S&P warns of weak profitability for Clydesdale Bank

Standard & Poor’s has revised its outlook on Clydesdale Bank from stable to negative against a risk of rapidly deteriorating profitability for the bank.

S&P Ratings Services predict that Clydesdale Bank’s reserves to cover loan losses for the year to September 30 2009 will be at least double last year’s level, with further reserves needed in 2010.

The ‘AA-/A-1+’ long and short-term counterparty credit ratings were affirmed.

The ratings agency believes Clydesdale Bank’s mortgage book will continue to perform better than its peers, but that it is set to deteriorate more rapidly than the lender’s commercial loan portfolio.

Clydesdale Bank’s group rating is boosted by its parent, National Australia Bank.

But despite the bank’s parentage and its “moderate systemic importance” to the UK S&P has ruled out a government bailout to shore up the bank’s financial position.

Giles Edwards, credit analyst at S&P, says: “While we expect the bank should demonstrate resilience, the negative outlook reflects our view that Clydesdale’s profitability may weaken faster or further than we currently expect.”

An outlook revision back to stable is unlikely for now, but S&P adds that ratings for the bank could be lowered if Clydesdale were to become less strategically important to its parent NAB.