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Fitch puts Rabobank on negative credit watch

One of the three major international ratings agencies, Fitch has place Rabobank on negative credit watch.

Friday, October 14th 2011, 2:28PM

by Jenny Ruth

Fitch currently rates Rabobank "AA+", one notch lower than the "AAA" ratings Standard & Poor's and Moody's have it on.

The Netherlands-based Rabobank is one of five European banks placed on negative watch and Fitch says any downgrades will be one notch although "it is also possible that certain banks could have their ratings affirmed at current levels."

Rabobank has two NZX-listed capital bond issues, one of $900 million and the other $280 million and a number of other unlisted senior debt issues in New Zealand dollars which total about $4.7 billion.

David Tripe, head of banking studies at Massey University, says even if Fitch does downgrade Rabobank, it will still be one of the most highly rated banks in the world.

"I don't think investors should rush out and slash their wrists. I certainly don't think it's a matter for panic," Tripe says.

Still, the bank's New Zealand arm has been identifying impaired assets within its local business, he says. Rabobank specialises in lending to the rural sector.

Rabobank's disclosure statement for the six months ended June shows a $13.9 million charge against New Zealand profit for bad debts, down from a $35.1 million charge in the same six months a year earlier. It reported a $25 million net profit for the six months, up from $17.2 million in the year-earlier period.

David Speight at Direct Broking says the potential downgrade is unlikely to affect Rabobank's listed debt but it might have an impact for some funds – some funds have rules restricting their holdings to specified credit ratings.

"I would think most mandates would be wider than that," Speight says.

Max Brown, head of fixed interest at Forsyth Barr, says the possible downgrade isn't a complete surprise in the current environment.

"Given what's occurring in Europe, it would be surprising to think the ratings agencies don't adopt a cautious view," Brown says.

At the end of 2010, Rabobank was one of only seven banks in the world rated "AAA" by S&P and Moody's. Fitch rated six banks "AAA" and Rabobank was the only one it rated "AA+".

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