Reuters: US Dollar Report: Fitch Affirms Ireland at 'BBB+'; Outlook Stable

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Fitch Affirms Ireland at 'BBB+'; Outlook Stable Oct 3rd 2013, 15:41 Thu Oct 3, 2013 11:41am EDT LONDON, October 03 (Fitch) Fitch Ratings has affirmed the Republic of Ireland's (Ireland) Long-term foreign and local currency Issuer Default Ratings (IDR) and senior unsecured bond ratings at 'BBB+'. The Outlooks are Stable. The agency has also affirmed the Short-term foreign currency IDR at 'F2' and Country Ceiling at 'AA+'. The rating of National Asset Management Ltd's (NAMA) guaranteed issuance has also been affirmed at 'F2', in line with the sovereign rating. KEY RATING DRIVERS The affirmation reflects the following factors: - Ireland has progressed further with its fiscal consolidation programme and solidified its market access in 2013. Fitch forecasts primary balance to turn to surplus and the gross general government debt (GGGD)/GDP ratio to peak in 2014, albeit at 122% of GDP. The fiscal targets of the Troika (EU, ECB, IMF) programme have consistently been met, underpinned by strong policy commitment, and the programme will end in December 2013, in line with the original timetable. - Notwithstanding the progress of the past years, the government's fiscal consolidation plans for 2014 and 2015 are substantial and the measures have yet to be specified. The primary balance is targeted to improve by a cumulative 5pp of GDP in the next two years to exit the Excessive Deficit Procedure (EDP) by 2015, compared with the 7pp achieved between 2009 and 2013. - Fitch expects only a modest economic recovery (1% GDP growth) to start in 2014 after two years of stagnation in 2012-2013. Nevertheless unemployment has fallen to 13.7% in Q213 from a peak of 15% in Q112. As a result of the external adjustment, the current account turned into a surplus of 4.4% of GDP in 2012 from a deficit of 5.6% in 2008. - Persistent vulnerabilities remain in the banking sector despite the public recapitalisation of the system to high capital ratios in 2011 and the authorities' renewed efforts to accelerate mortgage resolution. Banks' loan portfolio quality has likely deteriorated close to the stress scenario of the 2011 prudential capital assessment review and is sensitive to the path of the economy and institutional arrangements for working out bad loans.. - Ireland has successfully returned to market financing since July 2012, taking advantage of improving market sentiment. The Irish sovereign is pre-financed for 2014 as it had built up a cash buffer of EUR20bn by September 2013. - Ireland will exit the Troika programme as a highly indebted country with modest medium-term growth potential. This implies that keeping debt on a declining path will require a large primary surplus for an extended period. Furthermore, financing risks will be elevated over the medium term, as annual market financing needs will exceed EUR20bn between 2016 and 2021. RATING SENSITIVITIES The Outlook is Stable. Consequently, Fitch's sensitivity analysis does not currently anticipate developments with a high likelihood of leading to a rating change. However, future developments that could individually or collectively, result in a downgrade of the ratings include: - Material divergence from the fiscal targets leading to GGGD/GDP ratio peaking higher and later. - Additional recapitalisation needs of the financial sector by the Irish sovereign, for example in the context of the ECB's forthcoming asset quality review. - Weaker economic performance resulting in a substantial deterioration of banks' existing loan portfolio. The main factors that could lead to a positive rating action are: - Robust and sustained growth over the medium term. - Fundamental improvement in banks' asset quality and profitability. - Significant and sustained fall in the GGGD/GDP ratio. KEY ASSUMPTIONS The rating and Outlooks are sensitive to a number of assumptions: Fitch assumes that fiscal consolidation is maintained beyond the programme period to ensure an exit from the EDP by 2015, in line with the government's stability programme. Fitch assumes that Ireland will retain full market access, supported by a post-programme precautionary agreement with the ESM and potential eligibility to the ECB's OMT programme. High public ownership in the banking sector implies a close bank-sovereign link, despite the eurozone level progress towards banking union. Nevertheless Fitch assumes no further recapitalisation of the financial sector by the sovereign. Fitch assumes there will be progress in deepening fiscal and financial integration at the eurozone level in line with commitments by policy makers. It also assumes that the risk of fragmentation of the eurozone remains low. Contact: Primary Analyst Gergely Kiss Director +44 20 3530 1425 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst- Michele Napolitano Director +44 20 3530 1536 Committee Chairperson Ed Parker Managing Director +44 20 3530 1176 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, 'Sovereign Rating Criteria' dated 13 August 2012 and 'Country Ceilings' dated 09 August 2013, are available at www.fitchratings.com. Applicable Criteria andALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Link this Share this Digg this Email Reprints

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