NAB takes a tumble with ratings agency

A LEADING credit ratings agency has downgraded its outlook on National Australia Bank following the series of scandals and turmoil at the top of the banking heavyweight.

New York-based Fitch Ratings has cut its outlook on NAB’S long-term credit rating from stable to negative. Announcing the change, Fitch analysts said the downgrade was due to problems emerging from the banking royal commission over the past year.

Fitch currently has NAB pegged at AA-, which is a high investment-grade rating. That grade is three rungs below the best rating available, triple-a.

Australia’s other three big banks also have AA- ratings from Fitch, which is one of the world’s three big credit rating agencies alongside Moody’s and Standard and Poor’s.

If NAB were to have its credit rating downgraded, it would likely have to pay more for money it borrows from other institutions to lend out in Australia. That means NAB could hike lending rates to cover its higher costs.

It comes after the bank last month increased its variable home loan rates. NAB had resisted lifting its lending rates last August and September, when all the other big banks hiked their rates.

The downgrade at Fitch means it is more likely the ratings agency will cut NAB’S credit rating in future, but does not mean such a cut is certain.

Fitch downgraded its outlook on the Commonwealth Bank to negative last May, when the bank was embroiled in scandal, but has not adjusted the CBA’S credit rating since.

Announcing its downgrade on NAB yesterday, Fitch said in a statement that it reflected “the risk that NAB’S focus on remediating issues and changing culture means its ongoing operations may not receive sufficient management time.”

That meant there was the risk of “a weakening of NAB’S earnings relative to peers”, Fitch analysts said.

They also noted the imminent exits of chief executive Andrew Thorburn and chair Ken Henry announced last week.

“Management changes may make this task (of dealing with remediation issues and changing the bank’s culture) more difficult in the short-term,” they said.

Mr Thorburn is leaving on February 28, while Mr Henry, in a move that has ignited con- troversy, is remaining as chair until the bank has appointed its next permanent chief executive.

In a report released yesterday, a Fitch team led by analyst Bert Jansen noted the royal commission – along with an internal review at NAB – “identified shortcomings within its management of operational and compliance risks, culture and governance”.

“These were not aligned to what Fitch had earlier incorporated into its ratings and resulted in a revision to our score for management and strategy, which also remains on negative outlook,” Mr Jansen said.