Frankfurt am Main, September 28, 2018 -- Moody's Investors Service has today upgraded the long-term deposit
ratings of KfW IPEX-Bank GmbH (IPEX-Bank) to Aa2 from A2
and changed the outlook to Stable from Ratings under Review. Concurrently,
the rating agency upgraded IPEX-Bank's long-term Counterparty
Risk Ratings to Aa2 from A2 and the long-term Counterparty Risk
Assessment to Aa2(cr) from A2(cr). Furthermore, Moody's
upgraded the bank's Baseline Credit Assessment (BCA) and Adjusted
BCA to a3 from baa3. Finally, Moody's affirmed the
short-term deposit and Counterparty Risk Ratings at P-1
and the short-term Counterparty Risk Assessment at P-1(cr).
Today's rating action concludes Moody's review for upgrade initiated on
15 June 2018, which was prompted by Moody's re-assessment
of the degree of financial integration and dependency of IPEX-Bank
with German government-owned Kreditanstalt fuer Wiederaufbau (KfW,
deposits Aaa stable).
For a full list of all affected ratings, please refer to the end
of this press release.
RATINGS RATIONALE
By upgrading IPEX-Bank's ratings and rating inputs by three
notches, Moody's has taken into account the specific characteristics
of financial integration of IPEX-Bank into KfW, which includes
IPEX-Bank's contractual access to funding via its parent,
as well as the bank's strengthened financial metrics, particularly
following various capital measures undertaken by its parent KfW in 2017.
The BCA upgrade, which drove the upgrade of the final ratings,
reflected a combination of the following factors:
(1) During 2017, KfW injected €300 million capital and re-injected
most of IPEX-Bank's 2016 profit, which is upstreamed
through a profit & loss transfer agreement. These measures
lifted IPEX-Bank's tangible common equity (TCE) to risk-weighted
asset ratio to 20.2% as of December 2017 from 14.7%
as of December 2016, providing for stronger risk absorption buffers
against IPEX-Bank's concentrated exposures to highly cyclical
industry sectors. By doing so, KfW demonstrated the ability
to provide financial assistance to its commercial banking subsidiary in
a precautionary manner and in line with EU competition laws. As
a result, Moody's no longer views a lack of access to third-party
capital a rating restraint for IPEX-Bank, but instead considers
access to capital within the KfW Group, if managed proactively and
prudently, a support factor for the bank's ratings.
(2) IPEX-Bank relies on a funding and liquidity framework with
KfW, whereby IPEX-Bank funds itself almost exclusively through
its parent at market rates. Despite this funding dependency,
Moody's considers the availability of this framework a key credit
strength for IPEX-Bank's overall credit profile and the rating
agency has now reflected the secured access to funding more positively
in a higher combined liquidity score. Given the bank's contractual
access to KfW funding, the strategic and financial importance of
IPEX-Bank to KfW, and the close integration of the two institutions,
the rating agency views the risk of IPEX-Bank losing access to
funding as being extremely low.
The ratings of IPEX-Bank continue to incorporate four notches of
rating uplift from Moody's support and structural analysis,
with the Advanced Loss Given Failure (LGF) analysis contributing three
notches of uplift and a Moderate government support assumption contributing
one notch. While Moody's acknowledges the low likelihood
that a bail-in would be considered by resolution authorities in
case of failure, IPEX-Bank formally falls under the EU Bank
Recovery and Resolution Directive (BRRD), which is reflected in
the rating agencies application of its Advanced LGF approach.
WHAT COULD CHANGE THE RATINGS - UP / DOWN
Only a substantial improvement in profitability combined with a material
reduction in asset risk could provide upward pressure on IPEX-Bank's
BCA and ratings, which is, however, very unlikely given
the business model of the bank.
IPEX-Banks' ratings could be downgraded if the financial
integration of the bank and its funding access to KfW were to change or
if a massive and unexpected fundamental deterioration of the bank's
solvency profile results in pressure on the BCA. The ratings could
also be downgraded if Moody's reduces the combined uplift provided
by its Advanced LGF analysis and its government support assumptions,
which is unlikely at present, though.
LIST OF AFFECTED RATINGS
Issuer: KfW IPEX-Bank GmbH
..Upgrades:
....Long-term Counterparty Risk Ratings,
upgraded to Aa2 from A2
....Long-term Bank Deposits,
upgraded to Aa2 Stable from A2 Rating under Review
....Long-term Counterparty Risk Assessment,
upgraded to Aa2(cr) from A2(cr)
....Baseline Credit Assessment, upgraded
to a3 from baa3
....Adjusted Baseline Credit Assessment,
upgraded to a3 from baa3
..Affirmations:
....Short-term Counterparty Risk Ratings,
affirmed P-1
....Short-term Bank Deposits,
affirmed P-1
....Short-term Counterparty Risk Assessment,
affirmed P-1(cr)
..Outlook Action:
....Outlook changed to Stable from Rating
under Review
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.
Goetz Thurm
Vice President - Senior Analyst
Financial Institutions Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Carola Schuler
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
