Rating agency's mixed blessings for newly independent Yorkshire Bank

The agency raised its baseline credit assessment of CYBG, but downgraded its ratings for long-term deposits and commercial paper.

NAB had to delay its long-awaited initial public offering earlier this year after a request from an un-named ratings agency, now believed to be Moody’s.

A spokesman for the Leeds-based lender said: “CYBG welcomes the upgrade of its stand alone BCA rating reflecting the improved credit fundamentals following the finalisation of the demerger.

“As announced on February 2, CYBG does not consider the downgrade of the long term deposit and commercial paper rating to have any material impact on its or the bank’s ability to raise funding, the overall cost of funding, or the financial outlook for CYBG or the bank.”

Moody’s affirmed CYBG’s rating for short-term deposits and said the outlook on deposit ratings is stable.

In a report, the agency said the upgraded assessment was driven by the bank’s improved credit fundamentals following the demerger.

NAB put in place a £1.7bn indemnity at the request of City regulators to cover it against any further charges for misconduct costs.

Moody’s said the “more-than-adequate” indemnity reduces the tail risks from any further unexpected conduct charges and protects the bank’s capital.

It noted CYBG’s capital restructuring and equity injection from NAB, which strengthened a key equity-to-assets ratio and beefed up its solvency profile.

But it also said the lender still faces long-term structural challenges from its weakend franchise and past challenges in its risk management framework.

And it added that CYBG faces some risks in the competitive UK banking sector and warned that despite investing heavily in risk management, it will take time to change the company’s culture.

Moody’s said the downgrade of deposit and commercial paper ratings reflects the lender’s small wholesale deposit base.

CYBG celebrated its independence with a successful initial public offering on Wednesday morning, valuing the business at close of trading at £1.69bn.

Its new management team is led by CEO David Duffy.