AIB credit rating may be lowered

International credit rating agency Standard & Poor’s has warned it may lower its mid-range ‘BB/B’ rating on AIB later this year, saying its outlook for the bank remains “negative”.

Despite AIB earlier this week reporting an optimistic set of annual results, which showed a 55% halving in pre-tax losses for 2013 to nearly €1.7 billion, and a commentary saying management is still targeting a return to profitability this year, S&P said its outlook on the bank reflects “what we see as the lack of certainty on the scale and timing of a potential recovery in AIB’s capitalisation by our measures”.

The agency yesterday affirmed its ‘BB/B’ rating on the Irish bank, but warned that it could be lowered by the end of 2014 “if we do not project AIB’s risk-adjusted capital to be above 3% by year-end 2014”.

“We would, most likely, reflect this projection in a downward revision of our capital and earnings assessment to ‘very weak’ from ‘weak’,” the agency added.

Noting AIB’s results, S&P said it viewed the performance as being “mixed”; on one hand noting the bank’s improvement in operating income (up 34% to €1.9bn); a return to pre- provision operating profit and a fall in operating expenses.

However, it also said that it thought the operating performance was still quite weak, although it expects further improvements to be made this year, and said AIB’s impairment provisions remained elevated at €1.9bn, albeit down from €2.5bn in 2012.

Crucially, noting the potentially short-term aspect of the ‘BB/B’ rating, S&P said that it currently estimates AIB’s year-end 2013 risk-adjusted capital ratio will be “well below” the 3% threshold to which it ascribes a “weak” capital and earnings assessment.

Separately, yesterday, AIB became the latest Irish lender to allow customers moving house to retain their tracker mortgages.

Coming into effect in the summer, the provision — which is open to both AIB and EBS customers — will allow borrowers to pay the existing tracker rate, as well as a further 1% for the duration of the mortgage if they move home.