Agency boosts AIB credit rating

INTERNATIONAL rating agency, Standard and Poor's, has upgraded its credit rating on Allied Irish Banks. The agency, which assesses the financial strength of banks and other institutions, reaffirmed its existing credit ratings for Bank of Ireland.

The credit upgrading for AIB means that its long term grading, at A+, has moved ahead of Bank of Ireland, which has an A rating. The short term debt ratings of both banks remain the same at A-1.

Last month the agency put Bank of Ireland on "Creditwatch" when the bank announced its £600 million sterling acquisition of British building society Bristol and West.

Following its review of Bank of Ireland, Standard and Poor's reaffirmed its A long term and A-1 short term ratings for the bank.

But the outlook for the bank was revised to negative - this means that its existing rating may come under pressure.

S & P believes the rating could face difficulty for two reasons: the capital of the bank could "become strained to a level inconsistent with an A long term rating" if there is any slippage in earnings this year and the Bristol and West acquisition poses significant challenges for the bank.

In its assessment of the Bristol of West acquisition, S & P described it as a relatively low risk business with greatly improved asset quality which will give Bank of Ireland greater geographic diversification, strengthen its retail funding sources and provide cost saving opportunities.

But it said the business poses significant strategic challenges for the bank because it is buying into a mature business with limited growth prospects in the short to medium term in a market where margins are only likely to contract.

S & P said AIB's improved rating reflected the firm's leading position in its core market.