Moody's revised the outlook on the Irish banking system to stable from positive on the basis that banks' earnings will come under pressure amid a low interest rate environment despite asset risks continuing to decline.
The rating agency said profitability will decline for Irish banks since they rely heavily on net interest income, which makes them vulnerable to low interest rates. Moody's said banks' exposure to low-margin tracker mortgages, higher costs stemming from debt issuances, revenue losses from sales of problem loans and the uncertainty around Brexit may also impact profitability.
Expenses are also expected to remain high for Irish banks because of costs related to IT and digitalization, regulation and pending fees.
Moody's expects the operating environment to remain stable and asset risks to continue to decline, spurred by the sustained disposal or restructuring of problem loans, among other factors.
The rating agency expects capital ratios to remain around their current levels and for robust funding and liquidity to endure.