Fitch Rates KBC Group's CRD IV Compliant Additional Tier 1 Capital Instruments 'BB(EXP)'

Fri Mar 7, 2014 11:33am EST

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(The following statement was released by the rating agency) PARIS/LONDON, March 07 (Fitch) Fitch Ratings has assigned KBC Group's (A-/Stable/F1) planned issue of Additional Tier 1 capital notes an expected rating of 'BB(EXP)'. The final rating is contingent upon the receipt of final documents conforming to information already received. KEY RATING DRIVERS The notes are CRD IV compliant undated deeply subordinated additional Tier 1 fixed rate resettable debt securities, with a call after five years. The notes are subject to write-down if the Common Equity Tier 1 ratio of KBC Group falls below 5.125%, and any coupon payments may be cancelled at the full discretion of the group. The rating assigned to the notes is notched off KBC Group's implicit intrinsic creditworthiness, of which KBC Bank (A-/Stable/a-) is the predominant operating entity. The notes are rated five notches below this implicit intrinsic creditworthiness in accordance with Fitch's criteria for "Assessing and Rating Bank Subordinated and Hybrid Securities". The notching reflects the notes' higher expected loss severity relative to senior unsecured creditors (two notches) and higher non-performance risk (three notches). The 5.125% trigger only refers to a write-down of the notes and Fitch believes that the Belgian regulator would demand coupon deferral well before KBC Group hits the 5.125%. However, Fitch believes that KBC Group's current fully-loaded CET1 ratio (12.8% at end-2013) and KBC Group's decreasing earnings volatility provides a sufficient CET1 capital buffer to limit the notching for non-performance risk to three notches. Fitch has assigned 50% equity credit to the securities. This reflects the notes' full coupon flexibility, their permanent nature and the subordination to all senior creditors. It also reflects Fitch's view that the 5.125% trigger is close to non-viability, which limits the instruments "going concern" characteristics. RATING SENSITIVITIES The rating assigned to the notes is broadly sensitive to the same factors as those that would affect KBC Bank's Viability Rating of 'a-'. In addition, the notes' rating is sensitive to the build-up of additional double leverage at KBC Group. The notes' rating is also sensitive to any change in notching that could arise if Fitch changed its assessment of the probability of the notes' non-performance risk relative to the risk captured in KBC Group's implicit intrinsic creditworthiness. Contact: Primary Analyst Olivia Perney Guillot Senior Director +33 144 29 91 74 Fitch Ratings S.A.S. 60 rue de Monceau 75017 Paris Secondary Analyst Amelie Hibos Analyst +33 144 29 91 78 Committee Chairperson Christian Kuendig Senior Director +44 20 3530 1399 Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, "Assessing and Rating Bank Subordinated and Hybrid Securities", dated 31 January 2014, and "Global Financial Institutions Rating Criteria," dated 31 January 2014, are available at www.fitchratings.com. Applicable Criteria and Related Research: Assessing and Rating Bank Subordinated and Hybrid Securities Criteria here Global Financial Institutions Rating Criteria here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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