S&P downgrades Ireland's debt rating

[February 02, 2011]  LONDON (AP) -- Standard & Poor's cut its rating on Ireland on Wednesday amid ongoing fears about the country's banks despite a euro67.5 billion bailout of the country in November. The ratings agency warned that another downgrade may be in the offing.

The agency said that it was cutting Ireland's rating by one notch to A minus from A and warned that another downgrade could come as soon as April. By then, S&P said it will be in a better position to assess the impact of the recent capital injections into the banking sector.

Frank Gill, an S&P analyst, said he expected the government's rating to remain in the investment grade category after its current assessment of the country's economic prospects.

S&P estimates that the indebtedness of Ireland's domestic banking groups, excluding the international financial services sector, at over 170 percent of the country's gross domestic product. As a result, S&P said Ireland's banks are currently dependent "almost entirely" on the European Central Bank to refinance their current market debts.

Much hinges on the Irish economy and what happens with unemployment, Gill said.

"Were the labor market to deteriorate further, a rise in the level of delinquencies in the domestic banks' mortgage books could result in higher new capital requirements than we presently assume," Gill said.

However, he said Ireland's rating may be supported if the EU comes up with a more comprehensive solution to the debt crisis that has seen both Greece and Ireland turn to their eurozone partners and the International Monetary Fund for bailout loans.

"The emergence of a European sovereign debt restructuring framework that could reduce the perceived adverse political and financial cost of a sovereign debt restructuring could also lead us to reconsider our view of Ireland's creditworthiness," said Gill.

[Associated Press]

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.