Ratings agency Moody's has downgraded the credit rating of National Australia Bank's troubled UK subsidiary Clydesdale Bank.
Moody's downgraded the long term bank deposit and senior debt rating of Clydesdale to Baa2, from A2.
That means the loss-making bank is labelled a higher risk investment, going from upper-medium grade to a more speculative and moderate but still medium-grade credit risk.
NAB chief executive Cameron Clyne said he was disappointed by the downgrade, as he believed a restructure of the UK operations was driving improvements in its balance sheet.
"Clydesdale has a smaller and stronger balance sheet following the transfer of the vast majority of its commercial real estate portfolio to National Australia Bank Ltd in October 2012, materially improving Clydesdale Bank's risk profile," he said.
The ratings agency cited a deterioration in the business loan portfolio in the last year, with bad debts increasing 30 per cent over the period amid falling property values.
NAB took over Clydesdale's STG5.6 billion ($A9.73 billion) commercial loan book last October.
Moody's said the lowering of the rating reflected its view that Clydesdale faced longer-term structural challenges from its weakened franchise and past risk-management-control weaknesses.
The fact that NAB was also trying to sell Clydesdale left it in an uncertain position, it said.
The bank has started shedding jobs, with 1,400 to go in total.
