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Fitch puts AA+ credit rating of Dutch parent of Rabobank, NZ's biggest rural lender, on ratings watch negative

Fitch puts AA+ credit rating of Dutch parent of Rabobank, NZ's biggest rural lender, on ratings watch negative

Fitch Ratings has placed its AA+ credit rating on Rabobank Nederland, the Dutch parent of rural lender Rabobank New Zealand, on ratings watch negative citing the constraint on the amount and type of capital it can raise in stressful times due to its mutual ownership model.

Last year Rabobank NZ lent more money to the rural sector than any other bank and Rabobank Group's chief financial officer, Bert Bruggink, told in a recent visit to this country that the bank planned to continue growing lending to the New Zealand agriculture sector strongly. Rabobank raised NZ$900 million in a September 2007 debt issue which remains New Zealand's largest ever non-government debt issue and has issued bonds to both institutional and retail investors in New Zealand this year.

Despite the review, Fitch said the Rabobank Group remains one of the most credit worthy banks in its portfolio. The credit rating agency says credit risk, and thus ratings, for many large and currently highly rated European banks face downside pressure due to the collective impact of below-trend economic growth, ongoing sovereign risks, the costs and ambiguities of additional bank regulation, less compelling business models and returns for banks, political pressure to reduce or eliminate implicit state support, the consistent vulnerability of banks to market sentiment and the market's growing realisation of, and pricing for, all of the above.

Nonetheless, Fitch said Rabobank was less vulnerable to some of these factors than many other European banks. The AA+ rating is Fitch's second highest, behind only AAA. Standard & Poor's rates Rabobank AAA, albeit with a negative outlook.

"Its capitalisation is robust, its liquidity is well managed, its earnings have been resilient and its risk profile, generally low risk," Fitch said of Rabobank.

"However, the constraint imposed by the bank's mutuality on the amount and type of capital it can raise in times of stress is of some concern, while the bank also has a high level of wholesale funding, which can be affected by broader market concerns. Internal capital generation has been consistent, although it has been under some pressure over the past two years."

Fitch says it expects to resolve the ratings watch negative issue within a "short" time frame and that any downgrade of Rabobank would be limited to one notch. The agency noted it was also possible Rabobank could have its ratings affirmed at current levels.

The review of Rabobank comes as Fitch reviews its ratings on several European banks, including the AA- rating of France's Credit Agricole, which also has bonds on issue in New Zealand. See more here.

Fitch says many banks globally, and European banks in particular, "continue to face a number of material market and fundamental challenges."

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