TEXT-S&P affirms 'bbb-/a-3' ratings on NIBC Bank

Fri Nov 16, 2012 1:10pm EST

Overview
     -- In our view, Dutch banks are exposed to the potential of a more 
protracted downturn in The Netherlands and the wider eurozone.
     -- We are therefore revising our economic risk score and our Banking 
Industry Country Risk Assessment on The Netherlands to '3' from '2'.
     -- We are affirming our 'BBB-/A-3' long- and short-term counterparty 
credit ratings on Netherlands-based NIBC Bank N.V. (NIBC).
     -- We expect further strengthening in the bank's capitalization to offset 
the moderately increased economic risks.
     -- The negative outlook reflects our view of the risk that the 
strengthening in the bank's capital position, as measured by our risk-adjusted 
capital ratio, may be slower or more limited than we currently anticipate.

Rating Action
On Nov. 16, 2012, Standard & Poor's Ratings Services affirmed its 'BBB-/A-3' 
counterparty credit ratings on Netherlands-based NIBC Bank N.V. (NIBC). The 
outlook remains negative.

Rationale
The rating affirmation reflects our expectation that further strengthening in 
the bank's capital position should offset what we view as a moderate increase 
in economic risk in The Netherlands and the wider eurozone. This follows our 
review of the Banking Industry Country Risk Assessment (BICRA) on The 
Netherlands. Against the backdrop of a potentially more protracted downturn in 
The Netherlands and wider eurozone, we have revised our economic risk score 
for The Netherlands and our BICRA assessment to '3' from '2'. (For more 
information, see "Various Rating Actions Taken On Dutch Banks Due To Increased 
Economic Risks," published Nov. 16, 2012 on RatingsDirect on the Global Credit 
Portal).

We have revised our assessment of systemwide risks that Dutch banks are 
exposed to, which has led us to lower our anchor--or starting point for our 
ratings--for commercial banks operating in The Netherlands, including NIBC, to 
'bbb+' from 'a-'. Although NIBC is exposed to other countries, mainly Germany 
and the U.K., our blended economic risk score for the bank--a key driver of 
the anchor--remains largely driven by our assessment for The Netherlands, 
where the bulk of NIBC's exposures resides. As a result, we have also lowered 
NIBC's anchor in line with purely domestically-focused peers.

We expect the bank to continue actively strengthening its capital position. We 
have therefore revised our assessment of its capital and earnings to "strong" 
from "adequate", primarily based on our expectation that the bank's 
risk-adjusted capital (RAC) ratio before adjustments, according to Standard & 
Poor's measures, will sustainably reach 10.0%-10.5% by end-2014. We estimate 
that the RAC ratio at end-September 2012--pro forma our lower economic risk 
score and BICRA for The Netherlands--was about 9%. Our prospective RAC 
assessment incorporates, among other things, the deleveraging trend followed 
by the bank and our expectation of higher earnings retention and a cautious 
Basel 3 minimum Core Tier 1 target.

We consider NIBC's business position to be "weak", as defined by our criteria, 
primarily reflecting the bank's niche franchise, our view of potential 
volatility in a few of its sectors, and modest overall market position. We 
note the bank's long-standing expertise in its corporate niches, which in our 
view helped it to defend its franchise through the recent downturn.

We view its risk position as "adequate", reflecting that we believe our RAC 
framework adequately captures the risks NIBC faces. The bank has relatively 
large exposures to sectors that we consider to be potentially volatile, such 
as commercial real estate and shipping. Nevertheless, we observe that risks so 
far appear to have been mitigated by the collateralized nature of most lending 
activities, and sound sector knowledge and underwriting criteria. We note 
that, compared with some domestic peers that have experienced a marked 
increase in the cost of risk since mid-2011, NIBC's loss experience has been 
broadly stable.

We view NIBC's funding as "below average" and its liquidity as "adequate". Our 
assessment of the bank's funding primarily takes into account the bank's 
greater-than-average reliance on wholesale funding, illustrated by a high, 
albeit rapidly decreasing, loan-to-customer-deposits ratio of about 220% at 
end-June 2012.

Outlook
The negative outlook reflects the possibility that we may lower the ratings on 
NIBC if the strengthening in the bank's capital position, as measured by our 
RAC ratio, proves slower or more limited than we currently anticipate.

We could lower the ratings if we no longer expect NIBC Holding's RAC ratio 
before adjustments to exceed 10% in the next 18-24 months. This could be 
triggered by a material deterioration in profitability, weaker earnings 
retention, or unanticipated growth in exposures.

Conversely, a stabilization in the economic backdrop, combined with a RAC 
ratio comfortably above 10%, could lead us to revise the outlook to stable. In 
the longer term, a sustainable rebalancing of the bank's funding profile, with 
decreasing reliance on wholesale funding and further evidence of stability in 
the customer deposit base, could see us revise the bank's SACP upward.

Ratings Score Snapshot
Issuer Credit Rating          BBB-/Negative/A-3

SACP                          bbb-
 Anchor                       bbb+
 Business Position            Weak (-2)
 Capital and Earnings         Strong (+1)
 Risk Position                Adequate (0)
 Funding and Liquidity        Below Average and Adequate (-1)

Support                       0
 GRE Support                  0
 Group Support                0
 Sovereign Support            0
Additional Factors            0
Related Criteria And Research
All articles listed below are available on RatingsDirect on the Global Credit 
Portal, unless otherwise stated.
     -- Economic Research: The Eurozone's New Recession--Confirmed, Sept. 25, 
2012
     -- No Pain, No Gain: How The Housing Market Correction Is Affecting Dutch 
Banks, June 27, 2012
     -- Banks: Rating Methodology And Assumptions, Nov. 9, 2011
     -- Banking Industry Country Risk Assessment Methodology And Assumptions, 
Nov. 9, 2011
     -- Bank Hybrid Capital Methodology And Assumptions, Nov. 1, 2011
     -- Bank Capital Methodology And Assumptions, Dec. 6, 2010
     -- Various Rating Actions Taken On Dutch Banks Due To Increased Economic 
Risks, Nov. 16, 2012

Ratings List
Ratings Affirmed

NIBC Bank N.V.
 Counterparty Credit Rating             BBB-/Negative/A-3  
 Certificate Of Deposit                 BBB-/A-3           

NIBC Bank N.V.
 Senior Unsecured                       BBB-               
 Subordinated                           BB+                
 Junior Subordinated                    BB                 
 Certificate Of Deposit                 A-3                
 Commercial Paper                       A-3                


Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.
A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

Find your dream retirement town

Florida? Hawaii? Reuters has teamed up with Zillow to give you the power to customize a list of your best places to retire.  Video | Full Article