S&P yesterday (Tuesday) placed on CreditWatch negative the BBB rating of SNS Bank, saying that the risk of government intervention is increasing for SNS REAAL, its parent, as pressure mounts for the group to shore up its capital base and reduce property-finance related risks.

Standard & Poor’s also placed on negative review the BBB- rating of SNS REAAL, the Dutch bancassurance group that owns SNS Bank. The rating agency had already lowered the rating of the group and its covered bond issuer SNS Bank on 16 November as a result of higher economic risks in the Netherlands and some erosion in the bank’s franchise.

In yesterday’s rating action, the rating agency highlighted that SNS REAAL on Monday provided a brief market update on its progress in finding solutions to enhance its capital base and reduce property finance related risks.

However, S&P said that the “protracted strategic discussions currently taking place” could have negative implications for the group franchise and bank’s standalone credit profile.

It added that government intervention to support the group is increasingly likely, and actions taken by Dutch or European authorities could limit the group’s strategic options as some remedial measures could be imposed on it.

“For example,” said the rating agency, “a sale of some or all of the insurance operations would lead us to remove any related group support from our ratings on SNS REAAL and SNS Bank.”

The rating agency noted that the rating of SNS Bank includes two notches of group support above its standalone credit profile. Disposal of some insurance assets, if deemed material, could lead to SNS Bank losing the uplift related to the bank’s sister insurance operations, according to S&P, but it would still be likely to maintain one notch of uplift for government support reasons.

The rating agency expects to resolve the rating watch in mid-February, when SNS REAAL is due to publish group results for 2012. It will assess to what extent the solution will insulate the risks related to property from the bank, the effectiveness of any capital enhancement measures, and the scope of any imposed remedies, including possible assets disposal.