Moody’s Investors Service downgraded the financial strength rating of RBC Centura Bank to C- from C.

Moody’s said Thursday that the downgrade in RBC Centura’s financial strength rating is in response to the bank’s below average financial fundamentals and the challenges it faces in improving profits and meeting its strategic objectives without increasing its risk profile. “RBC Centura’s financial fundamentals raise concerns about Royal Bank of Canada’s US retail banking strategy,” Moody’s said in a report.

As a result, Moody’s believes that the appropriate outlook for RBC Centura’s deposit ratings is no longer stable, it cut that to negative. The rating outlook on the bank financial strength rating is stable. “The future direction of Moody’s outlook on RBC Centura’s deposit ratings will reflect Royal Bank of Canada’s success in executing its US retail banking strategy through RBC Centura.”

Nonetheless, Moody’s noted that the affirmation of RBC Centura’s deposit ratings is based on the credit enhancement it receives from its ultimate parent, Royal Bank. Moody’s said that Royal Bank has the capacity to support RBC Centura and that the probability that it would give its US subsidiary support, if needed, is high because Royal would want to support its own net worth, and it would not want to alienate US bank regulators.

“Given the difficulty Royal Bank of Canada has had in executing its US strategy through RBC Centura, with profitability remaining below the median for US banks rated C- for bank financial strength, Moody’s diminished opinion of the financial strength of RBC Centura recognizes that the implied level of support from Royal Bank of Canada has increased,” it said.

Moody’s bank financial strength rating represents Moody’s opinion of a bank’s intrinsic safety and soundness and excludes certain external credit risks and credit support elements that are addressed by Moody’s debt and deposit ratings.