Fitch Corporate rating agency has downgraded its rating on the Educational Building Society (EBS), warning that likely impairments to its residential and development loans are of a scale that would erode its capital base.
The agency has cut its "long-term issuer default" rating on the EBS to BBB from A-minus, a two- notch cut to the ninth of 10 investment-grade ratings from the seventh.
Fitch also revised the EBS's rating outlook to "rating watch evolving" - meaning ratings may be raised, lowered or maintained - from "ratings watch negative", indicating a potential downgrade.
The EBS, which has been in takeover talks with Irish Life Permanent for a number of months, said it was performing "resiliently" despite tough conditions in the economy at large.
In a note, Fitch said the downgrade reflects deterioration of the Irish economy and the weakening of the position of the EBS itself.