The research by analysts at Barclays Investment Bank said Ireland’s banks were “more exposed” to a mix of US tariffs and falling interest rates than their European peers.
The analysis examined how a sector-specific US tariff on pharmaceuticals would affect the country’s banks, including AIB, Bank of Ireland and PTSB.
Ireland’s banks have enjoyed huge profitability thanks to ECB rate hikes in recent years, though these have since fallen as inflation improves.
Bank of Ireland building on College Green, Dublin 2. Photo: Getty
However, with the US tariffs on Europe, the ECB could look to cut interest rates faster if the economy weakens, further hitting banks’ profitability.
The research notes that Irish banks were “some of the most rate-sensitive names in the sector”. Running various illustrative scenarios, the analysts found there could be a hit to Irish banks’ earnings per share (EPS), a measure of profitability, of 7pc in a modest tariff scenario, rising up to 32pc in a severe downside.
Direct impacts on Irish banks from the tariffs would be limited, the research says, given that large multinationals don’t typically bank with them.
However, Irish banks were vulnerable to secondary impacts off the back of the tariffs. These include a broad-based slowdown in the Irish economy, interest rates falling faster and declines in employment.
Examining Irish banks’ asset quality, the analysis said there would likely be provision building across loan books. It also warned of more loan defaults.
The analysts expect impacts to be tempered by factors including the time and cost of re-shoring to US
The analysis noted its downside scenario for the tariffs appeared priced into AIB and Bank of Ireland share prices. It said recent falls seem to be “primarily related to tariff fears”.
The analysis said Irish banks would be able to weather moderate US tariffs. Even in more severe scenarios, the analysts expect impacts to be tempered by factors including the time and cost for pharma companies of re-shoring to the US and the relatively low proportion of employees in the sector.
The research also previewed the upcoming first quarter trading updates for the banks, including analysts calls at AIB and Bank of Ireland.
“We expect the banks to talk about potential tariff impacts being limited in 2025, but may be prepared to provide some confidence that outer year impacts may be more modest than being discussed by the market,” the report said.
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