Clydesdale Bank hit by ratings downgrade

Moody's said Clydesdale Bank faced some longer-term structural challenges

Continuing doubts about the future ownership of Clydesdale Bank have led to a ratings downgrade.

Clydesdale, which is owned by National Australia Bank (NAB), is seen by Moody's credit rating agency as being weakened by its business lending.

It has also been judged to have low profitability, leaving it reduced room for manoeuvre.

The downgrade is for the long-term bank deposit and senior debt rating, down from A2 to Baa2.

Moody's assessment factors in the support the Clydesdale Bank, along with its Yorkshire Bank brand, have had from NAB.

But the ratings agency said: "Clydesdale faces longer-term structural challenges from its weakened franchise and past risk-management and control weaknesses."

It acknowledged that the Glasgow-based lender had strengthened risk management, controls and efficiency through cost cutting, but added it believed these would take time to be effective.

Capital injection

Last year, NAB took over the £5.6bn commercial loan book from Clydesdale, and injected capital into the bank.

Moody's concluded: "The bank is well-capitalised and has substantial liquid assets, and we see no immediate threat to creditors from its near-term challenges.

"However, the weakness of its franchise and uncertainty over its future strategic direction, alongside NAB's stated intention to sell the bank over the medium term, leaves Clydesdale in an uncertain position."

In response, NAB chief executive Cameron Clyne said: "The downgrade of Clydesdale Bank's credit rating is disappointing given that the restructure of the UK operations announced in 2012 is driving significant improvements in the business and NAB's support for Clydesdale Bank is unchanged.

'Progress pleasing'

He added: "Clydesdale has a smaller and stronger balance sheet following the transfer of the vast majority of its commercial real estate portfolio to National Australia Bank in October 2012, materially improving Clydesdale Bank's risk profile.

"There has also been significant improvement in the funding, liquidity and capital position of the business with Clydesdale Bank loans more than 90% deposit funded."

"Progress on simplification of the UK Banking business has been pleasing, with the bank successfully refocusing on its core retail and SME business lending in Northern England and Scotland."

Of the other major ratings agencies, Fitch has a long-term rating of A for Clydesdale, with a stable outlook, while Standard & Poor is at BBB+, with a negative outlook.