NAB's new chief has the job ahead

In a sign the worsening local economy has melded with last week's shock $830 million write-off into one major issue for NAB, Moody's moved its ratings outlook from stable to negative - placing a question over the bank's all-important AA ranking.

While the agency joined its rival Standard & Poor's in confirming NAB's status and said its borrowing and asset profile remained "strong on an absolute basis", it said its decision to place the bank's position under review was due to broader credit issues.

Moody's had not followed S&P in placing NAB under immediate watch after the bank's announcement eight days ago that it would be writing off almost all the $1.2 billion value of its portfolio of mortgage-backed securities that have turned sour because of the US subprime housing loan crisis.

"The negative outlook reflects both the potential impact of weaker credit conditions in NAB's core geographies as well as ongoing discussions in credit markets," said Patrick Winsbury, Moody's senior vice-president in Sydney.

In particular, the agency said it was looking at potential trends over the next 12 months to 18 months, which will cover the handover period as the outgoing NAB boss John Stewart steps aside in favour of Mr Clyne, and the new incumbent's first full year in charge.

Mr Clyne's appointment was announced on Thursday after an 18-month search to find Mr Stewart's successor. He formally assumes the role on January 1.

Mr Clyne, who heads NAB's New Zealand division, will face a particular difficult period when he takes over - not least the weakening Australian economy and the dire situation of its New Zealand counterpart, which is beginning to put pressure on the bank's domestic earnings.

Moody's highlighted the fact that the challenges faced by NAB were not "universally shared" by its major rivals such as Commonwealth, Westpac and even ANZ - which early this week announced an extra $1.2 billion of provisions for bad debts for its coming full year result.

The agency raised issues about the risks associated with NAB's profitability and capital measures, its exposures to corporate and business banking borrowers at the higher end of all the Big Four, and its international operations.

NAB responded by saying it noted both the change in Moody's outlook position and its decision to maintain its current high rating which it "shares with only a small number of global banks".

Shares in the bank closed 36c down at $24.34 yesterday.