Actions anticipate further issuance of loss-absorbing debt
London, 27 September 2017 -- Moody's Investors Service has today upgraded the long-term
deposit and issuer ratings of BNP Paribas (BNPP) to Aa3 from A1,
its senior unsecured debt and programme ratings to Aa3/(P)Aa3 from A1/(P)A1
and its junior senior unsecured debt (known as senior non-preferred
securities) and programme ratings to Baa1/(P)Baa1 from Baa2/(P)Baa2.
The rating upgrades were prompted by Moody's expectation of significant
issuance of additional loss-absorbing capital in response to forthcoming
regulatory requirements.
"The bank has announced it will issue around EUR10 billion of junior
senior unsecured debt per year under its medium and long-term funding
programme, in order to meet minimum total loss absorbing capacity
requirements," says Mr. Andrea Usai, a Senior
Vice President at Moody's. "Moody's expects that
BNPP will continue its issuance programme in line with its medium-term
plan, based upon the bank's continued good access to the capital
markets."
This issuance will reduce loss severity for senior unsecured and junior
senior creditors, as well as junior depositors, according
to Moody's revised advanced Loss Given Failure (LGF) analysis.
The revised LGF analysis was undertaken following updates to Moody's
Banks rating methodology, published on 26 September 2017,
which can be accessed at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1065675
Moody's has also affirmed the baa1 standalone baseline credit assessment
(BCA) of BNPP, reflecting that the bank's improved asset risk
and capitalisation have offset negative pressures from a weaker operating
environment. The bank's Aa3(cr)/Prime-1(cr) Counterparty
Risk (CR) assessment, its other long-term ratings and the
Prime-1 short-term ratings were affirmed at their current
levels.
The stable outlook on BNPP's ratings reflects Moody's expectation
that the bank's asset risk will remain healthy and capitalisation
will continue to improve over the next 12-18 months. It
also takes into account the challenges from slow, though gradually
improving, economic growth and low interest rates in Europe,
as well as further improvement in the profitability of the bank's
operations in Italy (Baa2 negative).
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_197504
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_197504
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:
• Principal Methodology
RATING UPGRADES REFLECT REDUCED LOSS SEVERITY FOR CREDITORS FROM EXPECTED
ISSUANCE OF ADDITIONAL LOSS-ABSORBING CAPITAL
The upgrades of BNPP's long-term deposit, issuer and
senior unsecured debt ratings to Aa3 from A1, and of the junior
senior unsecured debt rating to Baa1 from Baa2, reflect Moody's
expectation that BNPP will continue to issue debt in order to comply with
Total Loss Absorbing Capacity (TLAC) requirements, which will require
it to have minimum TLAC of 20.5% of risk-weighted
assets (RWAs) by 1 January 2019 and 22.5% by 1 January 2022,
assuming constant regulatory requirements. Moody's estimates that
BNPP's TLAC ratio was 18.4%, including 2.5%
of eligible senior debt, at the end of June 2017.
The bank has announced it will issue around EUR10 billion of junior senior
unsecured debt per year under its medium and long-term funding
programme, in order to meet minimum TLAC requirements and build
a management buffer of around 0.5% of RWAs above this.
The group's issuance year-to-date has totalled EUR9
billion in junior senior. Moody's expects that BNPP will
continue its issuance programme in line with its medium-term plan,
based upon the bank's continued good access to the capital markets.
In its advanced LGF analysis, Moody's incorporates the bank's
issuance plans up until 2020.
Thereafter, BNPP is likely to issue more debt in order to meet its
full 2022 TLAC requirements, but Moody's has not included
this more distant additional balance sheet shift in its analysis at this
stage, given that it is inherently less certain than the nearer
term changes, and it is in any case unlikely to result in further
upgrades.
Given the nearer term changes in BNPP's balance sheet, Moody's
revised advanced LGF analysis indicates extremely low loss-given-failure
for long-term depositors and senior unsecured creditors,
resulting in a three-notch uplift in the ratings from the firm's
adjusted BCA of baa1, from two notches previously. The bank's
long-term deposit, issuer and senior unsecured debt ratings
continue to incorporate one notch of government support, reflecting
Moody's assessment of moderate probability of support from the French
government for these creditors, as a result of the bank's
systemic importance.
The same LGF analysis for BNPP indicates a moderate loss severity for
junior senior creditors in the event of the bank's failure,
leading to a rating of Baa1, in line with bank's adjusted
BCA. BNPP's junior senior unsecured debt ratings do not include
additional notch uplift from government support, reflecting Moody's
view that there is a low probability of government support for these creditors
given their explicitly loss-absorbing nature.
BCA AFFIRMATION REFLECTS THAT IMPROVED CREDIT QUALITY AND CAPITALISATION
HAVE OFFSET NEGATIVE PRESSURE FROM A WEAKER OPERATING ENVIRONMENT
Moody's has assessed that BNPP's operating conditions have
slightly weakened in recent quarters, as reflected in the reduction
in the bank's Macro Profile to Strong from Strong+.
This reduction was prompted by a deterioration of operating conditions
in some of the bank's markets, as evidenced by the recent
lowering of the Macro Profiles for Belgium (Aa3 stable) to Very Strong-
from Very Strong and, to a lesser extent, of the United Kingdom
(Aa2 Stable) to Strong+ from Very Strong-. However,
the rating agency believes that BNPP's improved asset risk and capitalisation
have offset these negative pressures.
BNPP's credit quality has strengthened over the last several quarters,
as evidenced by a decline in its problem loans to gross loans ratio of
5.1% at end-June 2017, from 5.6%
at end-2016 and 5.8% at end-2015. In
addition, its cost of risk has reduced across its main markets,
particularly in Italy, resulting in a decline in risk costs to 36
basis points in the first half of 2017, from 46 basis points in
2016, and 54 basis points in 2015. Moody's expects
BNPP's credit quality to remain broadly at the current levels over
the next 12-18 months.
BNPP has also gradually improved its regulatory capitalisation in recent
quarters, owing to retained earnings, supported by its strong
earnings generation capacity. The bank's common equity tier
1 ratio was 11.7% at end-June 2017, from 11.5%
at end-2016 and 10.9% at end-2015.Moody's
expects that BNPP will meet its 2020 target capital ratio of 12%
through a combination of profit retention and the sale of its subsidiary
First Hawaiian Bank (LT deposits Aa3 stable, BCA a2).
BNPP's baa1 BCA remains constrained by an elevated stock of confidence-sensitive
wholesale funding, and the risks stemming from its sizeable capital
markets activities, despite representing a smaller portion of the
bank's operations relative to global peers.
WHAT COULD MOVE THE RATINGS UP/DOWN
BNPP's BCA could be upgraded in case of (1) a structural improvement
in the bank's funding profile, (2) significantly higher capitalisation,
(3) a material reduction in capital markets activities. An upgrade
in the BCA would likely lead to rating upgrades.
BNPP's BCA could be downgraded in case of (1) a deterioration in
BNPP's main markets, beyond Moody's current expectations,
(2) a weakening in funding and liquidity, (3) lower regulatory capitalisation
or higher leverage, and (4) an increase in the bank's conservative
risk appetite. A downgrade of the BCA would like result in rating
downgrades.
BNPP's ratings could also be downgraded if the uplift from the application
of the advanced LGF analysis were to reduce due to changing regulatory
requirements or management strategy, that would lead to a reduction
in expected debt issuance, increasing loss-given-failure
for its creditors.
REGULATORY DISCLOSURES
Please click on this link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_197504
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:
• Lead Analyst
• Releasing Office
• Person Approving the Credit Rating
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.
Andrea Usai
Senior Vice President
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
Ana Arsov
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
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
