Ratings agency Fitch has downgraded EBS Building Society to “BBB” from “A minus” due to the deteriorating outlook for the Irish economy and the weakening of the position of EBS.
In a statement today the agency said the sharp contraction in the Irish economy is "likely to damage the prospects for EBS in terms of credit risk, profitability and capital strength, given its exposure to high loan-to-value residential mortgages and commercial loans" and as a result it has cut the society's long-term issuer default rating.
A senior source close to EBS said this evening the downgrade was hardly a surprise following similar downgrades for the five other Irish financials recently.
They said the downgrade would not change the society's plan to issue a bond under the guarantee scheme and said the pricing of such a bond would be more influenced by the Government's credit spreads than EBS's own ratings.
Fitch said higher unemployment was likely result in rising loan impairment charges on EBS's residential mortgage portfolio and added that defaults and falling property prices are "likely to lead to significant write-downs on the society's commercial property book and in particular development finance loans".
The ratings agency said the size of these loan impairment charges could be so large that they would "lead to an erosion of capital".
EBS has a 10 per cent market share in both residential mortgages and customer deposits.