Moody’s downgrades ING Bank of Canada

The rating agency says that the negative rating action on ING Canada reflects “the potential adverse effects of ING Bank NV’s lower capacity to support its Canadian subsidiary”. Although, Moody’s expectation of the likelihood that ING would provide support to ING Canada, if necessary, has not changed.

Earlier Friday, Moody’s cut its score for five Dutch lenders, including ING Bank NV, citing the effects of the European debt crisis.

Moody’s says that, relative to its peers, ING Canada has elevated interest rate risk “because of its reliance on interest revenues and the product options embedded in the core Canadian residential mortgage product.” Moody’s says it believes that the bank manages these exposures carefully, but in a stress environment they could still result in material losses, it says.

ING offers online banking services in Canada including high-interest savings and no-fee chequing accounts as well as mutual funds and mortgage lending.

The negative outlook on ING Canada reflects Moody’s expectation that low rates and intensifying competition will put pressure on the bank’s net interest margin, it says. “A slowdown in consumer credit growth has led to aggressive mortgage pricing by Canadian banks, and the advent of Basel III liquidity rules is likely to lead to continued pressure on deposit rates,” it says.

A further downgrade of the parent bank would lead to downward pressure on ING Canada’s ratings, Moody’s notes, because of the indirect exposures resulting from the use of a shared brand.