(Reuters) - Ratings agency Moody's (NYSE:MCO) on Friday downgraded the credit of First Republic Bank (NYSE:FRC), citing deterioration in the bank's financial profile and challenges faced by the lender due to increased reliance on funding amid deposit outflows.
The agency cut the bank's long-term issuer rating and local currency subordinate ratings to B2 from Baa1 and long-term local currency bank deposit rating to Baa3 from A1, among others.
The outlook on the issuer rating and long-term bank deposits of First Republic Bank remain under review, Moody's said.
Moody's said it believes the bank's high cost of borrowings, along with the "high proportion of fixed rate assets at the bank, is likely to have a large negative impact on First Republic's core profitability in coming quarters."
"In addition, the rating agency noted that while the news of the banking consortium's deposits is positive in the short-run, the longer-run path for the bank back to sustained profitability remains uncertain."
Moody's this week lowered its outlook on the U.S. banking system to "negative" from "stable," citing heightened risks for the sector after the rapid unraveling of SVB Financial Group fueled fears of contagion.