Rating actions follow the closing of the acquisition of Axa Bank Belgium by Crelan SA/NV
Paris, January 04, 2022 -- Moody's Investors Service ("Moody's") today converted
the provisional ratings of Crelan SA/NV, the central body of Belgian
cooperative banking group Crelan, into definitive ratings.
This action follows the approval by regulatory authorities of Crelan's
acquisition of AXA Bank Belgium ("ABB") on 15 December 2021 and its closing
on 31 December 2021. As a result, Moody's assigned
deposit and issuer ratings of A3/Prime-2 and Counterparty Risk
Ratings of A2/Prime-1 to Crelan SA/NV. Moody's also affirmed
the bank's baa2 Baseline Credit Assessment (BCA) and Adjusted BCA,
as well as its Counterparty Risk Assessments of A1(cr)/Prime-1(cr).
The outlook on long-term ratings is stable.
Concurrently, Moody's concluded the review on ABB's
ratings, aligning them with those of Crelan SA/NV. Consequently,
Moody's confirmed ABB's baa2 BCA and downgraded its adjusted
BCA by three notches to baa2 from a2. Moody's also downgraded
ABB's long-term Counterparty Risk Assessments to A1(cr) from
Aa2(cr), its long-term Counterparty Risk Rating to A2 from
Aa3 and its long-term and short-term deposit ratings to
A3/Prime-2 from A2/Prime-1. The rating agency also
confirmed ABB's short-term Counterparty Risk Assessment of
Prime-1(cr) and short-term Counterparty Risk Rating of Prime-1.
Moody's will maintain ABB's ratings until the legal merger has taken place,
scheduled for the first quarter of 2024 at the latest, at which
point the ratings will be withdrawn.
A full list of affected ratings can be found at the end of this press
release.
RATINGS RATIONALE
Crelan SA/NV's long-term deposit and issuer ratings of A3 reflect
(1) the bank's BCA of baa2; (2) one notch of uplift from Moody's
Advanced Loss Given Failure (LGF) analysis stemming from the low loss-given-failure
of these instruments; and (3) one notch of rating uplift resulting
from a moderate probability of government support for depositors and senior
creditors given Crelan's systemic importance in Belgium -- post-acquisition
of ABB, the bank will represent approximately 4% of the Belgian
banking system's assets. Crelan SA/NV's ratings reflect
the financial profile, liability structure and systemic importance
of Crelan group post-acquisition of ABB. ABB's A3
long-term deposit rating now has the same rating construct as Crelan
SA/NV's ratings, with which it is aligned.
Crelan SA/NV's baa2 BCA reflects its strong post-merger financial
profile, including low asset risk, robust capitalisation,
modest but resilient profitability, and limited business diversification.
The new group also exhibits sound liquidity and funding structure.
Crelan's focus on lending to Belgian retail, professional and agricultural
clients results in a granular loan book and a low risk profile.
After integration of ABB, the lending mix will be made of residential
mortgages (82%), agricultural and professional loans (13%)
and consumer loans (5%). The overall quality of the portfolio
is high on a pro forma basis, with problem loans representing 1.5%
of customer loans at year-end 2020. Loan-loss charges
of the combined group remained low during the outbreak of the Covid pandemic,
representing 8.6 basis points (bps) of customer loans in 2020 versus
only 0.2 basis point in 2019.
The bank will exhibit a robust post-merger capital base,
which will help it cope with any deterioration in asset quality and future
regulatory requirements. Crelan's pro forma Common Equity Tier
1 (CET1) ratio was 15.65% at year-end 2020.
The bank's Tier 1 leverage ratio was weaker, at 3.7%
on a pro forma basis as of the same date.
Crelan has limited scale, pricing power and product diversification
in the competitive Belgian retail market. As a result, in
the context of ultra-low interest rates, its profitability
is restrained and so is its ability to mitigate the negative impact stemming
from compressed margins. However, the dominance of housing
loans provides strong earnings stability. Crelan's cost-to-income
ratio was 71% in 2020 (75% in 2019) excluding bank levies.
The combined group aims at lowering the cost-to-income ratio
to below 65% over the medium term through an increase in fees and
commissions and strong cost controls. Lowering the cost-to-income
ratio could prove challenging given that net interest margins will continue
to be under pressure. In addition, significant integration
charges will also significantly weigh on the bank's net income in the
coming years.
The new group's liquidity and funding structure is sound. The pro
forma loan-to-deposit ratio was 109% based on year-end
2020 financials. The bank is essentially deposit-funded
and market funding represented only 20% of tangible banking assets
on a pro forma basis at the same date, which Moody's considers to
be positive. In addition, the bank's liquidity is sound,
as reflected by a Liquidity Coverage Ratio (LCR) of 147% pro forma
at year-end 2020.
OUTLOOK
The outlook on Crelan SA/NV's long-term deposit and issuer ratings
is stable, reflecting Moody's view that, despite continued
margin pressure, the bank's strong capitalisation and sound
funding profile will continue to support its creditworthiness.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade of Crelan SA/NV BCA could result from an improvement of the
new group's business diversification, reducing the share of residential
mortgages in its loan book and increasing the proportion of fee and commission
income derived from insurance and asset management sales.
The BCAs could also be upgraded if (1) the group's profitability were
to increase structurally while keeping its low risk profile and (2) its
capitalisation substantially increased.
Lastly, Moody's would upgrade Crelan SA/NV's deposit and issuer
ratings if MREL-eligible debt issuance of subordinated and/or junior
senior debt (senior non-preferred) resulted in lower loss-given-failure
for these instruments.
A downgrade of Crelan SA/NV's BCA could result from a deterioration
of asset quality and profitability, or unexpected operational difficulties
in ABB's integration, which could prompt a weakening of its
capitalisation.
LIST OF AFFECTED RATINGS
..Issuer: AXA Bank Belgium
Downgrades:
....Adjusted Baseline Credit Assessment,
Downgraded to baa2 from a2
....Long-term Counterparty Risk Assessment,
Downgraded to A1(cr) from Aa2(cr)
....Long-term Counterparty Risk Ratings,
Downgraded to A2 from Aa3
....Long-term Bank Deposit Ratings,
Downgraded to A3 from A2, Outlook Changed To Stable From Ratings
Under Review
....Short-term Bank Deposit Ratings,
Downgraded to P-2 from P-1
Confirmations:
....Baseline Credit Assessment, Confirmed
at baa2
....Short-term Counterparty Risk Assessment,
Confirmed at P-1(cr)
....Short-term Counterparty Risk Ratings,
Confirmed at P-1
Outlook Action:
....Outlook, Changed To Stable From
Ratings Under Review
..Issuer: Crelan SA/NV
Assigned Definitive:
....Long-term Counterparty Risk Ratings,
Assigned A2 from (P)A2
....Short-term Counterparty Risk Ratings,
Assigned P-1 from (P)P-1
....Long-term Issuer Ratings,
Assigned A3 from (P)A3, Outlook Changed To Stable From No Outlook
....Short-term Issuer Ratings,
Assigned P-2 from (P)P-2
....Long-term Bank Deposit Ratings,
Assigned A3 from (P)A3, Outlook Changed To Stable From No Outlook
....Short-term Bank Deposit Ratings,
Assigned P-2 from (P)P-2
Affirmations:
....Adjusted Baseline Credit Assessment,
Affirmed baa2
....Baseline Credit Assessment, Affirmed
baa2
....Long-term Counterparty Risk Assessment,
Affirmed A1(cr)
....Short-term Counterparty Risk Assessment,
Affirmed P-1(cr)
Outlook Action:
....Outlook, Changed To Stable From
No Outlook
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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same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
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issued on a support provider, this announcement provides certain
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support provider and in relation to each particular credit rating action
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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
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and whose ratings may change as a result of this credit rating action,
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Guillaume Lucien-Baugas
Vice President - Senior Analyst
Financial Institutions Group
Moody's France SAS
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Paris 75008
France
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Olivier Panis
Senior Vice President
Financial Institutions Group
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Releasing Office:
Moody's France SAS
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