The ratings giant said that with growth accelerating, Ireland’s debt position will improve and debt-to-GDP ratio will fall back to 110pc this year.
“The banking system is likely to need very little if any new financial support from the government after the results of the European Asset Quality Review are revealed at the end of October,” Moody’s said yesterday in an economic update.
In Ireland, AIB, Bank of Ireland, Ulster Bank and Permanent TSB will be stress-tested as well as the Irish-based operations of Merrill Lynch.
Finance Minister Michael Noonan has repeatedly said that there is no evidence that the banks will need further capital.
Domestic Irish banks went through so-called asset quality reviews (AQR) late last year as a prelude to the main tests to be carried out in the autumn.
The stress-test process is aimed at uncovering any hidden risks or losses in the banks by the end of October, before the ECB takes responsibility for overseeing them in November.
The 128 banks will also be subjected to a stress test looking at whether they need more capital to deal with future crises.
Moody’s also pointed out that Ireland is paying the lowest interest rates in its history for government borrowing and said it is now likely that the deficit will fall to below 4pc GDP this year.
“The re-emergence of Ireland’s intrinsically strong growth potential is a key factor behind its stronger creditworthiness in the past year and our cumulative three-notch rating upgrade in January and May,” Moody’s said.
“Indeed, Ireland’s growth rates contrast with overall European growth, which flat-lined in the second quarter, and with the growth of core European countries, some of which contracted modestly.”
Last week data from the Central Statistics Office showed that the economy grew by 1.5pc between April and June.
When you compare the April and June period of this year, the second quarter, with the same period in 2013, the economy expanded 7.7pc.
Both domestic demand and net exports are contributing to growth, the CSO said.
The figures led Finance Minister Michael Noonan to lift his growth forecasts for the second time in six days while predicting financial stability if the country remains on its current course and avoids a return to the boom and bust of the Celtic Tiger.
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