Fitch downgrades Ulster Bank Ireland to 'BBB+'

Friday 25 July 2014 14.41
The downgrade reflects Fitch's beliefs that Ulster Bank Ireland Limited may become less important to RBSG
The downgrade reflects Fitch's beliefs that Ulster Bank Ireland Limited may become less important to RBSG

Ratings agency Fitch has downgraded the long-term Issuer Default Rating (IDR) of Ulster Bank's Republic of Ireland business from A-  to BBB+.

Fitch said it has made the downgrade as the Royal Bank of Scotland's business here, Ulster Bank Ireland Ltd (UBIL), may become less important to the group over the next three to five years. 

The ratings agency also believes that the potential for disposal of UBIL is higher than in the increasingly more integrated Northern Ireland operations, which are housed in Ulster Bank Limited (UBL).

An IDR is a ratings agency's opinion on the potential for a default by a financial institution.

The outlook on both operations' long-term IDRs are negative, however the ratings agency affirmed UBL's long-term IDR at A- and short-term IDR at F1. 

UBIL's short-term IDR was downgraded to F2, from F1. 

Fitch said the IDRs for both entities are based on support from their parent, RBS. The ratings of RBS are derived from the extremely high probability of support that it would receive from the British authorities if required, it said.

At the same time, Fitch also assigned a Viability Rating of 'ccc' to UBIL, and affirmed UBL's VR at 'ccc'. 

The Viability Rating reflects the entities' weak asset quality and structural unprofitably, which affects the capital flexibility and potential long-term viability of the banks. 

In addition, Fitch said the group has been loss-making for several years and has additional challenges over the next 24 months as the bank incurs costs relating to increased integration for UBL with RBS and the restructuring and repositioning of UBIL. 

Earlier this morning, RBS published its interim results a week early, which revealed that the lender nearly doubled pre-tax profits to £2.65bn in the first half of the year, despite taking an extra £250m hit for mis-selling financial products.