© Lefteris Pitarakis/APNew RBS chief executive Ross McEwan has outlined a plan to restore profitability which Moody’s said carries ‘significant execution risk’.
Moody's also warned of further downgrades as it expressed concern about the bank's plan to revive its fortunes in the wake of a £8.24bn loss in 2013 - its sixth successive year of losses.
Andrea Usai, a senior credit officer at Moody's, said: "Over a longer-term horizon, RBS's restructuring plan should be beneficial for creditors if executed according to plan.
"However, the plan is large and complex, carrying significant execution risk in the short to medium term, happening at a time when the bank has limited financial flexibility to manage unforeseen events, which could arise either from the plan or from other sources, such as further litigation or conduct costs."
RBS has reportedly suspended three currency traders as regulators around the world continue their investigation into potential rigging of the £3tn-a-day foreign exchange market. The Bank of England governor, Mark Carney, said this week that the forex investigation could become a larger scandal than the manipulation of Libor, the benchmark interest rate.
Meanwhile, in January, the 81%-taxpayer owned lender warned of a further possible £3bn in costs from litigation relating to mortgage-backed securities, payment protection insurance and interest rate hedging products.
The new RBS chief executive, Ross McEwan, - who has described his employer as "the least trusted bank in the least trusted sector in the marketplace" - outlined his plan to return the bank to profit when he revealed the latest losses at the end of February.
The strategy includes refocusing on the UK rather than global customers and shrinking the bank from its seven businesses to concentrate on just three: personal and business banking, commercial and private banking, and corporate and institutional banking.
Delivering its verdict on the plan, Moody's said it could "heavily depress profitability over the next few years".
Moody's had warned RBS last month that it was considering downgrading its debt, which is effectively a corporate credit rating and determines the interest rate at which businesses can borrow.
Moody's has 10 investment grades - which are given to what it views as the most secure companies and states. Debts raised by those without an investment grade rating are called junk bonds. Bonds issued by RBS's holding company are now ranked in Moody's ninth most secure slot.
Despite the ongoing losses at the bank, McEwan has been forced to defend plans to pay £588m in staff bonuses. When unveiling the latest losses, he said: "I need to pay these people fairly in the marketplace to do the job. I do need to make sure we are there or thereabouts and that is all I'm asking for."
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