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Rating Action:

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

04 Dec 2020

Baseline Credit Assessment also affirmed at baa1

Paris, December 04, 2020 -- 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 long-term 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 in the past decade and as the coronavirus-related macroeconomic shock continues to affect banks' activity globally. The BCA of the bank is also supported by a stable 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 materially 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 13% of BNPP's revenues in 2019 compared with 38% average for the global investment banks - GIBs - peer group). Although lower than peers, BNPP's common equity Tier 1 ratio (12.6% as of September 2020 compared with a 13% median at GIBs) has steadily improved in recent years. In Moody's view, the bank's diversified risks and revenue sources reduce the sensitivity of its capital to stress scenarios and support the stability of the BCA. However, over the next twelve months, the BCA will remain constrained by cyclically low profitability due primarily to low rates and the prolonged effects of the 2020 health crisis on the bank's business volumes and cost of risk, partly offset by resilient corporate and investment banking activity and efficiency gains in all operations.

In addition, BNPP's BCA is constrained by an elevated stock of confidence-sensitive wholesale funding on its balance-sheet (around €317 billion as of end-2019 of which €140 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 2019 versus 53% in 2013). The bank automatically places at the central bank a large portion of 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 20.02% of risk-weighted assets since 1 January 2020. The diversified retail franchise also provides the bank with a strong capacity to collect deposits, reflected in a loan-to-deposit ratio (88% as of H1 2020) which improved in recent years, despite accelerated loan growth, and is better than all other French banks. As of end-September, the group's customer deposits increased 16% from last year, reflecting partly the contingent liquidity placed by corporates after they accessed committed banking facilities, government-guaranteed loans and other precautionary financing in the aftermath of the coronavirus-related lock-down measures.

Finally, BNPP's increasing liquidity reserve (€472 billion as of Q3 2020 from €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 one year room for manoeuvre in terms of wholesale funding 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.

Aside from considerations in relation to BNPP's financial profile, Moody's assessment of the volume of loss absorbing debt under its Advanced Loss Given Failure (LGF) analysis has not changed, as the bank will continue to issue more bail-inable debt, mainly in the form of non-preferred senior debt (€13.2 billion issued as of October 2020), 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 the low interest rate environment and the knock-on effects of the coronavirus-related global macroeconomic recession. However, the stable outlook reflects BNPP's lower profit impact so far, with a 13% decline year-on-year in the first nine months of 2020, than at other French banks and most other large European peers. We expect that the bank's diversified business profile, combined with the completion of its restructuring and transformation plan in 2019, leading to stronger efficiency and better integration of its businesses, will protect its profitability, asset quality and capital from continued pressures emanating from the operating environment.

In particular, the better integration of BNPP's corporate and investment banking (CIB) businesses, together with its large balance-sheet size and access to ample funding, in part provided by central banks actions in response to the coronavirus crisis, have supported a strong performance in capital market activities this year, comparable with large US global investment banks peer group, at a time of high funding and hedging needs from corporates. It has allowed the bank to gain market shares across CIB activities in Europe, positioning the bank well to generate sustainable revenues going forward despite a shrinking global revenue wallet.

Diversification in BNPP's European retail domestic markets and International Financial Services will continue to moderate its 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.

BNPP has also completed last year a €2.7 billion restructuring plan aimed at producing €3.3 billion in recurring savings and has already produced efficiency gains (-3% operating expenses in the first nine months of 2020 year-over-year) without additional restructuring costs and associated business disruption expected in the near future.

Although the health crisis has resulted in material uptick in risk charges this year (+84% YoY for the first nine months of the year), most of the increase stemmed from ex-ante provisioning charges related to performing loans, impacted by the ample deterioration in macroeconomic scenarios in the bank's IFRS9 provisioning models. In contrast, the bank's doubtful ratio of 2.2% at end-September 2020 has remained stable since year-end 2019, as fiscal, prudential and liquidity support measures implemented globally by governments and banking regulators, together with social safety nets in Europe, have prevented the rapid emergence of borrowers' defaults since the spread of the coronavirus. The bank's cost of risk moderated to 57 bps in Q3 from 65 bps in the previous quarter and more than 60% of the loan moratoria extended in H1 have already expired with 99% returning back to normal payments. However, we expect that the gradual expiration of government support measures will result in asset quality deterioration, in particular if economic recovery is delayed by a second wave of severe lock-down measures taken this winter.

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

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 strong risk management evident by solid asset quality and a low cost of risk.

Downward pressure on BNPP's ratings could arise in the case of (1) a material 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; and (5) failure to rapidly restore pre-2020 profitability levels and to demonstrate capacity to make further improvements. 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 Actions:

....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 Actions:

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

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

..Outlook Actions:

....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 Counterparty Risk Assessment, affirmed Aa3(cr)

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

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

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

....Commercial Paper, affirmed P-1

..Outlook Actions:

....Outlook remains Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

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
Senior Vice President
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.
© 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.

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