Netherlands: Poor economy prompts Moody’s to change outlook on three Dutch banks to negative

Editor’s Note: Moody’s released the following statement in conjunction with a ratings action it took earlier today on three Dutch banks

Paris, March 13, 2013 — Moody’s Investors Service has today changed the outlook to negative from stable on the long-term ratings of ABN AMRO Bank N.V., NIBC Bank N.V. and Rabobank Nederland N.V., prompted by the change in outlook to negative on these banks’ bank financial strength ratings (BFSRs). Accordingly, the rating outlooks for guaranteed subsidiaries or special issuing entities of these banks and their rated debt were changed to negative from stable. The negative outlook on ING Bank N.V.’s BFSR and long-term ratings was maintained.

The negative outlook on the banks’ BFSRs is driven by Moody’s view that the operating environment in the Netherlands is becoming more challenging than previously anticipated. This implies greater downside risk in asset quality in areas where the banks have large concentrations, beyond the impact that normal cyclical changes would be expected to have.

Concurrently, Moody’s has affirmed the BFSRs, the long-term and short-term senior debt and deposit ratings, the dated subordinated and hybrid instrument ratings for ABN AMRO, ING Bank, NIBC Bank and Rabobank. Moody’s affirmation of the banks’ ratings reflects the rating agency’s view that the pressures on the banks’ standalone credit strength are not sufficient to warrant a change in their ratings.

Please click this link for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer.

For a detailed consideration of the rationale, please refer to Moody’s Credit Focus report, “ABN AMRO Bank, NIBC Bank, Rabobank Nederland, ING Bank: Answers to Frequently Asked Questions” published on 13 March 2013.



Moody’s believes that ABN AMRO Bank, ING Bank, NIBC Bank and Rabobank Nederland are well-capitalised for their current rating levels and therefore resilient to further cyclical changes, which the rating agency recognised in affirming their BFSRs, notwithstanding rising impairments (please refer to Moody’s Banking System Outlook for the Netherlands of December 2012).

However, the operating environment remains uncertain and fragile, with the potential for further macro or financial market shocks to undermine banks’ intrinsic credit strength beyond the impact that normal cyclical changes would be expected to have. Recent developments notably include (1) a material further downward shift in macro forecasts to a 0.6% contraction in GDP in 2013, projections of sluggish growth and depressed domestic consumption thereafter (please refer to Moody’s Issuer Comment “Netherlands: Deficit-Curbing Measures are Positive, but Obstacles to Fiscal Consolidation Remain”, dated 8 March 2013); (2) an upward shift in the seasonally adjusted unemployment rate to 7.7% in January 2013 on the national definition and 6.0% on the harmonised Eurostat definition and our expectation of a further increase; and (3) a material upward shift in losses expected in particularly fragile markets, notably in commercial real estate (CRE). In the Netherlands CRE faces sustained higher vacancy rates and declining collateral values.

These shifts do not change Moody’s central scenario to an extent that would result in BFSR downgrades. However, they imply greater downside risks in areas of exposure in which the banks have significant concentrations (CRE, but also SMEs and residential mortgages), and more broadly an increased downward bias to the performance of other domestic exposures. Each bank has different exposures, concentrations and mitigating factors (see below), but all are exposed to a potential for shocks causing material rises in impairments, which Moody’s reflects in the negative outlook.


The change in the outlook on the C- BFSR to negative from stable reflects Moody’s view that the further deterioration in the operating environment for banks in the Netherlands will likely affect the bank’s overall asset quality profile during the outlook period. As at year-end 2012, ABN AMRO had CRE sector exposures totalling EUR12 billion, which represent a large portion of its Tier 1 capital (77%), but only around 4% of the bank’s total loan book, as at the same reporting date. Additionally, its exposure to the riskier CRE sub-sectors represented a small portion of this portfolio and the rating agency has taken note of the portion of social housing loans within the bank’s CRE book, which are government-guaranteed. The bank’s key business focus on the Netherlands with a total mortgage book of EUR153.9 billion, other consumer loans for EUR16.5 billion and the remaining part of the commercial loan book of around EUR73 billion, particularly SME loans, renders it vulnerable to the deteriorating economic environment in the Netherlands. This is also reflected by the rapid increase in loan impairment charges during H2 2012. While at a Tier 1 capital ratio of 12.9% as of FYE 2012, ABN AMRO has a significant loss-absorption buffer under our central scenario and for its current standalone credit strength of C-/baa2, Moody’s believes that the bank is vulnerable to potential shocks from a further deterioration in the operating environment and to rising risks under its assumptions.


The continued negative outlook on ING Bank’s C- BFSR reflects the pressure exerted by the further deterioration in the operating environment in the Netherlands on the performance of domestic exposures. Although Moody’s believes ING Bank’s capital provides comfortable loss-absorption capacity, the likely increase in credit losses over the coming 12-18 months are expected to weigh on its profitability.

The bank’s higher diversification compared to its main peers in terms of business and geographic exposures may mitigate this impact. Nevertheless, Moody’s says that with domestic lending representing more than 30% of ING Bank’s total loan book, the bank remains sensitive to any deterioration in the Dutch retail and corporate markets. Additionally, the bank exhibits relatively high concentration on the CRE sector, including both domestic and international exposures which, based on the amount reported in the Real Estate Finance portfolio, accounts for 5.7% of the bank’s customer lending book and 75% of its Tier 1 capital as of end-2012.

The negative outlook also continues to incorporate Moody’s view that further deterioration in the European banks’ funding environment may weigh on ING Bank’s liquidity position as a result of its group-wide funding structure. The rating agency recognises that the latter has considerably improved over 2012, primarily as a result of a material increase in customer deposits and a substantial lengthening of ING Bank’s wholesale funding profile. Further progress achieved in the bank’s group-wide balance-sheet integration strategy has also improved liquidity at the level of ING Bank N.V., the Dutch parent company on a standalone basis. From a rating perspective, Moody’s says that these improvements offset to a large extent the negative impact exerted by the abovementioned asset-quality pressures.


The change in outlook on NIBC Bank’s D+ BFSR reflects Moody’s view of higher asset-quality risks embedded in the bank’s corporate loan portfolio, which is focused on sectors — such as commercial real estate and shipping — that the rating agency considers as cyclical and therefore more vulnerable to the aforementioned macroeconomic downturn in the Netherlands and the rest of Europe. A material deterioration in the asset quality of this portfolio could exert pressure on the bank’s standalone financial strength, despite its sound capital base, in our view.

At end-June 2012, NIBC Bank’s CRE loans amounted to EUR1.8 billion (excluding a large exposure which has been sold to external investors), equivalent to just above 100% of the bank’s Tier 1 capital at end-2012. This portfolio, which comprises a relatively small number of exposures, is highly concentrated on a few limited projects, which Moody’s views as a credit weakness. These concerns are partly mitigated by the fact that more than 50% of NIBC’s CRE portfolio comprises residential real-estate financing in Germany, where house prices are expected to show a strong resilience.

The bank also has a relatively large exposure to the shipping industry, of around EUR1.8 billion at end-June 2012. While not directly affected to the downturn affecting the Dutch economy, this sector is exposed to the performance of the global economies and to trade volumes. Given the persistently fragile macroeconomic environment in Europe and in some other major economies, Moody’s considers that there is potential for higher credit risks on the bank’s shipping exposures.

In addition to its CRE portfolio, NIBC reported around EUR8.2 billion of mortgage loans at end-2012, under its own book and in securitisations. The performance of the bank’s mortgage portfolio, which is predominantly composed of Dutch residential mortgages, has thus far remained resilient. Moody’s nonetheless considers that the rapid increase in the unemployment rate in the Netherlands and the prolonged decline in property prices could impair the mortgage portfolio’s overall performance.


The change of outlook to negative from stable on Rabobank’s B- BFSR reflects the pressure exerted by the further deterioration in the operating environment in the Netherlands on asset quality, especially the Dutch exposures. With domestic lending representing around 75% of its total loan book, the bank is particularly sensitive to any deterioration in the Dutch retail and corporate markets, although Moody’s believes the bank’s track record of a conservative business profile will continue to mitigate this negative trend. Additionally, Rabobank’s exposure to the CRE sector represents a relatively high share of its loan portfolio (6%) and Tier 1 capital (76.8%) at the end of December 2012. However, Moody’s notes that this exposure also includes lending with a lower-risk profile than standard CRE loans, notably those extended to social housing companies that benefit from a state guarantee, as well as those granted to corporates for the financing of real estate for their own use. Although the rating agency believes that Rabobank’s high level of capital provides comfortable loss-absorption capacity, the likely increase in credit losses over the coming 12 to 18 months is expected to weigh on its profitability.


The outlook on the long-term debt and deposit ratings of ABN AMRO Bank (A2), NIBC Bank (Baa3) and Rabobank Nederland (Aa2) was changed to negative from stable, reflecting the similar change on the BFSR outlook. The negative outlook on ING Bank’s A2 long-term debt and deposit ratings was maintained, reflecting the continued negative outlook on the bank’s standalone BFSR.


ABN AMRO Bank, ING Bank, NIBC Bank and Rabobank Nederland carry a negative outlook and as such are unlikely to be upgraded in the foreseeable future.

Below are the factors that could lead to a downgrade of these banks’ ratings:


Moody’s might downgrade the bank’s BFSR if the weakening macroeconomic environment were to (1) lead to further significant deterioration of the bank’s asset quality; or (2) have a negative impact on its liquidity, profitability and capital. The BFSR could also be downgraded if the bank (1) fails, in Moody’s view, to reach the expected operational efficiencies resulting from the ongoing integration process with former Fortis Bank Nederland N.V. (merged in July 2010), although Moody’s notes that management has recently indicated that the relevant costs have now been fully accounted for and progress in achieving operational efficiencies has been made; and/or (2) materially increases its risk profile, for example as a result of expanding its riskier activities or materially increases its market risk appetite. A downgrade of the debt and deposit ratings would be triggered by a downgrade of the BFSR, or by a change in Moody’s assessment of the currently very high probability of systemic support from the Dutch state for this state-owned bank.


The main factors that would lead Moody’s to downgrade ING Bank’s standalone BFSR include (1) a significant deterioration in the macro-economic environment beyond Moody’s current expectations, leading to higher credit losses and margins and earnings pressure; (2) a reappraisal of ING Bank’s reliance on wholesale funding in the context of an increasingly fragile funding environment; and (3) if the current restructuring of the ING group resulted in weaker-than-expected franchise value or capital.

The bank’s senior ratings could be downgraded following (1) a downgrade of its standalone BFSR; (2) deterioration in the creditworthiness of the support provider, the Netherlands, and its ability or willingness to provide support to the benefit of creditors; or (3) a re-assessment of systemic support currently factored into the ratings.


Moody’s might downgrade the bank’s BFSR if the risks on the bank’s asset quality were to increase, particularly because of (1) a weakening of the performance of, or an increasing concentration of its CRE exposure; or (2) increasing risk on its other asset exposures, notably to cyclical corporate sectors. The bank’s BFSR could also be downgraded if Moody’s considers that the bank’s liquidity profile or funding mix deteriorates. NIBC’s long-term and short-term debt and deposit ratings would be downgraded in the event of a downgrade of its BFSR.


Downwards pressure could develop on the BFSR if the group’s asset quality deteriorates, notably as a result a weakening of the macro-economic environment beyond Moody’s current expectations and a significant decline in the Dutch housing market. A deterioration of the group’s financial structure through an increase in liquidity gaps could also negatively affect Rabobank’s standalone credit assessment. Additionally, a deterioration of Rabobank’s franchise in its core market, any increase in market risks, or evidence of a significant decrease in underlying profitability would also exert pressure on its BFSR. The bank’s risk profile and earnings quality would likely weaken if Rabobank were to change its strategic direction and become more reliant on volatile earnings streams from non-banking activities. However, Moody’s believes that this is unlikely at present and the rating agency understands that the bank is decreasing its exposure to those activities.

A downgrade of the Aa2 long-term deposit and debt ratings may be triggered by (1) a downgrade of the BFSR; and/or; (2) Moody’s perception of a lower probability of systemic support in the event of stress.

The principal methodology used in these ratings was Moody’s Consolidated Global Bank Rating Methodology published in June 2012. Please see the Credit Policy page on for a copy of this methodology.

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