BCA of a3 also affirmed
Paris, September 24, 2021 -- Moody's Investors Service ("Moody's") today affirmed
the Aa2 long-term deposit and senior unsecured debt ratings of
Rabobank with a stable outlook. Moreover, Moody's affirmed
Rabobank's Baseline Credit Assessment (BCA) and Adjusted BCA at a3.
The rating agency also affirmed Rabobank's subordinated debt rating at
Baa1, its long-term senior non-preferred unsecured
debt rating at A3, and its Additional Tier 1 (AT1) securities at
Baa3(hyb).
A list of affected ratings can be found at the end of this press release.
RATINGS RATIONALE
AFFIRMATION REFLECTS THE BANK'S SOUND AND STABLE FUNDAMENTALS
The affirmation of Rabobank's BCA of a3 reflects Moody's expectation
that the bank's well-entrenched and low risk profile, as
well as its strong financial fundamentals, will continue to support
its strong solvency profile. The bank's leading position,
both in the retail and wholesale markets, and strong franchise in
the agribusiness sector globally are the primary drivers of its relatively
stable, although modest, underlying earnings generation capacity.
Rabobank's profitability has been constrained in recent years by
the low interest rate environment in the Eurozone and subdued lending
activities, stemming from Rabobank's decision to optimize risk-weighted
assets in anticipation of Basel III finalization. Profitability
was also negatively affected by high covid-related provision costs
in 2020, but rebounded strongly in the first half of 2021,
with a net income of €2.2 billion, at par with full-year
2019 profit. The surge in net profit was supported by a rebound
in equity markets and a €274 million loan loss provision release,
but core revenues were also sound, with fees up 15% year-on-year
and net interest income stable year-on-year. Moody's
considers that despite low interest rates, elevated bank taxes and
other regulatory levies and high operating expenses, the resilience
of the bank's core earnings streams and structural cost savings from the
ongoing efficiency programme will allow Rabobank to reach its profitability
target of a cost-to-income ratio in the low 60% and
6-7% return on equity by 2024 (66% and 2.7%,
respectively, in 2020).
The affirmation of the a3 BCA is also underpinned by the bank's good and
stable capitalization (Common Equity Tier 1 ratio was 17.2%
at end-June 2021), which provides a strong loss-absorption
capacity, and low asset risk. Moody's views Rabobank's
asset quality as sound, because of (1) its relatively conservative
underwriting policy, and (2) strong track record of low credit losses.
The bank has a high share (46% of the private sector loan portfolio
as of end-June 2021) of low-risk domestic mortgages in its
loan book, while its exposure to vulnerable sectors most affected
by the Covid-related lockdown restrictions is moderate, at
3% of the loan book. Problem loans had declined in recent
years, partly as a result of proactive non-performing loan
management (down to 2.8% as of end June 2021 from 3.6%
at YE 2019, Moody's calculations). Although Moody's
expects problem loans to increase as Covid-related government support
measures subside, the build-up of problem loans should remain
contained in a context of a strong economic recovery in the Netherlands.
Finally, the rating agency's affirmation of the BCA reflects
Rabobank's robust funding structure. Similar to other Dutch
banks, Rabobank relies on wholesale funding, but this reliance
has been markedly reduced over the last few years (market funding decreased
to 29.5% of tangible banking assets as of end-June
2021, from 39.5% in 2014) and is mitigated by sizeable
liquidity buffers and the long duration of its funding.
Moody's affirmation of Rabobank's deposit and senior unsecured debt
ratings of Aa2 reflects the affirmation of (1) Rabobank's BCA of
a3; (2) three notches of uplift from Moody's Advanced Loss Given
Failure (LGF) analysis; and (3) one notch of uplift stemming from
a moderate probability of government support.
The bank's dated subordinated debt instruments are rated one notch
below the bank's BCA to reflect their high loss-given-failure.
The AT1 securities are rated three notches below the bank's BCA
to reflect the high loss-given-failure, the optional
coupon-skip mechanism and the non-cumulative nature of its
coupons.
OUTLOOK
The outlook on Rabobank's deposit and senior unsecured debt ratings
is stable, reflecting Moody's expectation that Rabobank's
strong capitalization, modest but stable profitability and contained
asset quality deterioration will remain consistent with a BCA of a3.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's could upgrade the BCA, and consequently the long-term
deposit and senior unsecured debt ratings, if (1) Rabobank improved
its structural profitability beyond its current plans, and (2) the
increase in non-performing loans were contained.
Moody's could downgrade the BCA if (1) the bank's profitability
were to significantly decrease or become more volatile, or (2) its
asset quality were to deteriorate materially. Rabobank's long-term
deposit and senior unsecured debt ratings would be downgraded as a consequence
of a downgrade of the bank's BCA.
Rabobank's deposit and senior unsecured debt ratings could also be downgraded
as a result of a higher loss-given-failure because of lower
volumes of these instruments or lower amounts of subordinated debt,
or both.
LIST OF AFFECTED RATINGS
Issuer: Rabobank
..Affirmations:
....Long-term Counterparty Risk Ratings,
affirmed Aa2
....Short-term Counterparty Risk Ratings,
affirmed P-1
....Long-term Bank Deposits,
affirmed Aa2, outlook remains Stable
....Short-term Bank Deposits,
affirmed P-1
....Long-term Deposit Note/CD Program,
affirmed (P)Aa2
....Short-term Deposit Note/CD Program,
affirmed P-1
....Short-term Deposit Note/CD Program,
affirmed (P)P-1
....Long-term Counterparty Risk Assessment,
affirmed Aa2(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
....Long-term Issuer Rating,
affirmed Aa2, outlook remains Stable
....Baseline Credit Assessment, affirmed
a3
....Adjusted Baseline Credit Assessment,
affirmed a3
....Senior Unsecured Regular Bond/Debenture,
affirmed Aa2, outlook remains Stable
....Backed Senior Unsecured Regular Bond/Debenture,
affirmed Aa2, outlook remains Stable
....Senior Unsecured Medium-Term Note
Program, affirmed (P)Aa2
....Backed Senior Unsecured Medium-Term
Note Program, affirmed (P)Aa2
....Junior Senior Unsecured Regular Bond/Debenture,
affirmed A3
....Junior Senior Unsecured Medium-Term
Note Program, affirmed (P)A3
....Subordinate Regular Bond/Debenture,
affirmed Baa1
....Backed Subordinate Regular Bond/Debenture,
affirmed Baa1
....Subordinate Medium-Term Note Program,
affirmed (P)Baa1
....Preferred Stock Non-cumulative,
affirmed Baa3 (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: Rabo Capital Securities Limited
..Affirmation:
....Preferred Stock Non-cumulative,
affirmed Baa3 (hyb)
..No Outlook assigned
Issuer: Rabobank Australia Limited
..Affirmations:
....Backed Long-term Bank Deposits,
affirmed Aa2, outlook remains Stable
....Backed Short-term Bank Deposits,
affirmed P-1
..Outlook Action:
....Outlook remains Stable
Issuer: Rabobank Capital Funding Trust IV
..Affirmation:
....Preferred Stock Non-cumulative,
affirmed Baa3 (hyb)
..No Outlook assigned
Issuer: Rabobank Ireland plc
..Affirmation:
....Backed Commercial Paper, affirmed
P-1
..No Outlook assigned
Issuer: Rabobank London
..Affirmations:
....Long-term Deposit Note/CD Program,
affirmed (P)Aa2
....Short-term Deposit Note/CD Program,
affirmed (P)P-1
....Commercial Paper, affirmed P-1
..No Outlook assigned
Issuer: Rabobank Polska SA
..Affirmation:
....Backed Commercial Paper, affirmed
P-1
..No Outlook assigned
Issuer: Rabobank USA Financial Corporation
..Affirmation:
....Backed Commercial Paper, affirmed
P-1
..No Outlook assigned
Issuer: Rabobank, Australia Branch
..Affirmations:
....Long-term Counterparty Risk Ratings,
affirmed Aa2
....Short-term Counterparty Risk Ratings,
affirmed P-1
....Long-term Deposit Note/CD Program,
affirmed (P)Aa2
....Short-term Deposit Note/CD Program,
affirmed (P)P-1
....Long-term Counterparty Risk Assessment,
affirmed Aa2(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
....Senior Unsecured Regular Bond/Debenture,
affirmed Aa2, outlook remains Stable
....Senior Unsecured Medium-Term Note
Program, affirmed (P)Aa2
....Subordinate Medium-Term Note Program,
affirmed (P)Baa1
....Commercial Paper, affirmed P-1
....Other Short Term, affirmed (P)P-1
..Outlook Action:
....Outlook remains Stable
Issuer: Rabobank, Hong Kong Branch
..Affirmations:
....Long-term Counterparty Risk Ratings,
affirmed Aa2
....Short-term Counterparty Risk Ratings,
affirmed P-1
....Long-term Deposit Note/CD Program,
affirmed (P)Aa2
....Short-term Deposit Note/CD Program,
affirmed (P)P-1
....Long-term Counterparty Risk Assessment,
affirmed Aa2(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
..No Outlook assigned
Issuer: Rabobank, New York Branch
..Affirmations:
....Long-term Counterparty Risk Ratings,
affirmed Aa2
....Short-term Counterparty Risk Ratings,
affirmed P-1
....Long-term Bank Deposits,
affirmed Aa2, outlook remains Stable
....Long-term Deposit Note/CD Program,
affirmed (P)Aa2
....Short-term Deposit Note/CD Program,
affirmed (P)P-1
....Long-term Counterparty Risk Assessment,
affirmed Aa2(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
....Senior Unsecured Regular Bond/Debenture,
affirmed Aa2, outlook remains Stable
....Senior Unsecured Medium-Term Note
Program, affirmed (P)Aa2
....Commercial Paper, affirmed P-1
....Other Short Term, affirmed (P)P-1
..Outlook Action:
....Outlook remains Stable
Issuer: Rabobank, New Zealand Branch
..Affirmations:
....Long-term Counterparty Risk Ratings,
affirmed Aa2
....Short-term Counterparty Risk Ratings,
affirmed P-1
....Long-term Deposit Note/CD Program,
affirmed (P)Aa2
....Short-term Deposit Note/CD Program,
affirmed (P)P-1
....Long-term Counterparty Risk Assessment,
affirmed Aa2(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
....Senior Unsecured Regular Bond/Debenture,
affirmed Aa2, outlook remains Stable
....Senior Unsecured Medium-Term Note
Program, affirmed (P)Aa2
....Subordinate Medium-Term Note Program,
affirmed (P)Baa1
....Commercial Paper, affirmed P-1
....Other Short Term, affirmed (P)P-1
..Outlook Action:
....Outlook remains Stable
Issuer: Rabobank, Paris Branch
..Affirmations:
....Long-term Counterparty Risk Ratings,
affirmed Aa2
....Short-term Counterparty Risk Ratings,
affirmed P-1
....Short-term Deposit Note/CD Program,
affirmed P-1
....Long-term Counterparty Risk Assessment,
affirmed Aa2(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
..No Outlook assigned
Issuer: Rabobank, Singapore Branch
..Affirmations:
....Long-term Counterparty Risk Ratings,
affirmed Aa2
....Short-term Counterparty Risk Ratings,
affirmed P-1
....Long-term Counterparty Risk Assessment,
affirmed Aa2(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
....Commercial Paper, affirmed P-1
..No Outlook assigned
Issuer: Rabobank, The Netherlands Branch
..Affirmations:
....Long-term Counterparty Risk Ratings,
affirmed Aa2
....Short-term Counterparty Risk Ratings,
affirmed P-1
....Long-term Counterparty Risk Assessment,
affirmed Aa2(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
..No Outlook assigned
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks Methodology
published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269625.
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
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Roland Auquier
Vice President - Senior Analyst
Financial Institutions Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Olivier Panis
Senior Vice President
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
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