Dec 01- Fitch Ratings has assigned Dexia Bank Belgium (DBB) a Viability Rating of ‘bb’. A full list of rating actions is at the end of this comment.
The assignment of a Viability Rating to DBB follows an analysis of the intrinsic creditworthiness of the bank in its new profile as an independent bank. DBB has been separated from the Dexia group (Dexia) since 20 October 2011 when it was acquired by the Belgian state. DBB’s ‘bb’ Viability Rating reflects its tight liquidity position caused by the large amount of funding provided to Dexia, its previous shareholder, and strains on capital given substantial holdings of sovereign debt. It also takes into account the bank’s solid retail and public finance franchise in Belgium, acceptable earnings generation capability and significant funding through customer deposits.
Given significant holdings of Greek sovereign debt, DBB booked a large impairment and reported a net loss of EUR1.1bn in 9M11, which has eroded capital. While regulatory capital ratios should remain high (12.4% core Tier 1 ratio at end-September 2011 according to Fitch’s calculation), the Fitch Core Capital ratio is expected to be much lower as Fitch deducts negative revaluation reserves and the net asset value of DBB’s insurance subsidiary from Fitch Core Capital. Negative revaluation reserves have increased largely owing to credit spread widening on substantial holdings of sovereign debt.
As is generally the case for Belgian banks, DBB benefits from higher customer deposits than loans and the bank was a provider of funding to Dexia. The funding provided to Dexia is expected to be progressively reimbursed over the next few months but will weigh on DBB’s liquidity in the meantime.
DBB’s Long- and Short Issuer Default Ratings (IDR), Support Rating and Support Rating Floor continue to be driven by the extremely high probability that the Belgian state would support the bank if required given DBB is fully state-owned and systemically important in Belgium. On 17 October 2011, The European Commission (EC) temporarily approved state aid received by DBB but a restructuring plan needs to be submitted by Belgium to the EC. However, Fitch does not anticipate a material negative impact on DBB’s financial profile arising from a restructuring plan imposed by the EC.
According to the exposure draft, ‘Rating Bank Regulatory Capital Securities’ dated 28 July 2011 at www.fitchratings.com, subordinated debt would be notched down from the Viability Rating. If Fitch publishes new criteria in line with those in the exposure draft, subordinated debt issued by DBB and Dexia Funding Netherlands would be rated below DBB’s Viability Rating.
DBB is the third largest bank in Belgium. It enjoys a 15% market share in retail banking and a very significant position in banking with the local authorities.
The rating actions are as follows:
Long-term IDR: ‘A’; Outlook Stable unaffected
Short-term IDR: ‘F1’ unaffectedSenior debt: ‘A’ unaffected
Subordinated (upper Tier 2) debt XS0123018557: ‘BBB-, RWN’ unaffected
Viability Rating: ‘bb’ assigned
Individual Rating: affirmed at ‘D’, RWN removed
Support Rating: ‘1’ unaffected
Support Rating Floor: ‘A’ unaffected
Dexia Funding Netherlands :
Senior debt: ‘A’, unaffected
Market linked notes: ‘Aemr’, unaffected
Subordinated (lower Tier 2) debt XS0286515621: ‘BBB-, RWN’ unaffected
Dexia Financial Products :
Commercial paper: ‘F1’, unaffected
Dexia Delaware LLC:
Commercial paper: ‘F1’, unaffected