Moody’s said on Saturday the downgrade of long-term bank deposits and senior debts from A2 to Baa2 was due to continuing uncertainty over the lender’s future, as well as a weak franchise and a history of risky behaviour.

The ratings agency said of the National Australia Bank-owned lender: “The bank is well-capitalised and has substantial liquid assets, and we see no immediate threat to creditors from its near-term challenges. However, the weakness of its franchise and uncertainty over its future strategic direction, alongside NAB’s stated intention to sell the bank over the medium term, leaves Clydesdale in an uncertain position.

However, Moody’s acknowledged the lender profited from its retail mortgage activities: “The portfolio is positioned conservatively versus peers, with relatively low arrears levels, low loan-to-value ratios and is well diversified across the UK housing market.

“Potential downside pressure from the mortgage lending portfolio could stem from either the buy-to-let lending (20% of total mortgage lending) or the interest-only loans (40% of total) within the portfolio.”

Short-term pressures faced by the lender included the risk of impairment in the business loans portfolio and continued low profitability, the ratings agency said.

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