second-largest lender, each said earlier this month that their level of defaulted loans started to fall last year.

“Our base case view is that the banks have adequate capital for the upcoming ECB stress tests and that while the operating environment is challenging, bank profitability among the two main banks is returning probably relatively quicker than modeled by Moody’s,” said Eamonn Hughes, an analyst at Goodbody Stockbrokers in Dublin, who rates Bank of Ireland a buy.

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