STANDARD AND Poor’s (SP) has downgraded the credit ratings of AIB and Bank of Ireland following their recapitalisation, citing weakening asset quality and earnings pressure.
This follows similar action taken by two other ratings agencies, Moodys and Fitch, on Thursday. SP lowered the long-term credit rating of both AIB and Bank of Ireland from A+ to A, although their outlook remains stable.
Despite their strong market positions, the agency said it anticipated a significant deterioration in their asset quality, which, in turn, would exert pressure on profitability.
The newly-announced Government recapitalisation scheme, under which €3.5 billion will be injected into each bank, is considered to be a stabilising factor as it should enable the two banks to maintain adequate levels of capitalisation.
However, SP warned that AIB and Bank of Ireland could be downgraded further in the future if the Government appeared less willing to support them, or if the banks’ financial profiles weaken further than anticipated.
A ratings upgrade is considered a remote possibility due to the weak outlook for the Irish economy and the challenges facing the banks.
The long-term credit ratings of both banks were also downgraded by Moodys on Thursday.
On the same day, Fitch lowered AIB’s individual credit rating to D from C, while Bank of Ireland’s rating was downgraded to C/D from C.
Both Moodys and Fitch attributed the downgrades to an expectation that the asset quality of the banks will deteriorate significantly as the recession deepens.
Fitch predicted that loan impairment charges will continue to rise steeply as unemployment increases and GDP growth slows.
This could weaken the banks’ “standalone financial flexibility” over the next three years, it predicted.
AIB is considered by Fitch to be more vulnerable to any additional financial shocks because it has a greater exposure to risky property development and landbank loans than Bank of Ireland.
The National Treasury Management Agency (NTMA) said it aimed to raise €23 billion ($29.71 billion) this year, three billion more than it had sought previously, due to a bigger budget deficit. The NTMA said it had not finalised plans for bond auctions yet. In January, the NTMA said it aimed to hold its first bond auction in February.
