The Bank of Butterfield’s outlook has been upgraded to positive from stable by ratings agency Standard & Poor’s.

And S&P said the likelihood of the overall banking industry country risk-assessment score for the island improving was “increasing.”

The S&P report also affirmed the bank’s ratings of BBB/B-2 for issuer credit, but with a negative outlook.

The report said: “The positive outlook on BNTB reflects the potential that we could raise the ratings if we raise the Bermuda anchor, while at the same time the bank maintains adequate capital and superior credit metrics relative to those of peers.”

The agency also affirmed its A-/A-2 issuer credit ratings for HSBC Bermuda with a negative outlook.

The report explained: “The negative outlook on HBBM primarily reflects our belief that there is a possibility the bank may significantly reduce its capital levels, which more than offsets the likelihood of an improvement stemming from a potential strengthening in the Bermuda anchor.

The report said the revision in Butterfield’s outlook reflected “our view of improving economic conditions in Bermuda and our expectation that the bank will maintain adequate capital and superior credit metrics relative to those of peers.

It added: “We believe economic risks in Bermuda’s banking industry may be declining and we view the trend as positive.”

The report said that it expected credit losses to remain higher than normal as previous credit impairment was repaired, while some new impairment was likely to be added.

But it added: “On the other hand, the Bermudian economy has recently shown signs of gradual turnaround with 2015 registering the first real gross domestic product increase since 2008.

“This improvement, combined with a potentially stronger boost to economic activity than we currently expect from Bermuda’s preparation for the 2017 America’s Cup, means we may revise our assessment of economic imbalances to high impact from very high impact if credit losses continue to outperform expectations.”