Long-term deposit ratings affirmed at A2 for Ulster Bank Limited and at Baa2 for Ulster Bank Ireland DAC
London, 02 October 2017 -- Moody's Investor Service has today affirmed Ulster Bank Limited's (UBL)
long-term deposit ratings at A2 and its long-term issuer
rating at A3. The outlook on these ratings was changed to positive
from stable. The bank's short-term deposit ratings were
affirmed at Prime-1. Moody also affirmed the bank's standalone
baseline credit assessment (BCA) and its adjusted BCA at baa3.
The bank's long-term Counterparty Risk Assessment (CRA) was affirmed
at A2(cr), and its short-term CRA was affirmed at Prime-1(cr).
Additionally, Moody's affirmed Ulster Bank Ireland DAC's (UBID)
long-term deposit ratings at Baa2, its long-term issuer
rating at Baa3, and changed the outlooks on both to positive from
stable. UBID's short-term deposit ratings were affirmed
at Prime-2 and its short-term issuer rating was affirmed
at Prime-3. The bank's long-term CRA was affirmed
at A3(cr) and its short-term CRA was affirmed at Prime-2(cr).
This rating action follows the 27 September 2017 rating action on The
Royal Bank of Scotland plc (RBS, Deposits A2 negative, Senior
Unsecured debt A3 negative, BCA baa3), reflecting Moody's
view on the likely direction of the group's subsidiaries'
ratings, following the implementation of forthcoming ring-fencing
regulations. "Ring-fencing" will come into effect on 1 January
2019 and Moody's expects RBS will complete its material restructuring
by the end of 2018.
RBS will transfer most of its Personal & Business Banking and Commercial
& Private Banking operations to a ring-fenced banking subgroup
(under an intermediate holding company, NatWest Holdings Ltd,
expected to become a direct subsidiary of The Royal Bank of Scotland Group
plc (RBSG) in mid-2018), which will account for around 80%
of group risk-weighted assets. The ring-fenced bank
sub-group will include National Westminster Bank PLC (NatWest Bank),
UBID, UBL and Adam & Company PLC and Coutts & Company.
RATINGS RATIONALE
Ulster Bank Limited
The change of outlook on UBL's ratings was driven by the positive outlook
assigned to the ratings of its immediate parent, NatWest Bank.
UBL's standalone assessment is currently fully aligned with the BCA of
NatWest Bank.
Moody's alignment of the bank's BCA with that of its parent's standalone
assessment remains driven by its high degree of integration with its parent.
Indeed, UBL is managed as a unit of the larger UK retail division
of RBS, devoted entirely to banking activities in Northern Ireland
with its treasury, risk management and some middle and back offices
shared with those of RBS. As a result, Moody's does not believe
that UBL's standalone financial metrics provide meaningful indicators
of creditworthiness, and considers it to be highly integrated and
harmonized with NatWest Bank. Moody's expects UBL to be similarly
highly integrated within the ring-fenced banking subgroup going
forward.
UBL's A2 long-term deposit ratings and A3 long-term issuer
ratings are also aligned with those of NatWest Bank. Moody's believes
that UBL, as a domestic subsidiary of a UK banking group,
would be resolved together with NatWest Bank in the event of their failure.
This means that, like those of NatWest Bank, UBL's deposits
are likely to face extremely low loss-given-failure according
to the agency's Advanced Loss Given Failure (Advanced LGF) analysis,
resulting in a three-notch uplift in its deposit ratings relative
to its adjusted BCA of baa3. Similarly, UBL's issuer rating
reflects the likely loss-given-failure of NatWest Bank's
senior unsecured debt, resulting in a two-notch uplift from
the bank's adjusted BCA. In the same way, given RBS's systemic
importance, Moody's expects a moderate probability of support from
the UK government for both UBL's deposits and senior unsecured debt.
This results in a further one-notch uplift above the adjusted BCA
for both instrument ratings, resulting in ratings of A2 and A3 respectively.
Given the high level of integration between UBL and its parent,
an upgrade or downgrade of NatWest's ratings and/or BCA would likely
trigger an upgrade or downgrade of the bank's ratings and/or BCA.
UBL's ratings could also be downgraded in the event of a lower degree
of integration with NatWest Bank.
Ulster Bank Ireland DAC
The change in outlook on the ratings of UBID, which is incorporated
in the Republic of Ireland, was driven by Moody's expectation
that UBID will remain an integral part of the ring-fenced banking
subgroup, which will have a stronger credit profile as it will retain
mostly retail and SME activities, and have a more deposit-based
funding profile.
UBID's adjusted BCA of baa3 is currently based on Moody's assessment
of a very high probability of affiliate support coming from its parent,
RBS, and resulting in a one notch of uplift from the ba1 BCA.
As a reference point for the creditworthiness of RBS to arrive to UBID's
adjusted BCA, Moody's currently uses RBS's BCA of baa3.
The positive pressures on UBID's adjusted BCA stem from (i) Moody's
expectation that RBSG will continue to maintain a high level of commitment
toward UBID under the ring-fenced structure, given RBSG has
reiterated its commitment to position UBID as a challenger bank to the
domestic pillar banks in Ireland, and (ii) Moody's expectation
that the creditworthiness of the ring-fenced sub-group will
be higher than that of UBID's current support provider.
UBID's Baa2 long-term deposit ratings incorporate a one-notch
uplift from the baa3 adjusted BCA, reflecting Moody's assessment
that UBID's deposits are likely to face low loss-given-failure
under the Advanced LGF analysis. The bank's issuer rating of Baa3
reflects the rating agency's expectation of moderate loss-given-failure
for senior unsecured debt, resulting in an issuer rating in line
with the adjusted BCA. RBSG has determined with its regulator that
it would apply a so-called "Single Point of Entry" resolution strategy.
Nevertheless, Moody's considers that, in the event of a failure
of UBID, the risk to the bank's liabilities would likely be determined
by its own balance sheet characteristics, rather than being fungible
with those of the UK subsidiaries of RBSG. The agency therefore
performs its Advanced LGF analysis on the basis of UBID's own at failure
balance sheet.
UBID's BCA could be upgraded if the bank continues to strengthen its credit
fundamentals, reduces the amount of legacy and non-performing
assets on its balance sheet and improves its pre-provision profitability.
UBID's deposit and issuer ratings could be upgraded if its parent's
own creditworthiness were to improve further resulting in an upgrade of
its Adjusted BCA.
UBID's BCA could be downgraded due to a decline in its capital levels
beyond that already factored into Moody's assessment; a significant
increase in the use of market funding; or a deterioration in the
bank's liquidity position. A downgrade of its parent's creditworthiness
could result in a reduced capacity to support UBID and therefore downgrades
to all of UBID's instrument ratings.
LIST OF AFFECTED RATINGS
Issuer: Ulster Bank Ireland DAC
..Affirmations:
....Long-term Counterparty Risk Assessment,
affirmed A3(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-2(cr)
....Long-term Bank Deposits,
affirmed Baa2, outlook changed to Positive from Stable
....Short-term Bank Deposits,
affirmed P-2
....Long-term Issuer Rating,
affirmed Baa3, outlook changed to Positive from Stable
....Short-term Issuer Rating,
affirmed P-3
....Adjusted Baseline Credit Assessment,
affirmed baa3
....Baseline Credit Assessment, affirmed
ba1
..Outlook Action:
....Outlook changed to Positive from Stable
Issuer: Ulster Bank Limited
..Affirmations:
....Long-term Counterparty Risk Assessment,
affirmed A2(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
....Long-term Bank Deposits,
affirmed A2, outlook changed to Positive from Stable
....Short-term Bank Deposits,
affirmed P-1
....Long-term Issuer Rating,
affirmed A3, outlook changed to Positive from Stable
....Adjusted Baseline Credit Assessment,
affirmed baa3
....Baseline Credit Assessment, affirmed
baa3
..Outlook Action:
....Outlook changed to Positive from Stable
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.
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
Releasing Office:
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