AMSTERDAM Dec 12 Dutch banks including ING
and SNS Reaal will face tough operating
conditions next year, with the prospect of higher loan losses
from property and increased funding costs, Moody's Investors
Service warned on Wednesday.
Moody's - which downgraded five Dutch banks in June and put
the Netherlands' sovereign triple-A credit rating on negative
outlook in July - kept its negative outlook on the bank sector,
citing worsening economic conditions, high levels of household
debt and a reliance on market funding.
"The negative outlook on the Dutch banking system is in line
with the outlook on the rating for the government of the
Netherlands, reflecting the common pressure from the
deteriorating macroeconomic outlook," Moody's said in a report
published on Wednesday.
The state had to rescue several Dutch financial institutions
during the 2008 financial crisis including ING Groep, SNS Reaal,
and ABN Amro, which was eventually nationalised.
While ING is in the process of selling off assets to repay
state aid, Moody's warned that there was an increasing risk that
SNS Reaal would not be able to meet the deadline for repayment
and could require additional state support.
While the Netherlands, a core euro zone member, is a firm
advocate of fiscal prudence, its export-driven economy is
vulnerable because of its close links to the rest of the
Only this week, the Dutch central bank revised its forecast
to paint a much gloomier outlook for 2013, saying the economy
would contract next year and the budget deficit would exceed the
EU's target of 3 percent of economic output.
Despite the fact Dutch banks have strong domestic
franchises, limited direct exposure to the troubled euro zone
countries, and are based in a large, wealthy and open economy,
Moody's flagged several risks.
It said the deteriorating domestic economic outlook would
lead to weaker financial performance among the banks, and that
asset quality would be hit by a high level of corporate defaults
and rapid deterioration of the domestic commercial real estate
"High household leverage and the slowdown in the Dutch
housing market are exacerbating the loss potential on domestic
residential mortgage portfolios," it warned.
(Reporting by Sara Webb; Editing by James Dalgleish)