Ulster Bank outlook latest to be downgraded by Fitch

Ratings agency Fitch has downgraded its outlook on Ulster Bank Ireland to negative from stable, following on from its revision of the outlook on the bank's parent company, the Royal Bank of Scotland.

The ratings agency, which also downgraded its outlook on AIB and Bank of Ireland on Wednesday night, said Ulster Bank's viability rating is "constrained by weak profitability resulting from legacy issues and slow new business growth and high levels of impaired loans".

But, it said, the bank’s long term issuer default ratings are driven by potential institutional support from its parent group and reflect its expectation of an “extremely high probability of support” if required.

“While the ultimate economic and financial market implications of the coronavirus pandemic are unclear, Fitch considers the risks to bank’s credit profile to be clearly skewed to the downside,” the ratings agency said.

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Fitch added that it’s downside scenario for the euro zone is one where gross domestic product contracts significantly, something it expects is also “highly likely” in the Republic before a recovery in 2021.

Mortgage relief

As for the effect mortgage relief programmes will have on the banks, Fitch said the implications would be negative unless they were temporary in nature. Given, however, that compensation by the State for Covid-19 related losses appears to be approved by the EU for state aid purposes, Fitch said it is “probable that the full financial impact for banks will ultimately be mitigated”.

“Nonetheless, we expect asset quality to weaken relative to our previous expectations and for earnings challenges to intensify due to weaker business volumes and rising loan impairment charges.”

Ulster Bank Ireland’s “company profile, strategy and execution remain under pressure from a large portion of legacy assets and increasingly from the economic and financial fallout from the Covid-19 outbreak,” Fitch said.