Baseline Credit Assessment upgraded to baa1 from baa2
Paris, May 24, 2019 -- Moody's Investors Service today upgraded the long-term deposit
and senior unsecured debt ratings of Belfius Bank SA/NV (Belfius) to A1
from A2 and changed the outlook to stable from positive. The short-term
deposit ratings were affirmed at Prime-1. Moody's
also upgraded Belfius' Baseline Credit Assessment (BCA) to baa1
from baa2.
A list of affected ratings can be found at the end of this press release.
RATINGS RATIONALE
BCA UPGRADE REFLECTS STRENGTHENED CREDIT METRICS AND LIMITED TAIL RISKS
FROM LEGACY ASSETS
Moody's upgrade of Belfius's BCA to baa1 mainly reflects the
bank's improved asset quality, while tail risks stemming from
legacy assets are contained. The bank's asset quality is
sound given the focus of the bank on the Belgium market, including
residential mortgages (34% of the loan book at year-end
2018), public-sector loans (31%), corporate
loans (15%) and SMEs (17%). Problem loans represented
only 2.1% of gross loans at year-end 2018 and loan-loss
charges six basis points of gross loans in 2018. The coverage of
problem loans by provisions was 80%, which compares favourably
to peers. Furthermore, legacy assets, which still added
€6 billion to risk-weighted assets (as of year-end
2018), have given rise to provision reversals in recent years and
do not represent any significant tail risk anymore. Although some
credit concentrations remain in the various books managed in run-off
and certain maturities can be very long, the overall credit risks
embedded in the legacy portfolio are limited. Belfius will retain
some credit concentrations, which are inherent to its public-sector
lending franchise, while the concentrations in the legacy portfolios
will progressively recede.
Moody's also considers that the bank's capitalisation is strong.
The bank's Common Equity Tier 1 (CET1) ratio was 16.0%
and its Tier 1 leverage ratio reached 6.0% at year-end
2018 from 16.2% and 5.5%, respectively
at year-end 2017. Belfius' CET1 ratio is well above
its minimum CET1 Supervisory Review and Evaluation Process (SREP) requirement
of 10.82% for 2019, comprising the Pillar 1 of 4.5%
CET1, the capital conservation buffer (CCB) of 2.5%,
an Other Systemically Important Institution (O-SII) buffer of 1.5%,
a Pillar 2 Requirement (P2R) of 2.25% and a countercyclical
buffer (CCyB) of 0.07%. The bank's Pillar 2
Guidance (P2G) is set at 1% for 2019. The bank has set a
minimum CET1 ratio of target of 13.5% alongside a "target
zone" of 15.0-15.5% to be able to cope
with "unforeseeable risks". Nonetheless, Moody's
believes that improvements in capital metrics are likely to be limited
given credit growth and regulatory measures, including the European
Central Bank's Targeted Review of Internal Models (TRIM) and the
so-called "Basel IV" framework. Last,
Belfius' dividend pay-out ratio has been rather high over
the last few years at the expense of capital retention.
Belfius's low profitability remains a weakness, which stems
from the high proportion of low-margin public-sector loans
(31% of the loan book as of year-end 2018), the highly
competitive Belgian retail market and a high cost base. Net income
represented only 0.4% of tangible assets, which is
relatively weak and below the main Belgian peers. The cost-to-income
ratio of the bank was 65.7%, according to Moody's
calculations, and 60.4%, according to the bank's
calculations, in 2018. Belfius aims to reach a cost-to-income
ratio below 60% (under its formula) in 2020, which could
be difficult to achieve given negative impact of the low interest rate
environment on the bank's net interest margin (1.20%
in 2018 vs. 1.24% in 2017).
Moody's upgrade of Belfius' deposit and senior unsecured debt
ratings to A1 from A2 reflects (1) the upgrade of the bank's BCA
to baa1; (2) two notches of uplift from Moody's Advanced Loss
Given Failure (LGF) analysis; and (3) one notch of uplift stemming
from a moderate probability of government support.
STABLE OUTLOOK REFLECTS STABILISATION OF FUNDAMENTALS AT SOLID LEVELS
The stable outlook reflects the bank's solid fundamentals as well
as the relatively limited room for improvements on asset quality,
as credit costs are already at very low levels, while capital ratios
are unlikely to increase significantly going forward. In addition,
the low interest rate environment will continue to weigh on the bank's
revenues and profitability.
Moody's changes the outlook to stable on both long-term deposit
and senior unsecured ratings, which also assumes that the liability
structure of the bank and probability of government support will remain
broadly unchanged.
WHAT COULD CHANGE THE RATING UP/DOWN
An upgrade of Belfius' BCA and long-term ratings could occur if
the bank (1) demonstrated a track record of improved and stable profitability
while maintaining its current asset quality; (2) decreased credit
risk concentrations and (3) improved its capitalisation materially and
durably.
Belfius' deposits and senior unsecured debt ratings could also be upgraded
as a result of a decrease in loss-given-failure, should
they benefit from a significantly higher subordination, which Moody's
does not expect as Belfius already meets its preliminary minimum requirement
for own funds and eligible liabilities (MREL).
The bank's BCA could be downgraded as a result of (1) a significant deterioration
in asset quality and profitability; or (2) a negative development
in the liquidity of the bank and/or its capitalisation. A downgrade
of the BCA would likely result in downgrades to all ratings.
Belfius' senior unsecured debt ratings could also be downgraded as a result
of an increase in loss-given-failure, should they
account for example for a significantly smaller share of the bank's overall
liability structure.
LIST OF AFFECTED RATINGS
Issuer: Belfius Bank SA/NV
..Upgrades:
....Long-term Counterparty Risk Ratings,
upgraded to Aa3 from A1
....Long-term Bank Deposits,
upgraded to A1 Stable from A2 Positive
....Long-term Deposit Note/CD Program,
upgraded to (P)A1 from (P)A2
....Long-term Counterparty Risk Assessment,
upgraded to Aa3(cr) from A1(cr)
....Baseline Credit Assessment, upgraded
to baa1 from baa2
....Adjusted Baseline Credit Assessment,
upgraded to baa1 from baa2
....Senior Unsecured Regular Bond/Debenture,
upgraded to A1 Stable from A2 Positive
....Senior Unsecured Medium-Term Note
Program, upgraded to (P)A1 from (P)A2
....Junior Senior Unsecured Regular Bond/Debenture,
upgraded to Baa2 from Baa3
....Junior Senior Unsecured Medium-Term
Note Program, upgraded to (P)Baa2 from (P)Baa3
....Senior Subordinate, upgraded to
(P)Baa2 from (P)Baa3
....Subordinate Regular Bond/Debenture,
upgraded to Baa2 from Baa3
....Subordinate Medium-Term Note Program,
upgraded to (P)Baa2 from (P)Baa3
....Junior Subordinated Regular Bond/Debenture,
upgraded to Baa3(hyb) from Ba1(hyb)
....Preferred Stock Non-cumulative,
Upgraded to Ba1 (hyb) from Ba2 (hyb)
..Affirmations:
....Short-term Counterparty Risk Ratings,
affirmed P-1
....Short-term Bank Deposits,
affirmed P-1
....Short-term Deposit Note/CD Program,
affirmed (P)P-1
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
....Other Short Term, affirmed (P)P-1
..Outlook Action:
....Outlook changed to Stable from Positive
Issuer: Belfius Financing Company S.A
..Upgrades:
....Backed Senior Unsecured Regular Bond/Debenture,
upgraded to A1 Stable from A2 Positive
....Backed Senior Unsecured Medium-Term
Note Program, upgraded to (P)A1 from (P)A2
....Backed Subordinate Regular Bond/Debenture,
upgraded to Baa2 from Baa3
....Backed Subordinate Medium-Term
Note Program, upgraded to (P)Baa2 from (P)Baa3
....Backed Junior Subordinated Regular Bond/Debenture,
upgraded to Baa3(hyb) from Ba1(hyb)
..Affirmation:
....Backed Commercial Paper, affirmed
P-1
..Outlook Action:
....Outlook changed to Stable from Positive
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.
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.
Guillaume Lucien-Baugas
Vice President - Senior Analyst
Financial Institutions Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Nicholas Hill
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
