DBRS Removes Bank Rating Floor in Belgium

DBRS, Inc. (DBRS) has today removed the A (high) rating floor that was in place for critically important banking organisations (CIBs) in Belgium. This action follows the July 8, 2013 announcement that DBRS is assessing the applicability of its floor ratings (“DBRS Assesses Applicability of Rating Floors for Critically Important Banks in 9 Countries”). In DBRS’s view, the reduced willingness of Belgium to support its CIBs at the level of the floor combined with the lessening of stress in financial markets that reduces the need to provide such support means that the rating floors are no longer appropriate. A separate announcement will be made on the ratings of Belfius Bank S.A. and KBC Group N.V., whose ratings are potentially affected by the removal of the rating floor.

DBRS assigned an A (high) rating floor to CIBs in Belgium in June 2010, when it initiated it coverage of KBC. CIBs are those banks whose ability to perform as a long-term counterparty is critically important for the robustness of the domestic financial system as a whole and to keep the capital markets functioning. The application of the rating floor reflected DBRS’s expectation that the Belgian government would provide support, if necessary, to prevent any CIB from weakening below this level of creditworthiness during a period of heightened stress in the financial system. As in other countries where DBRS assigned such floors, the floor in Belgium, was underpinned by the significant support programmes that were put in place by the government at the height of the crisis.

Given that the period of heightened stress for financial institutions has receded and the Belgian banks are generally in better financial position, DBRS considers it no longer necessary to maintain the rating floor. Moreover, as in a number of other countries, the provision of support to the banking sector has become more of a political and regulatory concern in Belgium. In addition, the EU resolution framework is likely to constrain potential government support, when it is implemented. Accordingly, DBRS perceives less predictability surrounding the level of any future support for CIBs and no longer considers it appropriate to underpin the ratings of CIBs with a rating floor.

Nevertheless, reflecting the challenges that the deterioration of a systemically important bank could pose for the financial system and the economy, DBRS is maintaining the one notch of uplift incorporated into the ratings of those banks that it considers to be systemically important.

Notes:
All figures are 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 9, 2015 to reflect actual methodologies used.]

The sources of information used for this rating include company documents, SNL Financial, National Ministry of Finance, National Bank of Belgium. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

Lead Analyst: Roger Lister
Rating Committee Chair: Alan G. Reid

For additional information on this rating, please refer to the linking document located at: http://www.dbrs.com/research/236983/banks-and-banking-organisations-linking-document.pdf

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com.