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 and our Banking Industry Country Risk Assessment on The Netherlands to '3' from '2'. -- We are affirming our 'BBB-/A-3' long- and short-term counterparty credit ratings on Netherlands-based NIBC Bank N.V. (NIBC). -- We expect further strengthening in the bank's capitalization to offset the moderately increased economic risks. -- The negative outlook reflects our view of the risk that the strengthening in the bank's capital position, as measured by our risk-adjusted capital ratio, may be slower or more limited than we currently anticipate. Rating Action On Nov. 16, 2012, Standard & Poor's Ratings Services affirmed its 'BBB-/A-3' counterparty credit ratings on Netherlands-based NIBC Bank N.V. (NIBC). The outlook remains negative. Rationale The rating affirmation reflects our expectation that further strengthening in the bank's capital position should offset what we view as a moderate increase in economic risk in The Netherlands and the wider eurozone. This follows our review of 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 revised our assessment of systemwide risks that Dutch banks are exposed to, which has led us to lower our anchor--or starting point for our ratings--for commercial banks operating in The Netherlands, including NIBC, to 'bbb+' from 'a-'. Although NIBC is exposed to other countries, mainly Germany and the U.K., our blended economic risk score for the bank--a key driver of the anchor--remains largely driven by our assessment for The Netherlands, where the bulk of NIBC's exposures resides. As a result, we have also lowered NIBC's anchor in line with purely domestically-focused peers. We expect the bank to continue actively strengthening its capital position. We have therefore revised our assessment of its capital and earnings to "strong" from "adequate", primarily based on our expectation that the bank's risk-adjusted capital (RAC) ratio before adjustments, according to Standard & Poor's measures, will sustainably reach 10.0%-10.5% by end-2014. We estimate that the RAC ratio at end-September 2012--pro forma our lower economic risk score and BICRA for The Netherlands--was about 9%. Our prospective RAC assessment incorporates, among other things, the deleveraging trend followed by the bank and our expectation of higher earnings retention and a cautious Basel 3 minimum Core Tier 1 target. We consider NIBC's business position to be "weak", as defined by our criteria, primarily reflecting the bank's niche franchise, our view of potential volatility in a few of its sectors, and modest overall market position. We note the bank's long-standing expertise in its corporate niches, which in our view helped it to defend its franchise through the recent downturn. We view its risk position as "adequate", reflecting that we believe our RAC framework adequately captures the risks NIBC faces. The bank has relatively large exposures to sectors that we consider to be potentially volatile, such as commercial real estate and shipping. Nevertheless, we observe that risks so far appear to have been mitigated by the collateralized nature of most lending activities, and sound sector knowledge and underwriting criteria. We note that, compared with some domestic peers that have experienced a marked increase in the cost of risk since mid-2011, NIBC's loss experience has been broadly stable. We view NIBC's funding as "below average" and its liquidity as "adequate". Our assessment of the bank's funding primarily takes into account the bank's greater-than-average reliance on wholesale funding, illustrated by a high, albeit rapidly decreasing, loan-to-customer-deposits ratio of about 220% at end-June 2012. Outlook The negative outlook reflects the possibility that we may lower the ratings on NIBC if the strengthening in the bank's capital position, as measured by our RAC ratio, proves slower or more limited than we currently anticipate. We could lower the ratings if we no longer expect NIBC Holding's RAC ratio before adjustments to exceed 10% in the next 18-24 months. This could be triggered by a material deterioration in profitability, weaker earnings retention, or unanticipated growth in exposures. Conversely, a stabilization in the economic backdrop, combined with a RAC ratio comfortably above 10%, could lead us to revise the outlook to stable. In the longer term, a sustainable rebalancing of the bank's funding profile, with decreasing reliance on wholesale funding and further evidence of stability in the customer deposit base, could see us revise the bank's SACP upward. Ratings Score Snapshot Issuer Credit Rating BBB-/Negative/A-3 SACP bbb- Anchor bbb+ Business Position Weak (-2) Capital and Earnings Strong (+1) Risk Position Adequate (0) Funding and Liquidity Below Average and Adequate (-1) Support 0 GRE Support 0 Group Support 0 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. -- Economic Research: The Eurozone's New Recession--Confirmed, Sept. 25, 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 -- Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011 -- Bank Hybrid Capital Methodology And Assumptions, Nov. 1, 2011 -- Bank Capital Methodology And Assumptions, Dec. 6, 2010 -- Various Rating Actions Taken On Dutch Banks Due To Increased Economic Risks, Nov. 16, 2012 Ratings List Ratings Affirmed NIBC Bank N.V. Counterparty Credit Rating BBB-/Negative/A-3 Certificate Of Deposit BBB-/A-3 NIBC Bank N.V. Senior Unsecured BBB- Subordinated BB+ Junior Subordinated BB Certificate Of Deposit A-3 Commercial Paper A-3 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.