Moody's Investors Service on Friday downgraded the long-term debt and deposit ratings of five Dutch banking groups, supporting its view that Dutch banks would face difficult operating conditions throughout this year, amid the European debt crisis, recession and lower house prices.
The rating agency also warned that negative rating momentum could develop if conditions deteriorate beyond current expectations.
Specifically, Moody's has considered an increased risk of Greece's exit from the euro area, which is not the central scenario currently. "If a Greek exit became Moody's central scenario, further rating actions on European banks could well be needed,'' it said.
In Friday's action, the ratings for four Dutch banks were cut by two notches and for one group by one notch. The short-term ratings for all groups remain unchanged.
The downgrade by two notches took ING Bank NV (ING: Quote) and ABN AMRO Bank NV to A2, placed Rabobank Nederland at Aa2 and LeasePlan Corporation NV at Baa2. The long-term debt and deposit ratings for SNS Bank NV were downgraded by one notch to Baa2.
At the same time, the ratings agency assigned stable outlooks to the ratings for four of these groups and assigning negative outlooks to the ratings for ING Bank and its related entities.
"Furthermore, the Dutch banks affected by today's actions have structural features which, while not new, heighten risks for creditors amidst elevated uncertainty and downside risks to the economic outlook and fragile investor confidence in Europe," Moody's noted.
Moody's analyzed that adverse operating conditions, such as the recession and declining house prices, would continue at least through 2012. The situation is further exacerbated by the economic crisis affecting incomes and in turn hurting credit costs and profitability for banks.
The banks affected by today's actions have structural reliance on wholesale funds and large mortgage books, which render them more vulnerable in the current environment. Yet, Moody's noted that Dutch banks have generally retained good access to market funding and asset quality remains sound to date.
The action by Moody's comes at a time when the eurozone economy is struggling with many member countries weighed down by sovereign debt. In the latest event of this escalating turmoil, Spain over the weekend sought a 100 billion euros aid to shore up its banks. It is feared that this bailout could trigger a contagion.
Moody's on Wednesday downgraded two euro area members, Spain and Cyprus, and placed their bond ratings on review for further possible downgrade.
Further, Greece, another Eurozone member in trouble, is to hold re-elections on June 17, as the previous elections could not lead to a majority win for any party. The fear here is that if the leftist Syriza party led by Alexis Tsipras comes to power, the austerity measures that were tied to the bailout package for the debt-ridden nation may not take effect.
Moody's today said the situation in the Netherlands is not as bad as it is in some other fellow countries. The domestic environment for Dutch banks has weakened less compared with more stressed euro area countries due to the strong credit profile of the Dutch government, the ratings agency pointed out.
Separately, Moody's said Belgian lender KBC Groep NV's (KBCSF.PK) long-term debt and deposit ratings were cut by two notches to A3 from A1, and the short-term rating to Prime-2 from Prime-1. The outlook is stable.
In yet another action, Moody's today downgraded by two notches UniCredit Leasing SpA's long-term issuer rating to Baa2 from A3. The Prime-2 short-term rating is unaffected and the outlook on the rating is negative, in line with the outlook on those of UniCredit group.
ING shares closed in Amsterdam on Thursday up by 0.47 at 4.70 euros on 28.26 million shares.
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by RTT Staff Writer
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