Moody's Investors Service slashed Ireland's credit rating by five notches to Baa1 from Aa2 and warned further downgrades could follow if Ireland was unable to stabilise debt metrics in the foreseeable future.
The downgrade followed Fitch's move last week to become the first ratings agency to strip Ireland of its 'A' credit status, cutting it by three notches to BBB+ following the debt-stricken government's request for an EU/IMF bailout.
Moody's said the crystallization of bank-related contingent liabilities, increased uncertainty regarding the country's economic outlook and decline in the government's financial strength were the key drivers of the action.
It said the outlook on the Baa1 rating was negative.
"Ireland's sovereign creditworthiness has suffered from the repeated crystallization of bank related contingent liabilities on the government's balance sheet," Dietmar Hornung, vice president and senior credit officer at Moody's said.
"The increased uncertainty regarding the outlook for the Irish economy - an additional determinant of today's rating action - is the result of the continued severe downturn in the financial services and real estate sectors as well as the ongoing contraction in private sector credit."
The move follows news that bad debts held by Spain’s banks have reached a 15-year high, according to new Bank of Spain figures.
Unpaid loans made by Spanish banks, financial cooperatives and retail credit cards rose to €103.7bn (£88bn) – a ratio of 5.66 per cent of total lending, up from 5.49 per cent the previous month.
Moodys warned earlier this week it had placed Spain's newly-downgraded Aa1 rating under review.
Today, it also issued downgrades to the issuer and debt ratings of the Basque Country as well as the issuer ratings of the Diputación Foral de Guipuzcoa and Bizkaia by one notch to Aa1.
It said the outlooks for all of those were negative.
City A.M. Reporter