Rabobank NZ warned by the RBNZ over the necessity of having a credit rating after temporary withdrawal of S&P rating in July

By Gareth Vaughan

The Reserve Bank has issued a public notice, of sorts, ticking off Rabobank New Zealand for withdrawing its credit rating in July, which was hastily reinstated once the Reserve Bank pointed out having a credit rating was compulsory.

The notice, buried deep in the bowels of the Reserve Bank website, says the following:

Industry notice: Rabobank New Zealand Limited receives Reserve Bank warning

PUBLIC NOTICE

5 September 2012

The Reserve Bank is reminding registered banks of their obligations under Part 5 of the Reserve Bank of New Zealand Act 1989 (“the Act”), after sending a warning to Rabobank New Zealand Limited for failing to maintain a current rating of its credit worthiness, as required under section 80 of the Act.

Rabobank New Zealand Limited has acknowledged its mistake in withdrawing its credit rating, and acted promptly to remedy the situation when drawn to its attention. It has committed to take remedial measures to prevent similar issues in future.

The warning comes after Standard & Poor's (S&P) announced late on Wednesday, July 11 it was withdrawing its AA with a negative outlook rating on Rabobank NZ at the bank's request, before reinstating the rating, again at the bank's request after discussions between Rabobank and the Reserve Bank, its prudential regulator, 24 hours later. Asked by interest.co.nz for comment About Rabobank's credit rating flip flop at the time, a Reserve Bank spokeswoman would only say: "The Reserve Bank is aware of this and has been in discussions with Rabobank about it."

After the rating was reinstated Rabobank NZ CEO Ben Russell acknowledged to interest.co.nz that the specialist rural lender hadn't "necessarily looked that smart" after "overlooking" a regulatory requirement when doing away with its credit rating.

'This is a rating that we don't need'

Russell said the decision to cull the rating had been made because the Rabobank group issues New Zealand wholesale debt via its Rabobank Nederland NZ Branch and retail depositors, including those through online unit RaboDirect, are guaranteed by ultimate parent Rabobank Nederland, which has the same AA rating from S&P.

"Historically we'd had the (Rabobank NZ) credit rating with some expectation that there may be a point where we would issue wholesale paper out of that entity but over the years we just haven't done it," Russell said.

"We've done it all out of our branch. There was no big eureka moment to say 'we don't need it anymore.' It was really just a view that our retail customers benefit from our parent guarantee from Rabobank Nederland so the retail customers are fine. The wholesale customers we issue paper (to) out of the branch so they don't need it, therefore this is a rating that we don't need."

However, Russell acknowledged a failure to realise the Rabobank NZ entity required to a stand alone credit rating.

"Basically the situation was that we overlooked a regulatory requirement and hence the rapid turnaround," said Russell. "In terms of the credit worthiness of Rabobank NZ there's no change there whatsoever."

"It wasn't in our conditions of (bank) registration but there was another regulatory requirement that we overlooked.  We felt that by Rabobank NZ having the guarantee that was covered, but there was a specific requirement to have the New Zealand registered bank with a credit rating on its own, hence we reversed it."

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