Fitch may downgrade Irish bank ratings

FITCH Ratings has placed the short-term issuer default ratings (IDRs) of Allied Irish Banks, Bank of Ireland, EBS Building Society and Irish Nationwide Building Society on rating watch negative (RWN).

This threat to downgrade the Irish banks a notch reflects the belief by Fitch that the Government will lessen the scope of its bank guarantee when it reaffirms the guarantee at the end of September 2010.

Commenting yesterday the agency said it expects such a move by the Government when it confirms its plan to keep the guarantee in place.

The change would bring Ireland into line with the guarantees in place in other EU states, said the agency.

As a result of the change the state guarantee of the Irish banks “is likely to be less all-embracing”, said Matthew Taylor, a senior director in Fitch’s financial institutions’ team.

The agency stressed however that “an amended scheme does not imply weaker state support for affected credit institutions”.

It believes the new guarantee scheme will be introduced from September 29, 2010, but will be less comprehensive than the existing scheme.

The agency said it will continue to apply Ireland’s sovereign ratings to the banks’ guaranteed securities but expects to review and most probably downgrade the short-term IDRs of the four institutions which it has now placed on RWN.

The Government’s 100% ownership of Anglo Irish Bank suggests that its ability to meet its financial obligations will remain strong, Fitch said.

That is why the agency has affirmed the bank’s short-term IDR.

The four banks currently have a short-term IDR of ‘F1+’. Fitch has simultaneously affirmed Anglo Irish Bank’s short-term IDR at ‘F1+’.

“Irish banks will continue to need guaranteed funding and the agency expects the state to amend its guarantee scheme to bring it more in line with other EU countries, which means it is likely to be less all-embracing,” said Mr Taylor.

Fitch said it will continue to apply Ireland’s sovereign ratings to the banks’ guaranteed securities but, at end-September 2009, or when more information is available, the agency expects to review and most probably downgrade the short-term IDRs of the four financial institutions.