S&P Ratings Services has affirmed Butterfield Bank’s counterparty credit rating of A-, citing strong capitalisation.However, the ratings agency has a negative outlook on the bank’s ratings, because of the weakness in the Bermuda economy and the potential for more borrowers struggling to pay back loans.In its ratings report, issued last week, S&P said it expected Butterfield to remain profitable through the rest of this year and throughout 2013.S&P estimates that Butterfield has a deposit market share of roughly 40 percent in Bermuda, “which is only slightly less than that of its largest competitor, HSBC Bank Bermuda Ltd.”The rating agency highlights concerns about the local economy, noting that it is heavily dependent on financial services, real estate and tourism.“The local economy is experiencing a material slowdown in economic growth, in our assessment, in part because of the departure of several thousand expatriates in recent years from the Island and a contraction in the real estate industry,” S&P stated.The weakness in the economy will likely have an impact on the bank’s loan book in future, but for now the loans are performing relatively well, S&P found.“BNTB’s risk position is moderate, in our opinion,” the agency said. “BNTB’s loan performance has improved in recent quarters, despite a weakening local economy.“For example, gross non-performing loans (which include restructured loans and loans 90 days or more past due) declined to just less than three percent of total loans, by our calculation, as of June 30, 2012, down from nearly 5.9 percent as of December 31, 2009.“We view the decline in net charge-offs in recent quarters favourably and do not expect any material losses in the securities portfolio.“However, we think loan performance could deteriorate somewhat in the second half of 2012 and throughout 2013, given a weakening local economy.”The report notes that about half of Butterfield’s loan book is made up of residential mortgages, while one quarter is commercial real estate.Butterfield funding position is strong, thanks largely to the deposits gathered through its community banking business, the rating agency said.S&P added that the bank, which stopped paying dividends after losing hundreds of millions of dollars from writedowns of investments in securities tied to US mortgages during the sub-prime mortgage crisis, could return a “meaningful amount of capital to shareholders” over the next few years, but not in the near term.