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NAB’s UK Subsidiary Downgraded By S&P
Global credit ratings agency Standard & Poor’s downgraded the rating for National Australia Bank’s (NAB) wholly owned subsidiary Clydesdale Bank citing that the UK unit’s stand alone credit profile has deteriorated.
Standard & Poor’s downgraded Clydesdale Bank’s short and long term counter party credit rating from ‘AA-/A-1+ to ‘A+/A-1′ and placed the outlook for the lender as negative.
“The ratings action reflects our view that Clydesdale’s stand-alone credit profile has deteriorated and that it could demonstrate weaker-than-expected resilience if the bank’s operating environment deteriorates beyond our current expectations. In our opinion, Clydesdale faces significant challenges from the increasingly difficult economic and market environment in the UK, which we expect will pressurise earnings over the coming two years. The low interest-rate environment, higher holdings of liquid assets, and elevated wholesale funding costs appear likely to continue to pressure interest income in the near term.” S&P said in a statement.
S&P said that it placed the outlook for Clydesdale Bank as negative as a result of Clydesdale’s “very difficult” operating environment. The ratings agency believes that difficult market conditions will threaten the lenders profitability during the near to medium term.
“However, we expect that a stable market position, good capitalisation, and balanced rates of loan and deposit growth will support the bank’s overall creditworthiness,” S&P said.
Standard & Poor’s said it believes losses stemming from bad debt would continue to increase for Clydesdale, well into next year, and could result in the lender reporting a loss for the year ending September 2009.
For the half year ending March 31st 2009, Clydesdale Bank reported a bad debt charge of £168 million.
The ratings agency did sound a positive note, suggesting that Clydesdale’s mortgage portfolio would continue outperforming its rivals, but that its commercial loan portfolio would perform in line with the industry average.
S&P noted a capital injection from parent National Australia Bank, which lifted the bank’s Tier 1 ratio to 8.3 per cent as at March 31, 2009 from 7.4 per cent in September 30, 2008.
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