Paris, December 22, 2020 -- Moody's Investors Service ("Moody's") today assigned
first-time provisional deposit and issuer ratings of (P)Baa1/(P)Prime-2
to Crelan SA/NV, the central body of Belgian cooperating banking
group Crelan. Moody's also assigned both a Baseline Credit
Assessment (BCA) and an Adjusted BCA of baa2 to Crelan SA/NV. Lastly,
Moody's assigned Counterparty Risk Assessments of A1(cr)/Prime-1(cr)
and provisional Counterparty Risk Ratings of (P)A2/(P)Prime-1 to
Crelan SA/NV. Today's rating assignments are provisional
ratings given that the approval of Crelan's acquisition of Axa Bank
Belgium ("ABB") by the regulatory authorities is still pending.
Concurrently, Moody's extended the reviews for downgrade on
ABB's A2/Prime-1 deposit ratings, Aa2(cr)/Prime-1(cr)
Counterparty Risk Assessments, Aa3/Prime-1 Counterparty Risk
Ratings and a2 Adjusted BCA. In addition, Moody's extended
the review with direction uncertain on ABB's baa2 BCA. The
rating agency initiated the reviews on ABB's ratings on 30 October
2019, following the announcement of ABB's sale by French insurance
group AXA (senior unsecured A2, stable).
Moody's will assign definitive ratings to Crelan SA/NV and close
the reviews on ABB's ratings, aligning them with those of
Crelan SA/NV, when and if the transaction is approved by the regulators,
a decision the rating agency expects to occur in the coming weeks.
Moody's expects to maintain ABB's ratings until the legal
merger takes place, which should occur towards the end of 2022,
after the IT migration and human resource integration are completed.
If the transaction does not go through, Moody's expects to
confirm ABB's ratings at their current levels.
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 (P)Baa1
reflect (1) the bank's BCA of baa2; (2) no uplift from Moody's
Advanced Loss Given Failure (LGF) analysis because of the moderate loss-given-failure
of these instruments; and (3) one notch of rating uplift resulting
from a moderate probability of government support in favour of deposits
and senior unsecured debt, in view of Crelan's likely systemic
importance in Belgium.
The baa2 BCA incorporates Crelan's strong post-merger financial
profile, including low asset risk, robust capitalisation,
modest but resilient profitability, and limited business diversification.
The new group will also exhibit sound liquidity and funding structure.
The baa2 BCA of Crelan SA/NV reflects the bank's key role as an
issuing vehicle and the strong solidarity mechanisms existing within the
cooperative group under Belgian law. Moody's analysis also
reflects Crelan's expected acquisition of ABB and the transfer of
100% of Crelan Insurance to AXA Belgium, AXA's insurance
subsidiary in Belgium. Crelan and AXA also concluded a long-term
distribution agreement under which Crelan will distribute AXA's property
and casualty (P&C) insurance and loan insurance products in Belgium.
Crelan's focus on lending to Belgian retail, professional
and agricultural clients results in a granular loan book and a low risk
profile overall. 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 will be high on a pro forma basis,
with problem loans representing 1.5% of net customer loans
at year-end 2019. Loan-loss charges of the combined
group represented only 0.2 basis point of customer loans in 2019.
Moody's also expects recent circumstances linked to the coronavirus
outbreak to have had a more moderate impact on asset quality than for
other Belgian banks more exposed to businesses directly affected by the
shutdown measures.
The bank has 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 15.1% at year-end 2019. The bank's
Tier 1 leverage ratio was weaker, at 3.5% on a pro
forma basis at year-end 2019.
Crelan has limited scale and pricing power in the competitive Belgian
retail market. As a result, its profitability is also limited
and so is its ability to preserve its margins. Modest product diversification
does not allow the bank to offset these effects at present. However,
the dominance of housing loans provides strong earnings stability.
Crelan's cost-to-income ratio was 70% in 2019
(2018: 69%), which is slightly better than ABB's
ratio of 75% (2018: 72%). 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 to be challenging given that net interest margins will be
under continued pressure from the low interest rate environment.
The net income of the standalone Crelan represented 0.31%
of tangible assets in 2019 (0.30% in 2018), whereas
ABB had net income of 0.18% of tangible assets in 2019 (0.18%
in 2018). The coronavirus outbreak will weigh on profitability
through an increase in the cost of risk, although possibly less
so than at many Belgian banks. 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 102% based
on year-end 2019 financials. The bank is essentially deposit-funded
and market funding represented only 16% 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 177%
pro forma at year-end 2019.
Ownership and control, board oversight and effectiveness,
and management are key elements of Moody's assessment of how governance
affects creditworthiness. Today's rating actions on Crelan
reflect Moody's view that the bank does not exhibit any particular
issue affecting its corporate governance.
Moody's believes that there is positive pressure on Crelan SA/NV's
(P)Baa1 long-term deposit and issuer ratings viewing that (1) the
bank has the potential to improve its business diversification and (2)
the Minimum Requirement for Own Funds and Eligible Liabilities (MREL)-eligible
debt to be issued in the coming years will likely result in a reduction
of the loss-given-failure for deposits and senior debt.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade of Crelan SA/NV's BCA could result from an improvement
of the bank'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 BCA could also be upgraded if (1) the group's profitability
increases structurally while its low risk profile is kept unchanged and
(2) its capitalisation substantially increases.
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 higher-than-expected
deterioration of asset quality and profitability linked to the pandemic,
driving a durable weakening of capitalisation through the current crisis,
or from operational difficulties in ABB's integration.
LIST OF AFFECTED RATINGS
Issuer: Crelan SA/NV
..Assignments:
....Long-term Counterparty Risk Ratings,
assigned (P)A2
....Short-term Counterparty Risk Ratings,
assigned (P)P-1
....Long-term Bank Deposits,
assigned (P)Baa1
....Short-term Bank Deposits,
assigned (P)P-2
....Long-term Issuer Ratings,
assigned (P)Baa1
....Short-term Issuer Ratings,
assigned (P)P-2
....Long-term Counterparty Risk Assessment,
assigned A1(cr)
....Short-term Counterparty Risk Assessment,
assigned P-1(cr)
....Baseline Credit Assessment, assigned
baa2
....Adjusted Baseline Credit Assessment,
assigned baa2
..Outlook Action:
....No Outlook assigned
PRINCIPAL METHODOLOGY
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.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
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.
Guillaume Lucien-Baugas
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
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
