Downgrades as Fitch takes red pen to Irish lending institutions
Michael Fingleton's Irish Nationwide drops to BBB-, just one step above 'junk status'
Friday January 16 2009
Fitch, the credit ratings agency, has downgraded its ratings on five of the country's top lenders as the economic downturn gathers pace.
Allied Irish Bank and Bank of Ireland, each of which is set to receive a €2bn state bailout, have seen their long-term ratings drop two levels, from AA- to A, which ranks five places below Fitch's top-notch AAA stance.
The rating for Anglo Irish Bank, which, it subsequently emerged yesterday evening, is set to be nationalised, has slipped two notches to A-.
Irish Nationwide Building Society's rating drops from BBB+ to BBB-, or just one step above what Fitch considers "sub-investment" grade, or "junk status".
Fitch has also cut its view on Irish Life Assurance, the main business of Irish Life & Permanent, from AA- to A+, while EBS Building Society's A- rating has been placed on review for a possible downgrade.
Debt ratings downgrades typically make it more expensive for companies to borrow in the debt markets, which ultimately affects their profitability.
Fitch said its decision to take a red pen to its view on the Irish banks "reflects the deteriorating economic environment, an abrupt contraction in forecasts for Irish economic growth in 2009, rising unemployment and a worsening outlook for commercial property".
A combination of these factors should hit the banks' ability to generate revenues and lead to a sharp rise in bad loan losses, it said.
"These ratings actions incorporate our expectation of significantly weaker earnings by the banks and poorer asset quality," said Matthew Taylor, a senior analyst with Fitch.
However, the analyst said all the institutions could be cushioned somewhat by their "strong customer franchises" and focus on actively managing their expenses.
- Joe Brennan
