Nationwide credit rating downgraded

IRISH NATIONWIDE will be forced to pay investors more for new funding after its debt ratings were downgraded by international credit rating agency, Moody’s.

The building society had its long-term bank deposit rating and senior debt rating reduced by two notches to one level above speculative grade or “junk” status.

The rating was cut to “Baa3”, the lowest investment grade rating before “junk” status, from “Baa1”, as the agency expects higher bad debts on the building society’s commercial property loan book.

The building society’s “bank financial strength rating” was reduced from ’C-’ to ‘D-’, which represents a lender displaying “modest intrinsic financial strength, potentially requiring some outside support at times”.

Moody’s said Irish Nationwide remained vulnerable due to the poor performance of commercial property, which accounts for about 80 per cent of the society’s overall €16 billion loan book.

It also cited “poor asset quality” on the building society’s residential mortgage book and “the high concentration risk” within the overall loan book. This means the lender has a small number of borrowers who account for a large proportion of the society’s loans.

The agency said that as the economic environment deteriorated, the high concentration could lead to a higher level of losses on loans. Moody’s said the outlook on the building society’s ratings was negative, meaning that it may downgrade the lender again soon.

“The negative outlook reflects that the rapid deterioration in land and property values in Ireland and the UK that have eroded the high loan-to-value ratios on the commercial property and development loan book,” said the agency.

“The deteriorating economic conditions in both Ireland and the UK may lead to further pressure on asset quality beyond our current expectations.”

Irish Nationwide chief executive Michael Fingleton directed queries to his spokesman who had no comment on the rating change.

Ratings are an indication of a borrower’s ability to repay loans and determine how much a financial institution, company or sovereign state pays for its loans.

Assigning a weaker rating to Irish Nationwide means it will be forced to pay bond investors a higher rate of interest for any loans it raises in the money markets. It is preparing to raise about €1.5 billion of debt maturing this year.

Analyst Scott Rankin at stockbroker Davy said: “It’s unhelpful and will make life that bit more difficult raising money, but it had been expected.”

Moody’s said that given its loss expectations for loans, capital levels could be eroded to levels consistent with “a low D range bank financial strength rating.”

The Government is assessing State investments in Irish Nationwide, Irish Life Permanent and the EBS after recapitalising Allied Irish Banks and Bank of Ireland and nationalising Anglo Irish Bank.

Moody’s said it believed Irish Nationwide’s business model would “need to change”, because of the poor performance of the commercial property markets and due to the low demand for new lending.