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Rating Action:

Moody's downgrades Banco BPI´s long-term issuer rating to Ba1; outlook stable

26 Jun 2019

Long-term junior senior programme rating assigned at (P)Ba1

Madrid, June 26, 2019 -- Moody's Investors Service ("Moody's") has today downgraded Banco BPI S.A.´s (BPI) long-term issuer rating to Ba1 from Baa2, and the long-term senior unsecured programme rating to (P)Ba1 from (P)Baa2 and the other short-term rating to (P)Not Prime from (P)P-2. BPI's long and short-term deposit ratings have been affirmed at Baa1/P-2. The outlook on the long-term issuer rating has been changed to stable from negative and the outlook on the long-term deposit ratings remains stable.

Concurrently, the rating agency has also affirmed (1) the bank´s baseline credit assessment (BCA) at ba1; (2) its adjusted BCA at baa3; (3) its subordinated programme rating at (P)Ba1; (4) its junior subordinated programme rating at (P)Ba2; (5) its Counterparty Risk Ratings at Baa1/P-2; and (6) the bank´s Counterparty Risk Assessment (CR Assessment) at Baa2(cr)/P-2(cr).

Further, Moody´s has also assigned a (P)Ba1 junior senior unsecured rating to the long-term senior non-preferred medium term note programme of BPI.

Today's rating action was prompted by Moody's considering BPI's medium-term funding plans against the background of a new legal framework in Portugal implemented earlier this year, and which establishes full depositor preference over senior unsecured debt instruments in the event of a bank resolution. Under Moody's Advanced Loss Given Failure (LGF) analysis, the revised legal ranking has reduced the volume of loss-absorbing liabilities that rank alongside senior unsecured debt, increasing the loss rates for senior creditors in the event of failure, and in turn leading to the affirmation of the bank's deposit ratings and the downgrade of its issuer and senior unsecured programme ratings.

A full list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

-- RATIONALE FOR THE AFFIRMATION OF THE BCA AND THE ADJUSTED BCA

The affirmation of BPI's BCA at ba1 reflects the bank's improving domestic profitability metrics and its adequate capital levels, which are, however, constrained by the prevailing risks stemming from BPI's Angolan exposure through its 48% stake in Banco de Fomento Angola, S.A. (Caa1 stable, b3). BPI's BCA also reflects the bank's gradually improving asset-risk metrics which compare favorably with BPI's domestic peers and its adequate liquidity profile.

Moody's maintained its high affiliate support assumptions from CaixaBank, S.A. (A3 stable/Baa1 stable; baa3) which resulted in one notch of uplift and the affirmation of BPI's baa3 adjusted BCA.

-- RATIONALE FOR THE DEPOSIT, ISSUER AND SENIOR PROGRAMME RATINGS

The rating actions taken on BPI's long-term deposit, issuer and senior unsecured programme ratings reflect (1) the bank's baa3 adjusted BCA; (2) Moody's Advanced LGF analysis, which now results in a negative notch for senior debt (from previous one-notch of uplift) and an unchanged two-notch of uplift for deposits; and (3) Moody's assumption of a low probability of government support, resulting in no uplift.

On 14 March 2019, the Portuguese government transposed into national legislation the European Union's (EU) Directive 2017/2399 and modified the priority of claims laid out in Portuguese insolvency law. The new insolvency hierarchy in Portugal gives preference to all bank depositors over other unsecured creditors in a bank insolvency or resolution, including junior depositors such as financial institutions, public authorities and large corporates. This new framework increases the protection from which junior deposits benefit as they no longer rank pari passu with senior unsecured liabilities, thereby reducing expected loss-given-failure for rated deposits. By the same token, the volume of loss-absorbing liabilities that would rank alongside senior unsecured debt would be reduced and therefore the loss rates for senior creditors in the event of failure would therefore increase.

In downgrading by two notches the issuer ratings to Ba1 and the senior unsecured programme ratings to (P)Ba1, the rating agency has considered BPI's medium-term funding plans as well as the increased loss given failure under Moody's Advanced LGF analysis for these obligations. The impact of the lower loss-given failure for the deposits is not sufficiently large to translate into higher ratings, resulting in the affirmation of the Baa1 deposit ratings.

-- RATIONALE FOR THE STABLE OUTLOOK

The stable outlook of BPI´s long-term deposits and long-term issuer ratings reflects Moody's view that the expected improvement in BPI's financial fundamentals is already captured in the bank's current rating levels.

-- RATIONALE FOR THE ASSIGNMENT OF JUNIOR SENIOR UNSECURED PROGRAMME RATING

By assigning a (P)Ba1 rating to the junior senior unsecured programme, the rating agency has incorporated the results from its Advanced LGF analysis, which indicates likely high loss severity for these instruments in the event of the bank's failure, leading to positioning the programme rating one notch below the bank's baa3 adjusted BCA.

Senior non-preferred notes, which are referred to as "junior senior" unsecured notes by Moody´s, may be issued under BPI´s EUR7 billion Euro Medium Term Note (EMTN) programme. As per the Portuguese Law 23/2019, published on 13 March 2019, such securities must have an original maturity of one year or more, cannot have derivative features, and the related issuance documents must incorporate a contractual subordination clause. As such, in resolution and insolvency, they would rank junior to other senior obligations, including senior unsecured debt, and senior to subordinated debt.

WHAT COULD CHANGE THE RATINGS UP/DOWN

Upward pressure on BPI's Adjusted BCA could develop as a result of (1) stronger tangible common equity (TCE) levels and/or further reduction in the exposure to Angola; (2) a further improvement in the bank's asset-risk profile; and (3) additional improvement in the bank's domestic recurring earnings.

Downward pressure on the bank's Adjusted BCA could develop as a result of (1) a reversal in current asset-risk trends, with an increase in the stock of NPLs or other problematic exposures, or both; (2) a weakening of BPI's risk-absorption capacity when measured against its asset-risk profile; and (3) Moody's reassessment of the likelihood of affiliate support.

The bank's debt and deposit ratings are linked to the Adjusted BCA. An upgrade of the adjusted BCA by one notch would likely affect BPI's Ba1 issuer rating and (P)Ba1 senior unsecured programme ratings, but not its Baa1 deposit ratings, given that they already exceed the sovereign rating by two notches and are therefore constrained at that level under Moody´s methodology. This reflects the rating agency´s view that asset-loss rates would likely be higher under a sovereign default and that the expected loss of bank's deposits would, therefore, be unlikely to be significantly below that of the sovereign's own debt.

BPI's issuer and senior unsecured programme ratings could also be upgraded owing to a lower loss given failure faced by these instruments. The bank's deposits ratings could be downgraded if their loss given failure increases, but could not be upgraded due to a lower loss given failure because of the sovereign constraint.

LIST OF AFFECTED RATINGS

Issuer: Banco BPI S.A.

..Affirmations:

....Long-term Counterparty Risk Rating, affirmed Baa1

....Short-term Counterparty Risk Rating, affirmed P-2

....Long-term Bank Deposits, affirmed Baa1, outlook remains Stable

....Short-term Bank Deposits, affirmed P-2

....Long-term Counterparty Risk Assessment, affirmed Baa2(cr)

....Short-term Counterparty Risk Assessment, affirmed P-2(cr)

....Baseline Credit Assessment, affirmed ba1

....Adjusted Baseline Credit Assessment, affirmed baa3

....Subordinate Medium-Term Note Program, affirmed (P)Ba1

....Junior Subordinate Medium-Term Note Program, affirmed (P)Ba2

..Assignments:

....Junior Senior Unsecured Medium-Term Note Program, assigned (P)Ba1

..Downgrades:

....Long-term Issuer Rating, downgraded to Ba1 from Baa2, outlook changed to Stable from Negative

....Senior Unsecured Medium-Term Note Program, downgraded to (P)Ba1 from (P)Baa2

....Other Short Term, downgraded to (P)NP from (P)P-2

..Outlook Action:

....Outlook changed to Stable from Stable(m)

PRINCIPAL METHODOLOGY

The principal methodology used in thse ratings was Banks published in August 2018. 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.

Maria Vinuela
VP-Senior Analyst
Financial Institutions Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Carola Schuler
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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