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Fitch Affirms Bank Nederlandse Gemeenten at 'AA+'; Outlook Stable
April 13, 2017 / 3:17 PM / 7 months ago

Fitch Affirms Bank Nederlandse Gemeenten at 'AA+'; Outlook Stable

(The following statement was released by the rating agency) LONDON, April 13 (Fitch) Fitch Ratings has affirmed Bank Nederlandse Gemeenten's (BNG) Long-Term Issuer Default Rating (IDR) and senior debt ratings at 'AA+'. The Outlook on the Long-Term IDR is Stable. In addition, Fitch has assigned BNG a 'AA+(dcr)' Derivative Counterparty Rating (DCR) as part of its roll-out of DCRs to significant derivative counterparties in western Europe and the US. DCRs are issuer ratings and express Fitch's view of banks' relative vulnerability to default under derivative contracts with third-party, non-government counterparties. A full list of rating actions is at the end of this commentary. KEY RATING DRIVERS IDRs, SENIOR DEBT, SUPPORT RATING AND SUPPORT RATING FLOOR BNG's 'AA+' Long-Term IDR is at the bank's Support Rating Floor (SRF) and reflects Fitch's belief that there is an extremely high probability that the Netherlands (AAA/Stable) will support the bank in case of need. Fitch will continue to factor in state support for BNG despite the implementation of the Bank Recovery and Resolution Directive (BRRD). Fitch's expectation is based on BNG's state ownership, and its important and long-lasting policy role in financing the Dutch public sector. The BRRD, which was implemented formally into Dutch law in November 2015, represents a small incremental risk to state support being made available to BNG's senior unsecured creditors in a timely manner, as well as dilution of national discretion over resolution decisions. This is reflected in the one-notch differential between the Netherlands' Long-Term IDR and BNG's SRF and hence Long-Term IDR. Fitch believes that the state would act pre-emptively to replenish BNG's capital levels, in case of need, due to the dependence of the bank's business model on wholesale funding. We also see a very low likelihood that the bank will face a sudden need for capital support, given its mainly domestic public sector assets. Should the need for support arise, Fitch considers it highly likely that support from BNG's public owners would be arranged in accordance with the private investor test as part of state aid considerations and also required under BRRD to avoid necessary bail-in of senior creditors. However, the remote risk that this may not be achieved drives the one notch-differential Fitch sees between the bank's and the state's Long-Term IDRs. BNG's full public ownership is long-term and strategic. Half of its capital has been held by the Dutch state since 1921 with the other half controlled by Dutch provinces and local authorities. The bank's articles of association prevent private ownership. BNG is one of the Dutch policy banks whose clear, strategic and long-established roles have been to provide banking services to the public authorities. This is defined in BNG's articles of association. Fitch believes it would be difficult to transfer this role to commercial banks given the low yield and long maturity of the assets generated by the bank's business model. We believe that the absence of an explicit funding guarantee from the Netherlands to BNG and of a special legal status, which would legally bind the state to support the bank, is largely offset by the greater influence on the ratings of BNG's policy role and public ownership. BNG's operations are entirely determined by its policy role, its strategy is framed by the bank's articles of association and its franchise largely dependent on its public ownership. The extremely low-risk nature of BNG's assets, its solid risk-weighted capital ratios, the accommodative Dutch regulatory policy towards policy banks and prudent liquidity management make it highly unlikely that it will ever require extraordinary support. DCR We have assigned BNG a DCR due to its significant derivatives activity. The DCR is at the same level as the Long-Term IDR because under Dutch legislation, derivative counterparties have no preferential status over other senior obligations in a resolution scenario. RATING SENSITIVITIES IDRS, SENIOR DEBT, DCR, SUPPORT RATING AND SUPPORT RATING FLOOR BNG's SRF and Long-Term IDR are sensitive to changes in the Netherlands' ability to provide support as reflected in its ratings. A weakening of BNG's strategic importance to the Dutch state or ownership, which we view as highly unlikely, could also cause a widening of the notching between the Netherlands' and BNG's ratings. A deviation from its narrowly defined domestic policy role may also be rating negative. The rating actions are as follows: Long-Term IDR: affirmed at 'AA+'; Outlook Stable Short-Term IDR: affirmed at 'F1+' Support Rating: affirmed at '1' Support Rating Floor: affirmed at 'AA+' Derivative Counterparty Rating: assigned at 'AA+(dcr)' Long-term senior unsecured debt: affirmed at 'AA+' European commercial paper: affirmed at 'F1+' Long-term market linked senior unsecured debt: affirmed at 'AA+(emr)' Contact: Primary Analyst Konstantin Yakimovich Director +44 20 3530 1789 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Christian Schindler Associate Director +44 20 3530 1323 Committee Chairperson Claudia Nelson Senior Director +44 20 3530 1191 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. 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