Irish Nationwide Building Society has been downgraded by ratings agency Fitch, which blamed an "uncertain outlook" for commercial and residential property lending in Ireland and Britain.

Fitch, which earlier this week published a report warning of the threat to mortgage providers of Ireland's weakening property market, cut the building society's long-term issuer default rating from A- to A, saying the reduced rating also reflected Irish Nationwide's "numerous single name concentrations" in the building society's commercial loan portfolio, about which the agency has previously expressed concern.

"Although impaired lending still appears fairly low, there has been a rapid increase in the proportion of the commercial loan portfolio, with an indexed loan-to-value ratio greater than 95 per cent, leaving little extra coverage in the event of problems," it said.

Some 75 per cent of Irish Nationwide's loan book is in commercial lending, while 40 per cent is on property in Britain, primarily in London.

Fitch said it was concerned about the society's corporate governance, adding that it needed to strengthen its management and board structures in light of its strong growth and size.

The agency said the building society benefited from strong cost efficiency and good profitability, and had access to "a large and historically stable retail deposit base that funds a substantial proportion of the loan book".

Irish Nationwide is currently seeking a buyer and a number of parties, including Icelandic bank Landsbanki, have assessed the business. However, the sale process has been delayed due to the downturn in the financial and property markets. Queries were tabled by prospective buyers about the society's loan book and the value of its assets amid concerns over its exposure to the commercial property sector.

The building society is now concentrating on preparing its annual results for 2007 and more intense discussions between Goldman Sachs, which has been retained to manage the sale process, and potential buyers are expected in the coming weeks.

The higher cost of funding in the debt markets and the drop in the value of financial stocks may ultimately delay the sale until market conditions improve.