AIB's decision to buy a major stake in a Bulgarian bank on the eve of the financial crisis has come back to haunt the company almost three years later.
AIB owns 50pc of Bulgarian American Credit Bank, but the bank has ditched its Standard & Poor's (S&P) credit rating as almost a quarter of its loan book moves into arrears.
AIB is trying to sell the bank since last summer, but has not reported any interest from buyers.
AIB bought the bank while Eugene Sheehy was chief executive. At the time AIB paid €216m for the stake, paying 16 times the Bulgarian bank's earnings.
S&P has now lowered its credit rating on the bank and on instructions from the Bulgarian bank withdrawn any future ratings entirely.
"The rating action reflects our view that Bulgarian American Credit Bank faces heightened liquidity risk resulting from fairly tight resources in light of its debt-repayment schedule in 2011," said S&P.
AIB has a €75m credit line in place to support the bank, but S&P said there was uncertainty over this being renewed. The Bulgarian lender is facing two bond repayments totalling €60m.
"In addition, we note the ongoing negative trend related to Bulgarian American Credit Bank's asset quality and profitability,'' the agency added.
The Sofia-based bank is a specialist lender of secured finance to small-and-medium-sized companies.
The stake is just under the 51pc level that would trigger a mandatory takeover bid for the remainder of the company under Bulgarian law
At the time of the purchase Irish analysts saw the move as a chance for AIB to move into an emerging market and broaden its geographical base.
But recent results show the bank suffering from non-performing loans coming to 23pc of its total advances.
"With a cost-income ratio of just 15.5pc, it sounds a bit like the Anglo Irish Bank model operating in the Bulgarian economy," said Goodbody Stockbrokers at the time.
"This investment is part of AIB's strategy for central and eastern Europe which involves acquiring and investing in businesses at reasonable valuations in targeted high-growth markets and which operate in areas where AIB has core expertise -- in this case, SME lending," said Mr Sheehy at the time of the purchase.