December 7, 2017 / 4:45 PM / 11 days ago

Fitch Revises Banque Internationale a Luxembourg's Outlook to Positive; Affirms at 'BBB+'

(The following statement was released by the rating agency) PARIS/LONDON, December 07 (Fitch) Fitch Ratings has revised Banque Internationale a Luxembourg's (BIL) Outlook to Positive from Stable. The bank's Long-Term Issuer Default Rating (IDR) and senior debt ratings have been affirmed at 'BBB+' and Viability Rating (VR) at 'bbb+'. A full list of rating actions is available at the end of this rating action commentary. The ratings actions are part of a periodic portfolio review of major banks in Belgium and Luxembourg rated by Fitch. KEY RATING DRIVERS IDRs, VR AND SENIOR DEBT The Positive Outlook reflects on-going progress in the implementation of management's strategy to strengthen BIL's domestic franchise and measures to improve cost efficiency. Over the past five years, BIL has been rebuilding its domestic retail and commercial franchise and has created a positive momentum in its private banking business, leading to higher revenue. Fitch views positively the expected change in the majority ownership of BIL and expects the strengthening of earnings generation to continue. The ratings of BIL reflect its moderate risk appetite in its retail and commercial banking operations, combined with an overall healthy loan book and ample liquidity, as well as BIL's geographical concentration on Luxembourg, which is a small but strong economy. A further important rating consideration is the bank's small size relative to more highly rated peers, which means that costs are high compared with revenue-generating capacity, and BIL is more exposed to shocks than banks with larger capital bases. BIL has a sound franchise in Luxembourg as one of the top three banks in retail and commercial banking and has regained market shares lost in the early 2010's. Its traditional banking business model, further focusing on long-term customer relationships, provides resilient earnings generation. The bank has also been strengthening its wealth management franchise, including internationally. Increasing assets under management and achieving critical mass in selected geographical areas are key focus for the bank. Having to balance the rebuilding of its franchise with necessary cost savings measures results in only slow improvement in overall cost efficiency. In addition, management has decided to replace the core banking system, a material investment for a bank of its size. Overall earnings generation benefits from the currently benign operating environment and low loan impairment charges. BIL intends to maintain its moderate risk appetite, mitigating the geographical concentration of its lending. Asset quality is sound overall. The loan book accounts for around half of total assets, and reserve coverage of impaired loans is comfortable compared with peers. BIL has a noticeable amount of forborne loans; however, a large part of them is performing. The remaining assets consist mainly of the securities portfolio, which is generally of good quality and highly liquid. Customer deposits significantly exceed loans, meaning that available liquidity is invested in cash and high-quality securities. Liquidity is a rating strength. BIL benefits from a large customer deposit base, provided by its retail and private banking businesses. Capital ratios are satisfactory but have recently shown some reliance on retained earnings to sustain healthy lending growth. At end-June 2017, the phased-in common equity Tier 1 ratio, excluding 1H17 net profit, was 11.7%. We expect management to maintain this ratio at around 12%. Leverage (measured by tangible common equity/ tangible assets) was satisfactory at around 4% over the past year. However, lower capitalisation than at other private banks makes BIL vulnerable to potential sizeable operational or compliance risk arising from the private banking business. SUPPORT RATING AND SUPPORT RATING FLOOR The Support Rating of '5' and Support Rating Floor of 'No Floor' reflect Fitch's view that senior creditors can no longer rely on receiving full extraordinary support from the sovereign in the event that BIL becomes non-viable. The EU's Bank Recovery and Resolution Directive and the Single Resolution Mechanism for eurozone banks provide a framework for resolving banks that is likely to require senior creditors participating in losses, instead of or ahead of a bank receiving sovereign support. SUBORDINATED DEBT Subordinated debt issued by BIL is rated one notch below its VR to reflect the above-average loss severity risk of this type of debt. RATING SENSITIVITIES IDRs, VR AND SENIOR DEBT An upgrade of the ratings is contingent on further earnings improvement reflecting management's further implementation on BIL's strategy, building further critical mass in private banking and reducing the bank's overall cost base. The Outlook would be revised to Stable if profitability weakens, following setback in the cost savings measures and IT implementation, resulting in lower internal capital generation. The ratings would be downgraded if there are signs of a higher risk appetite, in particular in corporate lending, or weaker capitalisation, both under the current or the new majority owner. The bank's ratings are also negatively sensitive to risk from further private banking expansion into new markets and losses from sizeable operational, compliance or other reputational events. SUPPORT RATING AND SUPPORT RATING FLOOR An upgrade of the Support Rating or upward revision of the Support Rating Floor would be contingent on a positive change in the Luxembourg sovereign's propensity to support its banks. While not impossible, this is highly unlikely, in Fitch's view. SUBORDINATED DEBT The rating of subordinated debt issued by BIL is primarily sensitive to changes in its VR. The rating actions are as follows: Long-Term IDR: affirmed at 'BBB+'; Outlook revised to Positive from Stable Short-Term IDR: affirmed at 'F2' Support Rating: affirmed at '5' Support Rating Floor: affirmed at 'No Floor' Viability Rating: affirmed at 'bbb+' Senior debt affirmed at 'BBB+/F2' Market-linked notes: affirmed at 'BBB+emr' Subordinated debt: affirmed at 'BBB' Contact: Primary Analyst Olivia Perney Guillot Senior Director +33 1 44 29 91 74 Fitch France S.A.S. 60 rue de Monceau 75008 Paris Secondary Analyst Bjorn Norrman Senior Director +44 20 3530 1330 Committee Chairperson Artur Szeski Senior Director +48 22 338 6292 Media Relations: Francoise Alos, Paris, Tel: +33 1 44 29 91 22, Email: francoise.alos@fitchratings.com; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy 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 WEB SITE AT 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below