Limassol, April 24, 2019 -- Moody's Investors Service (Moody's) has today upgraded the long-term
deposit and senior unsecured MTN program ratings of Sydbank A/S (Sydbank)
to A1 and (P)A1, from A2 and (P)A2 respectively. The outlook
on the deposit rating changed to stable from positive. Moody's
also affirmed Sydbank's short-term deposit rating at P-1
and its short-term program rating at (P)P-1. At the
same time, Moody's affirmed Ringkjobing Landbobank A/S' (Ringkjobing)
long- and short-term deposit ratings at A1/P-1 and
its long- and short-term issuer ratings at A2/P-1,
and revised the outlook on both long-term ratings to positive from
stable.
Today's rating actions reflect current and expected volumes of loss-absorbing
debt, particularly from issuances of junior senior unsecured debt
(also broadly known as non-preferred senior debt), that would
reduce the loss severity for junior depositors and senior unsecured creditors
in the unlikely event of bank failure and resolution according to Moody's
forward-looking Advanced Loss Given Failure (LGF) analysis on the
banks' liability structures. Moody's expectations are
anchored against bank-specific minimum requirements for own funds
and eligible liabilities (MREL) that are set by the Danish Financial Supervisory
Authority (FSA).
The full list of the affected ratings and assessments can be found at
the end of this press release.
RATINGS RATIONALE
ACTION REFLECTS LOWER LOSS-GIVEN-FAILURE FOR SENIOR CREDITORS
The key driver for today's rating actions is Moody's expectation
of ongoing higher volumes of junior senior debt, in response to
the Danish FSA's bank-specific MREL. These higher amounts
would afford a larger buffer for more senior classes of debt, such
as junior depositors and senior unsecured debt (senior preferred debt),
and potentially lower loss-given-failure.
Junior senior debt, introduced in 2018 in Denmark, is senior
to subordinated debt and regulatory capital instruments and junior to
other ordinary unsecured claims. This type of debt satisfies the
subordination requirement, whereby from 2022 MREL must be met exclusively
with capital and junior debt instruments that are written-down
or converted into equity before simple creditors in resolution or bankruptcy.
Sydbank and Ringkjobing both operate in Denmark and are subject to the
EU's Bank Recovery and Resolution Directive (BRRD), which
Moody's considers an operational resolution regime. In accordance
with Moody's methodology, the agency applies its forward-looking
Advanced LGF analysis to the banks' liabilities, considering
the risks faced by different debt and deposit classes across the liability
structure should either of the banks enter resolution.
In its forward-looking LGF analysis Moody's attaches a high degree
of confidence to the likelihood that these banks will strive to continue
to fulfil MREL along with the subordination requirement.
Bank-specific reasons for the rating actions are outlined below.
-- SYDBANK A/S
The upgrade to A1 from A2 and (P)A1 from (P)A2 respectively of Sydbank's
long-term deposit and senior unsecured MTN program ratings reflects
Moody's Advanced LGF analysis based on recently issued volumes of
junior senior debt and the agency's expectation of the bank's
liability structure evolution. The LGF analysis for the bank indicates
that junior depositors and senior unsecured creditors are likely to face
extremely low loss-given-failure leading to a three notch
uplift from the bank's baa1 Adjusted Baseline Credit Assessment
(BCA), from which these ratings are notched, up from a two
notch uplift previously.
Sydbank has recently issued a total of EUR1 billion (equivalent to around
DKK7.4 billion) in junior senior debt and meets an MREL of 29.5%
based on the bank's risk exposure amount (REA) as of the end of
2017 that will apply from July 2019 through a combination of this junior
senior debt, hybrid instruments and common equity. MREL will
rise to 30% as of 30 September 2019 because of an increase in the
countercyclical capital buffer in Denmark.
Moody's expects that Sydbank will maintain these volumes of loss-absorbing
debt, which along with broadly flat tangible banking asset growth
over the coming year, provide a greater cushion to protect senior
creditors resulting in the higher uplift under the agency's Advanced
LGF framework.
Sydbank's baa1 standalone BCA and Adjusted BCA remain unaffected
and reflect the bank's (1) solid capitalisation with a common equity tier
1 (CET1) capital ratio of 17.3% as of December 2018;
(2) sound funding structure and liquidity profile; and (3) relatively
sustained profitability, although similar to peers it is under pressure
by the low interest rate environment. These positive credit attributes
are balanced against credit concentrations, including to single
borrowers and some higher-risk or volatile sectors, and the
bank's through-the-cycle asset quality performance.
The stable outlook on the bank's long-term deposit rating
reflects that the LGF uplift incorporated in that rating is now the highest
possible under the framework and also Moody's expectation that the
bank's key credit characteristics will be supported by a benign
domestic operating environment over the next 12-18 months,
despite continued pressure on the bank's earnings from the persistent
low interest rate environment.
-- RINGKJOBING LANDBOBANK A/S
The change in outlook to positive on Ringkjobing's A1 long-term
deposit and A2 long-term issuer ratings reflects the bank's
funding plan and the likely evolution of its liability structure.
Moody's expects that the bank, in line with its public disclosures,
will gradually issue higher volumes of junior senior debt through to the
end of 2021, which will provide additional subordination to the
bank's deposits and senior unsecured debt, thereby reducing their
expected loss-given-failure.
Under the rating agency's Advanced LGF framework, this evolution
could eventually result in further rating uplift for Ringkjobing's senior
creditors from the two notches that the bank's deposit rating and
from the one notch the issuer rating currently enjoy above the bank's
a3 Adjusted BCA.
In December 2018, the Danish FSA determined an MREL for Ringkjobing
at 19.7% based on the bank's REA as of the end of
2017, which applied from 1 January 2019. The bank meets the
requirement because it chose to grandfather senior debt issued before
1 January 2018 as part of its MREL. However, it has to replace
this debt with junior senior issuances, or, with hybrid debt
and equity to meet the subordination requirement by 2022. Ringkjobing
had DKK299 million in junior senior debt outstanding as of the end of
2018 and expects to issue around DKK1 billion of junior senior debt in
each of 2019 and 2020.
Ringkjobing's a3 standalone BCA and Adjusted BCA remain unaffected and
reflect the bank's (1) still strong capitalisation following the recent
merger with Nordjyske Bank A/S, with a 15.0% reported
common equity Tier 1 (CET1) ratio as of end-December 2018 and a
14.5% shareholders' equity-to-total assets
ratio; (2) high, albeit reduced profitability following the
merger; and (3) solid funding profile, reflecting ample deposits
and low reliance on market funding. However, the bank's BCA
is counterbalanced by elevated asset risks from a somewhat concentrated
loan book by geography and industry.
WHAT COULD CHANGE THE RATING UP/DOWN
The outlook on Ringkjobing's long-term deposit and issuer ratings
is positive, reflecting Moody's expectation that increased volumes
of junior debt could improve the bank's senior creditors'
position in a resolution scenario. Sydbank's deposit and
senior unsecured ratings already benefit from the highest possible uplift
under the LGF framework and therefore additional amounts of junior debt
would not lead to further rating uplift.
The banks' ratings could also be upgraded following an improvement in
their fundamental credit profiles, as indicated by the banks' BCAs,
for instance if asset quality improves, especially if credit concentrations
reduce, along with other issuer-specific developments.
The positive outlook on Ringkjobing would be revised to stable,
however, if the bank does not issue junior debt volumes in line
with Moody's expectation or if its liability structure changes in a way
that negatively affects the volume or subordination amounts of these instruments.
There could also be negative rating pressure on both banks' deposit and
relevant senior unsecured and issuer ratings if there is a shift in the
banks' funding mix, such as lower subordinated instrument
volumes, which could result in lower rating uplift than currently
assumed under Moody's Advanced LGF framework.
The ratings could be downgraded due to a deterioration in the banks' fundamental
credit profile, for instance if the rating agency observes:
(1) a deterioration in asset quality or if their risk profile deteriorates
(for example, as a result of increased exposures to more volatile
asset classes); (2) a persistent weakening of the banks' recurring
earnings power and operating efficiency; (3) weaker capital ratios
that are below current expectations; and/or (4) a substantial increase
in market funding reliance.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
August 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
LIST OF ALL AFFECTED RATINGS
Issuer: Sydbank A/S
..Upgrades:
....Senior Unsecured Medium-Term Note
Program, Upgraded to (P)A1 from (P)A2
.... Long-term Bank Deposits,
Upgraded to A1 from A2, Outlook Changed To Stable From Positive
..Affirmations:
.... Long-term Counterparty Risk Assessment,
Affirmed A1(cr)
.... Short-term Counterparty Risk Assessment,
Affirmed P-1(cr)
.... Long-term Counterparty Risk Rating,
Affirmed A1
.... Short-term Counterparty Risk Rating,
Affirmed P-1
....Junior Subordinate Medium-Term
Note Program, Affirmed (P)Baa3
....Junior Senior Unsecured Medium-Term
Note Program, Affirmed (P)Baa1
....Subordinate Medium-Term Note Program,
Affirmed (P)Baa2
....Other Short-term, Affirmed
(P)P-1
....Pref. Stock Non-cumulative,
Affirmed Ba1 (hyb)
....Junior Senior Unsecured Regular Bond/Debenture,
Affirmed Baa1
....Subordinate Regular Bond/Debenture,
Affirmed Baa2
.... Short-term Bank Deposits,
Affirmed P-1
..Outlook Action:
....Outlook Changed To Stable From Positive
Issuer: Ringkjobing Landbobank A/S
..Affirmations:
.... Long-term Counterparty Risk Assessment,
Affirmed Aa3(cr)
.... Short-term Counterparty Risk Assessment,
Affirmed P-1(cr)
.... Long-term Counterparty Risk Rating,
Affirmed Aa3
.... Short-term Counterparty Risk Rating,
Affirmed P-1
.... Long-term Issuer Rating,
Affirmed A2, Outlook Changed To Positive From Stable
.... Short-term Issuer Rating,
Affirmed P-1
.... Long-term Bank Deposits,
Affirmed A1, Outlook Changed To Positive From Stable
.... Short-term Bank Deposits,
Affirmed P-1
..Outlook Action:
....Outlook Changed To Positive From Stable
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.
Alexios Philippides
VP - Senior Analyst
Financial Institutions Group
Moody's Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Sean Marion
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
