Moody’s downgrades NAB rating outlook

Ratings house Moody’s Investor Services has downgraded National Australia Bank’s (NAB) rating outlook from ‘stable’ to ‘negative’ while maintaining the bank’s current ratings.

Rating outlooks express Moody’s view on potential credit trends over the next 12 to 18 months.

According to Moody’s senior vice president Patrick Winsbury, “the negative outlook reflects both the potential impact of weaker credit conditions in NAB’s core geographies as well as ongoing dislocations in credit markets”.

A statement from Moody’s said the rating action followed its comments of July 25, 2008, in relation to NAB taking an additional $830 million in provisions for its collateralised debt obligation exposures.

Moody’s commented that while this provision in itself was not sufficient to impact NAB’s ratings, the ratings house was considering the impact of broader credit issues.

“In this regard, as global conditions deteriorate, NAB faces some challenges not universally shared by its major Australian bank peers,” a statement from Moody’s said.

The bank’s ratings remain unchanged at Aa1/Prime-1 for deposits and senior debt, with a Bank Financial Strength Rating (BFSR) of B.

In order to revise the BFSR rating outlook back to ‘stable’, Moody’s must see the bank maintain “its commitment to underpinning conservative balance sheet settings”.

This must include, among other requirements, strong risk management performance, disciplined margin management, an improvement in liquidity measures and no increases in reliance on short-term wholesale funding.

The bank’s major operating subsidiaries, Bank of New Zealand and Clydesdale Bank, must also maintain credit metrics consistent with their current ratings bands.

“Nevertheless, NAB’s credit profile remains strong on an absolute basis, and the bank retains considerable flexibility to address some key challenges arising from weaker market conditions,” Moody’s said.

NAB reported total assets of $605 billion as at March 31, 2008.