SandP lowers ratings for four Irish banks

26th November 2010, Comments 0 comments

Rating agency Standard & Poor's lowered the credit standing on four big Irish banks on Friday, saying they were struggling to obtain interbank finance despite backing from the government, now supported by an EU-IMF rescue.

It also warned of ripple effects on some banks based in Northern Ireland and one with links to London.

The four Irish banks are Allied Irish Banks PLC (AIB), Bank of Ireland (BOI) and Irish Life and Permanent PLC (IL&P), downgraded by one notch, and Anglo Irish Bank Corp. Ltd downgraded by six notches

The action on Anglo Irish Bank was "because we believe that the Irish government may be forced to reconsider its current supportive stance towards Anglo's unguaranteed debt."

The downgrades applied to long-term counterparty ratings of the four domestically owned Irish banks, but the agency also lowered the credit rating of Barclays Bank Ireland PLC (BBI) by one notch.

It put on watch with negative implications the ratings of Ulster Bank Ireland Ltd, its UK parent Ulster Bank Ltd, and KBC Bank Ireland PLC.

This meant that "we may take rating action in the event that the sovereign rating is lowered further."

S and P said these decisions "follow a turbulent period for the Irish banking system, which in our view has led to the fortunes of the Irish sovereign (debt) becoming increasingly entwined with those of its banking system."

It said: "In recent months, we saw that the domestically owned Irish banks have struggled to source term funding, even when government guaranteed.

"We also observed that the banks have also suffered significant deposit outflows from institutional clients and become highly reliant on central bank funding."

The return to profitability for these banks was likely to be harder than the agency had expected.

The agency said that it understood that the European Union-IMF rescue for Ireland, agreed in principle last weekend and expected to be tied up this weekend, would direct support to "significantly improving the capitalisation of the most systemically important Irish banks."

This "may eventually succeed" in shoring up "lack of confidence in the system" but AIB, BOI and ILP faced a long haul in weanining themselves off support, S and P said.

© 2010 AFP

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