Moody’s Keeps Irish Non-Investment Rating After Cypriot Crisis
Moody’s Investors Service maintained Ireland’s non-investment rating and negative outlook, citing risks in the euro area following the Cyprus bailout and the poor asset quality of Irish banks.
Moody’s affirmed Ireland’s Ba1 rating, one level below investment grade.
“Moody’s believes that Ireland’s vulnerability to wider euro-area stresses has been reaffirmed by euro-area policy makers’ handling of the Cyprus crisis,” Moody’s said in a statement today. “The second driver for maintaining Ireland’s sovereign rating on negative outlook is the continued poor asset quality of Ireland’s banking system.”
The approach by European leaders to Cyprus highlights an “uncompromising and less predictable approach to crisis management,” according to Moody’s, which also left Portugal’s ratings unchanged. While Ireland has made steady progress in regaining market access, the country’s banks have yet to make adequate provision for non-performing loans, according to Moody’s.
“Following the almost uninterrupted run of more favorable news flow on the Irish economy and sovereign over recent months, Moody’s provides what might be described as a reality check,” said Dermot O’Leary, chief economist at Dublin-based Goodbody Stockbrokers.
Ireland, which sought a three-year bailout at the end of 2010, sold 5 billion euros ($6.4 billion) of bonds on March 13, its first 10-year debt issue since the international rescue. Finance Minister Michael Noonan has said the country is on track to exit its 67.5 billion-euro aid program this year after returning to debt markets, easing the cost of rescuing former Anglo Irish Bank Corp. and selling some investments in its financial system.
Ireland has injected or pledged a gross 64 billion euros to its debt-laden banks over the past four years.
The extra yield investors demand to hold 10-year Irish debt over comparable German bunds widened by 7 basis points from yesterday to 306 points, as of 8:16 a.m. in Dublin.
Moody’s affirmed its Ba3 rating and negative outlook on Portugal, which followed Ireland into a bailout in 2011. Portugal’s economy is weak, and government debt remains “very high,” and the deficit continues to be large, Moody’s said in a separate statement.
Cyprus reached an agreement in the early hours of March 25 with the European Union and the International Monetary Fund, whereby uninsured deposits above 100,000 euros face as much as 40 percent losses at Bank of Cyprus Pcl, the country’s largest bank. Cyprus Popular Bank Pcl, the second biggest, will be wound down, hitting uninsured depositors and bondholders. The original plan, rejected by the Cypriot parliament, imposed a levy on all deposits to raise 5.8 billion euros.
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