Ratings are assigned following 6 June 2018 update to Moody's Banks rating methodology
London, 27 June 2018 -- Moody's Investors Service today assigned Counterparty Risk Ratings
(CRRs) to entities within the following six banking groups: Allied
Irish Banks, p.l.c. (AIB), Bank of Ireland
(BOI), Hewlett-Packard International Bank Plc (HPIB),
KBC Bank Ireland PLC (KBCI), Permanent tsb p.l.c.
(PTSB) and Ulster Bank Ireland DAC (UBID).
Moody's Counterparty Risk Ratings (CRR) are opinions of the ability
of entities to honour the uncollateralized portion of non-debt
counterparty financial liabilities (CRR liabilities) and also reflect
the expected financial losses in the event such liabilities are not honoured.
CRR liabilities typically relate to transactions with unrelated parties.
Examples of CRR liabilities include the uncollateralized portion of payables
arising from derivatives transactions and the uncollateralized portion
of liabilities under sale and repurchase agreements. CRRs are not
applicable to funding commitments or other obligations associated with
covered bonds, letters of credit, guarantees, servicer
and trustee obligations, and other similar obligations that arise
from a bank performing its essential operating functions.
RATINGS RATIONALE
In assigning CRRs to the banks operating in Ireland subject to this rating
action, Moody's starts with the banks' adjusted Baseline Credit
Assessments (BCAs) and uses the agency's existing advanced Loss
Given Failure (LGF) approach that takes into account the level of subordination
to CRR liabilities in the bank's balance sheet, and assumes a nominal
volume of such liabilities.
Furthermore, in some cases the CRR benefits from additional uplift
from government support.
-- UPLIFT FROM OUR LOSS GIVEN FAILURE ANALYSIS
- For four banking groups, Moody's advanced LGF approach
provides three notches of uplift to the CRRs above their respective adjusted
BCAs: AIB, BOI, PTSB, and UBID.
- For KBCI, Moody's advanced LGF approach provides
two notches of uplift to the CRR above its adjusted BCA.
- For HPIB, Moody's advanced LGF approach provides
one notch of uplift to the CRR above its adjusted BCA.
Although the banking groups whose CRRs receive three notches of uplift
from their adjusted BCAs are likely to have more than a nominal volume
of CRR liabilities at failure, this has no impact on the ratings
because the significant level of subordination below the CRR liabilities
at each of the banking groups already provides the maximum amount of uplift
allowed under Moody's rating methodology.
In all cases the CRRs assigned are equal to or higher than the rated bank's
senior debt and deposit ratings where such ratings are assigned.
This reflects Moody's view that secured counterparties to banks typically
benefit from greater protections under insolvency laws and bank resolution
regimes than do senior unsecured creditors, and that this benefit
is likely to extend to the unsecured portion of such secured transactions
in most bank resolution regimes. Moody's believes that in
many cases regulators will use their discretion to allow a bank in resolution
to continue to honour its CRR liabilities or to transfer those liabilities
to another party who will honour them, in part because of the greater
complexity of bailing in obligations that fluctuate with market prices,
and also because the regulator will typically seek to preserve much of
the bank's operations as a going concern in order to maximize the
value of the bank in resolution, stabilize the bank quickly,
and avoid contagion within the banking system. CRR liabilities
at these banks therefore benefit from the subordination provided by more
junior liabilities, with the extent of the uplift of the CRR from
the adjusted BCA depending on the amount of subordination.
-- UPLIFT FROM GOVERNMENT SUPPORT
For three banking groups, Moody's considers the likelihood
of government support for CRR liabilities to be moderate, resulting
in an additional one notch of uplift from their respective adjusted BCAs,
reflecting their systemic importance to the Irish financial system:
AIB, BOI and PTSB.
For the remaining three banking groups, due to their limited systemic
importance, Moody's believes there is a low probability of
government support for CRR liabilities, which does not result in
any further uplift: HPIB, KBCI and UBID.
OUTLOOK
CRRs do not carry outlooks.
FACTORS THAT COULD LEAD TO AN UPGRADE/DOWNGRADE
The CRRs assigned to the banks included in this action could be upgraded
following an upgrade of their respective adjusted BCAs; for KBCI
and HPIB, whose CRR benefits from less than three notches of uplift
from Moody's advanced LGF approach, a higher volume of bail-in-able
debt and junior deposits could also lead to an upgrade of the CRR.
Conversely, the CRRs for the banks included in this action could
be downgraded following a downgrade of their respective adjusted BCAs,
or by a reduction in the stock of bail-in-able debt and
junior deposits.
The following ratings were assigned:
Allied Irish Banks p.l.c., EBS d.a.c.
--
Local currency and foreign currency Long-term Counterparty Risk
Ratings of A3
Local currency and foreign currency Short-term Counterparty Risk
Rating of Prime-2
Bank of Ireland --
Local currency and foreign currency Long-term Counterparty Risk
Ratings of A2
Local currency and foreign currency Short-term Counterparty Risk
Ratings of Prime-1
Hewlett-Packard International Bank Plc --
Local currency and foreign currency Long-term Counterparty Risk
Ratings of A3
Local currency and foreign currency Short-term Counterparty Risk
Ratings of Prime-2
KBC Bank Ireland PLC --
Local currency and foreign currency Long-term Counterparty Risk
Ratings of Baa2
Local currency and foreign currency Short-term Counterparty Risk
Ratings of Prime-2
Permanent tsb p.l.c. --
Local currency and foreign currency Long-term Counterparty Risk
Ratings of Ba1
Local currency and foreign currency Short-term Counterparty Risk
Ratings of Not Prime
Ulster Bank Ireland DAC --
Local currency and foreign currency Long-term Counterparty Risk
Ratings of A2
Local currency and foreign currency Short-term Counterparty Risk
Ratings of Prime-1
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
June 2018. 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.
Items color coded in purple in this Press Release relate to unsolicited
ratings for a rated entity which is non-participating.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead rating analyst and the Moody's legal entity that has issued
the ratings.
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.
Roland Auquier
Asst Vice President - 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
Nicholas Hill
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
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