The banks' standalone BCAs also upgraded by one notch
London, 06 June 2017 -- Moody's Investors Service has today upgraded the long-term debt
and deposit ratings of two Irish banks - Bank of Ireland (BOI)
and Allied Irish Banks, p.l.c. (AIB).
As part of the same action, Moody's upgraded the baseline credit
assessments (BCAs) of AIB and BOI.
The rating upgrades reflect a range of positive factors, including
further reduction in non-performing loans, improved capital
ratios and achievement of stable core profitability" said Irakli
Pipia, Vice President-Senior Credit Officer. "However,
AIB's higher stock of problem loans, continues to justify
a difference in the base line credit assessment of AIB relative to BOI".
Moody's maintained a positive outlook on BOI's long-term
senior unsecured debt and deposit ratings. The agency revised the
outlook on AIB's long-term senior unsecured debt and deposit
ratings to stable from positive.
A full list of affected ratings can be found at the end of this press
release.
RATINGS RATIONALE
Bank Of Ireland
BCA
The upgrade of BOI's long-term debt and deposit ratings was driven
by the revision of the bank's BCA to baa3 from ba1.
The upgrade of BOI's BCA reflects the following trends: (1) further
improvements in asset quality, as shown by the bank's problem loan
ratio, which fell to 7.9% as at end-2016 from
11% a year earlier; (2) improving trend in capital ratios
despite non-operational factors, (e.g. negative
impact of the defined benefit plan deficit volatility), with Tangible
Common Equity (TCE) as percentage of Risk Weighted Assets (RWAs) at 13.4%
as at end-2016, up from 13.2% a year earlier;
(3) stable core profitability and net interest margin, with reduced
reliance on one-off items; and (4) a good funding profile,
reflected in an improved loan-to-deposit ratio of 108%
as at end-2016 down, from 112% a year earlier.
At the same time, the current BCA takes into account the remaining
sizeable stock of non-performing loans in addition to a significant
stock of forborne loans with an expectation of a slower rate of amortization
going forward. The bank's problem loans as a percentage of
its capital and loan loss reserves at 60% as at end-2016
still compares unfavorably to similarly rated peers. Overall,
these factors expose the bank to asset quality challenges if the current
benign operating environment in Ireland were to weaken unexpectedly.
LONG-TERM RATINGS
The long-term senior unsecured debt and deposit ratings were upgraded
to Baa1 and A3, respectively from Baa2 and Baa1, reflecting
the upgrade of the bank's BCA as well as the uplift resulting from Moody's
Advanced Loss Given Failure (LGF) analysis. The senior unsecured
debt rating benefits from one notch of uplift and bank deposit rating
benefits from two notches of uplift from Moody's Advanced LGF analysis.
In addition, the long-term ratings incorporate one notch
of government support, which remains unchanged. The bank's
short-term ratings were affirmed at Prime-2.
The long-term senior unsecured debt and deposit ratings were upgraded
to Baa1 and A3, respectively from Baa2 and Baa1, as a result
of the upgrade of the bank's BCA, with uplift resulting from Moody's
Advanced Loss Given Failure (LGF) analysis remaining unchanged.
The senior unsecured debt rating and bank deposit rating benefit from
one notch and two notches of uplift respectively, given their different
positioning in the bank's liability structure and, consequently,
different amount of subordination supporting loss-rates.
The bank's senior unsecured debt is likely to face loss-given-failure
supported by the loss absorption provided by its own volume and the amount
of junior debt subordinated to it. The bank's deposits are
likely to face lower loss-given-failure, as expressed
in the two notches of uplift, due to the loss absorption provided
by subordinated debt and, potentially, by a sizeable amount
of senior unsecured debt should deposits be treated preferentially in
a resolution. In addition, the long-term ratings incorporate
one notch of government support, which also remains unchanged.
The positive outlooks on BOI's long-term deposits and senior unsecured
debt ratings reflect Moody's expectation of debt to be issued by
a new holding company over the outlook period which if carried out as
planned, will increase the level of protection for both bank's
deposits and its own senior debt.
CR Assessment (CRA)
The bank's CRA was affirmed at A3(cr)/Prime-2(cr).
The CRA incorporates three notches of uplift from the bank's BCA
given the protection provided by subordinated debt, senior debt
and wholesale deposits, bringing it the same level Moody's
rating on the Government of Ireland. Given this, a moderate
probability of government support for the bank's operating obligations
does not give rise to any further uplift and the long-term and
short-term CRAs remain A3(cr) and Prime-2(cr) respectively.
WHAT COULD MOVE THE RATINGS UP/DOWN
BOI's long-term debt and deposit ratings could be upgraded as a
result of (1) an upgrade in its standalone BCA; or (2) a significant
increase in the bank's bail-in-able debt. The bank's
BCA could be upgraded following (1) further significant reductions in
non-performing loans and/or improving provisioning coverage;
(2) improving capitalisation and risk absorption capacity, while
maintaining (3) stable profitability, funding and liquidity metrics.
BOI's ratings could be downgraded as a result of (1) a downgrade of its
standalone BCA; or (2) the redemption of maturing subordinated instruments
without their replacement. BOI's BCA could be downgraded due to
(1) a significant deterioration in the bank's asset quality; (2)
a significant and sustained drop in the bank's capitalisation;
(3) a deterioration in its core profitability metrics; or (4) a significant
increase in the use of confidence-sensitive wholesale funding or
a material reduction in liquid assets.
RATINGS RATIONALE -- AIB
BCA
The upgrade of AIB's long-term debt and deposit ratings was driven
by the revision of the bank's BCA to ba1 from ba2.
The upgrade of AIB's BCA to ba1 reflects the following trends: (1)
on-going improvement in asset quality reflected in the reduction
of the percentage of problem loans to total loans at 14% as at
end-2016 from 18.6% a year earlier; (2) improvement
in capital levels, with a relatively high tangible common equity
(TCE) over risk-weighted assets (RWA) ratio of 15.6%
as at end-2016, up from 14.5% a year earlier;
(3) stabilising its core profitability with improved earnings quality
and increasing net interest margin; and (4) a funding profile exhibiting
lower reliance on market funds than in previous periods and a comfortable
liquidity position.
At the same time, the BCA takes into account AIB's higher
non-performing asset ratio and lower provisioning coverage when
compared with similarly-rated peers. The BCA also incorporates
the bank's higher problem loans as a percentage of its capital and
loan loss reserves, at 69% as at end-2016.
In Moody's view these features constrain further upside potential of the
bank's BCA over the outlook horizon.
LONG-TERM RATINGS
The upgrade of AIB's long-term senior unsecured debt and
deposit ratings to Baa2 and Baa1 from Baa3 and Baa2, respectively,
reflect the upgrade of the bank's BCA and include uplift resulting from
Moody's LGF analysis. The senior unsecured debt and deposit ratings
continue to benefit from one notch and two notches of uplift respectively
under the LGF analysis, given their different weights in the bank's
liability structure. In addition, the long-term ratings
incorporate one notch of government support, which also remains
unchanged. The bank's short-term ratings were affirmed
at Prime-2.
The stable outlooks on AIB's long-term deposit and senior unsecured
debt ratings reflect the limited upside for the bank's standalone
BCA during the outlook period given its relatively high stock of non-performing
loans and modest provisioning coverage compared to its peers. While
Moody's expects the group to issue debt from a planned holding company,
which would provide additional protection for the bank's senior
unsecured debt and deposits, the rating agency does not believe
that this will be sufficient to lead to higher ratings over the outlook
horizon.
CR Assessment (CRA)
The bank's long-term CRA was upgraded to A3(cr) from Baa1(cr),
one notch above the bank's PRA and at the same level as Ireland's
sovereign rating of A3. Short-term CRA was affirmed at Prime-2(cr).
The CRA includes three notches of uplift under the LGF analysis,
given significant volume of subordinated debt, senior debt and wholesale
deposits, and one notch of government support.
WHAT COULD MOVE THE RATINGS UP/DOWN
AIB's long-term debt and deposit ratings could be upgraded as a
result of (1) an upgrade in its standalone BCA; or (2) a significant
increase in the bank's bail-in-able debt. The bank's
BCA could be upgraded because of (1) a further material reduction in non-performing
loans; (2) an improvement in stressed-capital resilience above
Moody's expectations; or (3) a sustained improvement in core profitability.
AIB's ratings could be downgraded as a result of (1) a downgrade of its
standalone BCA; or (2) redemption of maturing subordinated instruments
without their replacement. AIB's BCA could be downgraded because
of (1) a significant deterioration in the bank's asset risk metrics;
(2) a weakening of its solvency profile; or (3) a worsening of its
core profitability ratios.
LIST OF AFFECTED RATINGS
Issuer: Allied Irish Banks, p.l.c.
Upgrades:
....LT Bank Deposits (Local & Foreign
Currency), Upgraded to Baa1 from Baa2, Outlook Changed To
Stable From Positive
....Senior Unsecured Regular Bond/Debenture,
Upgraded to Baa2 from Baa3, Outlook Changed To Stable From Positive
....Subordinate, Upgraded to Ba2 from
Ba3
....Pref. Stock Non-cumulative,
Upgraded to B1(hyb) from B2(hyb)
....Senior Unsecured MTN Program, Upgraded
to (P)Baa2 from (P)Baa3
....Subordinate MTN Program, Upgraded
to (P)Ba2 from (P)Ba3
....Junior Subordinate MTN Program,
Upgraded to (P)Ba3 from (P)B1
....Other Short Term, Upgraded to (P)P-2
from (P)P-3
....Adjusted Baseline Credit Assessment,
Upgraded to ba1 from ba2
....Baseline Credit Assessment, Upgraded
to ba1 from ba2
....LT Counterparty Risk Assessment,
Upgraded to A3(cr) from Baa1(cr)
Affirmations:
....ST Bank Deposits (Local & Foreign
Currency), Affirmed P-2
....ST Counterparty Risk Assessment,
Affirmed P-2(cr)
Issuer: Bank of Ireland
Upgrades:
....LT Issuer Rating (Local Currency),
Upgraded to Baa1 from Baa2, Outlook Remains Positive
....LT Bank Deposits (Local & Foreign
Currency), Upgraded to A3 from Baa1, Outlook Remains Positive
....Senior Unsecured Regular Bond/Debenture,
Upgraded to Baa1 from Baa2, Outlook Remains Positive
....Subordinate, Upgraded to Ba1 from
Ba2
....Junior Subordinate, Upgraded to
Ba2(hyb) from Ba3(hyb)
....Pref. Stock, Upgraded to
Ba3(hyb) from B1(hyb)
....Pref. Stock Non-cumulative,
Upgraded to Ba3(hyb) from B1(hyb)
....Senior Unsecured MTN Program, Upgraded
to (P)Baa1 from (P)Baa2
....Subordinate MTN Program, Upgraded
to (P)Ba1 from (P)Ba2
....Adjusted Baseline Credit Assessment,
Upgraded to baa3 from ba1
....Baseline Credit Assessment, Upgraded
to baa3 from ba1
Affirmations:
....ST Bank Deposits (Local & Foreign
Currency), Affirmed P-2
....Commercial Paper, Affirmed P-2
....ST Deposit Note/CD Program, Affirmed
P-2
....Other Short Term, Affirmed (P)P-2
....LT Counterparty Risk Assessment,
Affirmed A3(cr)
....ST Counterparty Risk Assessment,
Affirmed P-2(cr)
Issuer: Bank of Ireland UK Holdings Plc
Upgrade:
....BACKED Pref. Stock, Upgraded
to Ba2(hyb) from Ba3(hyb)
Issuer: Bristol & West plc
Upgrade:
....Subordinate, Upgraded to Ba1 from
Ba2
Issuer: EBS d.a.c.
Upgrades:
....LT Bank Deposits (Local & Foreign
Currency), Upgraded to Baa1 from Baa2, Outlook Changed To
Stable From Positive
....Adjusted Baseline Credit Assessment,
Upgraded to ba1 from ba2
....Baseline Credit Assessment, Upgraded
to ba1 from ba2
....LT Counterparty Risk Assessment,
Upgraded to A3(cr) from Baa1(cr)
Issuer: EBS d.a.c.
Affirmations:
....ST Bank Deposits (Local & Foreign
Currency), Affirmed P-2
....ST Counterparty Risk Assessment,
Affirmed P-2(cr)
Outlook Actions:
Issuer: Allied Irish Banks, p.l.c.
....Outlook, Changed To Stable From
Positive
Issuer: Bank of Ireland
....Outlook, Remains Positive
Issuer: EBS d.a.c.
....Outlook, Changed To Stable From
Positive
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
January 2016. 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.
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 rating 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.
The relevant office for each rating is identified in "Debt/deal
box" on the Ratings tab in the Debt/Deal List section of each issuer/entity
page of the website.
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.
Irakli Pipia
VP - Senior Credit Officer
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
Nicholas Hill
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 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
Client Service: 44 20 7772 5454
