OREANDA-NEWS. Fitch Ratings says the 2016 sector outlook for the Irish banking sector is positive, based on on-going improvements in the banks' asset quality, business prospects, profitability and capitalisation. This partly mitigates the high proportion of problem loans (including either non-performing or low-yielding loans as well as forborne, restructured, impaired or defaulted) still on these banks' balance sheets.

Fitch expects the improvements in profitability seen this year to stabilise in 2016, as new lending growth at firmer margins, and low loan impairment charges and funding costs are counterbalanced by lower gains on sale on securities and smaller releases of impairment reserves.

We expect improving asset quality to be supported by continued restructuring of problem loans and large asset disposals, although the pace of the latter is subject to continued investor appetite.

Capital ratios have risen steadily across the sector, as a result of deleveraging and improved internal capital generation and we expect this trend to continue in 2016.

Following a peer review on 15 December 2015, Fitch has upgraded the Long-term Issuer Default Ratings (IDRs) and Viability Ratings (VRs) of Bank of Ireland (BOI) to 'BBB-'/'F3/'bbb-' from 'BB+'/'B'/'bb+' and the Long-term IDR and VR of Allied Irish Banks plc's (AIB) to 'BB+'/'bb+' from 'BB'/'bb'. AIB's Short-term IDR was affirmed at 'B'. The Outlook for the Long-term IDRs of both BOI and AIB is Positive. UBIL was last reviewed in May 2015.