Rabobank NZ boss admits the bank overlooked regulatory requirement when ditching its now reinstated credit rating

Rabobank New Zealand's CEO Ben Russell has conceded the rural lender "didn't necessarily look that smart" after "overlooking" a regulatory requirement when doing away with its hastily reinstated Standard& Poor's credit rating this week.

Russell's comments come after S&P announced late on Wednesday it was withdrawing its AA with a negative outlook rating on Rabobank NZ at the bank's request, before reinstating the rating - again at the bank's request after discussions between Rabobank and its prudential regulator, the Reserve Bank - 24 hours later. See related story here.

Russell told interest.co.nz the decision to cull the rating had simply been made because the group issues New Zealand wholesale debt via its Rabobank Nederland NZ Branch and retail depositors, including those through online unit RaboDirect, are guaranteed by ultimate parent Rabobank Nederland, which has the same AA rating from S&P.

"Historically we'd had the (Rabobank NZ) credit rating with some expectation that there may be a point where we would issue wholesale paper out of that entity but over the years we just haven't done it," Russell said.

"We've done it all out of our branch. There was no big eureka moment to say 'we don't need it anymore.' It was really just a view that our retail customers benefit from our parent guarantee from Rabobank Nederland so the retail customers are fine. The wholesale customers we issue paper (to) out of the branch so they don't need it, therefore this is a rating that we don't need."

However, Rabobank's team had failed to realise the Rabobank NZ entity is required to have a stand alone credit rating by the Reserve Bank.

"Basically the situation was that we overlooked a regulatory requirement and hence the rapid turnaround," said Russell. "In terms of the credit worthiness of Rabobank NZ there's no change there whatsoever."

"It wasn't in our conditions of (bank) registration but there was another regulatory requirement that we overlooked.  We felt that by Rabobank NZ having the guarantee that was covered, but there was a specific requirement to have the New Zealand registered bank with a credit rating on its own, hence we reversed it (the decision to dump the rating) yesterday.

An Aa2 rating from Moody's Investors Service with a stable outlook isn't a standalone rating, Russell added, but rather one via Rabobank NZ's ultimate parent, which also has an AA+ rating from Fitch Ratings.

Russell conceded the S&P ratings flip flop "didn't necessarily look that smart." He also acknowledged that in hindsight Rabobank could have handled its communications better.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment or click on the "Register" link below a comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current Comment policy is here.


Confims it. Rabo are a pack of twits.