Clydesdale likely to be downgraded after NAB demerging -Fitch

It means that the Glasgow-based lender, which includes Yorkshire Bank, is likely to have its credit rating downgraded after its shedding by Melbourne-based NAB.

The ratings agency reported that Clydesdale’s current rating is driven by the bank’s “low-risk profile, sound asset quality, adequate impairment reserves and its healthy liquidity and capitalisation”.

However, it notes that profitability is modest, due to mortgage loans with low returns for the bank.

Since the financial crisis of 2007-08, the Australian bank has supported Clydesdale with capital injections and by taking over its troubled commercial property loan portfolio. As part of the demerger, NAB is set to continue with its support with a guarantee to supply the first £1.7bn of repayments, costs and fines for mis-selling financial products.

Fitch’s latest assessment also notes that NAB is to further strengthen the Clydesdale’s capital base.

But the ratings agency said that once on its own, Clydesdale will have to turn to others in the financial markets for re-financing, a process that Fitch says it believes will be “manageable”.

The NAB announced last week that it intends to de-merge Clydesdale by floating it on the stock market in London by the end of the year.

The plan, which is awaiting approval from regulators, will see NAD offering most of the shares to existing NAB shareholders.