Ulster Bank's credit rating could be downgraded

Ulster Bank’s credit rating could be downgraded because its parent group, Royal Bank of Scotland, may not be able to protect it from the risks associated with the Irish economy and banking sector.

Ratings agency Fitch changed its outlook for Ulster Bank from stable to negative, meaning that the bank’s rating may be reduced, while confirming the rating and outlook for RBS at a stable level.

The agency said that it believed RBS would continue to support Ulster Bank with additional funding and capital as required.

RBS’s “propensity and ability” to support Ulster Bank was linked to “broad sovereign and associated banking sector risks in Ireland, not all of which are within RBS group’s power to neutralise”, said the ratings agency.

Ulster Bank’s rating is vulnerable to any change in Ireland’s sovereign rating, Fitch said.

The UK bank provides Ulster Bank with about a third of its funding requirements.

Ulster Bank’s viability rating – at ‘ccc’, a level where there is a substantial credit risk – reflects the “continued challenging operating environment in Ireland, the group’s over-exposure to the poorly performing real estate sector and operating losses still being reported,” the agency said.

Although this rating may benefit from an improvement in the Irish operating environment, this is likely to be over the longer-term, Fitch said in a report on RBS.