London, 12 March 2018 -- Moody's Investors Service today affirmed all ratings on Allied Irish Banks,
p.l.c. (AIB) and assigned a provisional (P) Ba2 rating
to the senior unsecured Euro Medium Term Note Programme of the bank's
holding company, AIB Group plc (AIB Group). The agency changed
the outlook on the long-term ratings to positive from stable.
As part of the same action, Moody's affirmed all ratings of EBS
d.a.c. (EBS) and changed the outlook on the long-term
ratings to positive from stable.
The assignment of provisional ratings to AIB Group follows the entity's
establishment as the holding company of AIB in December 2017. This
corporate restructuring will allow AIB to comply with the resolution authorities'
requirements under the EU Bank Recovery and Resolution Directive (BRRD)
framework: as the Single Resolution Board's preferred resolution
strategy for AIB is a so-called "single point of entry",
AIB Group will become the primary issuer of external capital and debt
securities issued to meet the group's minimum requirement for own
funds and eligible liabilities (MREL).
Moody's issues provisional ratings in advance of the final sale of securities.
These ratings represent the rating agency's preliminary credit opinion.
A definitive rating may differ from a provisional rating if the terms
and conditions of the final issuance are materially different from those
of the draft prospectus reviewed.
The positive outlooks assigned to AIB's senior unsecured and deposit
ratings reflect both (i) AIB's on-going improvement in asset
quality, which could lead to an upgrade of the bank's baseline
credit assessment (BCA) of ba1 over the outlook period; and (ii)
a potential reduction in loss-given-failure for deposits
and senior debt given the additional protection provided by debt securities
to be issued by AIB Group.
A full list of affected ratings can be found at the end of this press
release.
RATINGS RATIONALE
AIB and AIB Group
BCA
The affirmation of AIB's BCA of ba1 reflects the bank's good
level of capitalization, strong profitability, and sound funding
and liquidity profile. It also takes into account the remaining
large stock of non-performing loans, significant performing
but restructured exposures, and likely increase in market funding
reliance as MREL rules come into force Moody's believes there is
now potential upside to the BCA given the further improvements in asset
quality achieved in 2017. While AIB was severely hit during the
financial crisis, its efforts in restoring its balance sheet have
been significant in terms of loan deleveraging (gross loans declined by
35% between 2011 and 2017), while impaired loans have been
reduced dramatically from the peak of €28.9 billion at year-end
2013, largely due to the restructuring of the non-retail
legacy exposures. The improvement continued at steady pace in 2017,
with impaired loans falling by 31% to €6.3 billion
at December 2017 from €9.1 billion at December 2016,
due to a combination of restructuring, portfolio sales, write-offs
and repayments.
As for other Irish domestic banks, we expect that AIB's legacy portfolio
of residential mortgages will require a long time to wind down,
given the current low level of repossessions by banks, which the
agency does not expect to materially change in the near term. These
concerns are however partially mitigated by the ongoing restructuring
activity and the improving economic conditions, which led to a decrease
in impaired loans from €4.6 billion at end-2016 to
€3.3 billion at end-2017, while the proportion
of Irish mortgages in negative equity decreased to 10% at end-2017
from 20% a year previously.
While AIB still holds material amounts of restructured loans on its balance
sheet, which have an increased probability of default in case of
macro-economic headwinds, the trend has been similarly positive
in 2017 with loans categorised as vulnerable or past due (but not impaired)
reducing by 15%.
The rating agency will monitor over the outlook period AIB's ability
to further reduce the impaired loan portfolio in line with the expected
rate of decline.
LONG-TERM RATINGS
The affirmation of AIB's long-term senior unsecured debt and deposit
ratings at Baa2 and Baa1, respectively, include the uplift
resulting from Moody's Advanced Loss Given Failure (LGF) analysis.
The senior unsecured debt and deposit ratings continue to benefit from
one notch and two notches of uplift respectively, given their different
weights in the bank's liability structure. In addition, the
long-term ratings incorporate one notch of government support,
which also remains unchanged, reflecting a moderate probability
of government support for AIB's senior unsecured creditors and wholesale
deposits, should the bank fail.
The (P) Ba2 rating assigned to the senior unsecured programme of AIB Group
reflects the rating agency's expectation that the debt class is
likely to face high loss-given-failure due to the limited
loss absorption provided by its own modest volume and the amount of debt
subordinated to it.
For holding company instruments, which are meant to absorb losses
in resolution, Moody's believes that the potential for government
support is therefore low and hence these ratings do not include any related
uplift.
The positive outlooks on AIB's long-term deposit and senior unsecured
debt ratings reflect AIB's expected issuance plans given its informative
MREL target of 29.05% of RWAs. When confirmed,
this would provide additional protection for the bank's senior unsecured
debt and deposits, and for the holding company's senior unsecured
debt, and could lead to higher ratings over the outlook horizon.
CR Assessment (CRA)
The bank's long-term CRA of A3(cr) benefits from three notches
of uplift under the LGF analysis, given significant volume of subordinated
debt, senior debt and wholesale deposits, and one notch of
government support.
WHAT COULD MOVE THE RATINGS UP/DOWN
AIB's long-term debt and deposit ratings could be upgraded as a
result of (1) an upgrade in its standalone BCA; or (2) a significant
increase in the bank's bail-in-able debt. The bank's
BCA could be upgraded because of (1) a further reduction in non-performing
loans; (2) an improvement in stressed-capital resilience above
Moody's expectations; or (3) a sustained improvement in core profitability.
AIB's ratings could be downgraded as a result of (1) a downgrade in its
standalone BCA; or (2) redemption of maturing subordinated instruments
without their replacement. AIB's BCA could be downgraded because
of (1) a significant deterioration in the bank's asset risk metrics;
(2) a weakening of its solvency profile; or (3) a worsening of its
core profitability ratios.
EBS
The affirmation of the ratings of EBS was driven by the affirmation of
AIB's ratings. EBS's BCA is fully aligned with the BCA of
AIB.
Moody's alignment of the bank's BCA with that of its parent is driven
by its high degree of integration with AIB. EBS is managed as a
business division of AIB, with treasury, risk management and
middle and back office functions centralised at AIB. As a result,
Moody's does not believe that EBS's standalone financial metrics provide
meaningful indicators of creditworthiness, and considers it to be
highly integrated and harmonized with AIB.
EBS's Baa1 long-term deposit ratings are also aligned with those
of AIB. Moody's believes that EBS, as a domestic subsidiary
of an Irish banking group, would be resolved together with AIB in
the event of their failure. This means that, like those of
AIB, EBS's deposits are likely to face very low loss-given-failure
according to the agency's LGF analysis, resulting in a two-notch
uplift in its deposit ratings relative to its adjusted BCA of ba1.
In the same way, given AIB's systemic importance, Moody's
expects a moderate probability of support from the Irish government for
EBS's deposits. This results in a further one-notch
uplift above the adjusted BCA.
The positive outlook on EBS's long-term deposit ratings is driven
by the outlook on AIB.
Given the high level of integration between EBS and its parent,
an upgrade or downgrade of AIB's ratings and/or BCA would likely trigger
an upgrade or downgrade of the bank's ratings and/or BCA. EBS's
ratings could also be downgraded in the event of a lower degree of integration
with AIB.
LIST OF AFFECTED RATINGS
Issuer: Allied Irish Banks, p.l.c.
..Affirmations:
....Adjusted Baseline Credit Assessment,
affirmed ba1
....Baseline Credit Assessment, affirmed
ba1
....Long-term Counterparty Risk Assessment,
affirmed A3(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-2(cr)
....Long-term Bank Deposits,
affirmed Baa1, outlook changed to Positive from Stable
....Short-term Bank Deposits,
affirmed P-2
....Senior Unsecured Regular Bond/Debenture,
affirmed Baa2, outlook changed to Positive from Stable
....Senior Unsecured Medium-Term Note
Program, affirmed (P)Baa2
....Subordinate Regular Bond/Debenture,
affirmed Ba2
....Subordinate Medium-Term Note Program,
affirmed (P)Ba2
....Junior Subordinate Medium-Term
Note Program, affirmed (P)Ba3
....Preferred Stock Non-cumulative,
affirmed B1(hyb)
....Other Short Term, affirmed (P)P-2
..Outlook Action:
....Outlook changed to Positive from Stable
Issuer: AIB Group plc
..Assignments:
....Senior Unsecured Medium-Term Note
Program, assigned (P)Ba2
..No Outlook assigned
Issuer: EBS d.a.c.
..Affirmations:
....Adjusted Baseline Credit Assessment,
affirmed ba1
....Baseline Credit Assessment, affirmed
ba1
....Long-term Counterparty Risk Assessment,
affirmed A3(cr)
....Short-term Counterparty Risk Assessment,
affirmed P-2(cr)
....Long-term Bank Deposits,
affirmed Baa1, outlook changed to Positive from Stable
....Short-term Bank Deposits,
affirmed P-2
..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:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
