DBRS Designates Lloyds as a Critically Important Banking Organisation in the UK, Ratings Unaffected

DBRS has today designated Lloyds Banking Group plc (Lloyds or the Company) as a Critically Important Banking organisation (CIB) in the United Kingdom. Today’s action has no effect on the current ratings of the Company or related entities. Lloyds’s Issuer and Long-Term Debt rating remains at A (high). The trend is Negative.

This designation follows DBRS’s introduction of a floor rating in the UK. As a CIB, Lloyds’ ratings are now subject to the floor rating. For CIBs operating in the UK, DBRS has assigned a floor rating of A (high) for long-term debt and deposits and R-1 (middle) for short-term debt and deposits at the bank level. In the cases where there is a holding company, the floor has been set at “A” and R-1 (middle). The trend on the aforementioned floor ratings is Stable. The level of the floor reflects DBRS’s expectation that the UK government will provide support, if necessary, to prevent any CIB from weakening below this rating level. DBRS views A (high)/R-1 (middle) as the level of creditworthiness that market participants demand for CIBs to be viewed as essential counterparties, as CIBs need to be perceived as reliable partners in undertaking a wide range of financial transactions. DBRS views the floor as the level of support at which the UK government will sustain their CIBs to ensure that their financial system is fully functioning.

CIBs will usually be banking organisations that have extensive involvement in a country’s financial markets and perform critical roles in the flow of financial transactions. As such, the loss of the market’s confidence in a CIB’s ability to perform as a counterparty could impact the market’s perception of other participants and lead to a degradation of the functioning of the financial markets. In the view of DBRS, the actions taken to date by the UK government clearly demonstrate the intent to support their CIBs at this level.

DBRS continues to ascribe implicit systemic support for certain banks in the UK as reflected in the SA2, support assessment. For institutions with a designated SA2 support assessment DBRS expects some form of external support, if needed, ideally with a timeliness element in it.

For more information on the introduction of the floor ratings concept, please see the press release published earlier today entitled “DBRS Expands Its Floor Rating Concept to the United Kingdom,” which is available at www.dbrs.com.

Notes:
The applicable methodology is Analytical Background and Methodology for European Bank Ratings, Second Edition, which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.