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Rating Action:

Moody's takes action on NatWest Group and its subsidiaries

13 Jul 2021

London, 13 July 2021 -- Moody's Investors Service (Moody's) has today taken rating actions on the subordinate and junior subordinated debt ratings of NatWest Markets plc. The rating actions were driven by revisions to Moody's Advanced Loss Given Failure (Advanced LGF) framework, which is applied to banks operating in jurisdictions with Operational Resolution Regimes, following the publication of Moody's updated Banks Methodology on 9 July 2021. This methodology is available at this link: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269625.

Moody's also upgraded the senior unsecured debt rating of NatWest Group plc (NatWest Group) to Baa1 from Baa2, the issuer rating of NatWest Group's main ring-fenced entity National Westminster Bank plc (NatWest Bank) to A1 from A2, and the senior unsecured debt rating of the main non-ring-fenced bank NatWest Markets plc (NatWest Markets) to A2 from A3.

The outlook on the senior unsecured debt ratings of NatWest Group and NatWest Markets are positive, while the outlook on NatWest Bank's issuer rating is stable.

Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL448887 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer.

RATINGS RATIONALE

-- REVISION OF MOODY'S ADVANCED LGF

Moody's upgraded NatWest Markets' subordinated debt ratings to Baa2 from Ba1, and the junior subordinated ratings to Baa3(hyb) from Ba2(hyb). Amongst other factors indicated in the section entitled "NatWest Markets and NatWest Markets N.V.", the upgrade reflects Moody's revised assumption of moderate loss-given-failure (previously high), driven by the revisions to Moody's Advanced LGF framework.

-- NATWEST MARKETS AND NATWEST MARKETS N.V.

Moody's said that the upgrade of NatWest Markets' senior unsecured debt rating to A2 from A3 reflects the upgrade of the banks' Adjusted BCA to baa2 from baa3, and Moody's unchanged assumption of extremely low loss-given-failure, which results in a three-notch uplift, and the rating agency's unchanged assumption of a low probability of government support, which does not result in any uplift.

The upgrade of NatWest Markets' Adjusted BCA to baa2 from baa3 reflects the higher capacity of NatWest Group to support its non-ring-fenced banks, as indicated by the upgrade of NatWest Group's notional BCA. Moody's also upgraded the BCA of NatWest Markets to ba1 from ba2, reflecting the progress made by the bank to restructure its business.

Moody's also upgraded NatWest Markets' subordinated debt ratings to Baa2 from Ba1, and the junior subordinated ratings to Baa3(hyb) from Ba2(hyb). The upgrade reflects the upgrade of the Adjusted BCA, Moody's revised assumption of moderate loss-given-failure (previously high) previously mentioned, a low government support assumption for subordinated ratings, and additional notching for junior subordinated instruments to incorporate coupon features.

Moody's also said that the ratings of NatWest Markets' main subsidiary in the European Union, NatWest Markets N.V., continue to remain aligned to those of NatWest Markets, reflecting the high level of integration between the two entities.

-- NATWEST GROUP

The upgrade of NatWest Group's senior unsecured debt ratings to Baa1 from Baa2 reflects the upgrade of the group's notional Baseline Credit Assessment (BCA) to baa1 from baa2, and Moody's unchanged assumption of moderate loss-given-failure and low probability of government support for NatWest Group's senior bondholders, which does not result in any uplift.

The upgrade of NatWest Group's notional BCA to baa1 from baa2 reflects Moody's view that the group's capital and allowance for loan losses are sufficient to withstand the more benign but still challenging operating environment that the rating agency is expecting for the UK economy. The baa1 BCA also reflects NatWest Group's good capital, funding and liquidity, but also potential asset-quality deterioration due to a still uncertain operating environment and profitability challenges deriving from low interest rates, weak credit demand, and the finalisation of the restructuring of the capital market operations.

Moody's also upgraded NatWest Group's subordinated debt ratings to Baa2 from Baa3, the junior subordinated ratings to Baa3(hyb) from Ba1(hyb), and the pref. stock non-cumulative ratings (including those related to the notes issued by RBS Capital Trust II and guaranteed by NatWest Group) to Ba1(hyb) from Ba2(hyb). The upgrade reflects the upgrade of the notional BCA, Moody's unchanged high loss-given-failure and low government support assumption for subordinated ratings, and additional notching for junior subordinated and preference share instruments to incorporate coupon features.

-- NATWEST BANK AND RBS PLC

The upgrade of NatWest Bank's issuer rating to A1 from A2, and the affirmation of the bank's A1 long-term deposit rating reflect the upgrade of NatWest Bank's BCA to a3 from baa1, and Moody's unchanged assumption of very low and low loss-given-failure respectively for depositors and senior bondholders. Moody's unchanged assumption of a moderate probability of government support for NatWest Bank's depositors and senior bondholders does not result in any uplift, given the proximity of the unsupported long-term deposit ratings to the Aa3 sovereign debt rating of the UK.

The upgrade of NatWest Bank's BCA to a3 from baa1 reflects Moody's view that the bank's capital and allowance for loan losses are sufficient to withstand the more benign but still challenging operating environment that the rating agency is expecting for the UK economy.

Moody's also said that the ratings of the other large UK ring-fenced bank of the NatWest Group, The Royal Bank of Scotland plc (RBS plc), are aligned to those of NatWest Bank. According to the rating agency, there is a high level of operational integration between NatWest Bank and RBS plc. Moody's therefore classified RBS plc as a Highly Integrated Entity (HIE) of NatWest Bank; the BCA of RBS plc thus remains aligned to that of NatWest Bank. Moody's believes that, in case of failure, NatWest Bank and RBS plc would be resolved together; the rating agency therefore maintains the same loss-given-failure and government support assumptions for the depositors and bondholders of NatWest Bank and RBS plc, leading to ratings that are aligned for the two banks.

OUTLOOK

The outlook on the senior unsecured debt ratings of NatWest Group and NatWest Markets are positive, reflecting the potential improvement in profitability and asset quality of the group following a successful exit from the Irish market, the completion of the restructuring of the group's capital markets activities, and improvement of the operating environment.

The outlook on NatWest Bank's issuer rating is instead stable.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

-- NATWEST GROUP

NatWest Group's senior unsecured debt ratings could be upgraded following an upgrade of the notional BCA, or a significant increase in the stock of more junior bail-in-able instruments, which would provide greater protection to senior liabilities in a resolution scenario. NatWest Group's notional BCA could be upgraded following an improvement in the group's profitability, also driven by the sale of its Irish business and the finalisation of the restructuring of capital markets activities, provided that the UK macroeconomic environment does not deteriorate.

A downgrade of NatWest Group's senior unsecured debt ratings is unlikely, as indicated by the current positive outlook. NatWest Group's senior unsecured debt ratings could be downgraded following a downgrade of the notional BCA, or a significant reduction in the stock of more junior bail-in-able instruments. NatWest Group's notional BCA could be downgraded following a material deterioration in operating conditions in the UK, a spike in problem loans, a reduction of capital ratios below the group's target, or if profitability fails to improve.

-- NATWEST BANK

NatWest Bank's issuer rating could be upgraded following an upgrade of the BCA or a significant increase in the stock of more junior bail-in-able liabilities. NatWest Bank's BCA could be upgraded following a material improvement in asset quality and profitability, and capital remains stable, provided that the UK macroeconomic environment does not deteriorate.

NatWest Bank's issuer rating could be downgraded following a downgrade of the BCA or a significant reduction in the stock of bail-in-able liabilities. NatWest Bank's BCA could be downgraded following a material deterioration in operating conditions in the UK, a spike in problem loans, a reduction of capital or liquidity, or if profitability fails to improve.

-- NATWEST MARKETS

NatWest Markets' senior unsecured debt ratings could be upgraded following an upgrade of NatWest Group's notional BCA, because it would indicate that the group has a higher capacity to support NatWest Markets.

A downgrade of NatWest Markets' senior unsecured debt rating is unlikely, as indicated by the current positive outlook and by the positive outlook of NatWest Group's senior unsecured debt rating. NatWest Markets' senior unsecured debt ratings could be downgraded following a downgrade of NatWest Group's notional BCA, a multi-notch downgrade of NatWest Markets' BCA, or following a significant reduction in the stock of more junior bail-in-able instruments. NatWest Markets' BCA could be downgraded if there were a substantial increase in trading activities, a significant decline in the bank's capital, a significant risk management failure, or a significant deterioration in its liquidity.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks Methodology published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269625. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

The List of Affected Credit Ratings announced here are a mix of solicited and unsolicited credit ratings. Additionally, the List of Affected Credit Ratings includes additional disclosures that vary with regard to some of the ratings. Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL448887 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody's disclosures on the following items:

• EU Endorsement Status

• UK Endorsement Status

• Rating Solicitation

• Issuer Participation

• Participation: Access to Management

• Participation: Access to Internal Documents

• Disclosure to Rated Entity

• Lead Analyst

• Releasing Office

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.

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.

Edoardo Calandro
Vice President - Senior Analyst
Financial Institutions Group
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

Laurie Mayers
Associate Managing Director
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

No Related Data.
© 2021 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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