DBRS Ltd. Friday downgraded its long-term debt ratings on ING Bank of Canada, noting that the financial crisis and recession have affected the strength of the bank’s Dutch parents.
“The downgrade reflects DBRS’s view that the challenging operating environment has negatively impacted the strength of ING Direct Canada’s direct parent, ING Bank NV, and its ultimate parent, ING Groep NV,” the rating agency says.
It notes that the parent bank’s second quarter results showed that its earnings “are likely to remain under considerable stress for some quarters due to deteriorating credit quality and the cost of legacy exposures at a time when economies remain weak and financial markets are still fragile.” DBRS also says that these pressures are likely to constrain the parent’s financial flexibility.
“ING’s prospects are also being impacted by the group’s extensive efforts to improve its risk profile and concentrate on a narrower, less global set of core businesses. While DBRS anticipates that success with these efforts is likely to lead to an improved core business profile, they also require retrenchment that could impact earnings and business opportunities from ING’s global reach,” it adds.
In addition to the long-term downgrade, the rating agency confirmed the short-term debt ratings, but noted that the trend on all ratings is negative. “The negative trend on the ratings for ING Direct Canada reflects the potential challenges for its parent from the ongoing execution risk in these restructuring efforts, as well as the risk to earnings from reducing or exiting various products and businesses. There is also the potential for more substantial negative impact on ING than currently anticipated from credit deterioration and legacy exposures, especially given weakness in economies globally and the still high level of stress in financial markets,” it explains.
That being said, DBRS also says that ING Direct Canada is a core business for the parent bank, and that it has had success generating deposits and mortgages. The parent bank also remains a leading franchise in Europe, and its recent earnings demonstrate its resilience, DBRS adds.
IE