Ratings agency Moody's has upgraded the A2 long-term bank deposit and senior debt ratings of Ulster Bank and its subsidiaries, but downgraded the bank deposit ratings and financial strength ratings of Bank of Scotland (Ireland).
In a statement released late last night, Moody's said the financial strength rating of each Ulster Bank, Ulster Bank Ireland Ltd and First Active had been upgraded to D+ from D.
In addition the subordinated debt rating of First Active has been confirmed at A3, the ratings agency said.
"The confirmation of the A2/P-1 bank deposit and senior debt ratings reflects our view that the high level of support demonstrated to date by the bank's parent, Royal Bank of Scotland, will continue, even after the current difficult period," said Ross Abercromby, vice president and lead analyst at Moody's for the Irish banks.
"The upgrade of Ulster Bank's BFSR to D+ reflects the substantial benefit to the bank from the inclusion of their riskiest assets in the UK government's Asset Protection Scheme and our view that the bank's franchise across the island of Ireland will remain strong, whilst recognising the sizeable challenge facing the bank over the next couple of years in managing its problem loans," he added.
Moody's also said last night that it had downgraded the bank deposit ratings of Bank of Scotland (Ireland) to Baa1/Prime-2 from A2/Prime-1 and downgraded the bank financial strength rating to D- from D.
Mr Abercromby said the financial strength downgrade reflected Moody's concerns about the weak underlying performance of Bank of Scotland (Ireland), which has large concentrations in commercial property locally and uncertainty around the longer-term strength of the franchise in Ireland.
The D- downgrade also reflects the large single borrower concentrations, the very high reliance on the parent for funding and the broader risks relating to the Irish economy.
"The downgrade of the bank deposit and senior debt ratings to Baa1/P-2 from A2/Prime-1 reflects the weaker financial strength of the bank but still incorporates our view that support will continue to be forthcoming during the current difficult period,” said Moody’s in a statement.
“However in the longer-term the strategic rationale for Lloyds to own a relatively small bank in Ireland is less obvious and given the uncertainties around the long-term viability of the franchise we believe the importance of BOSI to Lloyds may reduce," it added.
Lloyds Banking Group, the UK owner of Bank of Scotland (Ireland), said yesterday it was writing off €1.2 billion on bad debts on its Irish loan book of €33.4 billion.
