RATINGS AGENCY Fitch has downgraded its rating on the Educational Building Society (EBS), warning that likely impairments to its residential and development loans are of a scale that would erode its capital base.
The agency has cut its “long-term issuer default” rating on the EBS to BBB from A-minus, a two- notch cut to the ninth of 10 investment-grade ratings from the seventh.
Fitch also revised the EBS’s rating outlook to “rating watch evolving” – meaning ratings may be raised, lowered or maintained – from “ratings watch negative”, indicating a potential downgrade.
The EBS, which has been in takeover talks with Irish Life Permanent for a number of months, said it was performing “resiliently” despite tough conditions in the economy at large.
In a note, Fitch said the downgrade reflects deterioration of the Irish economy and the weakening of the position of the EBS itself.
“Fitch considers that the sharp contraction in the Irish economy is likely to damage the prospects for EBS in terms of credit risk, profitability and capital strength, given its exposure to high loan-to-value residential mortgages and commercial loans.”
Matthew Taylor, senior director in Fitch’s financial institutions team, said the EBS, like other institutions, has been hit by the sharp downturn in the Irish economy. “We expect the society to find a solution to these challenges.”
