Ratings agency Fitch said today it may downgrade the short-term issuer default ratings – which measures the likelihood of a debt default – on four Irish banks.
AIB, Bank of Ireland, EBS Building Society and Irish Nationwide Building Society all have a short-term issuer default rating of ‘F1’, the highest available, but have been placed on watch for a possible downgrade due to expected changes in the structure of the Government guarantee.
Under the Government scheme the State has guaranteed all deposits, covered bonds, senior debt and dated subordinated debt at financial institutions in six Irish banks.
The Government guarantee was introduced almost a year ago on September 30th and is scheduled to run for two years.
Matthew Taylor, senior director in Fitch's financial institutions' team, said the Government is expected to amend the scheme so it “conforms more closely with those in other European Union countries, which means it is likely to be less all-embracing”.
The ratings agency said it expects a new guarantee scheme to be introduced from September 29th, 2010 that will be less comprehensive than the existing one.
Fitch said it will continue to apply Ireland's sovereign ratings to the banks' guaranteed securities but, “at end-September 2009, or when more detailed information is available, the agency expects to review and most probably downgrade the short-term issuer default ratings of the four institutions referenced above”.
Mr Taylor added that an amended scheme does not imply weaker State support for the guaranteed credit institutions.