Rating action concludes methodology and support-related reviews; CR Assessments assigned to five banks
Paris, June 04, 2015 -- Moody's Investors Service, ("Moody's") has
today concluded its rating reviews on four Belgian banks and affirmed
ratings of a fifth bank. These reviews were initiated on 17 March
2015 and also reflect revisions in Moody's government support assumptions
for European banks.
Please refer to: https://www.moodys.com/research/--PR_321005,
following the publication of Moody's new bank rating methodology (see
"Banks," published on 16 March 2015, available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_179038).
Moody's rating action on Belgian banks reflects the following considerations:
(1) the 'Very Strong -' Macro Profile of Belgium (Aa3
stable); (2) Belgian banks' generally strong core financial metrics;
(3) the protection offered to senior creditors by substantial volumes
and subordination of bail-in-able securities, as captured
by Moody's Advanced Loss Given Failure (LGF) liability analysis;
and (4) the reduced likelihood of government support for these institutions.
Among the actions Moody's has taken are the following:
- Baseline credit assessments (BCAs) and adjusted BCAs were affirmed
for all five banks;
- Long-term bank deposit ratings were upgraded for two banks,
confirmed for two others and affirmed for one bank;
- Long-term bank senior unsecured debt rating was affirmed
for one bank and confirmed for two banks, while the holding company
long-term issuer rating was downgraded for one bank.
Furthermore, Moody's affirmed all the short-term deposit
and debt ratings for the five Belgian banks involved in today's
rating action. Concurrently, Moody's has also assigned
Counterparty Risk Assessments (CR Assessments) to these five banks and
their branches, in line with its new bank rating methodology.
Moody's has withdrawn the outlooks on all junior instrument ratings
for its own business reasons. Please refer to Moody's Investors
Service's Policy for Withdrawal of Credit Ratings, available on
its website, www.moodys.com.
Outlooks, which provide an opinion on the likely rating direction
over the medium term, are now assigned only to long-term
senior debt and deposit ratings.
Please click on the following link to access the full list of affected
credit ratings. This list is an integral part of this press release
and identifies each affected issuer:
http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_182152
RATINGS RATIONALE
The new bank rating methodology includes a number of elements that Moody's
has developed to help more accurately predict bank failures and determine
how each creditor class is likely to be treated when a bank fails and
enters resolution. These new elements capture insights gained from
the crisis and the fundamental shift in the banking industry and its regulation.
(1) BELGIUM'S "VERY STRONG -" MACRO PROFILE
Belgian banks benefit from operating in a country that has a robust and
diverse economy with limited macroeconomic imbalances, a very high
degree of institutional strength and low event risk. The Belgian
private-sector debt is moderate and the outstanding debt of Belgian
households is among the lowest in Europe.
The Belgian banking system has limited reliance on wholesale funding with
banks' loan to deposit ratios comparing favourably with most European
banking systems. The Belgian banking system is highly concentrated
with the four largest banks accounting for 84% of the system's
total assets. The sector is a mature but still highly competitive
environment. Specific features, such as strong customer loyalty
and the market's concentration around four major players,
play an important stabilising role.
(2) BELGIAN BANKS' STRONG CORE FINANCIAL METRICS
The five banks' median BCA is around baa2 (BCAs range from baa1
to ba1), which reflects (1) their generally strong core financial
metrics including their moderate risk profiles, strongly focused
on traditional commercial and retail banking for the largest players;
(2) sound liquidity relying mainly on stable funding sources; and
(3) substantial loss-absorption capacity through earnings,
loan-loss reserves and, ultimately, capital.
Belgian banks' profitability is impacted by the current low interest-rate
environment. However, Moody's expects that a reduced
cost of risk and decreasing operating expenses will help Belgian banks
preserve their earnings over the coming months.
(3) PROTECTION OFFERED TO SENIOR CREDITORS, AS CAPTURED BY MOODY'S
ADVANCED LGF LIABILITY ANALYSIS
Since Belgian banks are subject to the EU Bank Resolution and Recovery
Directive (BRRD), Moody's considers Belgium to have an Operational
Resolution Regime. Accordingly, Moody's applies its Advanced
LGF analysis to Belgian banks' liability structures. This analysis
results in a low to very low loss given failure for long-term deposits
and senior debt in most cases, reflected in a one or two-notch
uplift from the Adjusted BCA for all banks, with exception of AXA
Banque Europe, which has no LGF uplift. This approach captures
the protection offered by the banks' sizeable volumes of deposits and
senior debt, and the amount of debt subordinated to both senior
debt and deposits.
(4) REDUCED LIKELIHOOD OF GOVERNMENT SUPPORT
Moody's has also lowered its expectations about the degree of support
that a government might provide to a bank in Europe. The main trigger
for this reassessment is the introduction of the BRRD in the EU,
which went into effect in January 2015 and is currently being transposed
to local law in each European jurisdiction. This has resulted in
a reduction in government support uplift in Moody's senior unsecured
debt and deposit rating, to one notch for all Belgian banks considered
systemically important, with the exception of AXA Bank Europe which
has no government support uplift. The impact of this is wholly
or in some cases more than offset by the notches LGF uplift in recognition
of the low loss given failure described above.
ASSIGNMENT OF COUNTERPARTY RISK ASSESSMENTS
As part of today's rating action, Moody's has assigned
CR Assessments to five banks and their branches. CR Assessments
are opinions of how counterparty obligations are likely to be treated
if a bank fails, and are distinct from debt and deposit ratings
in that they (1) consider only the risk of default rather than the likelihood
of default and the expected financial loss incurred in the event of default
and (2) apply to counterparty obligations and contractual commitments
rather than debt or deposit instruments. The CR Assessment is an
opinion of the counterparty risk related to a bank's covered bonds,
contractual performance obligations (servicing), derivatives (e.g.,
swaps), letters of credit, guarantees and liquidity facilities.
Moody's CR Assessments for banks subject to a going-concern operational
resolution regime, which includes all Belgian banks, start
with the banks' adjusted BCA and use an advanced LGF approach that
takes into account the volume of liabilities subordinated to counterparty
obligations in the bank's liability structure as well as any assumption
of government support.
As a result, the CR Assessments for the four banks is one notch
higher than their deposit ratings, and for one bank (AXA Bank Europe)
it is three notches higher than the deposit rating, reflecting Moody's
view that, in the event of a resolution, authorities are likely
to honor the operating obligations the CR Assessment refers to in order
to preserve a bank's critical functions and reduce potential for contagion.
SPECIFIC ANALYTICAL FACTORS FOR THE FIVE BANKS
- AXA Bank Europe
Moody's affirmed AXA Bank Europe (ABE)'s BCA at baa3 and its adjusted
BCA, which incorporates four notches of affiliate support uplift,
at a2. ABE's BCA reflects the bank's sound liquidity and
its adequate capital ratio. These strengths are nevertheless partly
offset by the bank's relatively low profitability due to its limited operations
in Belgium and the cost of risk, which has been elevated lately.
This weighs on ABE's capacity to generate enough income to absorb the
high fixed costs inherent to retail banking, and renders its performance
very sensitive to fluctuations of margins. In addition, ABE
still has a material exposure to Hungarian mortgages through its local
branch (placed in run-off), the bulk of which is denominated
in Swiss Francs. The general deterioration of the performance in
the Hungarian mortgage market is exerting pressure on ABE's profitability
and potentially on its capital levels depending on the magnitude of the
losses the local branch will incur.
ABE's a2 adjusted BCA incorporates a four-notch uplift from
the bank's baa3 standalone BCA, reflecting a very high probability
of support from AXA Group's insurance operating entities (Aa3 insurance
financial strength rating, stable, which implies senior debt
rating of A1). Moody's considers that ABE functions as a captive
company of AXA Group and plays an important role for the insurance companies
of the group. This is evidenced by (1) the strong integration of
commercial strategies and synergies between the bank's retail banking
business and the group's insurance business in Belgium; and (2) the
provision of services by ABE to the group's insurance companies,
notably by executing on behalf of the insurance companies the hedging
derivatives for variable annuity contracts outside the US, and by
providing them with access to liquidity on the interbank market.
Moody's also confirmed ABE's long-term deposit rating
at A2 and affirmed its short-term deposit rating at Prime-1.
Under the Advanced LGF analysis, ABE benefits from a moderate loss-given-failure
for deposits, given the low level of subordination below this creditor
class, which results in no uplift from the bank's adjusted
BCA. Furthermore, ABE receives no government support.
We also assigned a long-term and short-term CR Assessment
of Aa2(cr)/Prime-1(cr) to ABE.
- Belfius Bank SA/NV (Belfius)
Moody's has affirmed Belfius Bank SA/NV's BCA at ba1,
which reflects the bank's substantial progress in restoring its
franchise since the beginning of 2012. The bank's liquidity position
has also improved, primarily thanks to the decrease in the funding
provided to Dexia Credit Local (DCL), brought down to zero,
but also as a result of asset disposals. However, the BCA
remains constrained by the still-limited visibility on the bank's
profitability, the existence of high concentrations in its investment
portfolio, and the legacy portfolio that it inherited from Dexia
Group, which continues to weigh on the bank's capital and liquidity,
despite a decreasing trend.
Belfius Baa1/Prime-2 long-term and short-term deposit
rating and its Baa1 senior unsecured debt rating were affirmed.
The Baa1 deposit and senior unsecured ratings reflect (1) the bank's
ba1 adjusted BCA, (2) the two notch uplift under the Advanced LGF
analysis stemming from the large volume of deposits and senior long-term
debt; and (3) government support uplift of one notch, reflecting
a moderate support probability from the Belgian government. The
outlook on the long-term deposit and senior unsecured debt ratings
are positive, reflecting further improvements that we anticipate
in the bank standalone credit strength in the medium term.
Moody's also affirmed the bank's subordinated debt rating
at Ba2 and upgraded the junior subordinated debt rating to Ba3(hyb) from
Caa1(hyb), following the payment on 18 May 2015 of coupons,
which had been previously suspended on this cumulative instrument until
31 December 2014 as a result of an agreement with the European Commission.
Concurrently, Moody's assigned a long-term and short-term
CR Assessment of A3(cr)/Prime-2(cr) to Belfius.
- BNP Paribas Fortis SA/NV (BNPPF)
Moody's affirmed BNPPF's BCA at baa1, reflecting the
bank's strong retail franchises in both Belgium and Luxembourg,
its adequate financial fundamentals, notably its solid capital base
and sound liquidity profile, as well as its integration within BNP
Paribas (BNPP; deposits A1 stable/senior unsecured A1 stable;
BCA baa1). The BCA is nevertheless constrained by several factors,
the most important being BNPPF's limited recurring profitability in retail
banking in Belgium. In addition, the transfer of BNPP's Specialised
Finance activities in the EMEA area to BNPPF has the potential to negatively
alter its risk profile, although these activities remain limited
in size currently.
Moody's upgraded BNPPF's long-term deposit rating to A1 from
A2 and confirmed the bank's long-term senior unsecured debt
rating at A2. Both the short-term deposit and debt ratings
were affirmed at Prime-1. The loss-given-failure
is very low for BNPPF's deposits given the high volume of deposits
resulting in two notches of LGF uplift above the bank's adjusted
BCA. The loss-given-failure of the bank's senior
unsecured debt is low, given the lower volume of this debt category,
resulting in only one notch of LGF uplift. The government support
uplift is limited to one notch for both deposits and senior unsecured
debt, reflecting a moderate probability of support.
Moody's also affirmed BNPPF's subordinated and junior debt
ratings at Baa2 and Baa3(hyb) respectively and assigned a long and short-term
CR Assessment of Aa3(cr)/Prime-1(cr).
- ING Belgium SA/NV (ING Belgium)
Moody's has affirmed ING Belgium's BCA at baa1, which reflects
the bank's (1) solid domestic market position; (2) sound financial
profile, including high loss-absorption capacity from stable
recurring earnings and good capitalization; and (3) strategic importance
and strong integration with its parent ING Bank N.V. (deposits
A1 stable/senior unsecured A1 stable; BCA baa1). The bank's
BCA is constrained by that of its parent ING Bank N.V. --
to which it is exposed on an unsecured basis -- and the
implementation of the ING group-wide asset-liability management
strategy, which could weigh on ING Belgium's financial structure
and risk profile.
ING Belgium's long-term deposit rating was upgraded to A1
from A2 and its short-term rating was affirmed at Prime-1.
This results from (1) the bank's standalone BCA of baa1; (2) the
two-notch LGF uplift from the baa1 adjusted BCA given the bank's
large volume of deposits and more limited amount of senior unsecured debt;
and (3) one notch of uplift for government support (from two previously),
reflecting a moderate probability of government support. The outlook
on the long-term deposit rating is stable.
Moody's assigned a long-term and short-term CR Assessment
of Aa3(cr)/Prime-1(cr) to ING Belgium.
- KBC Bank N.V. (KBC Bank)
Moody's has affirmed KBC Bank's BCA at baa2, which reflects
the bank's solid fundamentals, notably its strong franchise
in Belgium and in several Eastern European countries, its strong
capital base and also its sound liquidity profile, which is based
on a historically stable and resilient core customer deposit base.
Despite recent improvements, asset quality, undermined by
the performance of the Irish loan portfolio, and to a lesser extent
of the Hungarian loan portfolio, remains a relative weakness and
continues to offset these strengths to some extent.
KBC Bank's long-term deposit and senior unsecured debt ratings
were confirmed at A2. This results from (1) the bank's standalone
BCA of baa2; (2) the two-notch LGF uplift from the baa2 adjusted
BCA given the material level of subordination below both deposits and
senior debt; and (3) government support uplift of one notch (from
three notches previously), reflecting a moderate probability of
support. Moody's assigned a positive outlook to the deposit
and debt ratings, reflecting (1) upward rating pressure on the BCA
on the back of improved results in the International Markets business
line, including lower loan loss provisions in Ireland, and
increased capitalization of the group; and (2) the likelihood that
KBC Group will issue significant amounts of Basel III-compliant
Tier 2 subordinated debt in the foreseeable future, driven by regulatory
pressures, which would reduce the loss given failure for senior
creditors of both the bank and the holding company. Concurrently,
Moody's has also confirmed KBC Bank's subordinated debt rating
at Baa3 and affirmed its short-term deposit and senior unsecured
debt ratings at Prime-1.
Moody's assigned a long-term and short-term CR Assessment
of A1(cr)/Prime-1(cr) to KBC Bank.
Moody's has also downgraded the holding company long-term
issuer rating of the parent company KBC Group N.V. (KBC
Group) to Baa2 from A3. The outlook is positive. The downgrade
was driven by the reduction of government support to no uplift,
as Moody's considers the probability of support being provided to
holding company creditors to be low. The Advanced LGF analysis
suggests a moderate loss-given-failure stemming from the
subordinated debt and hybrid debt issued by both KBC Bank and KBC Group.
This results in no LGF uplift and places the senior unsecured debt rating
at Baa2, the same level as the bank's adjusted BCA.
Concurrently, KBC's Group's short-term senior
unsecured debt rating was affirmed at Prime-2.
WHAT COULD CHANGE THE RATINGS UP/DOWN
An upgrade of the long-term debt and deposit ratings of the Belgian
banks involved in this rating action could result from (1) further improvements
in the quality of assets linked to foreign subsidiaries and legacy portfolios;
(2) a sustainable and significant improvement in the banks' profitability;
(3) further improvement in their solvency, particularly in terms
of nominal leverage ratio; and/or (4) a sustainable increase in debt
loss-absorption capacity resulting in higher LGF uplift.
The ratings could be downgraded if (1) the macroeconomic environment weakens
and asset quality and/or credit underwriting standards deteriorate noticeably;
(2) revenue and profitability pressures intensify, especially if
banks are unable to re-price their loan portfolio against the background
of a low interest-rate environment; and/or (3) the banks'
capital and/or liquidity position were to deteriorate.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
March 2015. Please see the Credit Policy 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 rating action on the support provider and in relation to each particular
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 rating action, and
whose ratings may change as a result of this 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 rating of rated entity ING Belgium International Finance S.A.
was initiated by Moody's and were not requested by these rated entities.
Rated entity ING Belgium International Finance S.A. or its
agent(s) participated in the rating process. This rated entity
or its agent(s), if any, provided Moody's - access
to the books, records and other relevant internal documents of the
rated entity.
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 analyst and the Moody's legal entity that has issued the ratings.
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.
Guillaume Lucien-Baugas
Asst Vice President - Analyst
Financial Institutions Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Nicholas Hill
Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's concludes review on four Belgian banks' ratings
