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Rating Action:

Moody's affirms BNP Paribas Fortis' A1 deposit ratings and A2 senior unsecured debt ratings; outlook remains stable

16 Dec 2020

Baseline Credit Assessment also affirmed at baa1

Paris, December 16, 2020 -- Moody's Investors Service (Moody's) today affirmed the A1 long-term deposit ratings and A2 senior unsecured debt ratings of BNP Paribas Fortis SA/NV (BNPPF) 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 and senior unsecured debt 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 BNPPF's BCA reflects the bank's strong retail and commercial banking franchise in Belgium, combined with diversified banking activities in Luxembourg (BGL BNP Paribas, BGL, A1 deposit rating with stable outlook), Turkey (Turk Ekonomi Bankasi A.S., TEB, B2 foreign deposit rating with negative outlook), European leasing and factoring activities of its parent BNP Paribas (BNPP, Aa3 deposit rating with stable outlook) and car leasing and fleet management under its subsidiary Arval. The diversification of the bank's activities outside Belgium has supported in recent years its net interest margin, the highest among Belgian peers and mitigated continued pressure from persistently low interest rates. Despite a strained margin in the Belgian retail portfolio and the negative exchange rate effects following the depreciation of the Turkish lira, the net profit of the bank increased slightly in 2019 (net income/tangible banking assets of 0.86%), mainly supported by cost-efficiency initiatives and solid business growth in personal finance, European leasing solutions and lending in Turkey. Despite the negative effects of the pandemic on business volumes in H1, BNPPF's gross operating income increased 4%, owing mainly to efficiency gains, and its net income / tangible banking assets ratio declined to 0.6% as a result of higher cost of risk.

The BCA affirmation also reflects the bank's solid asset quality. Asset quality pertaining to BNPPF's activities in Belgium and Luxembourg has improved significantly over the past years, benefiting from the solid macroeconomic environment in both countries. The weaker asset performance in Turkey (TEB had an non-performing loan (NPL) ratio of 5.1% as of June 2020 compared with 2.9% as of year-end 2017) in recent years, due to deteriorating operating environment, has a modest impact on BNPPF's profitability because of the small size of TEB's loan book. In the first half of 2020, cost of risk for banking activities in Belgium was multiplied by six compared with the first half of 2019, due to the coronavirus-related lockdown measures, stemming from specific files and ex-ante provisioning that represented around half of the additional provisioning charges. However, BNPPF's NPL ratio remained broadly stable at 2.6%, a low level compared with European peers. Beyond the next eighteen months horizon, rising private-sector debt in Belgium since 2015 and fast growth in Belgian housing loans constitute a potential risk should debt levels continue to increase and economic recovery after the coronavirus crisis is slower than expected.

BNPPF's liquidity is structurally strong on a standalone basis, and BNPPF would weather adverse conditions relatively better than its peers. Deposits represent the bank's main source of funding, and Belgium's and Luxembourg's banking activities provide excess funding over assets, which is mostly absorbed by European leasing and factoring subsidiaries, as part of BNPP's strategy to optimise funding within the group. We expect structural excess cash from the Belgian retail business to be increasingly deployed to fund liquidity-dependent subsidiaries such as Arval which continue to grow at a fast pace.

BNPPF's solvency ratios are solid. The bank's fully loaded Basel III common equity Tier 1 (CET1) ratio was 14.8% as of June 2020, up from 13.2% as of December 2019 owing to the suspension of the planned dividend of €1.8 billion for 2019. However, BNPPF is dependent on its parent's strategy for the allocation of capital and liquidity within the group. The booking of BNPP's specialised finance activities in 2013 and Arval in 2016 on BNPPF's balance sheet reflects the group's strategy, which aims to optimise its groupwide liquidity and capital by using its cash-rich entities to fund activities that generate limited liquidity in the form of deposits such as leasing and factoring.

Moody's assessment of the volume of loss absorbing debt under its Advanced Loss Given Failure (LGF) analysis has not changed. A very low loss-given-failure on junior deposits translates into a two-notch uplift from the BCA for the bank's deposit ratings. For senior unsecured debt, the low loss-given-failure assessment results in a one-notch uplift. Both ratings benefit from an additional one-notch uplift prompted by the moderate probability of government support we assign to them which factors in BNPPF's systemic importance in Belgium.

Stable outlook

The stable outlook still reflects Moody's view that despite the expected deterioration in certain financial metrics, notably asset risk and profitability, BNPPF's creditworthiness will not be dramatically affected over the next two to three years.

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

BNPPF's BCA could be upgraded if there were a sustained improvement in the bank's underlying profitability while keeping a low risk appetite. An upgrade of the bank's BCA would likely result in an upgrade of all its ratings.

BNPPF's long-term deposit rating could also be upgraded if a substantial amount of additional subordinated debt or junior senior debt, or both, were to be issued. BNPPF's long-term senior unsecured rating could also be upgraded in case, all else being equal, these instruments were to account for a larger share of the bank's overall liability structure or benefit from higher subordination.

BNPPF's BCA could be downgraded if there is a significant deterioration in the bank's asset quality and profitability were under pressure because of lower lending activities as well as increasing loan loss provisions. A downward movement in BNPPF's BCA would likely result in a downgrade of all its ratings.

BNPPF's deposit and senior unsecured debt ratings could also be downgraded as a result of an increase in their loss-given-failure. This could happen in case of a significant increase of tangible banking assets expected at failure or a significant change in the bank's liability structure, implying a material reduction in junior deposits and senior debt volumes and/or a material reduction in instruments subordinated to them.

LIST OF AFFECTED RATINGS

Issuer: BNP Paribas Fortis SA/NV

..Affirmations:

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

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

....Long-term Bank Deposits, affirmed A1, 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)

....Baseline Credit Assessment, affirmed baa1

....Adjusted Baseline Credit Assessment, affirmed baa1

....Senior Unsecured Regular Bond/Debenture, affirmed A2, outlook remains Stable

....Senior Unsecured Medium-Term Note Program, affirmed (P)A2

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

....Junior Subordinated Regular Bond/Debenture, affirmed Baa3(hyb)

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

..Outlook Action:

....Outlook remains Stable

Issuer: BNP Paribas Fortis, New York Branch

..Affirmations:

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

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

....Long-term Bank Deposits, affirmed A1, outlook remains Stable

....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

Issuer: BNP Paribas Fortis Funding

..Affirmations:

....Backed Senior Unsecured Regular Bond/Debenture, affirmed A2 outlook remains Stable

....Backed Senior Unsecured Medium-Term Note Program, affirmed (P)A2

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

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

....Backed Junior Subordinated Regular Bond/Debenture, affirmed Baa3(hyb)

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

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

..Outlook Action:

....Outlook remains Stable

Issuer: Fortis Funding LLC

..Affirmation:

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

..No Outlook assigned

PRINCIPAL METHODODOLOGY

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_1243406.

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

Nicholas Hill
MD - Banking
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.
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