Fitch has today downgraded both banks’ Long-term Issuer Default Ratings to ‘A-‘ from ‘A’ after yesterday’s downgrade of the Long-term IDR of the Republic of Ireland from AAA to AA+.
At the same time, Fitch has placed AIB’s Individual Rating of ‘D’ and BoI’s Individual Rating of ‘C/D’ on Rating Watch Negative. Fitch has also downgraded the banks’ subordinated debt and hybrid instrument ratings.
The rating agency’s stance reflects its expectation that the two banks might see larger losses in the current financial year when certain commercial property loans are transferred to Ireland’s National Asset Management Agency at a discount. Fitch says this might result in an acceleration of credit losses potentially exceeding the banks’ operating profit this year and probably absorbing some of the banks’ capital.
As a result, Fitch believes that further capital injections on top of the combined Euro 7bn already received may be needed. The agency will examine over the coming weeks the size of the potential losses and therefore to what extent the banks’ profitability and capital might be impacted.
Fitch also expects further deterioration in the asset quality of the banks’ residential mortgage and corporate loans books due to weaker prospects of the Irish economy and rapidly rising unemployment which will put the banks’ profitability under continuing pressure.