S&P drops Irish banking system from its top tier

CREDIT rating agency Standard & Poor’s has dropped the Irish banking system from its top-rated group of countries.

As a result the banking system here has been relegated to the same level of risk as banks in Germany, Spain, Italy and Norway.

S&P said it had lowered its risk assessment of the Irish banks under its Banking Industry Country Risk Assessment (BICRA) to Group 2 from Group 1.

BICRA bases its rankings on the perceived strengths and weaknesses of the sector cores, with the strongest in group 1 and weakest in group 10.

Growing economic risks in Ireland and the impact that will have on the banks’ financial positions has forced the downgrade.

The rating agency acknowledges the positive impact of the Government’s guarantee scheme.

That has addressed some short-term problems.

Longer-term pressures resulting from a weakening property market and the deteriorating economic outlook in Ireland and Britain have made the banks here more vulnerable, it said.

It expects the Irish banking system will be “reshaped” by the current turmoil in the sector.

S&P says the banks will have to live with this lower rating for some time. An upgrade to the top tier was “highly unlikely” over the next few years. The downgrade should make it even harder for banks starved of capital to raise funds.