S&P says it's likely to drop Rabobank NZ rating 1 notch to A+ after end of Dutch parent's guarantee

Standard & Poor's says Rabobank New Zealand's AA- long-term credit rating is likely to be downgraded one notch after the rural lender's Dutch parent decided not to renew its unconditional guarantee of Rabobank NZ when the current guarantee expires on April 30 next year.

S&P credit analyst Nico DeLange said the credit rating agency had placed both Rabobank NZ's AA- long-term rating and A-1+ short-term issuer credit ratings on credit-watch with negative implications.

"We expect to resolve this CreditWatch shortly after the expiry of the unconditional guarantee on April 30, 2015, when we will likely lower the long-term issuer credit rating by one notch to A+ and short-term issuer credit rating to A-1," said DeLange.

"Despite the expiry of the parent guarantee, we believe that the long-term issuer credit rating on Rabobank New Zealand will continue to receive an uplift from the bank's stand-alone credit profile of bbb+, reflecting
our view that Rabobank Nederland is likely to provide timely financial support Rabobank New Zealand, if needed. This is based on our opinion that Rabobank New Zealand remains a highly strategic subsidiary of the group, because we regard Rabobank New Zealand's lines of business as integral to the group strategy," DeLange added.

A cut in its long-term credit rating to A+ would take Rabobank NZ's S&P rating below the AA- of the big four Australian owned banks, which it's currently in line with, and put its rating in line with Kiwibank's A+. In 2012 S&P cut Rabobank NZ from AA to AA-  as the credit rating agency became more concerned about the rural lender's parent's home market, the Netherlands. Also in 2012 the Reserve Bank issued a public notice ticking off Rabobank NZ for withdrawing its credit rating, which was hastily reinstated once the Reserve Bank reminded Rabobank NZ that having a credit rating was compulsory. See credit ratings explained here.

Rabobank NZ CEO Ben Russell said the guarantee was put in place when  Rabobank bought Wrightson Farmers Finance Limited (now Rabobank NZ) in 1998. It was no longer needed because Rabobank NZ is now well established and financially robust in its own right, Russell said.

“The parental guarantee, which the Rabobank Group has provided to deposit customers of our New Zealand RaboDirect and Rabobank businesses, was put in place as an initial measure while the local operations were established. Since then, Rabobank New Zealand has grown to become of New Zealand’s largest lenders to the food and agribusiness sector and, through RaboDirect, a leading specialist online savings bank,” Russell said.

“Our size and strength in this country means we have effectively outgrown the need for a parental guarantee.”

Russell added that the guarantee would remain for existing deposits and loan balances in place with Rabobank NZ before the expiry date.

“All funds in deposits or loan credit balances held with Rabobank New Zealand, including RaboDirect, prior to May 1, 2015 will continue to carry the parental guarantee until customers withdraw these funds from us, or they are transferred to an account with us in a different customer name,” said Russell.

Rabobank NZ's latest general disclosure statement notes the obligations of the Bank are guaranteed under a deed of guarantee by Rabobank Nederland in favour of the creditors of the Bank. It goes on to say there are no limits on the amount of the obligations guaranteed, and no material conditions applicable to the guarantees other than non-performance by the principal obligator.

"There are no material legislative or regulatory restrictions in the Netherlands which would have the effect of subordinating the claims...of any of the creditors of the Bank on the assets of Rabobank Nederland, to other claims on Rabobank Nederland, in a winding up of Rabobank Nederland," the disclosure statement says.

Here's the full statement from Rabobank NZ

A parental guarantee on local deposits provided by the global Rabobank Group – which was put in place when Rabobank purchased Wrightson Farmers Finance Limited (now Rabobank New Zealand Limited) in 1998 – will not be renewed when it expires on May 1, 2015.

CEO of Rabobank New Zealand Ben Russell said the guarantee would not be renewed as it was no longer warranted by the local operations, which were now well-established, financially-robust businesses in their own right.

Rabobank New Zealand Limited has been the only major overseas-owned bank with a parental guarantee in New Zealand.

“The parental guarantee, which the Rabobank Group has provided to deposit customers of our New Zealand RaboDirect and Rabobank businesses, was put in place as an initial measure while the local operations were established. Since then, Rabobank New Zealand has grown to become of New Zealand’s largest lenders to the food and agribusiness sector and, through RaboDirect, a leading specialist online savings bank,” he said.

“Our size and strength in this country means we have effectively outgrown the need for a parental guarantee.”

Mr Russell said he was pleased to note Standard & Poor’s had confirmed Rabobank New Zealand Limited’s credit rating remained at AA- at this time, with the indication it would move to A+ following the expiry of the guarantee.

“Rabobank New Zealand is a strategically important part of Rabobank’s international business, which is focused on lending to the agribusiness sector and retail deposits,” he said.

Rabobank New Zealand Limited posted a net profit after tax of NZ$81 million in 2013, with equity of NZ$1.1 billion as at December 31, 2013. The total capital ratio for Rabobank New Zealand Limited, at June 30 2014, was 13.42 per cent.

Mr Russell said the Rabobank parental guarantee would remain in place on existing deposit funds and loan credit balances that are with the bank before the expiry date.

“All funds in deposits or loan credit balances held with Rabobank New Zealand, including RaboDirect, prior to May 1, 2015 will continue to carry the parental guarantee until customers withdraw these funds from us, or they are transferred to an account with us in a different customer name,” he said.

Rabobank New Zealand is part of Rabobank Group, ranked in the Top 5 Safest commercial banks in the world, according to Global Finance magazine, 2014. The Group has equity of EUR 40 billion and a Tier 1 capital ratio of 14.9 per cent, as at June 30, 2014.

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7 Comments

Hmmmm - another casuality of the RNBZ OBR regime?
 
BNZ has become the first of New Zealand's big four Australian owned banks to secure independence from its parent in a funding sense, chief financial officer Adrienne Duarte says. Read more

All these foriegn banks are happy to repatriate the profits and then turn their backs on the losses. We need some decent regulatory body to force them to keep the profits in NZ to protect borrowers and lenders in the case of a dairy or housing downturn.
  

Andrewj Rabobank is a cooperative and as far as I'm aware has never repatriated any profits back to the Netherlands! They have all been retained to either fund growth or increase the level of capital. Good to see that the guarantee remains in place on existing deposits.

Andrewj Rabobank is a cooperative and as far as I'm aware has never repatriated any profits back to the Netherlands! They have all been retained to either fund growth or increase the level of capital. Good to see that the guarantee remains in place on existing deposits.

I was thinking more of the Big Aussie banks, Im a big fan of Rabo bank. They have tighter lending criteria and farms are a better investment than houses when the SHTF.

Am I understanding Rabo's statement correctly? Are all funds currently held by me on May first next year, guaranteed indefinitely so long as I keep the funds in my accounts, irrespective of me renewing term deposits from time to time?