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
