Morningstar DBRS Confirms Belfius Bank's Issuer Ratings at "A" / R-1 (low), Stable Trend

DBRS Ratings GmbH (Morningstar DBRS) confirmed the Long-Term ratings of Belfius Bank SA/NV (Belfius or the Bank) at "A" and the Short-Term Issuer ratings at R-1 (low). Morningstar DBRS also confirmed the credit ratings of Belfius Financing Company, the Bank's subsidiary in Luxembourg, at "A". The trend on all credit ratings is Stable. Morningstar DBRS has also maintained the Bank's intrinsic assessment (IA) at "A" and its support assessment at SA3. See the full list of credit ratings at the end of this press release.

KEY CREDIT RATING CONSIDERATIONS

The confirmation of the credit ratings and the Stable trends reflects Belfius strong bancassurance franchise in its home country of Belgium, its overall solid funding and liquidity profile, and its strong capital position. Belfius reported another year of strong net income in 2024 due in large part to its good revenue diversification. Non-interest income from insurance activities and the asset management business expanded in a healthy way. Asset quality remains sound, as the Bank maintains a low ratio of nonperforming loans (NPL) and has a low cost of risk. The Bank is well positioned to confront emerging risks related geopolitics, economic weaknesses, and tighter financing conditions. However, the credit ratings also consider that NPLs have slightly increased in 2024, albeit from low levels, and that the loan to deposit ratio continues to be somewhat higher than peers.

Morningstar DBRS assigned Belfius' Intrinsic Assessment of `A' at the low end of the Intrinsic Assessment Range to reflect the Bank's limited geographical diversification as well as a relatively higher net loan to deposit ratio compared with banks intrinsically assessed at the midpoint of the IA Range.

CREDIT RATING DRIVERS
Morningstar DBRS would upgrade Belfius' credit ratings if there is a sustained material improvement in profitability metrics while maintaining a low risk profile and solid capital levels. Conversely, Morningstar DBRS would downgrade Belfius' credit ratings if there is a prolonged period of weak profitability, a significant deterioration in asset quality, and a notable deterioration in the funding profile.

CREDIT RATING RATIONALE
Franchise Combined Building Block (BB) Assessment: Strong/Good

Belfius' ratings are underpinned by its well-established and leading bancassurance franchise in Belgium. The Bank has a strong domestic franchise in retail, Small and Medium Size enterprises (SME) and mid-cap customer segments, as well as private wealth management. The Bank is also a market leader in public sector banking in Belgium, particularly in lending to local governments and public/project finance. The Bank is the third largest bank in Belgium by assets and is owned by the Belgian federal state. The state appears keen to divest from its ownership stakes at some point in the future.

Earnings Combined Building Block (BB) Assessment: Good
Belfius reported a net attributable profit of EUR 1,127 million in 2024, from the EUR 1,115 million in 2023. Profits were driven by strong revenue growth from non-interest income, including the 6.5% growth in fees and commission income. This offset the 6.4% % year over year (YOY) contraction of net interest income (NII), driven by lower interest rates in 2024 compared to the year earlier and higher customer deposit remuneration. The net interest margin remained broadly flat at 1.3% in 2024 from 1.4% in 2023. The performance of Belfius' asset management business and its life and non-life insurance activities demonstrate the Bank's resilient diversification strategy. Both businesses benefited from the inflow of funds following maturity of the state retail bond. Operating expenses grew by 5.4% YOY in 2024 due to indexation of wages and an increase in the workforce and investment. Yet, the 43% cost to income ratio in 2024 remained low. The reported net cost of risk was 9 bps in 2024, similar to a year earlier, partly supported by reversals of overlays. The Bank's return on equity, as reported at 9.6% in 2024, declined from the 10.1% in 2023.

Risk Combined Building Block (BB) Assessment: Strong

Morningstar DBRS considers that Belfius has generally maintained a solid risk profile, benefiting from a moderate appetite for risk and a high-quality loan portfolio. Asset quality is supported by low-risk retail exposures, which in large part consists of Belgian mortgages and loans to public entities. Asset quality remains healthy and the gross NPL ratio was1.9% at end-2024 increased slightly from 1.8% at end-2023. However, Belfius' NPLs increased to EUR 2,528 million at end-2024, from EUR 2,259 at end-2023 largely due to an increase in corporate defaults in the real estate, construction, and manufacturing sector exposures. Coverage levels have declined as a result to 49.4% at end-2024 2024, from 56.0% in 2023.

Funding and Liquidity Combined Building Block (BB) Assessment: Strong/Good

Belfius has a solid funding profile, supported by a strong and stable deposit base in Belgium and sound access to wholesale markets. Customer funds represented 83.4% of the bank's funding at end-2024. The loan-to-deposit ratio of the commercial banking balance sheet as reported was 92% at end-2024, down slightly from 2023, but above the 87% recorded in 2022. The increase in the ratio was due to the drop in deposits in relation with the issuance of the State retail bond in 2023, and it continues to be somewhat higher than peers. Wholesale funding is well diversified by instrument at end-2024 totaling EUR 19 billion, representing 13% of total funding. Likewise, liquidity levels remained high, with a liquidity buffer of EUR 49.7 billion at end-2024, from EUR 45.1 billion a year earlier. This represented over seven times the outstanding wholesale funding with maturity below one year. The Liquidity Coverage Ratio (LCR) ratio was strong at 139% and Net Stable Funding Ratio (NSFR) was 133% at end-2024.

Capitalisation Combined Building Block (BB) Assessment: Strong/Good
Morningstar DBRS views Belfius' capitalisation as solid. In 2024, the reported Basel III Common Equity Tier 1 (CET1) ratio under the Danish compromise was 15.4%, slightly down from 16.0% at end-2023. Belfius also reported a strong total capital ratio of 18.6%, compared to 19.1% last year. This provides Belfius with ample cushions over the 2024 CET1 of 10.9% and total capital requirements of 15.4%. Belfius also reported at the Group level a 196% Solvency II ratio, well above the 100% minimum requirement. With EUR 22.8 billion of MREL at end-2024, representing an MREL ratio of 12.2% of Total Leverage Exposure at end-2024, Belfius maintained an ample cushion over its MREL requirement of 7.12% for 2024.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://dbrs.morningstar.com/research/450097.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS

There were no Environmental, Social, or 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 Factors in Credit Ratings (13 August 2024) https://dbrs.morningstar.com/research/437781.

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 Factors in Credit Ratings https://dbrs.morningstar.com/research/437781 in its consideration of ESG factors.

The following methodology has also been applied:

Morningstar DBRS Global Corporate Criteria (3 February 2025) https://dbrs.morningstar.com/research/447186

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, Belfius 2024 Presentation, Belfius 2024 Press Release, and Belfius 2023 Supporting Slides. 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: YES

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's trends 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://dbrs.morningstar.com/research/450096.

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

Lead Analyst: Jason Graffam, Senior Vice President, Global Sovereign & Financial Institution Ratings
Rating Committee Chair: Maria Rivas, Senior Vice President, Sector Lead, Global Financial Institution Ratings
Initial Rating Date: 5 December 2017
Last Rating Date: 19 March 2024

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