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TEXT-S&P affirms Belgium's Dexia Bank
April 26, 2012 / 2:41 PM / 5 years ago

TEXT-S&P affirms Belgium's Dexia Bank

    -- Belgium-based Dexia Bank S.A., to be renamed Belfius Banque & 	
Assurances, has reduced to zero its unsecured credit exposure to the Dexia 	
S.A. group.	
    -- We consider that Dexia Bank's liquidity has improved and will likely 	
continue to do so as it trims its balance sheet and gradually recovers client 	
    -- We are affirming our 'A-/A-2' long- and short-term ratings on Dexia 	
Bank and removing the long-term rating from CreditWatch negative.	
    -- The negative outlook primarily reflects that on the Kingdom of Belgium. 	
Rating Action	
On April 26, 2012, Standard & Poor's Ratings Services affirmed its 'A-/A-2' 	
long- and short-term counterparty credit ratings on Belgium-based Dexia Bank 	
S.A. We removed the long-term rating from CreditWatch with negative 	
implications, where it was placed on Dec. 8, 2011. At the same time, we raised 	
our rating on Dexia Bank's subordinated debt to 'BB+' from 'BB-'. The outlook 	
is negative.	
Dexia Bank has renamed itself Belfius Banque & Assurances SA (Belfius). The 	
name change will be legally effective on June 11, 2012.	
The affirmation of the long-term rating primarily reflects our view that Dexia 	
Bank has managed to decrease to zero its unsecured credit exposure to Dexia 	
S.A. (Dexia; not rated) entities, mainly Dexia Credit Local (DCL; BBB/Watch 	
Neg/A-2) in the first quarter of 2012 without suffering losses. Consequently, 	
we have revised our risk position score on Dexia Bank to "moderate" from 	
We have also factored into the affirmation Dexia Bank's improved liquidity, 	
mainly owing to a drop in recourse to central bank funding to about EUR30 	
billion, from a EUR42.5 billion peak at year-end 2011. As a result, we have 	
changed our assessment of Dexia Bank's liquidity to "moderate" from "weak." We 	
also consider that Dexia Bank will further reduce its collateralized exposure 	
to Dexia entities from the EUR28 billion reported at end-March 2012. 	
We also take into account that Dexia Bank's capital will likely remain weaker 	
than we previously expected. The weakening stems from pretax losses in 2011 in 	
excess of our expectations, owing to nonrecurring items, as well as the 	
likelihood of lower future profits than what we previously estimated because 	
of the sharper decline in long-term interest rates versus the bank's funding 	
rates. We now expect the Standard & Poor's projected risk-adjusted capital 	
(RAC) ratio to stay in the 6% to 7% range in the coming 12-18 months. We have 	
revised our assessment of Dexia Bank's capital and earnings to "moderate" from 	
The raising of the subordinated debt ratings follows our revised assessment of 	
Dexia Bank's stand-alone credit profile (SACP) to 'bbb-' from 'bb+', owing to 	
the bank's improved risk position and liquidity.	
Our bank criteria use our Banking Industry Country Risk Assessment (BICRA) 	
economic risk and industry risk scores to determine a bank's anchor, the 	
starting point for assigning an issuer credit rating to a bank. Our anchor for 	
a commercial bank operating only in Belgium is 'a-'. 	
We base the ratings on Dexia Bank on the 'a-' anchor and our assessment of its 	
"adequate" business position, "moderate" capital and earnings, "moderate" risk 	
position, "average" funding, and "moderate" liquidity, as our criteria define 	
these terms. 	
Our assessment of Dexia Bank's business position as "adequate" reflects its 	
stable and relevant market position, with a 15% share of the Belgian retail 	
market. Although focused domestically, Dexia Bank has good business 	
diversification between banking and insurance services, and retail and local 	
authority clients. We believe management has a clear mandate to prudently 	
manage the bank since the Belgian government acquired it on Oct. 20, 2011, 	
through the Federal Holding Investment Company. 	
Our risk position assessment of "moderate" for Dexia Bank primarily reflects 	
our view that the bank's EUR26 billion investment bond portfolio is highly 	
sensitive to currently volatile credit spreads. The sensitivity mainly derives 	
from a long average maturity of close to 12 years. At year-end 2011 the 	
portfolio carried an unrealized loss of EUR3.3 billion, equivalent to about 60% 	
of Dexia Bank's total adjusted capital at the same date. This unrealized loss 	
is likely to decrease with time as the portfolio is diversified and bears 	
generally low credit risk. Sovereign debt represents 30% of the portfolio. The 	
unrealized loss could markedly affect capital, however, in the event of early 	
sell offs.	
We consider Dexia Bank's funding to be "average" and its liquidity "moderate." 	
Our view of the bank's funding factors in that its customer deposits (adjusted 	
by Standard & Poor's) funded about 81% of its core customer loans (excluding 	
securities reclassified as loans at year-end 2008). We also take into account 	
the bank's access to wholesale markets and the European Central Bank 	
(unsolicited, AAA/Stable/A-1+) mainly to fund its investment bond portfolio 	
and exposure to Dexia. Our liquidity assessment mainly incorporates the strain 	
on Dexia Bank's liquidity from financing the Dexia exposure. However, we 	
consider that the Belgian government has confirmed its willingness to extend 	
extraordinary liquidity support to Dexia Bank to address this constraint. 	
The long-term rating on Dexia Bank is three notches higher than the SACP. We 	
apply one notch of uplift, which brings the SACP to 'bbb' from 'bbb-', to 	
factor in our view of the Belgian government's willingness to provide 	
short-term extraordinary liquidity to Dexia Bank if needed. We then add two 	
further notches of support because we consider that Dexia Bank has "high" 	
systemic importance in Belgium and the government's "supportive" stance toward 	
the domestic banking sector. 	
The negative outlook primarily reflects that on the Kingdom of Belgium. The 	
link with the sovereign rating reflects Standard & Poor's view that, if we 	
were to downgrade Belgium to 'AA-', its ability to provide timely support to 	
Dexia Bank would be constrained. If this were to occur, with our assessment of 	
the SACP at the current level, we would lower the rating on Dexia Bank, 	
reflecting a one-notch reduction in the uplift for extraordinary government 	
An outlook revision to stable would primarily be based on a change in outlook 	
on the Kingdom of Belgium. In addition, we would revise the outlook to stable 	
if we raised Dexia Bank's SACP to 'bbb+' from 'bbb', factoring in short-term 	
extraordinary government support, following strong improvements in the bank's 	
capital and earnings or its risk position. We believe this is unlikely over 	
the next 12-18 months, however, given the negative impact of the currently 	
weak economy on earnings and potential impairment charges on securities. 	
We could also lower the rating on Dexia Bank if we lowered our BICRA industry 	
risk score for Belgium and the anchor for commercial banks operating in the 	
country. A deterioration in the operating environment for Belgian banks could 	
result in a lowering of the industry risk score and the anchor to 'bbb+' from 	
Ratings Score Snapshot	
Issuer Credit Rating       A-/Negative/A-2	
SACP                       bbb-	
 Anchor                    a-	
 Business Position         Adequate (0)	
 Capital and Earnings      Moderate (-1)	
 Risk Position             Moderate (-1)	
 Funding and Liquidity     Average and Moderate (-1)	
Support                    3	
 GRE Support               0	
 Group Support             0	
 Sovereign Support         3	
Additional Factors         0

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