Fitch cut The Co-operative Bank from BBB+ to BBB- on Friday because of earnings and asset quality deterioration. The rating action concludes a negative review, paving the way for Fitch to resolve a Rating Watch Negative on the issuer’s covered bonds.

The rating agency said that weakened Fitch core capital and regulatory core tier one ratios were the drivers for the downgrade of the bank’s issuer default rating. It said that the bank has a relatively high liquidity reserve and a strong funding profile, but that underlying profitability is weak.

The Co-operative Bank’ asset quality has materially weakened, said Fitch, adding that further impairments are likely if security is realised at lower than expected values.

Fitch also downgrade the issuer’s Viability Rating, from bbb+ to bbb-. The outlook on the issuer default rating is negative. It said that it would detail in a separate comment any rating impact on the bank’s covered bonds. In February it had maintained on Rating Watch Negative (RWN) a AA+ rating of £600m of mortgage covered bonds issued by The Co-operative Bank, saying that the RWN on the issuer rating drives that of the covered bonds and that the latter would be resolved following the review of the bank’s IDR.