Fitch Ratings on Friday raised Ireland’s sovereign debt rating, pointing to the increasing strength of the local banking sector.
The move marked the republic’s continuing recovery from the eurozone debt crisis. Fitch raised Ireland’s long-term sovereign debt rating to “A+” from “A,” with a stable outlook.
Among lenders, the share of non-performing loans fell below 12 percent in the second quarter of this year, down from more than 25 percent four years ago, the agency said in a statement.
In major Irish banks such as Bank of Ireland Group, tier-one capital has risen to 25.3 percent in the second quarter, up 1.6 percentage points in a year.
Meanwhile, the nation’s debt-to-income ratio is falling, even though it remains the fourth-highest in the EU, Fitch said.
Ireland has a “wealthy, flexible economy,” with strong institutions and among the highest per capita incomes of any nation in the A category, the agency said.
However, uncertainty surrounding EU-British negotiations and the future of trade relations with Britain remains a risk to growth prospects, Fitch said.
The UK has pledged to minimize the re-emergence of trade barriers with the Republic of Ireland as a result of Britain’s impending exit from the EU.
Separately, Portugal’s sovereign debt rating has emerged from junk status as the nation moves to bring its fiscal deficit under control, Fitch said.
In a separate statement, Fitch said it was raising the former bailout nation’s long-term sovereign debt rating to “BBB,” the lowest investment-grade rating, from “BB+” with a stable outlook.
The move was a “re-evaluation on an unprecedented scale,” Portuguese Minister of Finance Mario Centeno said in a statement.
“This rating reflects the path of mastering public expenditures and of an improving current accounts balance,” he said.
As a share of GDP, gross government debt is to decline by 3 percentage points this year to below 127 percent, the first decline since the sovereign debt crisis, Fitch said, citing a “firm downward trend.”
“The favorable debt dynamics are driven by a combination of previous structural fiscal measures, the recent cyclical recovery and a substantial improvement in financing conditions,” the agency said.
The overall budget deficit was likely to shrink to 1.4 percent of GDP this year, down from 2 percent last year — well below the 7.4 percent recorded in 2014.
Although financial stability also improved with the recapitalizations of two of Portugal’s largest banks and the sale of a controlling stake in Novo Banco SA to a foreign investor, non-performing loans remained a concern.
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