MOODY'S yesterday downgraded its ratings on Co-operative Bank for the second time this year? another blow to the troubled lender.

It said it had reduced the bank's debt and deposit ratings from Ba3 to Caa1.

The move pushes the Co-op's ratings further into junk status, which could make it more expensive for the bank to raise capital in the markets.

It also comes a day after the Co-operative Group, Britain's biggest mutual business, announced a rescue plan for its bank. It pledged to fill a 1.5 billion pound (US$2.3 billion) hole in its balance sheet by converting some bonds into shares, which will be listed on the London Stock Exchange.

The rescue came after banking regulators demanded the bank shore up its capital base so it could absorb potential losses over coming years. But the member-owned institution had been hamstrung in efforts to raise fresh capital, and needed to turn to the markets for money.

By forcing the bank bondholders to exchange their debt? 1 billion pounds this year and 500 million pounds in 2014? for shares, the bank doesn't have to ask the British government for a bailout. In 2007 and 2008, several UK retail banks, including Royal Bank of Scotland and Lloyds Bank, had to be rescued with taxpayer's money.

The bank described the downgrade as "entirely anticipated."

"We expect the rating agencies to improve their ratings in due course upon successful completion of the exchange offer," the bank said in a statement.