14.7.2011

By Simon Miller

Moody's Investors Service has the government-guaranteed debt of five Irish banks including Allied Irish and Bank of Ireland.

The ratings agency downgraded the banks from Baa3 to to Ba1 with a negative outlook from Baa3 following the downgrade of Ireland's government's bond ratings to Ba1 with a negative outlook from Baa3.

In a briefing note, Moody's commented: "These five banks have all issued public debt under the Eligible Liabilities Guarantee scheme. The assigned government-backed Ba1/Not-Prime ratings are based on the unconditional and irrevocable guarantee from the Irish government."

Despite the downgrade, Moody's was keen to emphasise that there was no impact on the bank deposit ratings, the senior unsecured debt ratings and the standalone bank financial strength ratings.

Moody's added: "The downgrade of the government bond rating has not affected the unguaranteed long-term senior unsecured debt ratings, as we do not incorporate any government support into these ratings."

It added that if the credit risk for unguaranteed senior unsecured debt was to increase - either because of further economic decline or because of policy changes implying a greater willingness to impose losses on bondholders - "then the banks' unguaranteed senior unsecured debt ratings would likely face further downgrades".

Moody's said: "Moody's will therefore continue to monitor the approach of the Irish government to this debt class. Moody's sees little likelihood of upward rating pressure emerging on the ratings due to the still very challenging economic conditions in Ireland. Improvements in the banks' funding profiles, permitting a substantial reduction in the reliance on central bank funding, would be a prior condition for any potential upgrade."

The government-guaranteed debt of the following banks has been downgraded:

- Allied Irish Banks
- Anglo Irish Bank
- Bank of Ireland
- EBS
- Irish Life & Permanent