Ratings agency Standard and Poor's has lowered its long-term credit ratings for AIB and Bank of Ireland due to “deteriorating asset quality” at both banks.
At 10am Bank of Ireland shares were 7.8 per cent higher at 55 cent while AIB was up over 1 per cent at 94 cent.
AIB’s long-term rating has been downgraded to 'A' from 'A+' while its 'A-1' short-term rating was affirmed.
"The downgrade reflects our anticipation of continued significant weakening of asset quality, and the pressure we expect this to continue exerting on profitability over the rating horizon.
“We believe that the government would continue to provide support to AIB in case of need, and we now include one notch of support above AIB's stand-alone credit strength," said Standard & Poor's credit analyst Claire Curtin.
Ms Curtin noted that the ratings reflect the announcement that AIB will receive €3.5 billion under the Government recapitalisation plan was “significant support”.
The ratings on AIB reflect what we view as a strong position in the Irish banking sector, considerable asset quality pressures in its Irish commercial real estate book, a good funding and liquidity position, and the significant support it has received from the government of Ireland as a highly systemically important bank.
She noted that AIB is investigating ways in which to reduce the banks' land and development exposures, “which are currently a significant drag on AIB's asset quality”.
Bank of Ireland’s long-term rating has been downgraded from 'A' from 'A+' although the bank is no longer on negative credit watch.
"The rating action reflects our consideration of BOI's strategy and prospects for the bank's asset quality, earnings, and capitalization, as well as the Irish government's announcement yesterday of an expanded support package for BOI," said Standard & Poor's credit analyst Giles Edwards.
He said that notwithstanding its strong market position, Bank of Ireland faces a very weak outlook for asset quality and therefore profitability over the rating horizon.
"We expect that the support being provided by the Irish government will allow BOI to maintain adequate capitalization despite, in our opinion, the weak and deteriorating outlook for BOI's asset quality and earnings," said Mr Edwards.
