BANK OF Scotland (Ireland) has been downgraded by international credit ratings agency Moody’s, while Irish Nationwide has been placed on review for a possible cut in its debt rating.
The agency downgraded Bank of Scotland (Ireland) to Baa1 from A2 over concerns about the bank’s weak performance, large concentrations of commercial property loans and uncertainty around the long-term strength of its franchise in Ireland. The downgrading of the bank, which is reviewing its operations, follows the write-off of €1.2 billion on bad loans on the bank’s €33.4 billion loan book on Wednesday.
A spokesman for the bank said the rating downgrade was “disappointing”, but added that the bank has the support of its parent, Lloyds Banking Group, which is continuing to fund the Irish bank.
Moody’s placed Irish Nationwide on review for a possible downgrading amid fears about the rapidly declining quality of its large commercial property exposure.
Some €8 billion of the society’s €10 billion loan book is exposed to the commercial property sector.
Ross Abercromby, analyst at Moody’s, said Irish Nationwide’s debt ratings “fully depend” on ongoing Government support.
He said the lender’s decision to offer an exchange of three bonds maturing after the State guarantee ends in 2010 at prices significantly below par to boost capital “raises the question [of] how much investors can take from Government support to shield them against further losses”.
Moody’s said the society’s bond exchange raised questions of “how actively the Government is willing to shield investors against losses and to what extent the Government is implicitly accepting that investors are among those contributing capital in the form of realised losses on their claims”.
The agency said the Government may be able to withdraw blanket support for individual banks and “increasingly ask investors to share a part of the burden of recapitalising its weak banks”.
Moody’s said Irish Nationwide would require additional capital.
“In the absence of its mutual owners, mostly small retail depositors, as a source of further capital, and in view of the likely losses in 2009, the Government appears to be the only source of such capital.”
Moody’s reaffirmed the debt ratings of Ulster Bank, saying it reflected the “high level of support” by its UK parent Royal Bank of Scotland. It upgraded the bank’s financial strength rating, saying it would benefit from the inclusion of its riskiest assets in the UK risk insurance scheme.
