Permanent TSB's long-term credit rating has today been downgraded to B+ from BB- with a negative outlook by Standard & Poors.
The ratings agency follows a review of the bank's strategy following the announcement in April by the Government that a viable retail bank will be carved out of PTSB's existing business.
That plan was announced by Minister for Finance Michael Noonan who said that PTSB, which is 99.2 per cent owned by the State, could become a "third national bank" by moving troubled loans into an internal bad bank that would be run down over time or transferred to a separate entity.
In a statement issued this afternoon, S&P said it had chosen to revise its assessment of PTSB's systemic importance to "moderate", from "high" and left its assessment of the institution’s stand-alone credit profile (SACP) unchanged at B.
"We recognise that PTSB has recently received significant government support, and we expect that the Irish government will remain very supportive. Our reassessment of PTSB's systemic importance, consistent with our criteria and peer analysis, takes a forward-looking view of PTSB's role in the Irish banking system," it said.
The agency said the negative outlook on the bank's long-term rating was because considerable challenges remain for PTSB's management team including the deleveraging and returning the core business to profitability.
S&P said it expects that net interest margins will remain low and added it could lower PTSB's ratings further if it observes "significant" setbacks in its restructuring.
"If loan impairment charges or losses on deleveraging are greater than we currently expect, such that our projected risk-adjusted capital (RAC) falls below the 5 per cent threshold for a 'moderate' capital and earnings assessment, we could revise that assessment to 'weak'," it said.
"A revision of the outlook to stable would require substantial progress on restructuring and deleveraging, and confidence that Irish mortgage loan impairment charges have both peaked and are on a steadily declining trend," it said.
The future of PTSB and its mortgage rates came under close scrutiny at an Oireachtas hearing last week when the bank was accused of "gouging" customers with interest rates which were too high.
Chief executive Jeremy Masding told the Oireachtas Finance Committee that restructuring would lead to a significant number of branch closures and redundancies.
