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Ireland's bailout exit relatively smooth since crisis

Moody's upgraded Ireland to investment grade in January, handing the government a major boost a month after it completed the European Union/International Monetary Fund bailout.

Moody's upgrade means that all of the three main rating agencies now have Ireland rated at BBB+, or equivalent, which clearly ranks Ireland as an investment-grade credit and reflects the confidence in Ireland shared by investors generally.

– said John Corrigan, head of the country's debt agency.

With Irish debt already rallying, that upgrade further opened it up to investors prohibited from buying junk-rated paper. Ireland's bailout exit has been relatively smooth, having made a strong return to bond markets and with an economy set to grow about two per cent this year.

At the height of the euro zone crisis in July 2011, Moody's cut Ireland's rating to Ba1, one notch below former financial market pariah Colombia, and that prohibited large, mainly Asian-based ratings-sensitive funds from touching Irish debt.

Ireland's credit rating upgraded by Moody's

Credit agency Moody's Investors Service upgraded Ireland's credit rating adding a further vote of confidence to the first euro zone country to complete an EU/IMF bailout last year.

Ireland's credit profile is recovering Credit: PA

"Ireland's credit profile is recovering more quickly from the euro area debt crisis as a result of its economy's dynamism and growth prospects," the credit agency said in a statement.

"However, Ireland's credit profile and rating remain constrained by the country's high public debt level, still-sizeable fiscal deficits and significant banking sector risks, including a high stock of non-performing loans."

Moody's raised Ireland's rating by two notches to Baa1 from Baa3 and with a stable outlook, saying a recent pick-up in growth momentum would speed up fiscal consolidation and cut government debt faster.

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Downgrade fails to spook markets

Ratings downgrades for 15 global banks including Barclays and HSBC failed to rattle the sector this morning.

The review by Moody's credit agency was downplayed by the UK's major institutions, with Royal Bank of Scotland calling it "backward looking".

But the downgrades highlighted the risks posed by the eurozone crisis and combined with yesterday's dismal economic data in the United States helped drag the FTSE 100 Index 45.9 points lower to 5519.6.

Among the banks, RBS was down by around 1%, as it also battled major technical problems affecting its NatWest subsidiary.

Barclays slipped 1p to 201.3p and HSBC dropped 1.5p to 557.75p.

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Mortgage rate rise risk after bank downgrades

This announcement will also lead to speculation that it will cause a further rise in mortgage rates. For too long banks have taken advantage of the lack of competition on the high street to increase the interest rates charged on mortgages, loans and overdrafts, with over one million consumers seeing their yearly mortgage payments increase by over £300 million with the Standard Variable Rate rises earlier this year.

This is why we cautiously welcomed the Chancellor's recent "funding for lending" scheme. But we want to see strong safeguards in place to ensure that banks pass on this cheap credit to consumers.

– Richard Lloyd, executive director of consumer group Which?

UK banks 'able to withstand future financial difficulties'

UK banks have already made wide-reaching reforms to how they operate ahead of our international competitors. They are well capitalised so able to withstand future financial difficulties and have plans in place which will prevent taxpayers having to step in in the future. Their exposure to problems in the eurozone is also very limited. Moodys' assessment reflects overall concerns about the current ongoing issues in the eurozone rather than the organisations themselves.

– British Bankers' Association statement

Lloyds reaction to Moody's credit downgrade

Lloyds has reacted to the decision by Moody's to reduce its senior debt and deposit ratings by one notch to A2 from A1 and lower its standalone credit assessment to baa2 from baa1:

The drivers for the downgrade and weakened standalone credit profile are (i) the bank's sensitivity to the increasingly challenging operating environment in the UK and also in Europe; and (ii) Lloyds' high (albeit declining) use of wholesale funding, which implies that it would be vulnerable to changes in investor sentiment towards European banks.

Several factors mitigate these risks and have limited the extent and scope of today's actions. These include (i) Lloyds' leading UK-based customer franchises; (ii) strong capital ratios; and (iii) a track record of successfully meeting restructuring targets.

– lloyds statement
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