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Rating Action:

Moody's upgrades SNS Bank's senior unsecured rating to Baa2/P-2; outlook stable

11 Apr 2014

London, 11 April 2014 -- Moody's Investors Service has today upgraded SNS Bank N.V.'s long-term and short-term senior unsecured and deposit ratings to Baa2/Prime-2 from Baa3/Prime-3. This action reflects Moody's view that the firm's standalone risk profile has significantly improved, its franchise has stabilised and its structural profitability has improved. Thus, concurrently Moody's raised SNS Bank's BFSR to D+/ba1 with a stable outlook from D-/ba3. The outlook is stable on the long-term and bank financial strength ratings.

SNS Bank's provisional senior unsecured MTN and subordinate MTN programme ratings have been upgraded to (P)Baa2 and (P)Ba2, from (P)Baa3 and (P)B1, respectively. SNS REAAL N.V.'s provisional senior unsecured MTN rating has been affirmed at (P)Ba2, while its provisional subordinate MTN rating has been upgraded to (P)Ba3, from (P)B2.

A list of affected ratings is available at the end of this press release.

RATINGS RATIONALE

--- SNS BANK'S BFSR

The raising of SNS Bank's BFSR to D+/ba1 with a stable outlook reflects Moody's view that (1) the firm's standalone risk profile has significantly improved, because of the execution of several measures announced at the time of the nationalisation of the SNS REAAL group. Furthermore, the firm's franchise has stabilised and its structural profitability has improved.

At the same time, however, Moody's says that the BFSR remains constrained by the bank's (1) weaker asset quality on its retail loan book, compared to its closest peers and in the context of an unfavorable macro environment; and (2) its high leverage as well as the current lack of access to unsecured debt markets. Both, the high leverage and lack of market access have the potential to dampen SNS Bank's prospects for fully restoring its franchise to pre-crisis levels.

--- STRONGER STANDALONE CREDIT STRENGTH

SNS Bank has become a domestic retail oriented bank, predominantly active in the domestic mortgage and bank savings segment. As such, its intrinsic creditworthiness has improved, as its legacy commercial real-estate portfolio and all related risks have been transferred to the Dutch state's investment arm (NLFI, unrated) at end-2013, under the Propertize B.V. entity. In addition, Propertize has successfully issued state-guaranteed debt, which enabled it to completely repay its loan from SNS Bank on 4 April 2014, thereby lifting execution risk for SNS Bank on this transaction.

SNS Bank's retail portfolio comprises predominantly residential retail mortgages (around 90% of the loan book at end-2013; source: FY 2013 annual report), which results in a relatively low risk profile.

Although Moody's expects property prices to stabilise again, the rating agency believes that this will weigh positively on Dutch mortgage lenders' asset quality, but only in the medium term. Set against this, Moody's says that SNS Bank has a lower exposure than its peers to the domestic SME sector, which is supportive of its standalone credit profile, given the current stress affecting this sector.

--- IMPROVED FRANCHISE AND PROFITS

Moody's believes that following nationalisation, the firm's franchise has stabilised, which is positive for the firm's standalone financial profile.

Following the transfer of legacy exposures and the financial effects of disentangling the SNS REAAL group, Moody's now expects SNS Bank to report more stable and resilient earnings. The profitability of SNS Bank's retail core activities is currently satisfactory relative to its risk profile, despite the reallocation to SNS Bank of costs previously borne by the holding company SNS REAAL. In 2013, the bank's net interest income was up to 1.29%, now more in line with those of its competitors' domestic retail operations.

--- CONSTRAINTS ON THE BFSR

However, SNS Bank's standalone BFSR is constrained by its high nominal leverage -- as reflected by its ratio of Core Tier 1 capital to total assets of 3.2% -- and which results from the firm's focus on mortgage loans with low risk-weights. Further, the firm's standalone BFSR is constrained by the bank's lack of access to the senior unsecured borrowing markets, which is key for the firm to sustain its strategic growth without affecting its current satisfactory liquidity position. These factors, together with the still fragile domestic mortgage sector, may challenge the firm's prospects for restoring its market share to 5%-8% of new loan production (against a market share of below 2% of new loans in 2013), especially as the minimum market standard for nominal leverage is likely to be set at levels higher than the future 3% requirement of the CRD IV package, enforced on 1 January 2014.

Furthermore, SNS Bank's credit risk on domestic retail loans is above average, as highlighted by the reported cost of risk of 39 bps of outstanding domestic retail loans in FY 2013, and by the relatively high proportion of mortgages with a loan-to-value above 100% (around 27% of total outstanding residential mortgages, excluding NHG-guaranteed loans; source: SNS Bank's FY 2013 annual report). The structure of SNS Bank's residential mortgage book amplifies potential losses, given the current stress affecting the Dutch property sector, where prices have declined by 20% since Q3 2008.

--- SNS BANK'S SENIOR UNSECURED AND DEPOSIT RATINGS

The improvement in SNS Bank's standalone credit profile triggered the upgrade of SNS Bank's senior unsecured and debt ratings, with a stable outlook. These ratings are positioned two notches above SNS Bank's standalone BCA. This rating uplift reflects the bank's systemic importance and its state ownership. Moody's believes, however, the full state ownership of the bank is likely to be temporary only, until SNS Bank has fully restored its financial health, thereby allowing the government to privatise the bank.

SNS Bank is the fourth largest domestic retail bank, with market shares of around 10% of outstanding domestic retail deposits and 7% in terms of outstanding domestic mortgage loans. In addition, the institution is owned by the Dutch state's financial arm, which is ultimately responsible for its viability until the bank is returned to private ownership.

The Dutch Intervention Act of 2011 provides the regulator and the Dutch Ministry of Finance with the possibility of imposing losses on senior creditors through transfers of assets and liabilities and the creation of bad banks. Nevertheless, the probability of a bail-in of SNS Bank's senior unsecured creditors in case of future support remains low until the enforcement of the provisions on bail-in of senior creditors, which is scheduled for January 2016 under the draft European Bank Recovery and Resolution Directive. Moreover, Moody's expects that the Dutch authorities would not impose any burden sharing on senior creditors until a pan European bail-in framework is in place because of the unintended consequences a unilateral decision could have on other domestic banks' access to wholesale financial markets. In addition, until January 2016 any support extended to SNS Bank by public authorities would be subject to the EU's State aid rules, which do not require the bail-in of senior creditors.

--- RATIONALE FOR THE OUTLOOKS

The outlook is stable on SNS Bank's BFSR, consistent with Moody's view that the firm's standalone credit assessment incorporates all currently foreseeable risks over the outlook period.

The outlook is stable on SNS Bank's long-term senior unsecured and deposit ratings, in line with the outlook on the firm's BFSR.

--- SNS REAAL'S PROVISIONAL MTN RATINGS

The affirmation of SNS REAAL's provisional senior unsecured MTN programme rating reflects the balance of (1) the improvement in SNS Bank's standalone credit profile (as captured through the baseline credit assessment of ba1), which also alleviates credit risks at the holding company level; and (2) Moody's view that the holding company would no longer benefit from systemic support in the future. The latter is driven by the commitment by the Dutch state and the SNS REAAL group to use the proceeds of the divestment of the insurance activities to reduce double leverage and ultimately to wind down the holding company SNS REAAL N.V., which currently does not have any outstanding debt to private investors.

SNS REAAL's provisional senior unsecured rating is positioned one notch below SNS Bank's baseline credit assessment, reflecting the structural subordination of the holding's senior bondholders.

The improvement of SNS Bank's standalone credit profile is the driver of the upgrade of SNS REAAL's provisional subordinate MTN programme rating. This rating is positioned one notch below SNS REAAL's provisional senior unsecured MTN programme rating, to reflect the subordinated claim to senior unsecured creditors.

WHAT COULD CHANGE THE RATING UP/DOWN

SNS Bank's standalone credit profile may improve as a result of (1) a successful development of its franchise, resulting in sustainable earnings and a stronger diversification of its exposures and revenues, while maintaining a low risk profile; and (2) further improvements in its solvency and liquidity position, including the ability to re-access long-term senior unsecured debt markets.

The bank's long-term ratings may be upgraded if Moody's raises the firm's standalone BFSR.

The BFSR could be lowered in the event of any further deterioration of the macroeconomic environment that would affect the bank's financial position beyond Moody's expectations, notably as a result of higher-than-anticipated risks on domestic mortgage loans. If the bank is unable to fully restore its franchise, Moody's might also lower the BFSR. More generally, any deterioration in the bank's solvency or liquidity profile or in its recurring earnings generation capacity, may prompt Moody's to lower the bank's BFSR.

Moody's might downgrade SNS Bank's long-term senior unsecured and deposit ratings if (1) it lowers the bank's BFSR; or (2) if Moody's lowers its probability of government (systemic) support assumptions for SNS Bank's senior creditors or depositors. This decision could be driven by the view that the institution's systemic importance would be lower than at present, or from developments on the willingness to support senior creditors in the Netherlands.

SNS REAAL's provisional senior unsecured and provisional subordinate MTN programme ratings would be upgraded (respectively downgraded) if Moody's raised (respectively lowered) SNS Bank's BFSR.

LIST OF AFFECTED RATINGS

The following ratings were upgraded with stable outlook:

- SNS Bank's BFSR to D+/ba1, from D-/ba3

- SNS Bank's long-term senior unsecured rating to Baa2, from Baa3

- SNS Bank's long-term deposit rating to Baa2, from Baa3

The following ratings were upgraded:

- SNS Bank's short-term debt rating, to Prime-2 from Prime-3

- SNS Bank's short-term deposit rating, to Prime-2 from Prime-3

- SNS Bank's provisional short-term MTN programme rating, to (P)P-2 from (P)P-3

- SNS Bank's provisional senior unsecured MTN programme rating, to (P)Baa2, from (P)Baa3

- SNS Bank's provisional subordinate MTN programme rating, to (P)Ba2, from (P)B1

- SNS REAAL's provisional subordinate MTN programme rating, to (P)Ba3, from (P)B2

The following rating was affirmed:

- SNS REAAL's provisional senior unsecured MTN programme rating, at (P)Ba2

PRICIPAL METHODOLOGY

The principal methodology used in these ratings was Global Banks published in May 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

List of affected Issuers by Releasing Office France:

Releasing Office:

Moody's France SAS

96 Boulevard Haussmann

75008 Paris

France

Issuer : SNS Reaal N.V.

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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

The person who approved SNS Bank N.V. credit ratings is Carola Schuler, MD - Banking, Financial Institutions Group, JOURNALISTS: 44 20 7772 5456, SUBSCRIBERS: 44 20 7772 5454

The person who approved SNS Reaal NV credit ratings is Simon Harris, MD - Financial Institutions, Financial Institutions Group, JOURNALISTS: 44 20 7772 5456, SUBSCRIBERS: 44 20 7772 5454

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead analyst and the Moody's legal entity that has issued the ratings.

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.

Stephane Herndl
Asst Vice President - Analyst
Financial Institutions Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Carola Schuler
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's upgrades SNS Bank's senior unsecured rating to Baa2/P-2; outlook stable
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