Moody’s put SNS Bank’s Baa2 rating on review for downgrade yesterday (Wednesday), citing concerns about the bank’s high exposure to the deteriorating commercial real estate sector in the Netherlands and pressure on its capital ratios.

The rating action was driven by a downgrade of the bank financial strength rating (BFSR) to E+/b3, resulting from higher than expected impairments in the bank’s property finance portfolio and concerns about increasing pressure on SNS Bank’s solvency, with its Core Tier 1 ratio having fallen from 9.6% at end-June to 8.8% at end-September.

Moody’s said that the bank’s capital had previously benefited from the support of the group it belongs to, SNS Reaal, but future losses deriving from its high exposure to commercial real estate could exceed the group’s support capacity, and increase the likelihood of the need for “external support”.

“The downgrade of the standalone credit assessment to E+/b3 was limited by Moody’s expectation that the plan the group intends to present aims to restore capital and immunise the bank against future impairments on the legacy PF portfolio, rather than to remediate an immediate capital shortfall,” it said. “Furthermore, Moody’s considers the bank’s liquidity position to be adequate, which mitigates the risks of a loss of investor confidence in the short-term, in Moody’s view.”

The BFSR was left on review for downgrade.

The rating agency said that it considers there to be a high probability of systemic support for SNS Bank, but that it will reassess the likelihood of such support during its review of the issuer’s Baa2 rating.

“This may be the case in the event of Moody’s perception of an increased willingness by the government to insulate its own finances from the crisis affecting financial institutions; the imposition of burden-sharing with senior creditors, notably by recourse to the Dutch Intervention Act of June 2012, or a deterioration of the financial position of the government of the Netherlands,” said Moody’s.