Moody’s updates its methodology and re-rates several banks

London, 27 September 2017 — Moody’s Investors Service.

Moody’s recently updated its bank rating methodology which replaces the previous version published on 7 January 2016.

Moody’s has set out its approach to incorporating future changes in a bank’s balance sheet within its advanced loss given failure (LGF) analysis. These methodological changes will better enable Moody’s to anticipate changes to the credit risk of banks’ debt and deposits given, in particular, the introduction of total loss-absorbing capital (TLAC) requirements and minimum required eligible liabilities (MREL), which will in some cases drive material changes in balance sheets.

Amongst the significant changes announced on the 27th September 2017 Moody’s:

  • Downgrades HSBC Holdings plc’s senior unsecured debt rating to A2
  • Upgrades BNP Paribas’ long-term deposit and senior unsecured debt ratings to Aa3 from A1, junior senior unsecured debt rating to Baa1 from Baa2; outlook stable
  • Changes outlook on RBS plc and RBS NV to negative from stable and on NatWest Bank to positive from stable
  • Upgrades Lloyds Bank Plc’s and Lloyd’s Bank Group’s long-term deposit and senior unsecured debt ratings

HSBC Holdings plc

London, 27 September 2017 — Moody’s Investors Service, (‘Moody’s’) today downgraded the long-term senior unsecured debt ratings of HSBC Holdings plc ( the group holding company) to A2 from A1 and the long-term deposit and senior unsecured debt ratings of HSBC Bank plc to Aa3 from Aa2. The outlook for both remains negative.

HSBC Bank plc’s long-term deposit and senior unsecured debt ratings were downgraded to Aa3 from Aa2 reflecting its weakened credit profile, due to the less supportive UK operating environment as well as volatile profitability which has been only partly offset by a stronger asset risk profile. The negative outlook on HSBC Group’s ratings reflects the likely deterioration in its credit profile once the entity becomes the non-ring fenced bank in order to comply with the requirements of structural reform.

The Prime P-1 short term deposit ratings of both entities were affirmed.

 BNP Paribas

London, 27 September 2017 — Moody’s Investors Service has today upgraded the long-term deposit and issuer ratings of BNP Paribas (BNPP) to Aa3 from A1, its senior unsecured debt and programme ratings to Aa3/ (P) Aa3 from A1/ (P) A1 and its junior senior unsecured debt (known as senior non-preferred securities) and programme ratings to Baa1/ (P) Baa1 from Baa2/ (P) Baa2. The outlook is stable.

The rating upgrades were prompted by Moody’s expectation of significant issuance of additional loss-absorbing capital in response to forthcoming regulatory requirements.

The Prime P-1 short term rating was affirmed.

The stable outlook on BNPP’s ratings reflects Moody’s expectation that the bank’s asset risk will remain healthy and capitalisation will continue to improve over the next 12-18 months. It also takes into account the challenges from slow, though gradually improving, economic growth and low interest rates in Europe, as well as further improvement in the profitability of the bank’s operations in Italy (Baa2 negative).

RBS plc and NatWest Bank 

All ratings of RBS Group plc and subsidiaries affirmed. Action reflects directional effects of “ring-fencing” on ratings.

London, 27 September 2017 — Moody’s Investors Service, (“Moody’s”) today changed the outlooks on the long-term deposits and senior unsecured debt of The Royal Bank of Scotland plc (RBS plc) and The Royal Bank of Scotland N.V. (RBS NV) to negative from stable.

Moody’s also changed the outlook on the long-term deposit rating and issuer rating of RBS’s subsidiary National Westminster Bank PLC (NatWest Bank) to positive from stable. The agency maintained the stable outlook on the long-term senior unsecured debt of holding company, The Royal Bank of Scotland Group plc (RBSG).

Concurrently, the rating agency affirmed all ratings of RBSG and those of RBS plc, NatWest Bank and RBS NV.

The change in the outlooks reflects Moody’s view on the likely direction of these subsidiaries’ ratings, following the implementation of forthcoming ring-fencing regulations. The outlook change is not driven by fundamental credit pressures deriving from the exit of the UK from the European Union (“Brexit”), as Moody’s considers that the group benefits from sustainable earnings from core retail and corporate businesses, which mitigate downward credit pressures arising from Brexit and provide substantial shock absorbers relative to the remaining capital markets business.

“Ring-fencing” will come into effect on 1 January 2019 and Moody’s expects RBS will complete its material restructuring by the end of 2018.

RBS plc will transfer most of its Personal & Business Banking and Commercial & Private Banking operations to a ring-fenced banking subgroup (under an intermediate holding company, NatWest Holdings Ltd, expected to become a direct subsidiary of RBSG in mid-2018), which will

Lloyds Bank Plc

The action concludes the review for upgrade and anticipates further issuance of loss-absorbing debt and incorporates directional effects of “ring-fencing” on ratings.

London, 27 September 2017 — Moody’s Investors Service, (“Moody’s”) today upgraded the long-term deposit ratings and long-term senior unsecured debt ratings of Lloyds Bank Plc (Lloyds) by one notch to Aa3 from A1. The bank’s standalone baseline credit assessment (BCA) was upgraded to a3 from baa1. The agency also upgraded the ratings on the senior unsecured debt issued by the bank’s holding company, Lloyds Banking Group plc (LBG), to A3 from Baa1.

The outlook on the bank’s and holding company’s long-term ratings changed to stable from Rating Under Review.

The bank’s short-term ratings were affirmed at Prime-1. Lloyds’ long-term Counterparty Risk Assessment (CRA) was confirmed at Aa3 (cr), the short-term CRA was affirmed at Prime-1(cr).

The rating action concludes Moody’s review for upgrade that began on 2 August 2017.

The upgrade of the BCA to a3 reflects Lloyds’ improved asset risk, stable capital levels and Moody’s expectation that Lloyds’ profitability will continue to increase as the bank benefits from lower legacy conduct charges and cost reductions, despite the agency’s expectations of a more challenging macroeconomic environment ahead. Moody’s believes that Lloyds has now booked the bulk of charges related to its mis-selling of Payment Protection Insurance (PPI), and expects that these costs will decline relative to previous years given current levels of provisions and the Financial Conduct Authority’s imposition of an August 2019 deadline for customers to claim compensation. Lloyds has taken a cumulative GBP18 billion in PPI-related charges since 2011.

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