Agency indicates credit downgrade

RATINGS:THE BANKS face further pressure on their deposits as an international debt rating agency said the country's creditworthiness would "most likely" be cut further in a "multi-notch" downgrading due to the cost of the EU-IMF bailout.

Moody’s said it expected a rescue fund of €80 billion to €95 billion for Ireland, of which €8 billion to €12 billion would be injected into the banks to bolster their reserves to reassure international markets.

The remaining loans would be used as a “back-stop facility” in case the Government could not borrow in the international markets in the medium term, the agency said.

Allied Irish Banks, Bank of Ireland, EBS building society and Irish Life & Permanent would require about €10 billion to bring capital reserves to norms now expected internationally, it said.

Anglo Irish and Irish Nationwide would not require further capital as they were unlikely to remain going concern businesses.

While the Government was funded till mid-2011, it was willing to tap European Union-International Monetary Fund financial support to recapitalise the banks and restore confidence, it said.

The six domestic banks had borrowed more than €80 billion from the European Central Bank, Moody’s said, but with additional capital they should be able to borrow in the markets over time and reduce loans from the ECB.

Dietmar Hornung, an analyst at Moody’s, said EU-IMF support of €80 billion to €95 billion was “appropriately sized” to cover the Government’s borrowing requirements of €60 billion to €65 billion over the next three years and to recapitalise the banks.

The Government has said that the banks will need “contingency” cash beyond further recapitalisation to reassure the markets.

A possible “multi-notch” downgrade in Ireland’s credit rating would have a similar knock-on negative effect on the banks as they are supported by the State and changes in their credit ratings mirror that of the Government.

Such a downgrade would still leave Ireland above what is known as “junk” status at a grade that is still seen as worth investing in.

Moody’s had said last month that the State could face a multi-notch downgrade, blaming further problems in the banks, increased uncertainty around the future of the economy and the Government’s high borrowing costs.

Bank of Ireland blamed credit downgrades earlier this year for the loss of €10 billion in deposits from large businesses and institutions in August and September.

AIB has tripled its reliance on Central Bank funding since June after losing €12 billion in deposits.