Morningstar DBRS Confirms Crédit Agricole's LT Issuer Rating at AA (low); Maintains Stable Trend

DBRS Ratings GmbH (Morningstar DBRS) confirmed the credit ratings of Groupe Crédit Agricole (CA or the Group) and Crédit Agricole SA (CASA), including the Long-Term Issuer Ratings of AA (low) and the Short-Term Issuer Ratings of R-1 (middle). The trend on all credit ratings remains Stable. Morningstar DBRS has also maintained the Group's Intrinsic Assessment at AA (low) and the Support Assessment at SA3. A full list of credit rating actions is included at the end of this press release.

KEY CREDIT RATING CONSIDERATIONS
The confirmation of CA's credit ratings continues to reflect the Group's very strong retail, commercial banking, and insurance franchise in its domestic market. CA also owns the largest asset managers in Europe. The franchise is further supported by its Italian operations and various specialised financial services. CA's risk profile is conservative, benefitting from the Group's substantial share of low-risk home loans in France and prudent underwriting standards. Morningstar DBRS notes that CA's asset quality metrics have remained resilient despite a number of economic challenges in recent years such as COVID-19, the conflict in Ukraine, high inflation, and the energy crisis. CA's funding and liquidity remain strong, benefiting from stable customer deposits and good access to wholesale markets, while its capitalisation levels are robust with capital cushions substantially above minimum requirements and comparing favourably with many peers.

The credit ratings also consider that CA's profitability is lower compared with similarly rated peers. However, its universal banking model contributes to resilient earnings throughout the cycle and helps maintain a robust underlying capacity to generate capital. In addition, the Group's high earnings retention has further strengthened the loss absorption capacity in recent years. Morningstar DBRS expects factors such as geopolitical tensions, still high interest rates, and wage inflation to pose some downside risk for asset quality, albeit at a very manageable level.

CREDIT RATING DRIVERS
An upgrade of CA's credit ratings would occur, should CA substantially improve profitability over the medium term while maintaining a resilient credit profile.

Conversely, the credit ratings would be downgraded if CA experiences a prolonged material deterioration in its asset quality profile or profitability.

CREDIT RATING RATIONALE
Franchise Combined Building Block (BB) Assessment: Very Strong/Strong
With total assets of EUR 2.5 trillion, CA is one of the largest banking groups in Europe. CA's franchise is underpinned by its universal banking model, supported by its leading positions in retail banking and insurance in France and in asset management in Europe. Well-developed specialised financial services support the Group's universal banking model, focused on synergies and cross-selling. CA's retail networks in France generate around half of the Group's banking revenues. While the Group is concentrated in France, other businesses, including International Retail Banking, Specialised Financial Services, and Large Customers, increase diversification and support the strength of the Group's universal banking model. CA serves more than 54 million customers globally and is present in 46 countries. In France, CA is the largest retail bank with a leading market share of around 30% in household loans at end-September 2023. The strength of CA's domestic franchise reflects the extensive presence of its co-operative and regional banks, which have a nationwide retail network in France's regions.

Earnings Combined Building Block (BB) Assessment: Good
Morningstar DBRS considers that CA generates healthy earnings, supported by the Group's universal banking model. CA reported EUR 8.3 billion net income (group share) in 2023, up from EUR 8.0 billion in 2022 on higher revenues, partly offset by somewhat higher operating expenses and cost of risk. Large Customers, International Retail Banking, Asset Gathering, and Specialised Financial Services benefited from higher rates and good capital markets, while Retail Banking lagged as expected. Overall, CA benefitted less from the interest rate hikes compared with international peers, which is related to the pricing regulation in French retail banking and the Bank's high degree of revenue diversification, including the fact the CA also has a significant fee income base. At 6.27%, the 2023 ROE as calculated by Morningstar DBRS was also lower than average peer Group ROE. This is partly because of higher-than-average capital levels, and partly owing to the geographic and product exposure. Similarly, the cost-income ratio as calculated by Morningstar DBRS in the low 60 percent range in recent years is above peer average. However, Morningstar DBRS, notes the high resilience of CA's results throughout the cycle. In Q1 2024, net income (group share) was up 43% YOY at EUR 2.4 billion, driven to a large extent by the lower contribution to the Single Resolution Fund (SRF), but also by a 6.7% increase in revenues.

Risk Combined Building Block (BB) Assessment: Strong/Good
CA's main risk is credit risk, accounting for 88% of its risk-weighted assets (RWAs) at end-Q1 2024. With a nonperforming loan (NPL) ratio of 2.2% and quarterly annualised cost of risk of 21 basis points in Q1 2024, Morningstar DBRS views CA's asset quality as solid and in line with European peers. The Group's credit risk profile is relatively conservative reflecting its retail banking cooperative foundations. However, CA also operates in some higher risk business lines such as consumer finance or its Italian operations. Lending is primarily focused on the domestic market, with close to 69% of the loan book in France, according to Morningstar DBRS calculations. Retail exposures account for around half of the loan book, in large part consisting of generally low risk home lending. The Group has tightened risk control in recent years, especially in its consumer finance divisions, which has led to a reduction in the cost of risk.

Funding and Liquidity Combined Building Block (BB) Assessment: Strong
Morningstar DBRS views CA's funding profile as solid, benefiting from the Group's leading position in the French savings market and good access to capital markets. In Q1 2024, 64.8% of CA's banking cash balance sheet (banking business balance sheet after netting of items that have a symmetrical impact on assets and liabilities) were funded by customer balances, which have seen consistent growth in recent years. According to Morningstar DBRS' calculation, the end-Q1 2024 loan-to-deposit ratio was 103%, down from 107% a year earlier. CA maintains a solid buffer of high-quality assets and reported a Q1 2024 liquidity coverage ratio (12-month average) of 142%.

Capitalisation Combined Building Block (BB) Assessment: Strong/Good
Morningstar DBRS views CA's capitalisation as strong, and capital ratios compare very favorably with most domestic and international peers. This is driven by the Group's high earnings retention, overall moderate risk exposures, and substantial cushions above the regulatory requirements. At end-Q1 2024, the Group's phased-in Common Equity Tier 1 (CET1) ratio was 17.5%, stable from end-2023, providing the Group with a cushion of 777 bps above the Supervisory Review and Evaluation Process requirements, one of the highest amongst European banks. At end-Q1 2024, the phased-in Total Capital ratio and leverage ratio also remained strong at 21.4% and 5.5%, respectively.

Further details on the Scorecard Indicators and Building Block Assessments can be found at ADD LINK

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS

There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024) https://dbrs.morningstar.com/research/427030

Notes:
All figures are in Euros unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (4 June 2024) https://dbrs.morningstar.com/research/433881. In addition, Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024) https://dbrs.morningstar.com/research/427030 in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

The sources of information used for these credit ratings include Morningstar Inc. and company documents, CA 2023 and Q1 2024 Credit Updates, CA 2023 and Q1 2024 Presentations, CA 2023 Universal Registration Documents and Updates. Morningstar DBRS considers the information available to it for the purposes of providing these credit ratings to be of satisfactory quality.

With respect to FCA and ESMA regulations in the United Kingdom and European Union, respectively, these are unsolicited credit ratings. These credit ratings were not initiated at the request of the issuer.

With Rated Entity or Related Third Party Participation: YES
With Access to Internal Documents: NO
With Access to Management: NO

Morningstar DBRS does not audit the information it receives in connection with the credit rating process, and it does not and cannot independently verify that information in every instance.

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

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

The sensitivity analysis of the relevant key credit rating assumptions can be found at: https://www.dbrsmorningstar.com/research/436485.

These credit ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Sonja Forster, Senior Vice President - European Financial Institution Ratings
Rating Committee Chair: Vitaline Yeterian, Senior Vice President - Global Financial Institution Ratings
Initial Rating Date: January 18, 2011
Last Rating Date: July 20, 2023

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