Netherlands riskier after bank stability downgrade

By:
Matthew Turner
Published on:

The Netherlands was the worst triple-A eurozone performer in ECR survey for the second quarter.

The Netherland’s ECR score has deteriorated 1.8 points (out of 100), since June last year. This has resulted in the sovereign falling two places in the ECR global rankings since June 2012. The sovereign’s score decline in the second quarter meant the Netherlands was the worst performer in the survey among the eurozone’s triple-A economies.

 

With a global rank of 11, the Netherlands sits just four places away from Tier 2. Countries in Tier 2 score between 65 and 79.9 and can be equated with a credit rating of A- to AA. The Netherlands is rated triple A with a negative outlook by all the main credit-rating agencies, but analysts participating in the ECR survey have raised the spectre of a credit-rating downgrade if current economic conditions persist.

The Netherlands has enjoyed Tier 1 status for the past 10 years because of prudent economic management and low institutional and political risk. But rising bank stability risk and a weaker economic outlook have left the sovereign falling two places in the ECR global rankings, to a 10-year low.

A combination of higher unemployment levels, slower growth, increased bank stability risk and declining consumption levels has contributed to the Netherlands’ increased risk perception this quarter.

Contributing economists downgraded the Netherlands' economic assessment by 0.8 points in Q2 2013, with lower scores in the survey’s bank stability (-0.1), economic outlook (-0.1), employment (-0.1) and government finances (-0.2) indicators.

The Netherlands entered a technical recession last year, after the economy contracted by 0.9% of real GDP, while unemployment rose to a post-crisis high of 7.7%. However, it is the country’s seemingly riskier banking sector that has caught the attention of ECR economists. The Netherlands' bank stability score dipped 0.2 points year on year and 0.1 points in the second quarter.

 

Moody’s downgraded the outlook on three Dutch banks (ABN Amro, NIBK Bank and Rabobank) to negative in March this year, reflecting concerns about deteriorating asset quality and a challenging operating environment.

“The operating environment remains uncertain and fragile, with the potential for further macro or financial market shocks to undermine banks' intrinsic credit strength beyond the impact that normal cyclical changes would be expected to have,” says a report by Moody’s.

This article was originally published by ECR. To find out more, register for a free trial at Euromoney Country Risk.