Fitch downgrades Irish Life & Permanent

Fitch today downgraded its individual rating on Irish Life & Permanent to "C" from "B/C" and removed it from rating watch negative.

The rating agency said it took the decision due to concern over the company’s profitability over the next two to three years.

Matthew Taylor, senior director in Fitch's financial institutions team, said while ILP’s loan book contained fewer risks than those of its peers the “operating environment has significantly deteriorated which Fitch expects to lead to falling revenues and larger loan impairment charges, causing profitability to shrink”.

While the insurance side of the business, Irish Life, was suffering from lower earnings it was still expected to report an acceptable level of operating profit this year and next.

However, Fitch said its banking arm, permanent tsb, was suffering from more expensive funding and cannot reprice loans fast enough to compensate.

As a result Fitch believes the combination of increased impairment charges and declining revenues mean it is likely the bank will report an operating loss this year.

A combination of rising unemployment and falling house prices were likely to led to

substantial loan impairments for this side of the business next year, Fitch said. Around 90 per cent of the bank’s loans are residential mortgages.

According to Fitch the establishment of the National Asset Management Agency (Nama) is likely to some consolidation among “domestic financial institutions” once loans have been transferred to it.

Shares in Irish Life and Permanent were flat at €2.90 by 2.15pm.