Fitch Affirms BNPP Fortis and BGL BNPP at 'A+'; Outlook Stable

Thu Jul 24, 2014 9:40am EDT

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(The following statement was released by the rating agency) PARIS/LONDON, July 24 (Fitch) Fitch Ratings has affirmed BNP Paribas Fortis SA/NV (BNPPF) and its subsidiary BGL BNP Paribas' (BGL BNPP) Long-term Issuer Default Ratings (IDRs) at 'A+' with Stable Outlooks and Support Ratings (SRs) at '1'. At the same time, BNPPF's Viability Rating (VR) has been affirmed at 'a'. A full list of rating actions is at the end of this rating action commentary. The rating actions follow a periodic review of major Benelux banking groups. KEY RATING DRIVERS - IDRs, SRs AND SENIOR DEBT BNPPF and BGL BNPP's IDRs, SRs and senior debt ratings reflect an extremely high probability of support from their shareholder, BNP Paribas (BNPP, A+/Stable), if needed. The IDRs are equalised with those of BNPP, reflecting Fitch's view that BNPPF and BGL BNPP are both core subsidiaries to BNPP, given their strategic importance to the parent and their high operational and management integration. BNPPF is now fully-owned by BNPP after the French group bought out in November 2013 a 25% stake in BNPPF previously held by the Belgian state (see 'Fitch: Fortis Unit Deal Benefits BNP Paribas and Belgian State' at www.fitchratings.com) as a legacy of the Fortis Bank bail-out conducted in 2008. BGL BNPP's capital is 50%-owned by BNPPF and 16% by BNPP with the remainder still owned by the state of Luxembourg, also as a consequence of the Fortis Bank bail-out. Fitch's view of both banks being 'core' subsidiaries to BNPP is supported by strong retail franchises (retail being BNPP's largest business in terms of revenue contribution and allocated equity) in two neighbouring countries, Belgium and Luxembourg, which also strengthen the parent's deposit base. Belgium and Luxembourg are defined by BNPP as part of its 'domestic' markets (along with France and Italy). BGL BNPP also runs BNPP's international wealth management business. Operations and management are highly integrated with key management positions having been shared among BNPP, BNPPF and BGL BNPP. In order to optimise capital and liquidity allocation within the group, BNPPF and BGL BNPP have acquired part of BNPP's Specialised Lending (asset finance) and its leasing operations, respectively, further supporting Fitch's opinion that both entities are integral parts of the group. The Stable Outlooks mirror that on BNPP's Long-term IDR. RATING SENSITIVITIES - IDRs, SRs AND SENIOR DEBT The banks' IDRs, SR and senior debt ratings are sensitive to a change in Fitch's assumptions around potential support from BNPP. Any change in BNPP's IDRs would trigger a change in BNPPF's and BGL BNPP's IDRs and senior debt rating. KEY RATING DRIVERS - BNPPF's VR BNPPF's VR is driven by Fitch's view that its retail-focused banking business model is able to generate adequate profitability and healthy liquidity, while maintaining strong capital ratios and an overall low risk profile. BNPPF's operating performance benefited from scope changes in 2013, and cost-cutting measures taken in previous years will gradually pay off. Fitch notes that returns measured against equity are negatively impacted by BNPPF's large equity base. The bank's capitalisation is strong. BNPPF's Fitch core capital to weighted risks ratio was 15.2% and its tangible common equity to tangible assets ratio 8% at end-2013. The quality of the loan book remains healthy (impaired loans of 4.6% of gross loans at end-2013) and loan impairment charges should continue to represent a low to moderate percentage of average loans. The scope changes have slightly increased the risk profile of BNPPF's loan book, but to a manageable extent. Liquidity remains robust thanks to a strong retail funding base, especially in Belgium where the bank has a market share around 25%. Customer deposits represent the largest source of funding and are growing, allowing the bank to maintain a healthy loans/deposits ratio (around 100%) despite the recent transfer of loans. The bank runs a large liquidity buffer in the form of cash and repo-able securities, with a significant amount of high quality sovereign bonds. RATING SENSITIVITIES - BNPPF's VR The bank's VR would be mostly sensitive to any material decrease in its capital ratios, which could stem from a vast deterioration in asset quality and/or a change in capital allocation within the BNPP group that would result in capital being upstreamed to the parent entity or significant amount of assets being further transferred to BNPPF. Downward revising of Fitch's assumptions regarding the credit risk embedded in the customer loan book, mostly likely coming from stresses in certain asset classes, could also lead to pressure on BNPPF's VR. As for the entire group, Fitch believes the reputational risk from the BNPP's settlement with the US authorities to BNPPF's franchise is difficult to predict. Our current base case is that customer attrition, if any, should be manageable, but we would consider reviewing BNPPF's VR if it suffers a material franchise loss. Upward pressure on BNPPF's VR appears limited in the near term, but it could benefit from improved efficiency and a track record of contained loan impairment charges. RATING DRIVERS AND SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES The subordinated debt rating is notched down from BNPPF's Long-term IDR as Fitch believes parental support will neutralise BNPPF's non-performance risk in line with Fitch's rating criteria for such securities. The ratings of upper Tier 2 debt (XS0063913387, XS0059603802 and XS0071344799) and hybrid securities (BE0119806116) are capped at a level that would be assigned to equivalent securities issued by BNPP. Upper Tier 2 debt issued by BNP Paribas Fortis Funding is rated three notches lower than BNPP's VR (one for loss severity and two for non-performance) and hybrid securities issued by BNPPF four notches lower than the parent's VR (two for loss severity and two for non-performance). The rating of the CASHES hybrid capital (BE0933899800) has been affirmed, but is lower than for other hybrids issued by BNPPF as the payment of the coupon in cash is linked to the declaration of a dividend by the AGEAS holding companies (previously called the Fortis holding companies when they owned Fortis Bank), notwithstanding the use of the Alternative Coupon Satisfaction Method in case of non-cash payment. The rating of this instrument is the same as that of a hybrid instrument with similar characteristics (ISIN XS0147484074 and XS0147484314) issued by Ageasfinlux whose co-obligors are the AGEAS holding companies. SUSBIDIARY AND AFFILIATED COMPANY KEY RATING DRIVERS AND SENSITIVITIES BNP Paribas Fortis Funding and Fortis Funding LLC are wholly owned financing subsidiaries of BNPPF whose debt ratings are aligned with those of BNPPF based on an extremely high probability of support, if required, and whose ratings are sensitive to the same factors that might drive a change in BNPPF's ratings. The rating actions are as follows: BNP Paribas Fortis Long-term IDR affirmed at 'A+'; Outlook Stable Short-term IDR affirmed at 'F1' Viability Rating affirmed at 'a' Support Rating affirmed at '1' Short-term debt affirmed at 'F1' Senior unsecured affirmed at 'A+' Subordinated debt affirmed at 'A' Hybrid securities affirmed at 'BBB' Hybrid capital (CASHES BE0933899800) affirmed at 'BB' BGL BNP Paribas Long-term IDR affirmed at 'A+'; Outlook Stable Short-term IDR affirmed at 'F1' Support Rating affirmed at '1' Short-term debt: affirmed at 'F1' Long-term senior debt: affirmed at 'A+' Market linked notes affirmed at 'A+emr' BNP Paribas Fortis Funding Short-term debt affirmed at 'F1' Senior unsecured affirmed at 'A+' Market linked notes affirmed at 'A+emr' Subordinated debt affirmed at 'A' Subordinated debt (upper Tier 2) affirmed at 'BBB+' Fortis Funding LLC Short-term debt affirmed at 'F1' Contact: Primary Analyst Philippe Lamaud Director +33 144 29 91 26 Fitch France S.A.S. 60, rue de Monceau 75008 Paris Secondary Analyst Lawrence Power Analyst +44 20 3530 1567 Committee Chairperson Maria Jose Lockerbie Managing Director +44 20 3530 1083 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, 'Global Financial Institutions Rating Criteria', dated 31 January 2014, 'Assessing and Rating Bank Subordinated and Hybrid Securities', dated 31 January 2014, 'Rating FI Subsidiaries and Holding Companies' dated 10 August 2012, 'are available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Assessing and Rating Bank Subordinated and Hybrid Securities Criteria here Rating FI Subsidiaries and Holding Companies 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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