The ratings agency Fitch has upgraded Bank of Ireland's "viability rating" (VR), one of the main criteria considered when assessing the bank's likelihood of defaulting on bonds it has issued.

The agency yesterday announced it has upgraded BOI’s VR to B+ from B, because “of further improvement in the bank’s risk profile, including our expectation of a return to profitability during 2014”.

It also attributed the upgrade to the bank’s recent capital package, which involved paying the State nearly €2 billion to buy out its interest in €1.8 billion preference shares. These are now held by private investors.

BOI's VR rating is now two notches above that of AIB, which has a B- rating. Fitch said this is because "both BOI and AIB were able to issue unsecured senior debt during 2013 but equity-raising may prove more difficult for AIB" because it remains 99 per cent State-owned.

Fitch reaffirmed a much lower VR rating of CC for Permanent TSB, because "it is likely to breach its minimum capital requirements over the medium term unless it receives approval for its restructuring plan" from European authorities.

The agency also reaffirmed both BOI and AIB’s long-term issuer default ratings at BBB, with a stable outlook.