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Fitch upgrades Ireland to A+ but warns of Brexit risk

Fitch Ratings upgraded Ireland's long-term foreign and local currency issuer default ratings to A+ from A with a stable outlook, reflecting the improving health of the Irish banking sector and falling government and household debt.

The rating agency said the ratio of nonperforming loans declined to 11.9% in the second quarter from a peak of 25.7% in the same period in 2013. Also in the second quarter, banks' regulatory tier 1 capital ratio increased to 25.3% from 23.7% a year ago.

While it remains the fourth-highest in the EU, Ireland's household debt-to-income ratio declined to 141.6% in the second quarter, Fitch said. Meanwhile, general government debt-to-GDP ratio is projected to fall to 65.8% by 2019 from 72.8% at 2016-end.

Ireland's general government deficit is also expected to shrink to 0.4% of GDP in 2017 and to 0.2% in 2018 from 0.7% in 2016, according to Fitch. The country is expected to attain a balanced budget in 2019.

Fitch estimates that Ireland's real GDP will grow at an annual rate of 5% in 2017 before slowing to 3.8% in 2018 and 3% in 2019.

Among the risks to Ireland's economic growth is the uncertainty over Brexit, including the future status of the border with Northern Ireland, Fitch warned.

Potential changes in international corporate tax policies such as those in the U.S. also pose a downside risk to Ireland, which has been a favored destination of foreign direct investment by multinational enterprises over the past 20 years, according to Fitch.

Fitch said Ireland "faces a risk of smaller inflows or reversals if corporate tax incentives change radically."

Ireland's short-term foreign and local currency issuer default ratings were also upgraded to F1+ from F1.