Actions conclude methodology and support-related review; CR Assessments assigned to eight banks
London, 28 May 2015 -- Moody's Investors Service has today concluded its rating reviews on six
Dutch banks. These reviews were initiated on 17 March 2015 (see
press release at
https://www.moodys.com/research/Moodys-reviews-global-bank-ratings--PR_321005),
following the publication of Moody's new bank rating methodology (see
"Banks," 16 March 2015, available at
https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_179038),
and also reflect revisions in Moody's government support assumptions.
Moody's rating actions on Dutch banks reflect the following considerations:
(1) the 'Strong +' Macro Profile of the Netherlands;
(2) the Dutch 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.
Moody's has upgraded the baseline credit assessment (BCA) of one
bank and upgraded four long-term deposit ratings, and two
long-term senior unsecured debt ratings. It has affirmed
six BCAs, four long-term deposit ratings and five long-term
senior unsecured debt ratings. Moody's also affirmed all
the short-term deposit and debt ratings for the eight Dutch banks
involved in this action. At the same time, Moody's
downgraded the BCA of one bank and downgraded one long-term senior
unsecured debt rating. Moody's has also assigned Counterparty
Risk Assessments (CR Assessments) to the eight banks and their branches,
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For its own business reasons, Moody's has withdrawn the outlooks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 for 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.
Moody's has not concluded its reviews on three Dutch banks --
Amsterdam Trade Bank N.V., Demir-Halk Bank
(Nederland) N.V. and GarantiBank International N.V.
-- and expects to conclude the reviews on these entities
by the end of June.
For more information on the new bank rating methodology, please
see Moody's press release at
https://www.moodys.com/research/Moodys-reviews-global-bank-ratings--PR_321005.
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_181748
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 to other
European countries, it has a relatively low stock of bank deposits
because of the legal regime that requires Dutch households to invest a
large portion of their savings in pension funds, some of which is
returned to the banking sector in the wholesale markets.
(2) DUTCH BANKS' STRONG CORE FINANCIAL METRICS
The banks' median BCA falls between baa2 and baa3 (BCAs range from
a1 to b1) which reflects (1) their generally strong core financial metrics
including their moderate risk profiles, strongly focused for the
largest players on traditional commercial and retail banking; (2)
sound liquidity despite their reliance on wholesale funding; and
(3) substantial loss absorption capacity through earnings, loan-loss
reserves and, ultimately, capital. Although the Dutch
banks' asset quality and profitability suffered from the deterioration
in the domestic operating environment over the past two years, Moody's
expects that the early signs of recovery observed in the Dutch economy
since 2014 will translate into improved performance over the coming months.
(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 very low loss given failure for long-term deposits and senior
debt in most cases (reflected in an average two-notch uplift from
the Adjusted BCA) taking into account 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 included in Moody's senior
debt and deposit rating, to one notch for those Dutch banks considered
systemically important. The impact of this is wholly or in some
cases more than offset by the recognition of low loss given failure described
above.
ASSIGNMENT OF COUNTERPARTY RISK ASSESSMENTS
As part of today's actions, Moody's has assigned CR
Assessments to eight 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 Assessments for six of the banks is one notch
higher than their deposit ratings, 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.
In the case of Bank Nederlandse Gemeenten N.V. and Nederlandse
Waterschapsbank N.V., given that their long-term
deposit ratings are already at Aaa, Moody's has assigned long-term
CR Assessments of Aaa(cr) to these banks.
SPECIFIC ANALYTICAL FACTORS FOR THE EIGHT BANKS
- ABN AMRO Bank N.V. (ABN AMRO)
The affirmation of ABN AMRO's BCA at baa2 reflects the bank's overall
good financial fundamentals including solid capitalization and a comfortable
liquidity position. It further captures the bank's strong franchise
in the Dutch market and its balanced business mix between retail and commercial
banking. The BCA is also supported by early signs of recovery in
the Dutch operating environment, which, although still somewhat
limited, reduces the threat of further deterioration in the bank's
asset risk, as evidenced by the material decrease in credit costs
observed since mid-2014.
Moody's affirmed the bank's deposit and senior unsecured ratings
at A2/Prime-1, reflecting (1) the bank's standalone credit
strength of baa2; (2) the application of the Advanced LGF analysis,
which, given the bank's significant volumes of senior debt
and junior deposits, results in a two-notch uplift from the
adjusted BCA of baa2, and (3) government support uplift of one notch
reflecting a "moderate" probability of support.
Moody's assigned a A1(cr)/Prime-1(cr) CR Assessment to ABN
AMRO, four notches above the BCA, reflecting the substantial
volume of bail-in-able liabilities protecting operating
obligations as well as a moderate probability of government support.
- ING Bank N.V. (ING Bank)
Moody's has affirmed ING Bank's BCA at baa1, which reflects
the bank's strong franchise in the Benelux region and Germany,
a good degree of geographical diversification, sound profitability
despite elevated credit costs, adequate capitalisation and sound
liquidity. These strengths are, however, partly offset
by the asset quality risk stemming from the challenging operating environment
in the Netherlands, which has nevertheless improved since mid 2014.
The bank's long-term debt and deposit ratings were upgraded
to A1 from A2 and its short-term rating were affirmed at Prime-1.
This results from (1) the bank's standalone BCA of baa1, (2) the
application of Moody's Advanced Loss Given Failure (LGF) analysis,
leading to a two-notch uplift from the baa1 BCA, and (3)
a one-notch uplift for government support (from two notches previously),
reflecting a moderate probability of government support. The outlook
on the long-term ratings is stable.
Moody's assigned a Aa3(cr)/Prime-1(cr) CR Assessment to ING
Bank, four notches above the BCA, reflecting the substantial
volume of bail-in-able liabilities protecting operating
obligations as well as a moderate probability of government support.
Moody's has also downgraded the senior unsecured debt rating of
the parent company ING Groep N.V. to Baa1 from A3,
based on the LGF analysis, which suggests a moderate loss-given-failure
given the significant amount of junior securities issued by ING Bank N.V.
and ING Groep N.V.. This results in a rating of Baa1,
in line with the bank's BCA, which incorporates no uplift
for government support as Moody's considers the probability of government
support being provided to holding company creditors to be low.
- Rabobank Nederland (Rabobank)
The downgraded of Rabobank's BCA to a2 from a1 reflects the deterioration
of the bank's relative positioning versus peers after a period of
lackluster operating results. The BCA is still supported by the
bank's leading position in the Dutch banking sector and strong franchise
in the agribusiness sector worldwide, as well as its focus on domestic
retail banking. Nonetheless, the bank's financial results
have been impacted by elevated loan loss provisions, notably related
to Dutch commercial real estate, and a number of large extraordinary
items since 2012. Despite reporting improved underlying results
in the second half of 2014, Moody's believes that the bank's
profitability will not improve significantly in 2015 due to modest revenue
growth and a cost of risk above its historical average. In this
regard, although the fundamentals of the bank still feature sound
asset quality and relatively stable profitability, they are now
more consistent with a BCA of a2.
Moody's confirmed Rabobank's long-term debt and deposit
ratings at Aa2 with stable outlooks. This results from (1) the
bank's standalone BCA of a2, (2) the application of Moody's
Advanced LGF analysis, resulting in a two-notch uplift from
the a2 BCA, and (3) government support uplift of one notch,
reflecting a moderate probability of support. Concurrently,
the bank's short-term debt and deposit ratings were affirmed
at Prime-1.
Moody's assigned a Aa1(cr)/Prime-1(cr) CR Assessment to Rabobank,
four notches above the BCA, reflecting the substantial volume of
bail-in-able liabilities protecting operating obligations
as well as the moderate probability of government support.
- SNS Bank N.V. (SNS Bank)
SNS Bank's BCA was affirmed at ba1. This reflects the stabilisation
in the bank's asset quality and profitability following the measures
implemented after its nationalisation and improved credit conditions in
the Netherlands, the bank's progress towards re-establishing
its domestic franchise, and its strong capitalisation. The
BCA also takes into account the bank's relatively high leverage
compared to some of its peers and a funding profile that is not yet commensurate
with a higher BCA, despite its solid liquidity.
The bank's long-term deposit rating was upgraded to Baa1
from Baa2, the senior unsecured debt rating was confirmed at Baa2
and its short-term rating was affirmed at Prime-2.
These rating actions reflect the bank's standalone credit strength of
ba1, and the application of Moody's Advanced LGF analysis,
which results in uplift of two and one notches for the long-term
deposit and senior unsecured debt ratings, respectively, from
the BCA. In addition, Moody's includes a one-notch
uplift for government support (from two notches previously), reflecting
a moderate probability of government support. The outlook on the
long-term deposit and debt ratings is positive, reflecting
the expected improvements in the bank's credit fundamentals.
Moody's assigned a A3(cr)/Prime-2(cr) CR Assessment to SNS
Bank, four notches above the BCA, reflecting the substantial
volume of bail-in-able liabilities protecting operating
obligations as well as a moderate probability of government support.
- Bank Nederlandse Gemeenten N.V. (BNG Bank)
Moody's affirmed BNG Bank's BCA at a1, which reflects
(1) the bank's very strong asset quality due to the fact that the
bulk of its lending is to public sector entities; (2) its role as
the largest lender to the Dutch public sector; (3) its high capitalization;
and (4) its adequate funding profile and liquidity position despite maturity
mismatches.
Moody's also affirmed the bank's long-term deposit
and senior unsecured debt ratings at Aaa with stable outlooks, reflecting
(1) the a1 bank's standalone credit strength, (2) the application
of Moody's Advanced LGF analysis, resulting in a two-notch
uplift from the BCA of a1 given the significant volumes of senior debt,
and (3) government support uplift of two notches, reflecting a "very
high" probability of support from the Dutch national government
(Aaa stable) due to the entity's public ownership and its role as the
principal financier of the Dutch public sector.
Moody's assigned a Aaa(cr)/Prime-1(cr) CR Assessment to BNG
Bank, four notches above the BCA, reflecting the substantial
volume of bail-in-able liabilities protecting operating
obligations as well as a very high probability of government support.
- Nederlandse Waterschapsbank N.V. (NWB Bank)
The upgrade of NWB Bank's BCA to a1 from a2 primarily reflects Moody's
revised view of the bank's liquidity profile in the context of the
new bank rating methodology. The relatively small size of NWB Bank's
liquid securities portfolio is broadly mitigated by the eligibility of
the bulk of its lending portfolio for central bank refinancing.
By limiting the size of its securities portfolio, the bank has avoided
taking additional credit risk and has been able to preserve a very strong
asset quality. The upgrade of the BCA also takes into account the
bank's improved profitability thanks to the recent repricing of
loans.
NWB Bank's BCA now reflects (1) the bank's very strong asset quality
due to the fact that the bulk of its lending is to public sector entities;
(2) its role as the second largest lender to the Dutch public sector;
(3) its high capitalization; and (4) its adequate funding profile
and liquidity position despite some maturity mismatches.
Moody's affirmed NWB Bank's long-term deposit and senior
unsecured ratings at Aaa with a stable outlook, which reflects (1)
the bank's standalone credit strength of a1; (2) the application
of Moody's Advanced LGF analysis, resulting in a two-notch
uplift from the BCA of a1 given the significant volumes of senior debt;
and (3) government support uplift of two notches, reflecting a "very
high" support probability from the Dutch national government (Aaa
stable) due to the entity's public ownership and its role as one of the
principal financiers of the Dutch public sector.
Moody's assigned a Aaa(cr)/Prime-1(cr) CR Assessment to NWB
Bank, four notches above the BCA, reflecting the substantial
volume of bail-in-able liabilities protecting operating
obligations as well as a very high probability of government support.
- Credit Europe Bank N.V. (CEB NV)
CEB NV's BCA was affirmed at b1, reflecting the constraints
created by the bank's weakening Russian subsidiary Credit Europe
Bank Limited (CEBL), which represented 23% of CEB NV's consolidated
assets and 34% of its net profit in 2014.
Moody's upgraded CEB NV's long-term deposit rating
to Ba2 from B1. This results from (1) the bank's standalone BCA
of b1; (2) the application of Moody's Advanced LGF analysis,
resulting in a two-notch uplift from the b1 BCA; and (3) no
uplift for government support, reflecting a low probability of support.
The outlook on the long-term deposit rating is negative.
Concurrently, the short-term deposit rating was affirmed
at Not Prime.
Moody's assigned a Ba1(cr)/Not Prime(cr) CR Assessment to CEB NV,
three notches above the BCA, reflecting the substantial volume of
bail-in-able liabilities protecting operating obligations
as well as the low probability of government support.
- LeasePlan Corporation N.V. (LeasePlan)
The affirmation of LeasePlan's BCA at baa2 reflects the company's
strong franchise in fleet management, strong geographical and customer
diversification, and its stable profitability. The baa2 BCA
also reflects the company's effective management of considerable residual
value risk, which is inherent to LeasePlan's business. The
company's reliance on wholesale funding is a moderate constraint on the
BCA, despite diversified funding sources and an adequate liquidity
profile.
LeasePlan's long-term debt and deposit ratings were upgraded
to A3 from Baa2. This results from (1) the bank's standalone BCA
of baa2; (2) the application of Moody's Advanced LGF analysis,
resulting in a two-notch uplift from the baa2 BCA; and (3)
a low probability of government support, with no associated uplift
to the ratings. The outlook on the long-term debt and deposit
ratings is stable. Concurrently, the short-term debt
and deposit ratings were affirmed at Prime-2.
Moody's assigned a A2(cr)/Prime-1(cr) CR Assessment to LeasePlan,
three notches above the BCA, reflecting the substantial volume of
bail-in-able liabilities protecting operating obligations
as well as the low probability of government support.
WHAT COULD CHANGE THE RATINGS UP/DOWN
An upgrade of the long-term debt and deposit ratings of the Dutch
banks involved in this action could result from various factors,
the most likely being (1) further improvements in asset quality as the
domestic operating environment recovers; (2) a sustainable and significant
improvement in the banks' profitability; and/or (3) further
improvement in their solvency, particularly in terms of nominal
leverage ratio.
The ratings could be downgraded if (1) the macroeconomic environment does
not improve and asset quality and/or credit underwriting standards deteriorate
noticeably; (2) revenue and profitability pressures intensify,
especially if the low interest-rate environment persists;
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 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.
Andrea Usai
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
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 Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's concludes review on six Dutch banks' ratings
