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Rating Action:

Moody's affirms BNP Paribas' Aa3 senior unsecured debt and deposit ratings; outlook remains stable

09 Dec 2019

Baseline Credit Assessment also affirmed at baa1

Paris, December 09, 2019 -- Moody's Investors Service (Moody's) today affirmed the Aa3 long-term senior unsecured debt ratings, deposit ratings and issuer rating of BNP Paribas (BNPP) as well as the Aa3 Counterparty Risk Ratings and its baa1 Baseline Credit Assessment (BCA). Moody's has also affirmed the bank's short-term ratings and assessments. The outlook on the long-term deposit, senior unsecured debt and issuer ratings remains stable.

For a full list of all affected ratings, please refer to the end of this press release.

RATINGS RATIONALE

Affirmation

The affirmation of BNPP's BCA reflects the bank's very strong and diversified retail and commercial banking franchises, with leadership in Europe across various products and services, which have been providing superior stability in earnings and a high level of shock absorbers. The BCA of the bank is also supported by an improving risk profile, reflecting a very diversified credit risk exposure, mostly stemming from retail and corporate lending in Europe and the US. Although the bank remains exposed to risks from its sizeable corporate and investment banking activities, the more volatile exposure to capital market activities has been reduced since the financial crisis and represents a smaller proportion of the group's operations compared with other global investment banks (capital market revenues represented around 11% of BNPP's revenues in 2018 compared with 33% average for the global investment banks -- GIBs - peer group). Although lower than peers, BNPP's common equity Tier1 ratio (12% as of September 2019 compared with a 13% median at GIBs) has steadily improved in recent years. In Moody's views, the bank's diversified risks and revenue sources reduce the capital sensitivity to stress scenarios and support the stability of the BCA.

BNPP's BCA is however constrained by an elevated stock of confidence-sensitive wholesale funding on its balance-sheet (around €283 billion as of end-2018 of which €125 billion of short-term funding). Moody's views this risk mitigated by the lengthening average weighted maturity of BNPP's market funding and reduced reliance on short-term funding (44% of wholesale funding in 2018 versus 53% in 2013). The bank systematically places at the central bank all its very short-term funding in line with its funding policy which restricts reliance on short-term funding deemed subject to a higher likelihood of outflow. In addition, BNPP increased its issuances of long-term bail-inable debt to comply with Total loss Absorbing Capacity (TLAC) requirements of 20% of risk-weighted assets since 1 January 2019 and 22% by January 2022. The diversified retail franchise also provides the bank with a strong capacity to collect deposits, reflected in a loan-to-deposit ratio (98% as of H1 2019) which improved in recent years, despite accelerated loan growth, and is better than all other French banks. Finally, BNPP's increasing liquidity reserve (€351 billion as of Q3 2019) is an important factor offsetting partly the market funding risk of the bank, mainly comprising high-quality liquid assets representing more than twice the volume of short-term debt and a low level of asset encumbrance.

In line with other global investment banks, with a complex legal structure and global footprint, Moody's has maintained a negative qualitative adjustment for Opacity and Complexity, reflecting increased management challenges and the risk of strategic errors inherent to such complex and global legal structures. In the case of BNPP, this is offset by a positive qualitative adjustment for business diversification, which reflects a superior resilience to shocks stemming from any geographies or business lines. Moody's does not have any particular governance concern for BNPP and does not apply any corporate behaviour adjustment to the bank. Nonetheless, corporate governance remains a key credit consideration and will continue to be monitored on an ongoing basis.

Aside from those considerations on BNPP's financial profile, Moody's assessment of the volume of loss absorbing debt under its Advanced Loss Given Failure analysis has not changed, as the bank will continue to issue more bail-inable debt, mainly in the form of non-preferred senior debt (€14 billion planned in 2019), in order to meet its full 2022 TLAC and upcoming Minimum Requirement for own funds and Eligible Liabilities (MREL) requirements. This results in a three-notch uplift in the relevant ratings from the firm's BCA of baa1.

Moody's also continues to assess a moderate probability of French government support for BNPP's long-term senior unsecured creditors and junior depositors, resulting in a one notch uplift incorporated in the relevant Aa3 ratings. This reflects the systemic role of BNPP in the French financial system.

Stable outlook

Like other European banks, BNPP's profits will remain constrained by low interest rate environment, slowing economic growth, and in line with other GIBs, its investment banking businesses will continue to suffer from challenging markets, increased competition and regulatory burden. However, the stable outlook reflects BNPP's diversified business profile and the expectation that the bank's implementation of its restructuring and transformation plan will continue to protect its profitability, asset quality and capital, despite pressures emanating from the operating environment.

As a result of the prolonged low interest rate environment and the bank's expectation of a slowdown in global economic growth, BNPP revised in 2019 its 2016-2020 business plan objectives, with a targeted revenue compound annual growth rate of 1.5% against 2.5% previously budgeted. In response, the bank announced more ambitious recurring cost savings targets (€3.3 billion recurring savings targeted by the end of 2020) from its transformation plan, whose costs to achieve are expected to reach €2.7 billion. As all the transformation costs should be disbursed by the end of 2019 and only around 55% of recurring costs should be achieved at the same time, Moody's expects that BNPP will be able to materially improve its efficiency gains in 2020, offsetting the margin pressures.

Diversification in BNPP's European retail domestic markets and International Financial Services will continue to moderate interest income pressures in Europe, through increased fees and commissions and fast-growing products such as leasing, vehicle financing, consumer finance or wealth and asset management. Beyond cost efficiency gains, the bank's transformation plan, through its digitalization, is also helping the bank to adapt to new customer demand and competition from Fintechs.

On the back of the bank's restructuring of its capital market activities, and despite a shrinking capital markets wallet and rising competitive pressure, Moody's estimates that BNPP's global market profitability in Europe will strengthen, supported by its integration with the bank's leading corporate banking business in Europe and its wide access to global institutional investors, in an "originate-to-distribute" model. The recent partnership signed with Allfunds, a leading platform in fund distribution, and the agreement signed with Deutsche Bank on the transfer of its prime brokerage and electronic execution will support this strategy.

WHAT COULD MOVE THE RATINGS UP/DOWN

Upward pressure on BNPP's ratings could arise if the group (1) achieves a sustainable improvement in its profitability metrics; (2) reaches materially higher capitalisation; and (3) reduces its recourse to wholesale funding. An upgrade would also be contingent on the stability of the economic and banking environments where the bank operates and its ability to maintain a solid asset quality and low cost of risk.

Downward pressure on BNPP's ratings could arise in the case of (1) a deterioration in operating conditions in the bank's main markets, beyond our current expectations; (2) a weakening in funding and liquidity; (3) lower regulatory capitalisation or higher leverage; and (4) a material risk management failure or an increase in the bank's risk appetite or leverage. Although unexpected, the ratings could further be downgraded should there be a significant decrease in the bank's existing stock of bail-in-able liabilities. Although regarded highly unlikely at present, this may lead to fewer notches of rating uplift as a result of Moody's Advanced LGF analysis.

LIST OF AFFECTED RATINGS

Issuer: BNP Paribas

..Affirmations:

....Long-term Counterparty Risk Ratings, affirmed Aa3

....Short-term Counterparty Risk Ratings, affirmed P-1

....Long-term Bank Deposits, affirmed Aa3, outlook remains Stable

....Short-term Bank Deposits, affirmed P-1

....Long-term Counterparty Risk Assessment, affirmed Aa3(cr)

....Short-term Counterparty Risk Assessment, affirmed P-1(cr)

....Long-term Issuer Rating, affirmed Aa3, outlook remains Stable

....Baseline Credit Assessment, affirmed baa1

....Adjusted Baseline Credit Assessment, affirmed baa1

....Senior Unsecured Regular Bond/Debenture, affirmed Aa3, outlook remains Stable

....Backed Senior Unsecured Regular Bond/Debenture, affirmed Aa3, outlook remains Stable

....Senior Unsecured Medium-Term Note Program, affirmed (P)Aa3

....Backed Senior Unsecured Medium-Term Note Program, affirmed (P)Aa3

....Junior Senior Unsecured Regular Bond/Debenture, affirmed Baa1

....Junior Senior Unsecured Medium-Term Note Program, affirmed (P)Baa1

....Backed Junior Senior Unsecured Medium-Term Note Program, affirmed (P)Baa1

....Subordinate Regular Bond/Debenture, affirmed Baa2

....Backed Subordinate Regular Bond/Debenture, affirmed Baa2

....Subordinate Medium-Term Note Program, affirmed (P)Baa2

....Backed Subordinate Medium-Term Note Program, affirmed (P)Baa2

....Junior Subordinated Regular Bond/Debenture, affirmed Baa3

....Preferred Stock Non-cumulative, affirmed Ba1(hyb)

....Commercial Paper, affirmed P-1

....Other Short Term, affirmed (P)P-1

....Backed Other Short Term, affirmed (P)P-1

..Outlook Action:

....Outlook remains Stable

Issuer: BNP PARIBAS, DUBLIN BRANCH

..Affirmations:

....Long-term Counterparty Risk Ratings, affirmed Aa3

....Short-term Counterparty Risk Ratings, affirmed P-1

....Long-term Counterparty Risk Assessment, affirmed Aa3(cr)

....Short-term Counterparty Risk Assessment, affirmed P-1(cr)

..No Outlook assigned

Issuer: BNP Paribas Canada

..Affirmation:

....Backed Commercial Paper, affirmed P-1

..No Outlook assigned

Issuer: BNP Paribas Finance, Inc.

..Affirmation:

....Backed Commercial Paper, affirmed P-1

..No Outlook assigned

Issuer: BNP Paribas Issuance B.V.

..Affirmation:

....Backed Senior Unsecured Regular Bond/Debenture, affirmed Aa3, outlook remains Stable

..No Outlook assigned

Issuer: BNP Paribas Securities Services

..Affirmations:

....Backed Long-term Bank Deposits, affirmed Aa3, outlook remains Stable

....Backed Short-term Bank Deposits, affirmed P-1

..Outlook Action:

....Outlook remains Stable

Issuer: BNP Paribas US Medium-Term Note Program LLC

..Affirmations:

....Backed Senior Unsecured Regular Bond/Debenture, affirmed Aa3, outlook remains Stable

..Outlook Action:

....Outlook remains Stable

Issuer: BNP Paribas, Australian Branch

..Affirmations:

....Long-term Counterparty Risk Ratings, affirmed Aa3

....Short-term Counterparty Risk Ratings, affirmed P-1

....Long-term Counterparty Risk Assessment, affirmed Aa3(cr)

....Short-term Counterparty Risk Assessment, affirmed P-1(cr)

....Senior Unsecured Regular Bond/Debenture, affirmed Aa3, outlook remains Stable

....Senior Unsecured Medium-Term Note Program, affirmed (P)Aa3

....Other Short Term, affirmed (P)P-1

..Outlook Action:

....Outlook remains Stable

Issuer: BNP Paribas, New York Branch

..Affirmations:

....Long-term Counterparty Risk Ratings, affirmed Aa3

....Short-term Counterparty Risk Ratings, affirmed P-1

....Long-term Bank Deposits, affirmed Aa3, outlook remains Stable

....Short-term Bank Deposits, affirmed P-1

....Long-term Counterparty Risk Assessment, affirmed Aa3(cr)

....Short-term Counterparty Risk Assessment, affirmed P-1(cr)

....Commercial Paper, affirmed P-1

..Outlook Action:

....Outlook remains Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks Methodology published in November 2019. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

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.

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.

Olivier Panis
VP - Senior Credit Officer
Financial Institutions Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Ana Arsov
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

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.
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