The ratings agency downgraded the Danske Bank Group to A-/A-2 from A/A-1, and the outlook was adjusted upwards, from "negative" to "stable", the bank said.

The action came as Standard and Poor's expects the bank will continue to see high impairment charges in its Irish banking business, as well ongoing challenges for some sectors in Denmark.

Danske Bank owns National Irish Bank in the Republic of Ireland and Northern Bank in Northern Ireland and has been stung by high impairment charges as the Irish economy suffered during the financial crisis.

Reporting its first quarter results earlier this month, Danske Bank said it would hive off $6 billion of bad loans at its troubled Irish unit as part of a reorganization aimed at drawing a line under the fallout from the 2008 financial crisis and generating cost savings to help revive earnings.

Chief Executive Eivind Kolding has warned the bank's writedowns are set to continue and earnings will remain unsatisfactory for two years.

In its home market, the bank has faced writedowns first from troubled property investors and then from agricultural clients.

The bank said in a statement it took note of S&P's downgrades but also of the fact that S&P considered its business position to be strong and viewed its liquidity as adequate.

"S&P's decision to downgrade the bank was unexpected in light of the decline in loan impairment charges in Ireland and Denmark from Q4 2011 to Q1 2012," said CFO Henrik Ramlau-Hansen in the statement.

"At the same time, we have announced a new business model for Ireland and expect impairment charges to decline over the coming years," Ramlau-Hansen said.

Danske Bank shares were down 1.7 percent at 80.0 crowns at 0717 GMT, against a 1.3 percent fall in the Nordic banking sector index .TBNKF and a 0.7 percent fall in Denmark's benchmark index .OMXC20.

(Reporting by Copenhagen Newsroom; Editing by Mark Potter and Helen Massy-Beresford)

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