Overview -- In our view, Dutch banks are exposed to the potential of a more protracted downturn in The Netherlands and the wider eurozone. -- We are therefore revising our economic risk score for The Netherlands and our Banking Industry Country Risk Assessment to '3' from '2'. -- As a result, we are revising the outlook on Achmea Hypotheekbank N.V. (AHB) to negative from stable and affirming the 'A/A-1' ratings. -- The negative outlook reflects our view of potential pressure on AHB's risk position if continued weakness in the Dutch housing market results in a sustained and material rise in credit losses. Rating Action On Nov. 16, 2012, Standard & Poor's Ratings Services revised its outlook on Achmea Hypotheekbank N.V. (AHB) to negative from stable. At the same time, we affirmed its 'A/A-1' long- and short-term counterparty credit ratings. Rationale We have reviewed the Banking Industry Country Risk Assessment (BICRA) on The Netherlands. Against the backdrop of a potentially more protracted downturn in The Netherlands and wider eurozone, we have revised our economic risk score for The Netherlands and our BICRA assessment to '3' from '2' (for more information, see "Various Rating Actions Taken On Dutch Banks Due To Increased Economic Risks," published Nov. 16, 2012 on RatingsDirect on the Global Credit Portal). . We have also lowered our anchor--or starting point for our ratings--for banks operating in The Netherlands, including AHB, to 'bbb+' from 'a-'. As a result, we have revised down AHB's stand-alone credit profile (SACP) to 'bbb' from 'bbb+', reflecting our view of the impact of moderately higher economic risk in The Netherlands on AHB's SACP. The revision of our economic risk score for The Netherlands incorporates our view of a prolonged housing market slump with potentially adverse consequences for consumer confidence and ripple effects to other sectors of the economy. We also take into consideration the potential for further pressure on the Dutch public and private sectors as a result of proposed measures to reduce the budget deficit. Finally, we consider that the economic downturn in the wider eurozone will drag on economic growth given the Dutch economy's relatively high export dependency. The affirmation of the ratings on AHB partly reflects its "strategically important" status to its parent, Achmea B.V. (Achmea). AHB remains an important distribution channel for the insurance group, and bank products are viewed as complementary to insurance products and have cross-selling opportunities. Prior to the lowering of the anchor for Dutch banks, the long-term issuer credit rating (ICR) on AHB was two notches above the SACP as it was capped at one notch below the 'A+' ratings on Achmea. In line with our criteria for rating subsidiaries of insurance companies, this notching has now been increased to three notches above the SACP, leaving the ICR unchanged. The affirmation also reflects the downward revision of our assessment of the bank's capital and earnings to "strong" from "very strong" as a result of higher risk weights being applied to AHB's exposures. At the same time, we revised our assessment of its risk position to "strong" from "adequate". Our assessment of the bank's capital and earnings reflects our expectation that its risk-adjusted capital (RAC) ratio, according to Standard & Poor's measures, will increase from 12.6% at end-December 2011 (based on revised risk weights) to between 13% and 13.5% over the next 24 months on the back of modest internal capital generation, low risk-weighted asset (RWA) growth, and the absence of dividends. Our "strong" assessment of the bank's risk position reflects our view of AHB's limited growth in exposures, focus on prime residential mortgage lending with a conservative risk appetite, and loan loss experience that compares favorably with peers in countries that have an economic risk score of '3' and a similar product mix. We continue to assess the bank's business position as "weak" given its monoline focus and small market share. Our view of funding and liquidity as "moderate" remains unchanged and reflects AHB's wholesale-funded profile and high asset encumbrance. Outlook The negative outlook reflects our view of potential pressure on AHB's risk position if continued weakness in the Dutch housing market results in a sustained and material rise in credit losses. We could lower the ratings if a rising trend in credit losses above what we typically observe for mortgage-focused peers in countries that have an economic risk score of '3' lead us to revise down our risk position assessment to "adequate" from "strong". We could also lower the rating if we consider that its strategic importance to the group was reducing or if we lower the ratings on its parent, Achmea. We could revise the outlook to stable if AHB's loan portfolio remains resilient to wider housing market pressures and the bank maintains its conservative risk profile. Ratings Score Snapshot Issuer Credit Rating A/Negative/A-1 SACP bbb Anchor bbb+ Business Position Weak (-2) Capital and Earnings Strong (+1) Risk Position Strong (+1) Funding and Liquidity Moderate (-1) Support +3 GRE Support 0 Group Support +3 Sovereign Support 0 Additional Factors 0 Related Criteria And Research All articles listed below are available on RatingsDirect on the Global Credit Portal, unless otherwise stated. -- Various Rating Actions Taken On Dutch Banks Due To Increased Economic Risks, Nov. 16, 2012 -- Banking Industry Country Risk Assessment: The Netherlands, Nov. 16, 2012 -- No Pain, No Gain: How The Housing Market Correction Is Affecting Dutch Banks, June 27, 2012 -- Banks: Rating Methodology And Assumptions, Nov. 9, 2011 -- Group Rating Methodology And Assumptions Nov. 9, 2011 -- Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011 -- Bank Hybrid Capital Methodology And Assumptions, Oct. 24, 2011 -- Bank Capital Methodology And Assumptions, Dec. 6, 2010 Ratings List Ratings Affirmed; CreditWatch/Outlook Action To From Achmea Hypotheekbank N.V. Counterparty Credit Rating A/Negative/A-1 A/Stable/A-1 Certificate Of Deposit A/A-1 A/A-1 Senior Secured A Senior Unsecured A Subordinated A- Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.