Christ Yoder
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AIB shares posted losses amid the crisis as international investors assessed the damage to the country’s economy and bank lending books from the fallout from the Covid-19 crisis.
AIB fell 24% and Bank of Ireland closed 5.5% lower, but only after paring losses significantly during the session as markets weighed the implications of the shutdown and the loss of thousands of jobs for lenders loan books.
The government has confirmed that up to 400,000 people could be put out of work following lockdowns designed to beat the virus.
After waves of selling in recent weeks as the economic costs of the virus mounted, AIB, 71% owned by the government, and Bank of Ireland, in which the government holds a 14% stake, are now valued by the market slightly above 2 billion euros and below 1.9 billion euros respectively.
The bank losses came despite the rebound in prices of many troubled stocks across Europe in response to the ECB’s announcement of a new €750 billion bond-buying programme.
The ECB, led by President Christine Lagarde, had been widely criticized last week for doing too little to reassure investors that it was in control of market turbulence.
On the pressure facing Irish and European bank stocks, analysts at Davy said Irish banks reflected a market “that has priced in a sharp shift to assume credit loss stress test levels rather than a V-shaped recovery”.
Its analysis showed that AIB holds approximately €7.2 billion in commercial loans directly exposed to vulnerable sectors such as retail, hotels and pubs, and transport, accounting for 11.5% of its loans. Bank of Ireland holds €3.6 billion in advanced commercial loans to sectors.
Central Bank Governor Gabriel Makhlouf said nothing was stopping banks from keeping their promises to freeze, for three months, loan repayments for businesses and households facing financial hardship due to the outbreak. of Covid-19.
The Central Bank’s own measures and the ECB’s pandemic emergency purchase program would help maintain the “resilience” of Irish banks, he said.
Meanwhile, KBC Bank Ireland’s latest consumer sentiment survey showed households were already pessimistic before schools closed last week.
Its chief economist, Austin Hughes, said he estimates the government will need to announce up to €12 billion in additional tax measures to support vulnerable businesses and jobs. The Treasury can afford the resources because it “cannot afford not to spend”, he said.
“Under the current circumstances, a policy response on the scale of what is needed but proves insufficient can be far more costly in terms of lasting economic losses than a response deemed sufficient but proves more than necessary” , said Mr. Hughes.
“It is impossible to be specific in anything about the size of the fiscal package that might be needed to support incomes and ultimately put the economy back on a strong and sustainable growth path,” he said. he declared.
“At current interest rates – and assuming continued support from ECB bond-buying programs – this could add a modest €40-50 million to annual debt servicing costs.”
