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Rating Action:

Moody's affirms ABN AMRO Bank's deposit and senior unsecured debt ratings of A1 with a stable outlook

24 Sep 2021

Baseline Credit Assessment affirmed at baa1

Paris, September 24, 2021 -- Moody's Investors Service ("Moody's") today affirmed the A1 long-term deposit and senior unsecured debt ratings of ABN AMRO Bank N.V. (ABN AMRO) with stable outlooks. The Prime-1 short-term deposit and commercial paper programme ratings were affirmed. Concurrently, Moody's affirmed ABN AMRO's Baseline Credit Assessment (BCA) of baa1. The bank's subordinated debt and Additional Tier 1 (AT1) securities were also affirmed at Baa2 and Ba1(hyb), respectively.

The Prime-1 rating of ABN AMRO's supported entity, ABN AMRO Funding USA LLC, was affirmed.

Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL455024 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer.

RATINGS RATIONALE

RATING AFFIRMATION REFLECTS EXPECTATIONS OF STABILISATION OF FUNDAMENTALS

Moody's affirmation of ABN AMRO's BCA of baa1 reflects the bank's overall good financial fundamentals including strong solvency, despite material setbacks in its corporate loan book, and a robust liquidity and funding position. The BCA captures the bank's strong presence in the Dutch market, its business mix of retail, commercial banking, corporate & institutional banking (CIB), and its private banking activity across Europe. ABN AMRO's profitability weakened in the past two years and will continue to be affected by the low interest rate environment and the sale of higher-yielding CIB assets. The bank recorded numerous large exceptional losses in recent quarters resulting in significant net income volatility. The Dutch bank announced on 9 September that its Q3 results will be negatively affected by a €250 million payment to consumers who were charged too much interest on revolving consumer credits with floating rates. These one-off losses, which relate to both lending and non-lending credit risk, are testimony to past weaknesses in the bank's risk management, control functions and compliance. However, the bank has taken numerous remedial actions in recent years aimed at moderating its risk appetite and enhancing its internal controls. Moody's expects the ongoing implementation of such improvements and lower risks in its CIB portfolio to gradually reduce ABN AMRO's earnings volatility.

The bank's asset risks are largely focused on the strong domestic economy, with 75% of exposures at default to customers in the Netherlands. In addition, ABN AMRO's customer loan book is predominantly retail with 64% of the loan book made up of residential mortgage loans. Although ABN AMRO recorded large loan-loss provisions related to the Covid crisis in 2020 (78 basis points of gross loans), some of these provisions were reversed during the first half of 2021, driving a reduction of the cost of risk to -18 basis points of gross loans. Meanwhile, the €17 billion CIB portfolio identified as non-core (out of €57 billion) in August 2020 has been already reduced by more than 80% to €3.2 billion at end-June 2021 and will be further reduced to around €2 billion at year-end 2021, which will help limit further large one-off losses in the CIB segment. This non-core portfolio was responsible for 80% of impairments of the CIB division in the period 2017-2019.

Moody's affirmation of ABN AMRO's BCA also reflects its strong capitalisation, which gradually improved in recent years. The bank's common equity tier 1 (CET1) ratio of 18.3% at end-June 2021 was significantly above the minimum CET1 requirement (SREP) of 9.6% for 2021 set by the European Central Bank. ABN AMRO would consider share buybacks only if its CET1 ratio were above 15%, which offers additional comfort to creditors, and will not request regulatory approval for any buybacks to be executed in 2021. ABN AMRO's leverage ratio is more modest, but still solid, and improved in recent years, increasing to 4.8% at end-June 2021 from 4.2% at the end of 2018.

Moody's affirmation of ABN AMRO's deposit and senior unsecured debt ratings of A1 reflects (1) ABN AMRO's BCA of baa1; (2) two notches of uplift resulting from the very low loss-given-failure under Moody's Advanced Loss Given Failure (LGF) analysis, given the substantial amount of volume and subordination benefiting these creditors; and (3) one notch of uplift stemming from a moderate probability of government support.

STABLE OUTLOOK

The stable outlook reflects the bank' strong capitalisation as well as the structurally weakened profitability which Moody's however expects to stabilize owing to a lower risk appetite in the CIB division. The stable outlook also assumes that the liability structure and probability of government support will remain broadly unchanged.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Moody's could upgrade ABN AMRO's BCA and long-term ratings if (1) the bank's capitalisation were to improve materially further, including its regulatory Tier 1 leverage ratio, and (2) the bank concurrently were to report higher net interest margins and sustainably stronger earnings with a reduced risk profile and a completed remediation to their risk control frameworks.

ABN AMRO's deposit and senior unsecured debt ratings could also be upgraded as a result of a decrease in loss-given-failure, should they benefit from higher subordination than is currently the case.

The bank's BCA could be downgraded as a result of (1) a significant deterioration in the bank's asset quality; (2) lower profitability with continued volatility in earnings; or (3) a negative development in its liquidity and/or capitalisation. A downward movement in ABN AMRO's BCA would likely result in downgrades to all ratings.

ABN AMRO's deposit and senior unsecured debt ratings could also be downgraded as a result of an increase in loss-given-failure, should they account for example for a significantly smaller share of the bank's overall liability structure, or benefit from lower subordination than is currently the case.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks Methodology published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269625. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

The List of Affected Credit Ratings announced here are a mix of solicited and unsolicited credit ratings. Additionally, the List of Affected Credit Ratings includes additional disclosures that vary with regard to some of the ratings. Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL455024 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody's disclosures on the following items:

• EU Endorsement Status

• UK Endorsement Status

• Rating Solicitation

• Issuer Participation

• Participation: Access to Management

• Participation: Access to Internal Documents

• Disclosure to Rated Entity

• Lead Analyst

• Releasing Office

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Guillaume Lucien-Baugas
Vice President - Senior Analyst
Financial Institutions Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Olivier Panis
Senior Vice President
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.

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Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.

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MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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