TEXT-S&P Afms Bank Nederlandse Gemeenten 'AAA' Ratings; Otlk Neg

Fri Dec 21, 2012 5:14am EST

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(The following statement was released by the rating agency)

Dec 21 -

Overview

-- In accordance with our criteria for rating government-related entities (GREs), we have revised our assessment of Bank Nederlandse Gemeenten N.V.'s (BNG) role for the government to "critical" from "very important".

-- The ratings reflect the bank's "critical" role for and "integral" link to the State of The Netherlands resulting in an "almost certain" likelihood of extraordinary government support.

-- We are therefore affirming the 'AAA/A-1+' long- and short-term ratings on BNG. At the same time, we are removing the long-term ratings from CreditWatch with negative implications, where they were placed on Nov. 16, 2012.

-- The outlook is negative, in line with the outlook on the State of The Netherlands.

Rating Action

On Dec. 21, 2012, Standard & Poor's Ratings Services affirmed its 'AAA/A-1+' long- and short-term counterparty credit ratings on Bank Nederlandse Gemeenten N.V. (BNG). At the same time, we removed the long-term ratings from CreditWatch with negative implications, where they were placed on Nov. 16, 2012. The outlook is negative.

Rationale

The rating actions follow our reassessment of BNG's role for the State of The Netherlands to "critical" from "very important". In our view: (a) BNG plays a vital role in providing low cost financing to the Dutch public sector, which is an important public policy goal. (b) Private sector commercial banks are typically willing to finance only a small part of the public sector's financing needs and are not able to provide financing at the same low cost as BNG. (c) In the absence of public sector banks, the government would likely have to finance the public sector directly. (d) BNG's inter-linkages with other entities (for example, Waarborgfonds Sociale Woningbouw; WSW; AAA/Negative/--)) that benefit from government guarantees increase the government's incentive to provide extraordinary support.

We equalize the long-term counterparty credit rating on BNG with that on the State of The Netherlands, reflecting the implicit support the bank receives from the Dutch Ministry of Finance (MOF), arising from the bank's public sector mandate and combined ownership by the State of The Netherlands (50%) and other Dutch public authorities. Therefore, Standard & Poor's views BNG as a GRE with "almost certain" likelihood of extraordinary government support. In accordance with our GRE criteria, our rating approach is based on our view of BNG's:

-- "Critical" role as one of the State's two public sector banks with a public policy role.

-- "Integral" link with the government as we consider the bank as an extension of the government. The bank's Articles of Association limit BNG's ownership and lending activities to the public sector, which supports our view of the link between BNG and the government. We note that although the government is not involved in the day-to-day running of the bank, it maintains close oversight over the bank's strategy and capital policy.

Following the lowering of our economic risk and BICRA scores on The Netherlands to '3' from '2' on Nov. 16, 2012, we have revised down BNG's stand-alone credit profile (SACP) to 'a+' from 'aa-'. This is the result of a lowering of our anchor--or starting point for our ratings--for banks operating primarily in The Netherlands to 'bbb+' from 'a-'.

We recognize that BNG is relatively less exposed to rising domestic economic risks given its focus on low-risk lending to, or guaranteed by, public sector authorities. Nevertheless, we consider that BNG will not be completely insulated from these risks. The bank could, for example, experience a prolonged slowdown in new business volumes and we expect a small increase (from historically negligible levels) in impairment charges related to the nonguaranteed portion of the bank's loan portfolio and its interest bearing securities portfolio.

Our stand-alone ratings on BNG continue to reflect its "adequate" business position, "very strong" capital and earnings, "strong" risk position, "average" funding, and "adequate" liquidity, as our criteria define these terms.

Our assessment of BNG's business position as "adequate" is supported by its stable franchise as one of the principal lenders to the Dutch public sector through economic cycles. This factor is offset by its business and geographic concentration.

We view BNG's capital and earnings as "very strong," reflecting our expectation that the bank's risk-adjusted capital (RAC) ratio before diversification adjustments, according to Standard & Poor's measures, will rise to around 17.5% over the next 24 months on the back of steady retained earnings and modest risk-weighted asset (RWA) growth.

Our assessment of BNG's risk position as "strong" reflects our view of its continued focus on low-risk lending to, or guaranteed by, public authorities and our expectation of limited loan book growth.

We view funding as "average" and liquidity as "adequate". This reflects our view of BNG's wholesale-funded profile in line with other public sector-focused peers that is well diversified by source and maturity. Our assessment of BNG's liquidity is supported by satisfactory liquidity buffers and a large portfolio of central bank eligible assets.

Outlook

The negative outlook is in line with that on The Netherlands. Under our GRE criteria, with all other factors remaining the same, if the sovereign rating is lowered by one notch, we would lower the long-term counterparty credit rating on BNG by one notch.

We could revise the outlook to stable if we were to revise our outlook on The Netherlands to stable.

Ratings Score Snapshot

Issuer Credit Rating AAA/Negative/A-1+

SACP a+

Anchor bbb+

Business Position Adequate (0)

Capital and Earnings Very Strong (+2)

Risk Position Strong (+1)

Funding and Liquidity Average and adequate (0)

Support +4

GRE Support +4

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.

-- Banking Industry Country Risk Assessment: The Netherlands, Nov. 16, 2012

-- Banks: Rating Methodology And Assumptions, Nov. 9, 2011

-- Bank Capital Methodology And Assumptions, Dec. 6, 2010

-- Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011

-- Rating Government Related Entities: Methodology And Assumptions, Dec. 9, 2010

Ratings List

Ratings Affirmed; CreditWatch/Outlook Action

To From

Bank Nederlandse Gemeenten N.V.

Counterparty Credit Rating AAA/Negative/A-1+ AAA/Watch Neg/A-1+

Commercial Paper A-1+ A-1+

Bank Nederlandse Gemeenten N.V.

Senior Unsecured AAA AAA/Watch Neg

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