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Setback as Moody's downgrades BoI debt

Wednesday, December 18 16:45:57

Global ratings agency, Moody's, today downgraded Bank of Ireland's senior debt rating, deposit rating and reaffirmed its outlook as "negative" in a blow to the bank that has been struggling to place itself on a firmer footing.

Moody's Investors Service downgraded by one notch Bank of Ireland's (BOI) deposit ratings to Ba2/NP from Ba1/NP and senior debt ratings to Ba3 from Ba2, prompted by the concurrent lowering of the bank's baseline credit assessment (BCA) by two notches to b1 from ba2.

In line with the downgrade of BOI, Moody's has also downgraded the deposit ratings of BOI's subsidiary ICS Building Society to Ba2/NP and lowered its BCA to b1.

The lowering of the BCA reflects Moody's view of the increase in risks to bondholders arising from "ongoing asset-quality challenges that have the potential to put pressure on BOI's capital levels"

Its analysts also cited risk for BOI's bondholders stemming from the prospect of the stress test that will be undertaken by the European Central Bank (ECB) in 2014.

"While the design of the stress test remains unclear and its result difficult to anticipate, banks such as BOI with poor quality lending books, relatively low levels of provisions and poor profitability are at relatively greater risk of 'failing' the test. Any resulting material capital shortfall, if it cannot be remedied by BOI or its shareholders within a certain (still undefined) period, directly raises the risks for BOI's bondholders."

But the ratings agency also struck a more positive note: "At the same time, Moody's believes that BOI's increasingly visible return path to sustainable profitability should help it to offset some of these asset quality and capital pressures, while the potential for the bank to tap the private capital markets -- to which it currently has some access -- for equity injections should also be a further protection for bondholders."

"The moderate expectation of support from the Irish government leads to a one-notch uplift for BOI's senior unsecured debt ratings. In line with previous government actions to support depositors, Moody's continues to incorporate a higher degree of support likelihood for BOI's deposits, resulting in two notches of rating uplift from the standalone BCA."