BANK OF Ireland is planning to raise $1 billion (€738 million) on a two-year Government-backed bond, becoming the second Irish lender to tap investors for funding following the Greek debt crisis.

Orders from investors on the US dollar bond were running at more than $1 billion ahead of the closure of the debt issue late yesterday in New York.

The bond is priced at about 1.75 per cent above the benchmark midswap rate, the reference point to price debt.

The managers on the bond sale are Bank of America Merrill Lynch, JP Morgan, Morgan Stanley and Nomura.

EBS, Bank of Ireland, Allied Irish Banks (AIB) and Irish Life Permanent have raised more than €6 billion under the extended guarantee scheme, which was introduced by the Government last December.

The scheme allows the institutions to raise funding on bonds maturing in up to five years’ time – beyond the end of the two-year blanket guarantee in September.

Credit ratings agency Fitch said the expiry of Irish bank guarantees may negatively affect the ratings on some structure finance and covered bonds, but it expects the banks to take remedial action well before the guarantees end.

Another ratings agency, Moody’s, said the Government’s shareholding in Bank of Ireland may change again as the bank is expected to raise capital “in the near future” following the transfer of loans to the National Asset Management Agency (Nama).

The issuing of 15.7 per cent of ordinary shares in the bank in lieu of a €250 million cash dividend on Monday would have no impact on the bank’s ratings, Moody’s said.

Analysts at French bank Société Générale estimated that AIB and Bank of Ireland will require €4.4 billion and €2.7 billion respectively to boost capital ratios.

The bank said the likelihood of AIB seeking much less than €4.4 billion in a cash call made it a more attractive stock, as the bank could sell its interests in Bank Zachodni in Poland and US bank MT ahead of a rights issue.