HOUSE prices in Ireland haven’t bottomed out yet, according to credit ratings agency Moody’s.
They made the statement in a report on Monday morning, which also said that Irish banks’ asset quality will likely weaken further as mortgage arrears rise.
Their statement on house prices has since been backed up by a CSO report which seen figures suffer their biggest monthly fall in two and a half years.
“We have been highlighting for a couple of years now that we expect mortgage arrears to rise substantially. That now has started to come through,” said Ross Abercromby, a London-based analyst with Moody’s.
“From a capital position, we think the banks have the capital but without doubt asset quality is likely to continue to deteriorate for a while. There doesn’t seem to be any floor yet in house prices.”
While Irish banks have enough capital under Moody’s “current stress scenario,” things could change given “everything going on in the euro area,” Abercromby said.
The banks, which remain highly reliant on central bank funding, are unlikely to regain access to the public debt markets before the sovereign, said Abercromby.
“We can’t really see that happening until the deleveraging process has very much worked its way through,” he said. “We think it’d be difficult before the government’s back in the debt market again.”
In the meantime, banks may continue to be able to issue small amounts of secured debt in private placements. With bank deleveraging plans set to run through 2013 and the government aiming to be in the market by then “if everything went according to plan, then probably around that time” banks may be able to re-enter the public debt markets, he said.
“In our opinion, the substantial reduction in the government's net spending between 2011-2015 is likely to place considerable pressure on the country's recovery prospects. This will have a significant impact on banks' profitability and is leading to a weakening of already poor asset quality,” it said.
The banks' credit exposures to Irish sovereign debt and to government-guaranteed debt issued by the National Asset Management Agency also contributes to the negative outlook on asset quality, it said.
“However, Moody's views the raising of substantial capital in 2011, mainly from the Irish government, as credit positive. The four domestic banks that are supported by the government now have the capital resources to cope with loan losses anticipated by Moody's stress-case scenario,” it said.