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April 8, 2009    

Moody’s cuts debt ratings on 12 Irish banks

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by Kay Murchie

There is more bad news for Ireland after ratings agency, Moody’s, has downgraded ratings on a dozen Irish banks, just 24 hours after the country unveiled an emergency budget.

The downgrades suggest that Moody’s believes the banks are in a weaker financial position and this can mean borrowing in the future can be expensive.

According to Moody’s, the financial strength of the banks could be further compromised by losses on property loans.

The country had experienced a property boom since the late 1990s, with multinationals arriving to take advantage of one of the lowest corporate tax rates in the euro zone.

However, the ailing housing market has had a major impact on the economy and property prices have plunged by 40% since their high in 2006.

In response to the downgrade by Moody’s, the Irish Government said more needs to be done to restore the country’s reputation overseas and reassure international investors it is getting debt under control.

Yesterday, Ireland’s Government unveiled details of its second budget in six months as the country’s deficit nears 13% of GDP - quadruple the level allowed by the European Union.

In the meantime, at the end of March, Standard & Poor’s (S&P’s) downgraded Ireland’s credit rating from AAA to AA+ and put the Irish Republic on a “negative” outlook, meaning that further downgrades are possible.

S&P’s said it was concerned with the country’s banking system. Anglo Irish Bank is currently undergoing a fraud investigation, while Allied Irish Bank (AIB) and Bank of Ireland have been bailed out by the Government.

Ireland, which was the first country in the euro zone to enter recession, has also experienced a sharp rise in unemployment. The unemployment rate is creeping towards 12%.

The economy is expected to contract by 7.7% this year.

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