Fitch follows suit to cut Yorkshire Bank’s credit rating

YORKSHIRE Bank and its sister Clydesdale have had their debt rating cut a second time this week over doubts about their Australian parent’s commitment to its UK arm.

After Moody’s cut its rating on Wednesday, Fitch also downgraded the two banks yesterday.

Fitch said the downgrade reflected its belief that the strategic importance of the two banks to their parent, National Australia Bank, may be “diminishing slightly”.

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It said that more stringent regulation and a less favourable economic environment in the UK may indicate that the UK banking sector has become less attractive to foreign banks.

It added that although support from NAB for the two banks remains extremely likely, the move reflects Fitch’s view that support is marginally less strong.

Fitch said there has been some deterioration in asset quality during the economic downturn, adding that if commercial property values remain depressed, the two banks may have to make substantial further loan impairment charges.

“Fitch believes that SME borrowers remain vulnerable to the UK downturn, particularly in sectors such as hospitality, business services and construction, although it expects losses to remain manageable,” the agency said in a statement.

NAB UK chief executive David Thorburn said: “It should come as no surprise that Fitch has followed Moody’s. As ever, we remain fully committed to maintaining our strong capital, funding and liquidity positions.”

On Wednesday, Moody’s said comments by a senior NAB executive that it is open to a sale of its UK operations “raises questions about the long-term strategic commitment of NAB to the UK market”.

Slashing the credit rating could make it tougher for the two banks to raise funds.

Mr Thorburn insisted the banks remain strong and well capitalised.

The downgrades follow weeks of intense speculation about the banks’ future.

NAB recently rejected a £2bn offer from private equity firm Sun Capital for its UK operations, and has also held preliminary talks with NBNK about a possible offer.

Under constant pressure to either beef up its UK operations or sell them, NAB even toyed with buying 632 Lloyds Banking Group branches, but eventually withdrew from the auction.

Mark Joiner, NAB’s executive director for finance, helped stoke speculation by recently saying NAB is open to a sale.

“We would prefer to own the asset, raise the returns and exit a few years later, or IPO it. There are options,” he said.