Moody’s Investors Service said Monday that it has placed the ratings of ING Bank of Canada on review for possible downgrade, following its decision to consider a downgrade for the parent company ING Bank NV.

The rating agency explained that its decision to place ING Bank NV’s ratings on review for possible downgrade “reflects the heightened risk from a potential change in the terms of the Alt-A Back-up facility agreed with the Dutch government in January 2009, as well as Moody’s expectations of continued earnings and capital pressure at the bank through increasing levels of loan losses.”

Moody’s based its decision to place ING Bank of Canada’s bank financial strength rating on review on its opinion that “stress at its parent ING Bank NV could impair the Canadian franchise.” The firm says that its principal concern is that ING Bank of Canada’s “franchise could be weakened if its brand suffers by association with a parent company affected by greater uncertainty around the back-up facility and increased earnings and capital pressures.”

That said, Moody’s notes there is no empirical evidence suggesting ING Bank of Canada’s credit profile has weakened as a result of its parent’s challenges to date. And, it adds that the bank’s current rating is based on its good standing in a niche market — the high-interest, online deposit market segment in Canada — as well as good capitalization, excellent asset quality and solid risk management practices.

Moody’s primary credit concerns with respect to ING Bank of Canada are its relatively narrow business model, low risk-adjusted profitability, the threat posed to ING Bank of Canada by larger domestic players, and the impact on the bank’s liquidity position of a high reliance on internet-sourced, high-interest deposits.

IE