Standard & Poor’s cut Danske Bank and core operating subsidiary Sampo Bank from A to A- today (Wednesday) because it expects Danske to continue to suffer high impairment losses in its Irish banking business.

The outlook on the ratings is stable. The rating agency also downgraded the banks’ short term ratings from A-1 to A-2 and lowered Danske’s standalone credit profile (SACP) from bbb+ to bbb.

“The rating action reflects our expectation that Danske Bank will continue to suffer high impairment losses in its Irish banking business as a result of continued weakness in the Irish property market,” said S&P. “It also reflects our view that the resolution of the Danish financial crisis will create above-average impairment losses for the bank.”

It expects projected losses to be higher than it previously anticipated and that the group’s financial performance will improve at a later stage, with 2012 unlikely to be a materially better year for Danske than 2011.

“This in turn creates additional challenges for the group in terms of improving its capitalisation, which presently is in the 5%-7% range according to our risk-adjusted capital (RAC) framework,” said S&P.

However, the stable outlook reflects the rating agency’s expectation that Danske will succeed in working out its remaining asset quality problems over the next three years within S&P’s base case loss assumptions, specifically that impairments will not materially exceed 0.66% of net loans on average over that period.