Nov 22 - Fitch Ratings has affirmed Belfius Bank SA/NV's (Belfius) Long-term Issuer Default
Rating (IDR) and Support Rating Floor at 'A-'. The Outlook on the Long-term IDR is Stable. At
the same time, the agency has affirmed Belfius' Viability Rating (VR) at 'bb'. A full list of
rating actions is at the end of this rating action commentary.
RATING ACTION RATIONALE
Beflius' IDRs, Support Rating and Support Rating Floor continue to reflect
Fitch's opinion that there would be an extremely high probability that Belgium
('AA'/Negative), would provide support to the bank, if required.
Despite the improvements observed in Belfius' liquidity position, reduction in
exposures to Dexia ('A+'/Negative, its previous shareholder) somewhat easing its
funding needs and liquidity position and de-risking of its balance sheet, the
bank's VR has been affirmed as Fitch continues to consider Belfius' current
capital position, as measured by the Fitch core capital, as a constraining
factor. The Fitch core capital includes the available-for-sale revaluations
reserves while prudential filters exclude revaluation reserves on bonds (the
largest part of Belfius' revaluation reserves) from regulatory capital. However,
they will be progressively integrated under Basel III as currently envisaged.
Belfius' negative revaluation reserves are substantial (EUR2.9bn at end-June
2012) essentially due to large holdings of peripheral European bonds and highly
sensitive to credit spreads volatility. At end-June 2012, the ratio of Fitch
core capital to regulatory weighted risk was 5.14% and the bank's core Tier 1
ratio was 12%.
RATING DRIVERS AND SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR
The Support Rating and Support Rating Floor are driven by the bank's systemic
importance as the third-largest domestic retail bank (with a market share of
around 15% of retail deposits) and from Belfius being fully owned by the Belgian
state following the acquisition from Dexia in October 2011.
The Support Rating and Support Rating Floor are sensitive to any changes in
Belgium's ability (as measured by its rating) and/or willingness to support
Belfius, if required. Belgium's ability to provide support is a function of its
ratings. The Outlook on Belgium's Long-Term IDR ('AA') is Negative, but a
one-notch downgrade of this rating would not necessarily result in an automatic
downgrade of the Support Rating Floor and Support Rating, Any downgrade of
Belgium's IDR to below 'AA-' would most likely lead to a downgrade of these
The ratings are also sensitive to a change in Fitch's assumptions around the
availability of sovereign support for the bank. In this context, Fitch is paying
close attention to ongoing policy discussions around bank support and 'bail in',
especially in Europe. However, in light of the current market turbulence, Fitch
does not expect any change in the willingness of Belgium to support banks in the
short term, especially if they are systemically important and owned by the
state, as is the case for Belfius.
RATING DRIVERS AND SENSITIVITIES - IDRS AND SENIOR DEBT
As Belfius' Long-term IDR and senior debt rating are at the Support Rating
Floor, any change in the bank's Support Rating Floor, would in turn lead to a
change in the bank's IDRs and senior debt ratings.
Belfius' Short-term IDR has been affirmed at 'F1', the higher of the two mapping
options which link Short-term and Long-term IDRs, reflecting the view that
potential additional support from the Belgian state is more certain in the short
The European Commission has temporarily approved the nationalisation of Belfius
and announced it would investigate whether this complies with the state aid
rules. The EC has not yet concluded its investigation but, in Fitch's view, it
is extremely unlikely to impose 'burden sharing' on Belfius' senior creditors,
given the very negative impact on investor sentiment (and therefore ultimately
on bank funding costs) and wider repercussions of such an unprecedented action.
Nevertheless, the senior debt rating is highly sensitive to any form of 'burden
sharing' that the EC could impose on senior bondholders.
RATING DRIVERS AND SENSITIVITIES - VR
Belfius' VR reflects the bank's low capital levels due to significant holdings
of peripheral European bonds that generate significant negative revaluation
reserves and modest profitability resulting in an expected low internal
generation of capital. The VR also takes into account the bank's solid retail
and public finance franchise in Belgium, which provides the bank with a good
customer-driven funding mix, overall low risk profile and fairly recurring
Belfius' VR would be sensitive to a marked deterioration in asset quality due to
higher than expected domestic and European economic strains, resulting in
material securities and loans impairment charges and related impact on the
bank's earnings, and ultimately capital. Any set-back in Belfius' improved
liquidity position would also be detrimental for its VR. Although capital is
likely to remain under pressure in the short to medium term, liquidity is
expected to further improve. The VR could be upgraded if the bank's capital
position, as measured by Fitch, materially improves.
Subordinated upper Tier 2 securities (XS0123018557) and subordinated lower Tier
2 securities (XS0286515621, issued by Belfius Funding but guaranteed by Belfius)
are notched off Belfius' VR, in line with Fitch's rating criteria for such
securities. Their affirmation reflects that of the bank's VR and their ratings
are sensitive to any changes in Belfius' VR.
While Fitch notes that there is a possibility that the EC will impose some form
of 'burden sharing' (such as coupon omission) on Belfius' subordinated debt and
hybrid securities, the subordinated securities rated by Fitch have a mandatory
coupon payment and would therefore not be affected by these measures.
SUSBIDIARY AND AFFILIATED COMPANY RATING DRIVERS AND SENSITIVITIES
Belfius Funding and Dexia Financial Products, Inc. are wholly-owned financing
subsidiaries of Belfius and all their issues are guaranteed by Belfius. Their
debt ratings are aligned with Belfius' and are sensitive to the same factors
that might drive a change in Belfius bank's senior and subordinated debt
Today's rating actions have no impact on the 'AAA(EXP)' rating assigned to
Belfius' covered bonds.
Fitch has upgraded the rating assigned to US CP of Dexia Delaware LLC to 'F1+'
from 'F1'. This corrects a previous rating action on the programme's rating on
11 October 2011 when the programme's rating was incorrectly downgraded. Dexia
Delaware LLC is a fully-owned financing subsidiary of Dexia Credit Local ('A+'/
Negative/'F1+') and the rating assigned to the CP programme is aligned with
Dexia's Short-term debt rating.
The rating actions are as follows:
Long-term IDR: affirmed at 'A-'; Outlook Stable
Short-term IDR: affirmed at 'F1'
Senior debt: affirmed at 'A-/F1'
Subordinated (upper Tier 2) debt XS0123018557: affirmed at 'BB-'
Viability Rating: affirmed at 'bb'
Support Rating: affirmed at '1'
Support Rating Floor: affirmed at 'A-'
Belfius Funding :
Senior debt: affirmed at 'A-
Market linked notes: affirmed at 'A-emr'
Subordinated (lower Tier 2) debt XS0286515621: affirmed at 'BB-'
Dexia Financial Products, Inc
Commercial paper: affirmed at 'F1'
Dexia Delaware LLC
Commercial paper: upgraded to 'F1+' from 'F1'