Bank of Ireland has had its credit rating upgraded by international agency Standard and Poor's, while the outlook for the bank has been improved from negative to stable. Higher credit ratings mean that the bank can borrow funds or raise them on the markets at lower interest rates as lenders or investors accept the higher ratings as evidence of an institution's financial strength.
The upgradings reflect the bank's strong position in the domestic market and its healthy profits, according to the agency. Another factor in the upgrading is that the acquisition of Bristol & West in Britain, as well as expansion in the domestic market, means the majority of the bank's risk assets are now in lower risk mortgage assets.
The ratings agency attributed Bank of Ireland's annualised return on assets of 1.41 per cent at the half year stage to "a balanced income mix, adequate cost control and low provisions". Bank of Ireland "also enjoys a stable and relatively inexpensive pool of retail deposits in Ireland and the UK which puts its liquidity on a secure position".
The agency has raised its long term counterparty credit and senior unsecured debt ratings from A to A-plus. The Bank of Ireland rating on subordinated debt has been raised from A-minus to A, while the overall outlook for the bank has been upgraded from negative to stable. The reratings cover about $1.075 billion (£790 million) of the bank's debt.
The acquisition of Bristol & West has enhanced Bank of Ireland's overall creditworthiness, according to Standard and Poor's, because it provides the bank with "meaningful and low-risk diversification from the limitations imposed by its business in the Irish Republic". Bank of Ireland bought the former building society in July 1997 for £600 million sterling.
This acquisition and the more recent £274 million acquisition of New Ireland have led to some capital pressures at the bank, the agency said. But these pressures "remain compatible with ratings at the current level" and have been reduced through the issue of £200 million in new equity and high levels of retained earnings.
The upgrading of the outlook from negative to stable reflects the expectation that capital will improve through profit retentions and that there will be "sizeable efficiency improvement" in the group and at Bristol & West.
