Monday 20 November 2017

S&P cuts Danske credit rating, blaming losses in Ireland

Donal O'Donovan

Donal O'Donovan

€4.7bn Of commercial loans to be hived off into a new unit



BANKS

LOSSES on Irish loans have been blamed for a cut in the credit rating of Danish parent Danske Bank, which owns National Irish Bank (NIB) in the Republic and Northern Bank.

Rating agency Standard & Poor's (S&P) cuts Danske Bank's rating to A-/A-2 from A/A-1 yesterday. It said it expected Danske to continue to see high impairment charges in its Irish banking business.

The bank also faces challenges in its home market of Denmark, S&P said.

Last night, management at Danske Bank said it was surprised by the cut.

"S&P's decision to downgrade the bank was unexpected in light of the decline in loan impairment charges in Ireland and Denmark from Q4 2011 to Q1 2012," said Henrik Ramlau-Hansen, Danske Bank's chief financial officer.

"At the same time, we have announced a new business model for Ireland and expect impairment charges to decline over the coming years."

That new model includes splitting NIB into 'good' and 'bad' units to deal with bad loans made during the boom.

The bank will hive €4.7bn of troubled commercial and investment-property loans off into a new unit.

Danske Bank has said previously that it expects to suffer impairments of up to €900m on its NIB loans over the next two years.

Last night analysts said the surprise ratings cut could now be mirrored by the other main rating agencies.

Rival agency Moody's is reviewing the ratings it gives banks in the Nordic region, including Danske.

That means that there is a realistic risk of a second ratings cut for Danske, with a knock-on rise in borrowing costs for the bank.

"It comes bit as a surprise but it makes sense and you can expect Moody's to follow soon, with at least a notch to A3 or maybe lower," said Ronny Rehn, an analyst at Keefe, Bruyette & Woods.

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