Fitch Ratings lifts negative watch on Citizens Financial, affirms RBS unit’s individual rating

Fitch removes negative watch on Citizens Financial

NEW YORK — Fitch Ratings on Monday said it removed the negative rating watch on Citizens Financial Group and its bank subsidiaries.

The ratings agency also affirmed the individual “B/C” ratings on Citizens, Citizens Bank of Pennsylvania and RBS Citizens N.A. Citizens is a subsidiary of the Royal Bank of Scotland Group.

Fitch said the individual rating affirmation reflects Citizens’ “solid balance sheet fundamentals” and its strong franchise in New England, the Middle Atlantic states and the Midwest.

The agency said Citizens’ earnings have been hampered by high credit costs and provisions, or money set aside to cover bad loans. Asset quality has weakened but non-performing loans have been controllable, at 2.3 percent of total loans as of March 31.

“Credit problems continue to stem from the consumer sector,” especially in the home equity loan portfolio that is serviced by outside companies, Fitch said. “While credit costs are expected to persist, Fitch believes overall levels will remain manageable, with sufficient reserve coverage in place to absorb future losses.” The ratings could be revisited if asset quality deteriorates beyond Fitch’s expectations and pressures capital levels.

Citizens has sufficient liquidity and capital levels, which Fitch believes are managed to prudent levels for this rating category. The bank does not rely on the Royal Bank of Scotland for funding, but Fitch said there is an “extremely high probability” the parent, which is currently 84 percent owned by the U.K. government, would support Citizens if necessary.

In midday trading, U.S. shares of the Royal Bank of Scotland gained 30 cents, or 2.4 percent, to $12.73.