Fitch downgraded NIBC Bank from BBB to BBB- yesterday (Tuesday) because it considers that the Dutch bank’s “niche” business model faces prolonged profitability challenges in the prevailing operating environment.

The rating agency said that NIBC has established expertise in niche sectors, but that its franchise is small and acts as a constraint in its pricing power and new businesses generation.

Its business profile renders NIBC’s capital at risk of having to absorb greater than anticipated loan impairment charges during times of stress, said Fitch.

“The risk is heightened by the bank’s asset exposure to relatively large, transaction-based, loans in cyclical and higher risk industries (commercial real estate, shipping and leveraged finance),” it added.

It said that it expects a gradual improvement in NIBC’s operating income for 2013 and 2014 (based on an improved net interest margin) and that loan impairment charges should remain at manageable levels. However, income generated by recurring and client-driven transactions is expected to remain modest in the short to medium term.

The rating is on stable outlook.