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Rating Action:

Moody's takes rating actions on six Portuguese banks

21 Sep 2021

Rating actions follow the upgrade of Portugal's government bond rating to Baa2

Madrid, September 21, 2021 -- Moody's Investors Service ("Moody's") has today taken rating actions on six Portuguese banking groups. The rating agency has upgraded four banks' long-term deposit ratings and one bank's senior unsecured debt rating. It has also upgraded the long-term Counterparty Risk Rating (CRR) of three banks and the Counterparty Risk (CR) Assessment of three banks. At the same time, the rating agency has upgraded the Baseline Credit Assessment (BCA) of one bank and affirmed three others' BCAs; it has also changed the outlook on three banks' long-term deposit ratings and on one bank's senior unsecured debt ratings.

Today's rating actions were prompted by the upgrade of Portugal's government bond rating to Baa2 from Baa3 on 17 September 2021 (for further details please see "Moody's upgrades Portugal's rating to Baa2, changes outlook to stable from positive"; https://www.moodys.com/research/--PR_452364). They also reflect improvement in creditworthiness achieved by some banks.

Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL454637 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer.

RATINGS RATIONALE

(1) PORTUGAL'S MACRO PROFILE REMAINS UNCHANGED AT MODERATE+

Today's rating actions follow the rating agency's decision to upgrade Portugal's government bond rating to Baa2 from Baa3 with a stable outlook.

This upgrade, however, has not triggered a change in Portugal's Macro Profile of 'Moderate+', following Moody's assessment of the negative impact of the pandemic on both the country's economy and banks' performance. Portugal's GDP was reduced by 7.6% in 2020 and its rebound already observed during H1 2021 will likely gather pace in the second half of the year and in 2022, as vaccination roll-out and a reduction of infection rates will underpin a sustained recovery. However, some uncertainties remain as to the impact of the pandemic on Portuguese banks' asset risk and profitability.

In maintaining Portugal's Macro Profile at 'Moderate+', Moody's has also taken into account the challenging credit market conditions, reflecting high levels of private sector debt - despite recent improvements - and the banks' high exposures to corporate sector. Moreover, although banks have improved their funding and liquidity over recent years and also re-gained access to capital markets, Portuguese banks remain sensitive to changes in market sentiment and to market shocks.

For a detailed analysis of Portugal's Macro Profile please see: "Portugal Macro Profile: Moderate+" (http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1303561).

(2) BANK-SPECIFIC CONSIDERATIONS

-- CAIXA GERAL DE DEPOSITOS, S.A. (CGD)

In upgrading CGD's BCA to baa3 from ba1, Moody's has considered the bank's success in delivering on its 2017-2020 strategic plan, as reflected in its enhanced capital levels and improved asset-quality metrics. At end-June 2021, CGD's fully-loaded Common Equity Tier 1 (CET1) ratio stood at 18.9%, up from 16.8% a year earlier, while its non-performing loan (NPL) ratio declined to 3.2% from 4.4% a year earlier, which compares to a system average of 4.5%[1]. The upgrade of the bank's BCA also reflects the bank's improved recurrent profitability albeit modest, as well as its sound liquidity and funding profile.

The one-notch upgrade of CGD's deposit ratings to Baa2/Prime-2 from Baa3/Prime-3 and of its senior unsecured debt ratings to Baa2 from Baa3 reflects (1) the upgrade of the bank's BCA and Adjusted BCA to baa3 from ba1; (2) Moody's Advanced Loss Given Failure (LGF) analysis, which results in an unchanged one-notch uplift for the deposits and no uplift for senior unsecured debt; and (3) unchanged moderate government support assumptions for CGD, as Portugal's largest bank, which provide no uplift for deposits and one notch of uplift for senior debt.

The upgrade of the government bond rating to Baa2 has lifted the current constraint on CGD's CRA at Baa2(cr), resulting in a one-notch upgrade for the bank's long-term CR Assessment to Baa1(cr). As per Moody's methodology, a bank's CR Assessment will typically not exceed the sovereign rating by more than one notch.

The outlook on CGD's long-term deposit and senior unsecured debt ratings remains stable, reflecting Moody's assessment that CGD's current ratings incorporate the rating agency's expected improved performance for CGD´s credit profile over the next 12-18 months as well as the issuance of bail-in-able debt to meet its minimum requirement for own funds and eligible liabilities (MREL).

-- BANCO COMERCIAL PORTUGUES, S.A. (BCP)

The one-notch upgrade of BCP's deposit ratings to Baa2/Prime-2 from Baa3/Prime-3 was driven by the higher rating uplift for the deposits stemming from the upgrade of Portugal's sovereign bond rating. In particular, this upgrade and the affirmation of the senior unsecured debt ratings of Ba1 reflect (1) the affirmation of the bank's ba2 BCA and Adjusted BCA; (2) Moody's Advanced LGF analysis, which results in an unchanged two-notch uplift for deposits and no uplift for senior unsecured debt; and (3) unchanged moderate government support assumptions for BCP, as Portugal's second-largest bank, which now provide one notch of rating uplift for both deposits and senior unsecured debt ratings (from previous no uplift and one notch of uplift respectively).

BCP's BCA of ba2 reflects the bank's improved asset-risk indicators, although still weak, and its modest capital levels. The bank's NPL ratio stood at 5.2% at the end of June 2021 (down from 7% a year earlier) and its CET1 ratio at 11.6%, down from 12.1% a year earlier. BCP's risk profile is also constrained by the legacy Swiss-franc mortgage loans in its Polish subsidiary portfolio (around 5% of BCP's consolidated gross loans as of June 2021), which still exposes the bank to high legal risks and will weaken BCP's already weak bottom-line profitability further in 2021. BCP's BCA also reflects its low reliance on wholesale funding and its modest refinancing requirements as a result of continued balance-sheet deleveraging

The outlook on BCP's long-term deposit and senior unsecured debt ratings remains stable, reflecting Moody's view that the bank's creditworthiness will be steady over the outlook horizon. The current outlook already incorporates Moody's expectation that BCP will continue to issue bail-in-able debt to meet its MREL requirements.

-- BANCO SANTANDER TOTTA S.A. (BST)

The upgrade of BST's long-term deposit ratings by one notch to A3 from Baa1 follows the upgrade of Portugal's government bond rating to Baa2, which has lifted the current constraint on the bank's long-term deposit ratings at Baa1. As per Moody's methodology, a bank's deposit rating will not typically exceed the sovereign rating by more than two notches.

BST's long-term deposit ratings of A3 reflect (1) the bank's BCA of baa3; (2) a high probability of affiliate support from Banco Santander S.A. (Spain) (A2 stable/A2 stable; baa1), reflected in one notch of uplift to the baa2 Adjusted BCA; and (3) the result from Moody's Advanced LGF analysis that leads to two notches of additional ratings uplift for the deposit ratings. Moody's assigns a low probability of government support for BST, resulting in no uplift for these ratings.

The upgrade of the government bond rating has also lifted the current constraint on the BST's CRR at Baa1, resulting in a one-notch upgrade to A3 for this rating. As per Moody's methodology, a bank's CRR will not typically exceed the sovereign rating by more than two notches.

-- NOVO BANCO, S.A. (NOVO BANCO)

The affirmation of Novo Banco's long-term deposit ratings at B2 and its senior unsecured debt ratings at Caa2 reflect (1) the affirmation of the bank's BCA at caa1; (2) the outcome of Moody's Advanced LGF, which results in a two-notch uplift for the deposit ratings and one-notch below the BCA for the senior unsecured debt ratings; and (2) Moody's assumption of a low probability of government support, which results in no further rating uplift.

Novo Banco's BCA of caa1 reflects the bank's solvency challenges, with a declining but still-high level of impaired assets (NPL ratio stood at a Moody's-calculated 8.8% at end-June 2021 down from 11.4% a year earlier). It also reflects weak capital levels that have been maintained above regulatory thresholds thanks to the Resolution Authority's capital support mechanism in place since 2017. The bank's fully-loaded CET1 ratio stood at a modest 9.7% at the end of June 2021. Novo Banco's BCA also reflects its weak profitability levels, although Moody's expects the bank will be able to restore its profitability following the restructuring of its operations and the continued de-risking of its balance sheet.

The outlook on Novo Banco's long-term deposit and senior unsecured debt ratings has been changed to positive, from stable, to reflect Moody's assessment that the current negative adjustment for corporate behaviour will be discontinued provided that Novo Banco continues to meet its financial targets, confirms its return to profitability and prove the existence of a sustainable franchise over the outlook period, while maintaining an enhanced visibility on its financial strategy. Moody's also notes that if the aforementioned objectives are met, this could prompt a multi-notch upgrade of Novo Banco's ratings.

-- BANCO BPI S.A. (BPI)

The upgrade of BPI's long-term deposit ratings by one notch to A3 from Baa1 follows the upgrade of the government bond rating to Baa2, which has lifted the current constraint on the bank's long-term deposit ratings at Baa1. As per Moody's methodology, a bank's deposit rating will not typically exceed the sovereign rating by more than two notches.

BPI's long-term deposit ratings of A3 and its issuer rating of Baa2 reflect (1) the affirmation of the bank's BCA at baa3; (2) a high probability of affiliate support from its parent Spanish CaixaBank, S.A. (A3 stable/Baa1 stable, baa3), which provides no uplift to the bank's Adjusted BCA of baa3; and (3) the result from Moody's Advanced LGF analysis that leads to a three-notch uplift for the deposit ratings and a one-notch uplift for the issuer rating from BPI's Adjusted BCA. Moody's assigns a low probability of government support for BPI resulting in no uplift for these ratings.

The upgrade of the government bond rating has also lifted the current constraint on BPI's CRR and CR Assessment at Baa1 and Baa2(cr) respectively, resulting in a one-notch upgrade for both the bank's CRR and CR Assessment to A3 and Baa1(cr), respectively. As per Moody's methodology, a bank's CRR will not typically exceed the sovereign rating by more than two notches, and a bank's CR Assessment will not typically exceed the sovereign rating by more than one notch.

BPI's baa3 BCA reflects the bank's better-than-average asset-risk metrics with an NPL ratio of 1.8% at end-June 2021 (up from 2.4% a year earlier). BPI's BCA also reflects its sound capital levels, which are, however, constrained by the risks stemming from its financial investment in Banco de Fomento Angola, S.A. (BFA, B3 stable, b3) in Angola (B3 stable). BPI reported a CET1 ratio of 14.3% at the end of June 2021, up from 13.8% a year earlier. The BCA is also underpinned by the bank's modest profitability metrics and an adequate funding and liquidity profile.

The outlook on BPI's long-term deposit ratings has been changed to stable from positive and remains stable on the long-term issuer ratings and incorporates Moody's expected performance for BPI´s credit profile over the next 12-18 months

-- CAIXA CENTRAL DE CREDITO AGRICOLA MUTUO, CRL (CAIXA CENTRAL)

The upgrade of Caixa Central's long-term CR Assessment by one notch to Baa1(cr) from Baa2(cr) follows the upgrade of the government bond rating to Baa2, which has lifted the current constraint on the bank's long-term CR Assessment at Baa2(cr). As per Moody's methodology, a bank's CR Assessment will not exceed the sovereign rating by more than one notch, or two notches, where the Adjusted BCA is already above the sovereign rating, which is not the case for Caixa Central.

Caixa Central's ratings reflect its key role within the Grupo Credito Agricola (GCA), which is made up of a network of cooperative banks with Caixa Central acting as the group's treasury and issuing entity for the benefit of all member banks. Caixa Central's long-term CR Assessment of Baa1(cr) reflects: (1) the bank's standalone BCA and the Adjusted BCA of ba1; and (2) the results from our Advanced LGF analysis, which leads to three notches of uplift for Caixa Central's long-term CR Assessment.

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

Banks' standalone BCAs could be upgraded as a consequence of a further material decline in the stock of problematic assets, coupled with a sustained recovery of recurrent profitability levels. The banks' BCAs could also be upgraded on the back of stronger capitalization, measured by Moody's Tangible Common Equity (TCE) on risk-weighted assets (RWA). Banks' BCAs could also be upgraded as a result of a quicker than anticipated recovery of the Portuguese economy, associated with a low impact of the pandemic on Portuguese corporates and households, which would translate in a higher macro profile.

Downward pressure on the banks' BCAs could develop as a result of a significant increase in the stock of NPLs or other problematic exposures beyond Moody's expectations or if banks failed to maintain their risk-absorption capacity due to asset quality weakening and/or additional provisioning efforts in excess of their capital generation capacity.

As the banks' debt and deposit ratings are linked to the standalone BCA, any change to the BCA would likely also affect these ratings. The banks' deposit and senior unsecured debt ratings could also experience upward or downward pressure from movements in the loss-given-failure faced by these securities. In particular, banks' deposit and senior unsecured debt ratings could be upgraded if banks issue debt beyond Moody's expectations.

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_ARFTL454637 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:

• Rating Solicitation

• Issuer Participation

• Participation: Access to Management

• Participation: Access to Internal Documents

• Disclosure to Rated Entity

• Endorsement

• 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.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

REFERENCES/CITATIONS

[1] Source: European Banking Authority Q1 2021

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
Vice President - 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

Maria Cabanyes
Senior Vice President
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.
© 2022 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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