New York, March 27, 2013 -- Moody's Investors Service has today affirmed the Republic of Ireland's
Ba1/Not Prime government bond ratings and negative outlook.
The drivers for maintaining the negative outlook on Ireland's sovereign
ratings are:
1.) The euro area's continued vulnerability to shocks emanating
from the regional debt crisis, most recently the agreement by the
European Union (EU) to the "bail-in" of bank deposits
to raise part of the funds needed for Cyprus' financial rescue.
2.) The continued poor asset quality of the Irish banking system.
The drivers for affirming Ireland's Ba1/NP sovereign ratings are:
1.) The Irish government's progress in implementing the economic
adjustment programme under the auspices of EU, International Monetary
Fund (IMF) and the European Central Bank (ECB), collectively known
as the Troika.
2.) Ireland's steady progress in regaining market access
and obtaining private-sector financing at an affordable cost,
a prerequisite for the country to successfully conclude its EU/IMF-sponsored
economic adjustment programme this year without needing a second bailout.
3.) Ireland's regained competitiveness, with generally
positive growth deriving from a strong contribution of net exports,
the apparent bottoming-out of the housing sector correction and
its continued ability to attract foreign direct investment.
In a related rating action, Moody's has also affirmed the
Ba1/NP ratings and negative outlook on Ireland's National Asset
Management Agency (NAMA), whose debt is irrevocably and unconditionally
guaranteed by the government.
RATINGS RATIONALE
RATIONALE FOR MAINTAINING IRELAND'S NEGATIVE RATING OUTLOOK
The first driver underlying Moody's decision to maintain a negative
outlook on Ireland's Ba1 sovereign rating is the country's
susceptibility to euro-area-related event risk because of
its very high debt levels and ongoing asset quality issues affecting its
banking system. Such risks were most recently evidenced by the
EU's unprecedented decision to fund Cyprus's financial rescue
by imposing a levy on bank deposits above a certain size. The move
has significantly heightened fears surrounding the safety of bank deposits
in other European systems. More generally, Moody's
believes that Ireland's vulnerability to wider euro-area
stresses has been reaffirmed by euro area policymakers' handling
of the Cyprus crisis, the increased risk tolerance apparent in their
actions, and the uncertain risk assessment prompted by a more uncompromising
and less predictable approach to crisis management.
The second driver for maintaining Ireland's sovereign rating on
negative outlook is the continued poor asset quality of Ireland's
banking system, which represents a constraint on their willingness
to provide new credit at such time when loan demand revives. In
addition, Moody's notes that Irish banks have not yet begun
implementing the Central Bank of Ireland's new requirement to repossess
homes when mortgages have been non-performing for a lengthy period,
nor to adequately provision for their non-performing portfolios.
Moody's baseline case is that Irish banks' large capital cushions
should be able to accommodate this process without additional liabilities
accruing to the government's balance sheet.
RATIONALE FOR AFFIRMING IRELAND'S Ba1/NP RATINGS
The primary driver underpinning Moody's decision to affirm Ireland's
Ba1/NP sovereign ratings is the government's successful implementation
of the Troika's economic adjustment programme, which began
in November 2010 and is coming to an end later this year. From
the start, the Irish government has consistently met and in some
respects exceeded the quarterly programme criteria, despite difficult
domestic and external conditions. Moody's expects that Ireland's
debt will likely peak at roughly 120% of GDP in 2013 and 2014,
before starting to drop in 2015, thereby reversing the adverse debt
trend of the recent past.
The second driver informing the rating affirmation is the steady progress
that Ireland has made in gradually regaining market access at an affordable
cost of financing. The Irish government has made several forays
into the market since January 2012, first to swap shorter-term
for longer-term debt to reduce early refinancing risks, and
then to obtain new funds in successive medium-term bond issues.
This progress, which most recently culminated in a well-received
ten-year bond issue, has allowed Ireland to meet all of its
financing needs for 2014. In addition, Moody's observes
that refinancing risks will diminish further in subsequent years as a
result of (1) the restructuring of the government's promissory note
debt, which was incurred when the sovereign extended support to
the Irish banking system in 2010, and (2) the agreement with the
EU to extend bailout maturities.
The third driver for maintaining Ireland's sovereign rating is Moody's
expectation that Ireland's economy will be able to grow at a moderate
pace in the coming years, although the initial pace is likely to
be below its long-term potential. Thanks to the dynamism
and high value added of the country's export sector, the relatively
diversified export markets and the improved competitiveness that have
been achieved via nominal wage adjustments, Moody's expects
that growth in Ireland is likely to remain positive this year, even
though the rating agency expects the euro area economy as a whole to register
a second consecutive contraction in 2013.
WHAT COULD MOVE THE RATING DOWN/UP
Moody's would consider downgrading the country's Ba1 sovereign
ratings if sizeable additional banking sector liabilities were to be added
to the Irish government's balance sheet, or in the event of
a further rise in the government's debt ratios due to fiscal slippage.
The rating agency would also view negatively any renewed increase in Ireland's
debt costs because of a loss of market confidence in the Irish recovery
and/or in euro area policymakers' ability to contain the euro area
debt crisis.
Conversely, the agency would consider raising Ireland's rating
outlook and eventually upgrading the country's Ba1 government bond
ratings if the government's financial balance, excluding interest
payments, were to move into a surplus large enough for the country's
debt-to-GDP ratio to stabilize and then begin to decline.
Moody's would also view positively the IMF and EU's approval
of external monitoring or a precautionary credit line that would qualify
Ireland for the ECB's Outright Monetary Transactions (OMT) scheme.
The principal methodology used in these ratings was Sovereign Bond Ratings
published in September 2008. Please see the Credit Policy page
on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Kristin S Lindow
Senior Vice President
Sovereign Risk Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Bart Jan Sebastian Oosterveld
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's affirms Ireland's Ba1/NP ratings and negative outlook
