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
