Credit rating agency Standard & Poor's has again cut its ratings for most Irish banks, saying conditions in the Irish banking industry remain weak.

Credit rating agencies rate the ability of companies and countries to pay their debts and their reports are closely watched by investors.

S&P has lowered its rating on AIB, Bank of Ireland, Ulster Bank and Anglo Irish Bank while Irish Life and Permanent's rating remains unchanged.

The agency said tough economic conditions would continue to put pressure on bank profits, while losses from loans would remain high over the next two years and were likely to peak this year.

S&P also said it had relegated the Irish banking system as a whole to its group four, which puts it alongside countries like South Korea, the Czech Republic and Slovakia.

It said it this downgrade was because of the impact of the tough economic environment, and its expectation of big changes in the regulatory system and greater state involvement in the banking sector.

The rating agency said it expected any recovery in the banks' earnings prospects to be sluggish. It added that many of the banks here may undergo operational and financial restructuring in the coming year, which will lead to a shake-up of the sector.

S&P also said wholesale funding conditions were likely to remain under pressure with strong competition for retail deposits.

'We expect the Government to remain supportive of systemically important, domestically-owned institutions,' S&P added.

S&P said it expected banks' losses on loans to peak at around €16 billion this year, and to total €37 billion over the period from 2009 to 2011. It has also raised its estimate of the percentage of 'problem loans' in the banking system to 15-30% from 10-20%. These are loans which the agency believes could lead to losses for banks

The agency also estimates the eventual cost to the Government of recapitalising the banks at €20-25 billion, €11 billion of which has already been injected.

AIB capital raising 'may not be enough'

S&P said it was cutting AIB to 'A-/A-2' from 'A/A-1'. It said it was expecting sustained high credit losses, combined with weaker profits, to continue to put pressure on the bank's financial position in the coming two years. It remains on negative outlook, meaning S&P could downgrade it further.

The agency said it believed AIB's recapitalisation may not fully occuer this year, and may not be big enough to support its current rating.

The agency said it was also downgrading Bank of Ireland to 'A-/A-2' from 'A/A-1' and said its outlook was stable due to the fact that it expects that the Government will remain highly supportive of the bank.

Ulster Bank Ireland Ltd's ranking has been cut from 'A+' to 'A', while it said its outlook is stable. It said the bank is now expected to be 'strategically important' to Ulster Bank's parent Royal Bank of Scotland Group rather than 'core'.

Anglo Irish Bank has been reduced to 'BBB' from 'BBB+'. It also said it was placing the bank on CreditWatch with negative implications. This means it is considering a further downgrade. S&P said this was due to uncertainty about the outcome of the European Commission's review of Anglo's restructuring plan.

The ratings on Irish Life & Permanent remain unchanged at BBB+ as it continues to benefit from the relative strength of the group's life assurance operations.