DBRS Removes Netherlands Rating Floor

DBRS Ratings Limited (DBRS) has today removed the A (high) rating floor that was in place for critically important banking organisations (CIBs) in the Netherlands. This action follows the July 8, 2013 announcement that DBRS is reviewing the applicability of its floor ratings (“DBRS Assesses Applicability of Rating Floors for Critically Important Banks in 9 Countries”) and reflects DBRS’s view that there is less certainty about the timing and predictability of government support for the largest banks in the Netherlands. DBRS assigned an A (high) rating floor to CIBs in the Netherlands in September 2009. CIBs are those banks whose ability to perform as a long-term counterparty is essential for the robustness of the domestic financial system as a whole. The application of the rating floor reflected DBRS’s expectation that the Dutch government would provide support, if necessary, to prevent any CIB from weakening below this rating level during a period of heightened stress in the banking system. The floor, which was assigned at the time DBRS put in place floors in a number of other countries, was underpinned by the significant support provided to certain Dutch banks at the height of the crisis. Subsequently, the provision of support to the banking sector has become a key political and regulatory concern in the Netherlands.

In 2012 the Dutch Authorities introduced a new resolution regime, the Intervention Act, and this provides the authorities with new powers to resolve banks. These include selling the problem institution through an equity transfer; transferring deposits, splitting-up institutions into a good bank/bad bank structure and transferring assets and liabilities, and establishing a bridge bank to temporarily take over an institution or parts of an institution. The Intervention Act also gives the Minister of Finance the ability to expropriate the whole or parts of a financial institution if there is a serious and immediate danger threatening the stability of the Dutch financial system. This power was used during the nationalisation of SNS Reaal and SNS Bank in early 2013 to expropriate shareholders and subordinated debtholders. In addition, living wills will be required to be drawn up by end-2013 with the aim being the safeguarding of payments, savings and lending.

Nevertheless, the Minister of Finance has also stated that, although the Netherlands supports the introduction of a mechanism by which senior unsecured creditors would be involved in the rescue of a bank, the expected adverse effects on financial stability currently precludes the Netherlands from doing this, for example in the case of SNS Reaal and SNS Bank in early 2013.

In DBRS’s view, as a result of the new legislation, and the recent example of subordinated debt being expropriated in full in the nationalisation of SNS Reaal, there is now less certainty about the timing and predictability of any future government support for the large Dutch banks, and this has led to the removal of the rating floor. However, due to the challenges that would face the authorities in the resolution of the largest banks, and the decision to not impose losses on senior unsecured creditors at SNS, DBRS continues to incorporate one notch of uplift into the ratings of those Dutch institutions that it considers to be systemically important. These are ABN AMRO Bank N.V., ING Bank N.V. and Rabobank.

Notes: All figures in Euros (EUR) unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organizations. Other applicable methodologies include the DBRS Criteria – Intrinsic and Support Assessments, DBRS Criteria: Bank and Bank Holding Company Trust Preferred Securities, DBRS Criteria: Rating Bank Subordinated Debt & Hybrid Instruments with Discretionary Payments and DBRS Criteria: Rating Bank Preferred Shares & Equivalent Hybrids. These can be found at: http://www.dbrs.com/about/methodologies

[Amended on January 15, 2015 to reflect actual methodologies used.]

The sources of information used include company documents, De Nederlandsche Bank and the Ministry of Finance. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

Ratings assigned by DBRS Ratings Limited are subject to EU regulation only.

Lead Analyst: Ross Abercromby
Rating Committee Chair: Alan G. Reid

For additional information on this rating, please refer to the linking document under Related Research.