Republic of Ireland Long-Term Rating Lowered To 'AA-' On Higher Banking Sector Fiscal Costs; Outlook Negative
|Publication date: 24-Aug-2010 16:52:13 EDT|
- The projected fiscal cost to the Irish government of supporting the Irish financial sector has increased significantly above our prior estimates.
- We are therefore lowering our long-term sovereign credit rating on the Republic of Ireland to 'AA-' from 'AA'.
- The negative outlook reflects our view that a further downgrade is possible if the fiscal cost of supporting the banking sector rises further, or if other adverse economic developments weaken the government's ability to meet its medium-term fiscal objectives.
LONDON (Standard & Poor's) Aug. 24, 2010--Standard & Poor's Ratings Services said today that it lowered its long-term sovereign credit rating on the Republic of Ireland to 'AA-' from 'AA'. At the same time, the 'A-1+' short-term rating on the Republic was affirmed. The outlook is negative. The transfer and convertibility assessment remains 'AAA', as it is for all members of the European Economic and Monetary Union. The downgrade to 'AA-' applies to other ratings that are dependent on the sovereign credit rating on Ireland, including the issuer credit rating on the National Asset Management Agency (NAMA), and the senior unsecured debt ratings on government-guaranteed securities of Irish banks. "The downgrade reflects our opinion that the rising budgetary cost of supporting the Irish financial sector will further weaken the government's fiscal flexibility over the medium term," said Standard & Poor's credit analyst Trevor Cullinan. In light of the recent announcement of new capital injections into Anglo Irish Bank Corp. Ltd. (BBB/Watch Neg/A-2), our updated projections suggest that Ireland's net general government debt will rise toward 113% of GDP in 2012. This is more than 1.5x the median for the average of eurozone sovereigns, and well above the debt burdens we project for similarly rated eurozone sovereigns such as Belgium (98%; Kingdom of; AA+/Stable/A-1+) and Spain (65%; Kingdom of; AA/Negative/A-1+). After a decade of rapid credit growth, which in our view greatly increased the risk profile of Irish banks, the Irish government has adopted what we view as a proactive and transparent approach to dealing with the financial sector's difficulties. We believe this should help foster a gradual recovery of the Irish economy over the medium term. Nonetheless, we believe that the government's support of the banking sector represents a substantial and increasing fiscal burden, which in our view will be slow to unwind. We have increased our estimate of the cumulative total cost to the government of providing support to the banking sector from about ?80 billion (50% of GDP; see "Ireland Rating Lowered To 'AA' On Potential Fiscal Cost Of Weakening Banking Sector Asset Quality; Outlook Negative," published June 8, 2009, on RatingsDirect), to ?90 billion (58% of GDP). For details on how our 2010 estimate of Ireland's general government debt compares to official estimates, see Standard & Poor's commentary "Explaining Standard & Poor's Adjustments To Ireland's Public Debt Data," also published today. Our estimate includes two main components: the upper end of our estimate of the capital we expect to be provided by the Irish government to improve the solvency of financial institutions, and the liabilities we expect the government to incur in exchange for impaired loans acquired from the banks. We have increased our estimate of the cost to the Irish government of recapitalizing financial institutions to ?45 billion-?50 billion (29%-32% of GDP) from ?30 billion-?35 billion (19%-22% of GDP). "The negative outlook reflects our view that the rating could be lowered again if--as a result of its support for the financial sector or due to a more sluggish economic recovery--the government's fiscal performance improves more slowly than we currently assume," said Mr. Cullinan. Conversely, the outlook could be revised to stable if the Irish government looks more likely to achieve its fiscal target for the underlying general government deficit of less than 3% of GDP by 2014, or if the banking sector stabilizes more quickly and at a lower fiscal cost to the government than we now think likely. RELATED CRITERIA AND RESEARCH
- Criteria For Determining Transfer And Convertibility Assessments, May 18, 2009
- Rating Sovereign-Guaranteed Debt, April 6, 2009
- Sovereign Credit Ratings: A Primer, May 29, 2008
- Enhanced Methodology And Assumptions For Rating Government-Related Entities, June 29, 2009
- Ireland National Asset Management Agency (NAMA) Assigned 'AA/A-1+' Issuer Ratings; Outlook Neg; NAML Notes Rated 'A-1+', June 21, 2010
- Republic of Ireland 'AA/A-1+' Sovereign Ratings Affirmed; Outlook Remains Negative, April 8, 2010
- Republic of Ireland 'AA/A-1+' Sovereign Ratings Affirmed; Outlook Negative, Dec. 18, 2009
- Ireland Rating Lowered To 'AA' On Potential Fiscal Cost Of Weakening Banking Sector Asset Quality; Outlook Negative, June 8, 2009
- Republic of Ireland Rating Lowered To 'AA+'; Outlook Negative On Public Finance Concerns And Economic Growth Potential, March 30, 2009
- Republic of Ireland Outlook To Negative On Concerns About Public Finances; Ratings Affirmed, Jan. 9, 2009
Complete ratings information is available to RatingsDirect subscribers on the Global Credit Portal at www.globalcreditportal.com and RatingsDirect subscribers at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column. Alternatively, call one of the following Standard & Poor's numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow (7) 495-783-4011.
|Primary Credit Analyst:||Trevor Cullinan, London (44) 20-7176-7110;|
|Secondary Credit Analyst:||John Chambers, CFA, New York (1) 212-438-7344;|
|Additional Contact:||Sovereign Ratings;|
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