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Rating Action:

Moody's concludes review on four Dutch banks' ratings

24 Jun 2015

Actions conclude methodology review

NOTE: On December 30, 2015, the press release was corrected as follows: In the third paragraph of the REGULATORY DISCLOSURES section, changed the unsolicited credit ratings disclosure to: “The ratings of rated entity NIBC Bank N.V. were not initiated or not maintained at the request of the rated entity”. Revised release follows.

London, 24 June 2015 -- Moody's Investors Service has today concluded its rating reviews on four banks based in the Netherlands (Aaa stable). These reviews were initiated on 17 March 2015 (see press release at https://www.moodys.com/research/--PR_321005), following the publication of Moody's new bank rating methodology and revisions in Moody's government support assumptions for European banks.

Moody's rating actions on these four Dutch banks reflect the following considerations: (1) the 'Strong +' Macro Profile of the Netherlands; (2) the banks' generally moderate core financial metrics; and (3) the protection offered to senior creditors by the volume and subordination of bail-in-able securities, as captured by Moody's Advanced Loss Given Failure (LGF) liability analysis.

Among the actions Moody's has taken are the following:

- Baseline Credit Assessments (BCAs) and adjusted BCAs were upgraded for one bank, affirmed for two banks and downgraded for one bank;

- Long-term bank deposit ratings were upgraded for three banks and confirmed for one bank;

- The long-term bank senior unsecured debt rating was upgraded for one bank (no such rating is assigned for the three others);

- The short-term deposit and debt ratings were upgraded for one bank and affirmed for three banks.

Moody's has also assigned Counterparty Risk Assessments (CR Assessments) to the four banks, in line with its new bank rating methodology.

For its own business reasons, Moody's has withdrawn the outlooks for all of the junior instrument ratings of the banks covered in this press release. Please refer to "Moody's Investors Service's Policy for Withdrawal of Credit Ratings", available at moodys.com. Outlooks, which indicate the direction of any rating pressures, are now assigned only to long-term senior debt and deposit ratings.

For more information on the new bank rating methodology, please see Moody's press release at https://www.moodys.com/research/--PR_320662

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_182535

RATINGS RATIONALE

The new 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) THE NETHERLANDS' "STRONG +" MACRO PROFILE

Dutch banks benefit from operating in a wealthy and developed country with a very high degree of economic, institutional and government financial strength, as well as very low susceptibility to event risk. The main risks to the Dutch banking system stem from (1) the household sector's high leverage, with residential mortgage debt exceeding 100% of GDP, offset in part by significant savings; and (2) the commercial real-estate sector and SMEs, which have been materially affected by a weak economic environment.

The Dutch banking system is materially reliant on wholesale funding, which Moody's considers a credit weakness. Compared with other European countries, it has a relatively low stock of bank deposits because Dutch households invest a large portion of their savings in pension funds, some of which is returned to the banking sector in the wholesale markets.

Some of the banks covered in this action have a significant share of their activity located outside the Netherlands: notably in Turkey (Baa3 negative), Russia (Ba1 negative) and the CIS countries, and other EU countries. This is reflected in a macro profile for these banks which is below the "Strong +" macro profile of the Netherlands.

(2) BANKS' MODERATE CORE FINANCIAL METRICS

The median BCA of the four banks is ba2 (BCAs range from b2 to baa2), below the EU banks' average BCA of ba1. This reflects the four banks' (1) generally below-average core financial metrics stemming in particular from a moderate asset quality and a strong focus on corporate and trade finance; (2) relatively sound liquidity despite material reliance on wholesale funding; and (3) moderate loss-absorption capacity through earnings, loan-loss reserves and, ultimately, capital. Despite the early signs of recovery observed in the Dutch economy, Moody's expects that the four banks will display greater earnings volatility than their Dutch peers given their cross-border activities.

(3) PROTECTION OFFERED TO SENIOR CREDITORS, AS CAPTURED BY MOODY'S ADVANCED LGF LIABILITY ANALYSIS

Dutch banks are subject to the EU Bank Resolution and Recovery Directive (BRRD), which Moody's considers to be an Operational Resolution Regime. Accordingly, Moody's applies its Advanced LGF analysis to these banks' liability structures. This analysis results in a low loss--given-failure for long-term deposits and senior debt in most cases, taking into account mainly the protection offered by the banks' volumes of deposits and senior debt.

ASSIGNMENT OF COUNTERPARTY RISK ASSESSMENTS

As part of today's actions, Moody's has assigned CR Assessments to the same four 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 Dutch 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 Assessment is one notch higher than the deposit rating, for two banks, and two notches higher for the other two.

--- SPECIFIC ANALYTICAL FACTORS FOR THE FOUR BANKS

- Amsterdam Trade Bank N.V. (ATB)

Moody's confirmed ATB's long-term deposit ratings at Ba3 with a negative outlook and affirmed the short-term deposit ratings at Not Prime. This results from (1) ATB's adjusted BCA of b1; and (2) one notch of LGF uplift given the bank's large volume of junior deposits, reflecting a low loss-given-failure rate expected for the bank's deposits.

Moody's downgraded ATB's BCA to b2 from ba3, reflecting the higher likelihood of material asset-quality deterioration in the bank's loan book. Asset quality could suffer from the still-high political tensions in Ukraine (Ca negative) and the current economic contraction in Russia, two countries where the bank has significant borrower concentrations and where there is particular uncertainty about the creditworthiness of ATB's customers quality and value of the collateral. Moody's downgraded the adjusted BCA to b1, one notch above its BCA, reflecting an assumption of a moderate probability of support from its parent Alfa-Bank (deposits/senior unsecured Ba2 negative, BCA ba3).

Concurrently, Moody's assigned a long and short-term CR Assessment of Ba1(cr)/Not Prime(cr) to ATB.

- Demir-Halk Bank (Nederland) N.V. (DHB)

Moody's upgraded DHB's BCA and adjusted BCA to ba1 from ba2, reflecting the bank's solid asset performance throughout the financial crisis and its strong capitalization. The bank's ba1 BCA reflects DHB's (1) concentrated corporate banking activities in particular trade finance; (2) solid financial fundamentals in terms of capital and liquidity; and (3) volatile earnings profile even though profitability has improved in the last three years.

As a consequence, Moody's upgraded DHB's long-term deposit rating to Ba1 with a stable outlook. Moody's affirmed the bank's short-term deposit rating at Not Prime.

DHB's deposits face a moderate loss-given-failure, which results in no uplift from LGF to the bank's adjusted BCA. DHB's deposit ratings do not incorporate any likelihood of support from external sources, either from affiliates or governments.

Concurrently, Moody's assigned a long and short-term CR Assessment of Baa2(cr)/Prime-2(cr) to DHB.

- GarantiBank International N.V. (GBI)

Moody's affirmed GBI's BCA and adjusted BCA at baa2, reflecting the bank's (1) solid capitalization; (2) diversified trade-finance activities, which affords good profitability; (3) sound liquidity and solid deposit funding base; and (4) moderate asset quality. Additionally, GBI's ratings reflect (1) high credit risk concentrations and cross-border risk caused by the geographical imbalance between foreign assets and domestic liabilities; and (2) the bank's focus on trade finance, corporate finance and treasury revenues, which Moody's regards as a more volatile income source.

Moody's upgraded GBI's long-term deposit rating to A3 from Baa2 and assigned a negative outlook to the rating. This results from (1) GBI's adjusted BCA of baa2; and (2) two notches of LGF uplift given the bank's large volume of junior deposits and significant volumes of senior debt and subordinated debt, reflecting a very low loss-given-failure rate expected for the bank's deposits. The negative outlook on the A3 long-term deposit rating is driven by the negative outlook on GBI's parent Turkiye Garanti Bankasi AS (TGB; long-term deposit/senior unsecured ratings Baa3 negative, BCA ba1), as a lowering of TGB's BCA would likely trigger a lowering of GBI's BCA and long-term deposit ratings.

Concurrently, Moody's assigned a long and short-term CR Assessment of A2(cr)/Prime-1(cr) to GBI.

- NIBC Bank N.V. (NIBC)

Moody's upgraded NIBC's long-term deposit and senior unsecured ratings to Baa1 from Baa3 . The bank's short-term ratings were also upgraded to Prime-2 from Prime-3.

NIBC's baa3 standalone BCA was affirmed and reflects the bank's niche franchise, which focuses on lending activities to several sectors, some of which are particularly cyclical. This gives rise to concentration risk and poses asset-quality tail risk, particularly in the current challenging -- albeit improving -- macroeconomic environment in the Netherlands and the rest of Europe, to which NIBC is mostly exposed. The bank's standalone BCA also reflects (1) its still-high reliance on confidence-sensitive wholesale funding, despite the significant improvement the bank has achieved in its funding mix in recent years; (2) its sound capitalization; and (3) the low degree of earnings predictability.

NIBC's deposit and senior unsecured ratings benefit from a very low loss-given-failure. Moody's therefore upgraded NIBC's long-term deposit and senior unsecured debt to Baa1 from Baa3 with a stable outlook. This rating does not incorporate any public support uplift, reflecting Moody's assessment of a low probability of public support from the government of the Netherlands, in case of need, as the bank is not deemed systemic. The bank's short-term ratings were also upgraded to Prime-2 from Prime-3.

Moody's also affirmed NIBC's subordinated debt and preference stock ratings at Ba1 and Ba2(hyb) respectively. Furthermore, the rating agency assigned a long and short-term CR Assessment of A3(cr), Prime-2(cr) to NIBC.

WHAT COULD CHANGE THE RATINGS UP/DOWN

An upgrade of the long-term debt and deposit ratings of the four Dutch banks could result from various factors, the most likely being (1) improvements in asset quality against the background of an improved domestic and foreign operating environment; (2) a sustainable and significant improvement in the banks' profitability; and/or (3) further improvements in their solvency.

The ratings could be downgraded if (1) the macroeconomic environment deteriorates and asset quality and/or credit underwriting standards weaken noticeably; (2) revenue and profitability pressures intensify, especially if the low interest-rate environment persists; and/or (3) the banks' capital and/or liquidity positions 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 ratings of rated entity NIBC Bank N.V. were not initiated or not maintained at the request of the rated entity

The rated entity NIBC Bank N.V. or related third parties did not participate in the rating process. Moody's was not provided, for purposes of the rating, access to books, records and other relevant internal documents of the rated entity or related third party

The following information supplements Disclosure 10 ("Information Relating to Conflicts of Interest as required by Paragraph (a)(1)(ii)(J) of SEC Rule 17g-7") in the regulatory disclosures made at the ratings tab on the issuer/entity page on www.moodys.com for each credit rating:

For identification of which credit ratings have payors that have or have not paid Moody's for services other than determining a credit rating in the most recently ended fiscal year, please see the detailed list under the following link: http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_182535. The list is an integral part of this press release.

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
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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

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Moody's concludes review on four Dutch banks' ratings

No Related Data.
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