Credit rating agency Moody’s has downgraded the long-term bank deposit rating and the senior debt rating of Irish Nationwide Building Society to Baa3 from Baa1.
Moody’s has also downgraded the bank’s bank financial strength rating to D- from C- based on its loss expectations for the Irish Nationwide’s loan portfolio.
It said in a statement today that he outlook on Irish Nationwide was negative and suggests the business model of the society will need to change
“The downgrade of the bank financial strength rating (BFSR) to D-, with a negative outlook, reflects Moody’s expectation that impairments in the society’s commercial property loan book will continue to increase, as well as the poor asset quality within the residential mortgage book,” the agency said.
Moody’s said given its loss expectations for the loan portfolio, the “society’s capital levels have the potential to be eroded to levels which are consistent with a low D range bank financial strength rating”.
According to the statement 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 and the deteriorating economic conditions in both Ireland and the UK may lead to further pressure on asset quality beyond our current expectations”.
Moody’s said the lender remains vulnerable due to the poor performance of commercial property markets, with around 80 per cent of the Irish Nationwide loan book comprised of commercial property.
“We expect the society to aim to increase the proportion of residential lending” from its current level of 20 per cent, although this will be challenging Moody’s says, adding that one strategic response open to the society includes reducing the size of its balance sheet.
It said the Irish Nationwide property portfolio retains a high concentration of risk.
“As the economic environment deteriorates this could potentially lead to substantially higher provisioning requirements.”