Fitch Weighs Irish Banks Releasing Loan-Loss Provisions

Fitch Ratings raised the prospect of Irish banks reporting a profit next year, helped by releasing funds set aside to cover bad-loan losses from Europe’s worst real estate collapse.

Ireland’s banks will probably increase loan-loss impairment charges this year after the central bank reviewed their balance sheets, Denzil De Bie, a Fitch analyst, said on a conference call from London today. Bank of Ireland Plc said on Dec. 2 the regulator estimates the nation’s largest bank may need to increase provisions by 1.1 billion euros ($1.5 billion).

“By taking the impairments now, that should put them in a position that they are better able to withstand European asset-quality reviews” next year, De Bie said. “There may be future write-backs possible in 2014, ’15, ’16.”

The Irish government committed 64 billion euros to shore up the banks over the past five years. Finance Minister Michael Noonan said on Dec. 6 there’s no evidence the lenders will need additional capital as they face a third round of European stress tests next year.

The country agreed to carry out a balance-sheet assessment of its banks last month before the government exited a three-year international bailout yesterday. Bank of Ireland and the other two banks reviewed, Allied Irish Banks Plc and Permanent TSB Group Holdings Plc, each said they didn’t need more capital.

“The results of the assessment indicate that higher provisioning levels are appropriate for some loan portfolios,” the European Commission said on Dec. 13. Still, the banks have enough capital to keep their core Tier 1 ratios, a gauge of financial strength, above a 10.5 percent Irish regulatory requirement, it said.

Bank of Ireland may post a 589 million-euro net loss this year, according to the median estimate of nine analysts surveyed by Bloomberg. Allied Irish, which is 99.8 percent state owned, may report a 1.1 billion-euro loss, according to Dublin-based Merrion Capital.

A “frontloading” of loan-loss provisions this year “should improve the quality of earnings in 2014, ’15, 16,” De Bie said.

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