Download Report

Research Update:
Austrian Bank RZB Rating Cut To
'BBB+' Following Government Support
Review, ALAC Criteria
Implementation; Outlook Neg
Primary Credit Analyst:
Harm Semder, Frankfurt (49) 69-33-999-158; [email protected]
Secondary Contact:
Salla von Steinaecker, Frankfurt (49) 69-33-999-164; [email protected]
Table Of Contents
Overview
Rating Action
Rationale
Outlook
Rating Score Snapshot
Related Criteria And Research
Ratings List
WWW.STANDARDANDPOORS.COM
JUNE 9, 2015 1
© Standard & Poor's. All rights reserved. No reprint or dissemination without Standard & Poor’s
permission. See Terms of Use/Disclaimer on the last page.
1403195 | 300642892
Research Update:
Austrian Bank RZB Rating Cut To 'BBB+'
Following Government Support Review, ALAC
Criteria Implementation; Outlook Neg
Overview
• We believe the prospect of extraordinary government support for Austrian
banks is now uncertain in view of the country's well-advanced and
effective resolution regime.
• We are therefore removing the two-notch of uplift that we had previously
incorporated in the long-term counterparty credit rating on Raiffeisen
Zentralbank Oesterreich AG (RZB) for government support.
• At the same time, we are removing the one-notch negative adjustment to
the rating that we had incorporated to reflect lower predictability of
state support following the enactment of the legislation to bail in
holders of Hypo Group Alpe Adria's subordinated debt, despite Carinthia's
grandfathered guarantee of this debt.
• We also recognize a weakening in the operating environment for the bank's
domestic operations, reflecting increased risks to stability of the
banking system in Austria.
• At the same time we anticipate that cohesiveness in and benefits from the
aggregate franchise and creditworthiness of the wider Raiffeisen Banking
Group (RBG) intensified, for which now base our ratings on RZB, as a core
subsidiary, entirely on RBG's group credit profile (GCP).
• We regard Raiffeisen Bank International (RBI) as a highly strategic
subsidiary to its ultimate parent RBG, for which reason the rating on RBI
is one notch below the rating on RZB, in line with our group methodology.
• We are lowering our long-term counterparty credit rating on RZB to 'BBB+'
from 'A-' and on RBI to 'BBB' from 'A-', and removing these ratings from
CreditWatch with negative implications, where we placed them on Feb. 3,
2015.
• The negative outlook reflects RZB's vulnerabilities to the impact of a
potential worsening of geopolitical and economic risk conditions in its
extended home market in Central and Eastern Europe, especially in Russia
and Ukraine, over the next 12-24 months.
Rating Action
As previously announced on June 9, 2015, Standard & Poor's Ratings Services
has lowered its long-term counterparty credit rating on Raiffeisen Zentralbank
Oesterreich AG (RZB) to 'BBB+' from 'A-'. At the same time we lowered the
long-term counterparty credit rating on Raiffeisen Bank International AG (RBI)
to 'BBB' from 'A-'. The outlook is negative.
WWW.STANDARDANDPOORS.COM
JUNE 9, 2015 2
© Standard & Poor's. All rights reserved. No reprint or dissemination without Standard & Poor’s permission. See Terms of Use/Disclaimer on the last page.1403195 | 300642892
Research Update: Austrian Bank RZB Rating Cut To 'BBB+' Following Government Support Review, ALAC
Criteria Implementation; Outlook Neg
We affirmed the short-term counterparty credit ratings on both banks at 'A-2'.
The ratings on the subordinated and hybrid capital instruments issued by RZB
are unaffected by the review, because they are notched down from the unchanged
'bbb+' unsupported group credit profile (GCP).
We lowered the ratings on RBI's nondeferrable subordinated debt to 'BB+' from
'BBB-', reflecting the downgrade of our long-term issuer credit rating on RBI
by one notch.
We removed all these ratings from CreditWatch with negative implications,
where we placed them on Feb. 3, 2015.
Rationale
We believe that the prospect of extraordinary government support for the
Austrian banking sector is now uncertain following the full implementation of
the EU Bank Recovery and Resolution Directive, including bail-in powers, in
January 2015. We do not completely exclude the possibility of support and we
consider that systemically important Austrian institutions such as RZB face
several more years of structural and balance-sheet reforms to address their
"resolvability" (mitigating the systemic impact if they fail).
Nevertheless, we believe the Austrian government's ability and willingness to
provide support is lower and less predictable under the enhanced resolution
framework. We have therefore reclassified the tendency of Austria to support
private sector commercial banks as "uncertain" under our criteria, and removed
the two notches that we previously included in the long-term counterparty
credit rating on RZB for government support.
At the same time, we removed the one-notch negative adjustment we factored
into the ratings on RZB on Aug. 13, 2014, to reflect the increased uncertainty
about potential future extraordinary government support for highly
systemically important banks in Austria. The removal of the negative
adjustment partially compensates the negative impact from the removal of two
notches for extraordinary government support, leaving the net effect at a
one-notch deterioration.
We have not added any uplift to the long-term rating on RZB because we
consider it as uncertain if the wider Raiffeisen Banking Group (RBG) can
increase aggregate additional loss-absorbing capacity (ALAC) above our 5%
threshold over a two- or four-year projection period. In general, however, we
view the Austrian resolution regime as "effective" under our ALAC criteria
because, among other factors, we believe it contains a well-defined bail-in
process, under which authorities would permit nonviable systemically important
banks to continue critical functions as going concerns following a bail-in of
eligible liabilities.
We include all of RZB's and RBG's consolidated junior instruments in our ALAC
WWW.STANDARDANDPOORS.COM
JUNE 9, 2015 3
© Standard & Poor's. All rights reserved. No reprint or dissemination without Standard & Poor’s permission. See Terms of Use/Disclaimer on the last page.1403195 | 300642892
Research Update: Austrian Bank RZB Rating Cut To 'BBB+' Following Government Support Review, ALAC
Criteria Implementation; Outlook Neg
assessment because, over our projection period, we believe they have capacity
to absorb losses without triggering a default of RZB's senior obligations. On
this basis, we calculate that RBG's ALAC was 3% of Standard & Poor's
risk-weighted assets at year-end 2014. We believe this ratio is likely to
increase to about 4%. We currently have no final certainty with regard to the
future regulatory requirements to oblige RBG or RZB to increase the buffer of
instruments that we expect will be ALAC-eligible. Once there is clarity on if
and how the regulatory requirements will result in an increase of ALAC, we
will reassess our forecast. We anticipate that this regulatory transition
period, and therefore the ramp-up of the ALAC buffer, could take up to four
years, because we believe Austria is in an extended regulatory transition
period in which banks will progressively build larger buffers of
loss-absorbing capacity.
The unsupported GCP is 'bbb+'. However, we anticipate that cohesiveness in and
benefits from the aggregate franchise and creditworthiness of the wider RBG
have intensified, for which reason we now base our ratings on RZB entirely on
RBG's GCP. The strong operational and organizational integration within the
group and strong solidarity among banks in the Raiffeisen sector, with RZB as
its central institution, was underpinned by the institutional protection
scheme established in January 2014 and the sectorwide protection scheme
covering 100% of customers' deposits and issued securities. Moreover, in
October 2014, the Austrian Financial Market Authority passed a resolution
approving the Institutional Protection Scheme at the national level, and
mid-2015 RBG will start to report on a consolidated basis. We consider RZB as
a core group member and RBI as a highly strategic subsidiary to RBG.
We see, however, a weakening operating environment for RBG's domestic
operations, reflecting increased risks to stability of the banking system in
Austria. We consider that the significant overcapacity in the banking sector's
domestic operations results in very low bank earnings and may pose a threat to
the stability of the Austrian banking system. The economic slowdown and
low-interest-rate environment aggravate this risk. Because we expect margins
to remain compressed over a prolonged period, we see a risk that some banks
may struggle to generate a risk-adjusted return that is adequate to meet their
cost of capital.
The competitive landscape for Austrian banks is becoming additionally
challenging as the largest banks scale down their foreign operations in higher
risk regions, which leads to increasing pressure to generate earnings in their
domestic markets. Furthermore, the government's comparably high levy on banks
is further diminishing domestic banks' chances of generating internal capital.
Despite our revised assessment that industry risk for Austrian banks is lower,
the anchor (the starting point in our assessment of the bank's GCP) for RZB,
based on the aggregate RBG, remained at 'bbb+'. Our economic risk
consideration takes into account improvements from RZB's global deleveraging
plans, in particular reducing its higher risk exposures in Poland, Russia, and
Ukraine.
WWW.STANDARDANDPOORS.COM
JUNE 9, 2015 4
© Standard & Poor's. All rights reserved. No reprint or dissemination without Standard & Poor’s permission. See Terms of Use/Disclaimer on the last page.1403195 | 300642892
Research Update: Austrian Bank RZB Rating Cut To 'BBB+' Following Government Support Review, ALAC
Criteria Implementation; Outlook Neg
We continue to see RZB's business position as strong, reflecting the local
Raiffeisen banks' strong domestic retail positions as well as RZB's and RBI's
strong competitive position in retail and corporate business in Austria and
Central and Eastern Europe (CEE). We continue to assess capital and earnings
as moderate, as we anticipate that RBG's aggregate risk-adjusted capital ratio
before diversification will remain at 6.5%-7.0% over the next 24 months. We
anticipate the risk position will remain adequate, based on the Raiffeisen
sector's higher quality, granular loan portfolios in Austrian markets, which
balance riskier foreign operations. It also reflects, however, RZB's broad
international geographic diversity, which compensates for the higher credit
risk in these regions, and we regard its risk management as comprehensive and
rigorous. We believe funding will remain above average and liquidity
adequate, thanks to RBG's strong domestic and foreign markets' retail deposit
franchises providing funding stability and reducing reliance on the wholesale
markets.
As a result of the above, we have revised down RZB's supported GCP to 'bbb+'
from 'a-'. The supported GCP is now at the same level as the unsupported GCP.
As a result of the rating action on RZB, we lowered the long-term rating on
RBI by two notches. This is because we regard RBI as a highly strategic
subsidiary to RBG. We continue to refrain from assessing RBI's stand-alone
credit profile factors in line with our group methodology.
Outlook
The negative outlook on RZB reflects the wider RBG's vulnerabilities to the
impact of a potential worsening of geopolitical and economic risk conditions
in its extended home market in CEE, especially in Russia and Ukraine, over the
next 12-24 months. This is the case particularly if higher credit losses and
weaker earnings for RZB in these regions cannot be offset by solid domestic
earnings and more benign developments in other parts of its diversified CEE
and SEE operations.
We might lower the ratings if RZB delays its restructuring plans, particularly
derisking of foreign operations. Also if a material rise in nonperforming
loans and other asset quality metrics causes a larger loss in 2015 than that
in 2014, we could lower the ratings. Similarly we would consider a downgrade
if RBG did not remain profitable, owing to stable earnings before and after
risk from its Austrian operations, and RZB's bottom-line earnings do not
rebound in 2016.
We might raise the ratings if RZB were to demonstrate a further track record
of superior resilience and a more rapid derisking in difficult foreign market
conditions, and that related revenue pressures from deleveraging can mainly be
offset by margin growth in other regions and cost savings. However, in our
view, ongoing difficult market conditions are unlikely to foster material
ratings improvements over the next 24 months.
WWW.STANDARDANDPOORS.COM
JUNE 9, 2015 5
© Standard & Poor's. All rights reserved. No reprint or dissemination without Standard & Poor’s permission. See Terms of Use/Disclaimer on the last page.1403195 | 300642892
Research Update: Austrian Bank RZB Rating Cut To 'BBB+' Following Government Support Review, ALAC
Criteria Implementation; Outlook Neg
The outlook on RBI continues to mirror that on its parent RZB, reflecting our
view that it will remain a highly strategic subsidiary of its ultimate parent
group RBG.
Rating Score Snapshot
Raiffeisen Zentralbank Oesterreich AG
Issuer Credit Rating
To
BBB+/Negative/A-2
From
A-/Watch Neg/A-2
Unsupported GCP
Supported GCP
SACP
Anchor
Business Position
Capital and Earnings
Risk Position
Funding
and Liquidity
bbb+
bbb+
bbb+
bbb+
Strong (+1)
Moderate (-1)
Adequate (0)
Above Average
and Adequate(0)
bbb+
abbb+
bbb+
Strong (+1)
Moderate (-1)
Adequate (0)
Above Average
and Adequate(0)
Support
ALAC Support
GRE Support
Group Support
Sovereign Support
(0)
(0)
(0)
(0)
(0)
(+2)
N.A.
(0)
(0)
(+2)
Additional Factors
(0)
(-1)
N.A--Not applicable.
Raiffeisen Bank International AG
Issuer Credit Rating
To
BBB/Negative/A-2
From
A-/Watch Neg/A-2
Related Criteria And Research
Related criteria
• Bank Rating Methodology And Assumptions: Additional Loss-Absorbing
Capacity, April 27, 2015
• Bank Hybrid Capital And Nondeferrable Subordinated Debt Methodology And
Assumptions, Jan. 29, 2015
• Group Rating Methodology, Nov. 19, 2013
• Assessing Bank Branch Creditworthiness, Oct. 14, 2013
• Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings, Oct. 1,
2012
• Revised Market Risk Charges For Banks In Our Risk-Adjusted Capital
WWW.STANDARDANDPOORS.COM
JUNE 9, 2015 6
© Standard & Poor's. All rights reserved. No reprint or dissemination without Standard & Poor’s permission. See Terms of Use/Disclaimer on the last page.1403195 | 300642892
Research Update: Austrian Bank RZB Rating Cut To 'BBB+' Following Government Support Review, ALAC
Criteria Implementation; Outlook Neg
Framework, June 22, 2012
• Banks: Rating Methodology And Assumptions, Nov. 9, 2011
• Banking Industry Country Risk Assessment Methodology And Assumptions,
Nov. 9, 2011
• Bank Capital Methodology And Assumptions, Dec. 6, 2010
• Use Of CreditWatch And Outlooks, Sept. 14, 2009
Related research
• Credit FAQ: How Standard & Poor's Applied Its Government Support And ALAC
Criteria To U.K., German, Austrian, And Swiss Banks, June 9, 2015
• Ratings On Some Austrian Banks Lowered On Less Predictable State Support
And Increasing Industry Risks, June 9, 2015
• Central And Eastern European Banks: Domestic Growth Is Taking The Edge Off
, April 28, 2015
• Watch Placements For Systemic Austrian, German, And U.K. Bank Operating
Companies To Be Reviewed Around End May 2015, April 16, 2015
• S&P Takes Various Rating Actions On Certain U.K., German, Austrian, And
Swiss Banks Following Government Support Review, Feb. 3, 2015
• The Rating Implications Of The Emerging Bank Resolution Frameworks In The
U.K., Germany, Austria, And Switzerland, Feb. 3, 2015
• Austria, Germany, And The U.K. Are Set To Fast Track EU Bank Bail-In
Rules, Sept. 29, 2014
• How The Regulatory Reform Process Could Reshape Banks' Business Models
And Affect Issuer Ratings, Aug. 18, 2014
• Standard & Poor's Takes Various Rating Actions On European Banks
Following Government Support Review, April 29, 2014
• The Rating Impact Of Resolution Regimes For European Banks, April 29,
2014
Ratings List
Downgraded; CreditWatch/Outlook Action
To
From
Raiffeisen Zentralbank Oesterreich AG
Long-Term Counterparty Credit Rating
Senior Unsecured
BBB+/Negative
BBB+
A-/Watch Neg
A-/Watch Neg
Raiffeisen Bank International AG
Long-Term Counterparty Credit Rating
Senior Unsecured
Subordinated
BBB/Negative
BBB
BB+
A-/Watch Neg
A-/Watch Neg
BBB-/Watch Neg
Ratings Affirmed; CreditWatch/Outlook Action
To
Raiffeisen Zentralbank Oesterreich AG
Short-Term Counterparty Credit Rating
--/--/A-2
Subordinated
BBB-
From
A-2/Watch Neg
BBB-/Watch Neg
Raiffeisen Bank International AG
WWW.STANDARDANDPOORS.COM
JUNE 9, 2015 7
© Standard & Poor's. All rights reserved. No reprint or dissemination without Standard & Poor’s permission. See Terms of Use/Disclaimer on the last page.1403195 | 300642892
Research Update: Austrian Bank RZB Rating Cut To 'BBB+' Following Government Support Review, ALAC
Criteria Implementation; Outlook Neg
Short-Term Counterparty Credit Rating
Commercial Paper
--/--/A-2
A-2
A-2/Watch Neg
A-2/Watch Neg
RZB Finance (Jersey) IV Ltd.
Junior Subordinated
BB-
BB-/Watch Neg
Additional Contact:
Financial Institutions Ratings Europe; [email protected]
Complete ratings information is available to subscribers of RatingsDirect at
www.globalcreditportal.com and at spcapitaliq.com. All ratings affected by
this rating action can be found on Standard & Poor's public Web site at
www.standardandpoors.com. Use the Ratings search box located in the left
column. Alternatively, call one of the following Standard & Poor's numbers:
Client Support Europe (44) 20-7176-7176; London Press Office (44)
20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm
(46) 8-440-5914; or Moscow 7 (495) 783-4009.
WWW.STANDARDANDPOORS.COM
JUNE 9, 2015 8
© Standard & Poor's. All rights reserved. No reprint or dissemination without Standard & Poor’s permission. See Terms of Use/Disclaimer on the last page.1403195 | 300642892
Copyright © 2015 by Standard & Poor's Financial Services LLC (S&P), a subsidiary of The McGraw-Hill Companies, Inc.All rights reserved.
No content (including ratings, credit-related analyses and data, model, software or other application or output therefrom) or any part thereof
(Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system,
without the prior written permission of S&P. The Content shall not be used for any unlawful or unauthorized purposes. S&P, its affiliates, and any
third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy,
completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions, regardless of the cause, for the
results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is”
basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS
OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY
SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary,
compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost
profits and opportunity costs) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not
statements of fact or recommendations to purchase, hold, or sell any securities or to make any investment decisions. S&P assumes no obligation to
update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment
and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P’s
opinions and analyses do not address the suitability of any security. S&P does not act as a fiduciary or an investment advisor. While S&P has
obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent
verification of any information it receives.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective
activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established
policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of securities or from
obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites,
www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed
through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at
www.standardandpoors.com/usratingsfees.
WWW.STANDARDANDPOORS.COM
JUNE 9, 2015 9
1403195 | 300642892