DBRS Expands Its Floor Rating Concept to the Netherlands, Floor Rating Set at A (high)

DBRS has today expanded its floor ratings concept for Critically Important Banking organisations (CIBs) to include the Netherlands. Today’s announcement follows DBRS’s 11 February 2009 announcement introducing the floor rating concept, which is a refinement of DBRS’s approach to intrinsic and support assessments.

For CIBs operating in the Netherlands, 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 and operating company level. In the cases where there is a non-operating 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 Dutch 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 Dutch 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 Dutch government clearly demonstrate the intent to support their CIBs at this level. These actions include recapitalisation plans, schemes designed to enhance liquidity, schemes to guarantee bank credit and an expanded deposit insurance scheme.

In DBRS’ rated universe in the Netherlands, DBRS considers Rabobank Nederland (Rabobank) and Fortis Bank (Nederland) N.V. CIBs. DBRS continues to monitor government statements and actions and may consider adding or removing banks which are considered CIBs, as warranted.

DBRS continues to ascribe implicit systemic support for banks in the Netherlands 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. The assignment of the SA2 support assessment has typically resulted in the final ratings of such institutions being positioned one notch above the bank’s intrinsic strength. In general, not all banks with SA2 support assessments have been designated as CIBs, as the CIB designation not only entails the expectation of some form of support, but the expectation that any CIB would receive sufficient support to maintain its credit profile at the floor rating.

Given actions taken by various governments globally, DBRS continues to evaluate the applicability of floor ratings for other banking systems in other countries. The introduction of a floor rating is likely for a country where there has been significant deterioration in one or more of the country’s CIBs that has caused disruptions to its financial markets and where substantial explicit support is being provided to its CIBs; or where the government has made explicit statements or acted so that implicit support can be inferred for its CIBs. Accordingly, where CIBs can be identified and a floor rating established, DBRS believes this provides clarity to the market on prospective rating actions for weakening institutions that are deemed to be underpinned by the floor. DBRS continues to assess the applicability of this concept for other countries.

If DBRS perceives that changes in policies or specific actions indicate that a government’s willingness or ability to support these CIBs has changed, it would revisit the level established for the floor ratings or indeed the reliability of the floor itself.

Note:
The applicable methodologies are Analytical Background and Methodology for European Bank Ratings, Second Edition, and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments, which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.