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Rating Action:

Moody's affirms Banco Comercial Portugues' B1 deposit and senior debt ratings; changes outlook to positive

22 Mar 2018

Madrid, March 22, 2018 -- Moody's Investors Service has today affirmed Portugal's Banco Comercial Portugues, S.A. (BCP) and its supported entities' long-term deposit and debt ratings at B1. At the same time, the rating agency has also affirmed (1) the bank's baseline credit assessment (BCA) and adjusted BCA of b2; (2) its dated subordinated debt rating of B3; (3) its preference shares rating of Caa2(hyb). The outlook on the bank's long-term debt and deposit ratings has been changed to positive from stable. As part of this rating action, Moody's has also upgraded the bank's long-term Counterparty Risk Assessment (CR Assessment) to Ba1(cr) from Ba2(cr).

Today's rating action reflects BCP's overall credit profile, namely the bank's improved asset risk metrics and its enhanced domestic profitability. Despite these improvements, Moody's notes that the bank's risk absorption capacity remains weak on the face of the bank's still significant asset quality challenges.

The positive outlook on BCP's long-term debt and deposit ratings reflects the positive pressure that could develop on the bank's ratings if BCP continues to reduce the stock of problematic assets and improve its loss-absorption capacity over the outlook period.

BCP's short-term deposit ratings of Not Prime, its short-term programme ratings at (P)Not Prime and its short-term CRA of Not Prime(cr) are unaffected by today's rating action.

A list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

-- RATIONALE FOR AFFIRMING THE BCA

The affirmation of BCP's BCA and adjusted BCA at b2 reflects the bank's improved although still modest credit profile, notably in terms of asset risk, capital and profitability.

At end-December 2017, BCP reported a non-performing loan (NPL) ratio of 15.0%, down from 18.1% a year earlier. Moreover, the bank also has other problematic exposures such as real estate assets which, if included, raise the bank's non-performing assets ratio (NPAs; NPLs plus real estate assets) to around 18%.

Moody's notes positively that the bank has managed to reduce its domestic NPLs to EUR6.7 billion as of the end of December 2017, down from EUR8.5 billion at year-end 2016 and below the EUR7.5 billion target contemplated in its strategic plan, and we expect this improving trend will continue over the outlook period.

Over the last years, BCP has been able to strengthen its capital base mainly through continued deleveraging and tapping the markets to raise capital. At end-December 2017, the bank reported a phased-in common equity Tier 1 (CET1) ratio of 13.2% and a fully loaded CET1 ratio of 11.9%, up from 12.8% and 11.1% a year earlier.

Despite this enhanced solvency levels, Moody's notes that BCP's loss-absorption capacity remains weak when measured as the ratio of NPAs to balance-sheet cushions. This ratio stood at a high 99% as of the end of December 2017. This is mainly the result of BCP's high stock of problematic assets and low coverage levels, which stood at 43% for NPLs and 38% for NPAs.

BCP's profitability also improved as a result of the implementation of the bank's three-year strategic plan, with both the Portuguese and international operations positively contributing to the group's bottom-line result. At end-December 2017, the bank reported a consolidated net profit of EUR290 million, which is equivalent to a net income to tangible assets ratio of 0.4% and compares with a net profit of EUR146 million a year earlier.

-- RATIONALE FOR AFFIRMING THE LONG-TERM DEBT AND DEPOSIT RATINGS AND THE POSITIVE OUTLOOK

The affirmation of BCP and its supported entities' long-term debt and deposit ratings at B1 reflects: (1) the affirmation of the bank's BCA and adjusted BCA at b2; (2) no uplift from the rating agency's Advanced Loss Given Failure (LGF) Analysis; and (3) Moody's assessment of a moderate probability of government support, which results into a notch of uplift.

The positive outlook on BCP's long-term debt and deposit ratings is reflecting Moody's expectation that the bank will continue to improve its credit fundamentals. In particular, the rating agency expects further reduction in the stock of NPAs that will alleviate the pressure on the bank's solvency levels, as well as a continuous improvement in profitability metrics.

-- RATIONALE FOR UPGRADING THE LONG-TERM CR ASSESSMENT

As part of today's rating action, Moody's has also upgraded the long-term CR Assessment of BCP to Ba1(cr) from Ba2(cr), to incorporate one additional notch of uplift coming from a moderate probability of government support, in line with the rating agency's assumptions on deposits and senior debt. This consideration reflects Moody's view that any support provided by governmental authorities to a bank, which benefits senior unsecured debt or deposits, is very likely to benefit operating activities and obligations reflected by the CR Assessment as well, consistent with our view that governments are likely to maintain such operations as a going concern to reduce contagion and preserve a bank's critical functions.

The CR Assessment is now driven by the bank's b2 adjusted BCA, three notches of uplift from the cushion against default provided by subordinated instruments to the senior obligations represented by the CR Assessment and one notch of uplift from a moderate likelihood of systemic support.

WHAT COULD CHANGE THE RATINGS UP/DOWN

Upward pressure on BCP's standalone BCA could be driven by clear evidence that the bank's risk-absorption capacity is improving, along with a sustainable recovery in the bank's asset risk profile and recurring domestic earnings.

Downward pressure could be exerted on BCP's BCA if: (1) the bank fails to improve its risk-absorption capacity due to asset quality weakening and/or additional provisioning efforts in excess of its capital generation capacity; and/or (2) a deterioration in the bank's liquidity profile.

In addition, any change to the BCA would also be likely to affect debt and deposit ratings, as they are linked to the standalone BCA.

BCP's senior unsecured debt and deposit ratings could also change as a result of changes in the loss-given-failure faced by these securities. In particular, Moody's expects the bank will need to issue a significant amount of Minimum Requirement for Own Funds and Eligible Liabilities (MREL) eligible debt in the short to medium term, which could have positive impact for senior deposit and debt ratings.

LIST OF AFFECTED RATINGS

Issuer: Banco Comercial Portugues, S.A.

..Upgrade:

....Long-term Counterparty Risk Assessment, upgraded to Ba1(cr) from Ba2(cr)

..Affirmations:

....Long-term Bank Deposits, affirmed B1, outlook changed to Positive from Stable

....Senior Unsecured Medium-Term Note Program, affirmed (P)B1

....Subordinate Regular Bond/Debenture, affirmed B3

....Subordinate Medium-Term Note Program, affirmed (P)B3

....Preferred Stock Non-cumulative, affirmed Caa2(hyb)

....Adjusted Baseline Credit Assessment, affirmed b2

....Baseline Credit Assessment, affirmed b2

..Outlook Action:

....Outlook changed to Positive from Stable

Issuer: BCP Finance Bank, Ltd.

..Affirmation:

....Backed Senior Unsecured Regular Bond/Debenture, affirmed B1, outlook changed to Positive from Stable

..Outlook Action:

....Outlook changed to Positive from Stable

Issuer: BCP Finance Company

..Affirmations:

....Backed Subordinate Shelf, affirmed (P)B3

....Backed Preferred Stock Non-cumulative, affirmed Caa2(hyb)

..No Outlook assigned

Issuer: Banco Comercial Portugues, SA, Macao Br

..Upgrade:

....Long-term Counterparty Risk Assessment, upgraded to Ba1(cr) from Ba2(cr)

..Affirmation:

....Long-term Bank Deposit, affirmed B1, outlook changed to Positive from Stable

..Outlook Action:

....Outlook changed to Positive from Stable

Issuer: Banco Comercial Portugues, SA, Madeira

..Upgrade:

....Long-term Counterparty Risk Assessment, upgraded to Ba1(cr) from Ba2(cr)

..No Outlook assigned

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in September 2017. 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 or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

Maria Vinuela
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Carola Schuler
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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