DBRS Morningstar Confirms SFIL’s LT Ratings at AA (high) with a Stable Trend

DBRS Ratings GmbH (DBRS Morningstar) confirmed SFIL SA’s (SFIL or the Bank) ratings, including the Long-Term Issuer Rating at AA (high) and the Short-Term Issuer Rating at R-1 (high). All ratings have a Stable Trend. SFIL’s Support Assessment remains SA1. See a full list of ratings at the end of this press release.

KEY RATING CONSIDERATIONS
The confirmation of SFIL’s Long-Term Issuer Rating at AA (high) with a Stable trend reflects DBRS Morningstar’s AA (high) Issuer Rating, with a Stable trend on the Republic of France. SFIL’s ratings reflect its statutory ownership by Caisse des Dépôts et Consignations (CDC), which is entirely owned by the Republic of France and the letter of comfort they provide to support SFIL’s creditworthiness in addition to the letter of comfort provided by the Republic of France. As a result, DBRS Morningstar’s support assessment for SFIL is SA1.

RATING DRIVERS
An upgrade of the Republic of France´s ratings would lead to an upgrade of SFIL´s ratings.

Similarly, a downgrade of the Republic of France´s ratings would lead to a downgrade of SFIL´s ratings. The Long-Term and the Short-Term rating Trends move in line with the rating Trends of the Republic of France. Any indication of the weakening of the efficiency and timeliness of the support mechanisms between SFIL, CDC and the French State could also lead to a downgrade of SFIL’s ratings.

RATING RATIONALE
SFIL was created in 2013 and, with total assets of EUR 74.5 billion at end-June 2021, is the 7th largest financial institution in France by asset size. Since October 1, 2020, SFIL is 100% indirectly owned by the French State (rated AA high, Stable Trend, by DBRS Morningstar) through CDC, with the French State retaining only one share in the Bank. The French Republic is committed to ensuring that SFIL is able to maintain continuity of its activities and to honour its financial commitments at any point in time. This commitment is documented in a letter of comfort issued to the French financial supervisor ACPR. In addition, DBRS Morningstar understands that the new reference shareholder has provided a letter of comfort to support SFIL’s creditworthiness in addition to the letter of comfort provided by the Republic of France. As such, DBRS Morningstar considers that both CDC and the French State are committed to ensuring that SFIL is able to pursue its activities in an ongoing manner and to honour SFIL’s financial commitments.

SFIL was profitable in H1 2021, with net income of EUR 28 million compared to a EUR 2 million loss in H1 2020. The improvement was mostly driven by the recovery in net banking income against a backdrop of improved financing conditions, contained operating expenses and recoveries.

SFIL’s risk profile is mainly driven by its loan book which is very low risk due to the high proportion of French public sector lending. Reflecting the high quality of the portfolio, the non-performing loans (NPL) ratio was less than 1.0% at end-June 2021. DBRS Morningstar does not expect SFIL’s risk profile to be materially affected by the current crisis and it has not shown signs of deterioration so far.

SFIL’s funding structure is entirely reliant on wholesale funding. The Bank's main funding source consists of covered bonds issued by CAFFIL. In addition, SFIL has diversified its funding sources, with an EMTN programme of up to EUR 15 billion. Under the programme, SFIL raised USD 1.0 billion and EUR 1.0 billion in H1 2021, bringing the total EMTN outstandings to EUR 8.8 billion and evidencing the Bank’s good access to market funding. On top of this, SFIL proceeded to a green bond issuance for EUR 500 million in November 2021. SFIL also benefits from back up liquidity facilities provided by CDC and LBP (undrawn as of end-June 2021).

DBRS Morningstar views SFIL’s capitalisation as solid given the Bank’s low risk profile. At end-June 2021, the Bank reported a CET 1 ratio of 33.2% and Total Capital Ratio of 33.8%, up from 29.4% and 29.9% respectively. This was mostly driven by a decrease in risk-weighted assets (RWAs). The capital buffer is well above the requirements of the European Central Bank’s Supervisory Evaluation Process (SREP) for 2020, set at 7.75% for Common Equity Tier 1 (CET1) and 11.25% for the total capital requirement. The Bank’s phased-in leverage ratio was well above the 3% minimum requirement, at around 9.9% at end-June 2021, including the amendment for public development banks.

ESG CONSIDERATIONS

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in EUR unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (19 July 2021) https://www.dbrsmorningstar.com/research/381742/global-methodology-for-rating-banks-and-banking-organisations. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021) https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings

The sources of information used for this rating include Morningstar Inc. and Company Documents, SFIL 2020 Annual Report, SFIL 2020 Presentation and SFIL H1 2021 Semi-Annual Report. DBRS Morningstar considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar's outlooks and ratings are under regular surveillance.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

The sensitivity analysis of the relevant key rating assumptions can be found at: https://www.dbrsmorningstar.com/research/391508.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Arnaud Journois, Vice President – Global Financial Institutions Group
Rating Committee Chair: Elisabeth Rudman, Managing Director, Head of European FIG - Global FIG
Initial Rating Date: September 10, 2018
Last Rating Date: April 23, 2021

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