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COMMENTS

EMEA Financial Institutions Monitor 4Q2019


EMEA Financial Institutions Monitor 4Q2019

S&P Global Ratings considers that the persistence of the weaker economic growth and negative rates has aggravated existing threats to profitability for many financial institutions operating in Europe, the Middle East, and Africa (EMEA), despite resilient capital and asset quality. Renewed monetary policy stimulus is likely to prevent a eurozone recession, but the enduringly low and negative interest rates and flat yield curves are proving to be testing for the financial sector and for companies that have large pension liabilities.

Although European Central Bank (ECB) monetary policy provides some limited support for economic growth and is underpinning inflation, the region's reliance on foreign demand makes it particularly vulnerable to further external shocks emanating from trade or the oil market. The key risks that threaten to undermine confidence and economic growth remain largely geopolitical and political. These include increasing global trade tensions entangling Europe, Brexit uncertainty, and political fragmentation in the region. Market volatility is a growing global risk as credit risk premiums tighten in a low-for-longer interest rate environment.

The risk of a no-deal Brexit remains high, although we still think there is a limited likelihood that it will occur on Oct. 31, 2019. We see an increased possibility of a snap U.K. general election, as early as November. An election would make it easier to achieve various outcomes, including a no-deal Brexit, in 2020. A no-deal Brexit could cause us to revise our broadly stable ratings assessment for U.K. banks, although outlook revisions would be more likely than downgrades in the near term. Ratings implications for non-U.K. banks would be limited, in our view.

Weakening European political cohesion goes much wider than Brexit--an event that has, so far, met with a common EU front. The side effects of rising political fragmentation include political gridlock and polarization of views. The consequence for credit ratings has been a rise in event risk and macroeconomic uncertainty.

We consider debt sustainability in Italy to be a moderate risk. The Italian economy, the third-largest in the EU, remains vulnerable to downside risks due to the combination of political fragmentation, rising government debt, fragile business and consumer confidence, with a weaker outlook for global growth. In our view, the risk level has reduced to moderate from elevated because of the new government's efforts to draft a 2020 budget that will comply with EU rules and support the softening economy.

The net rating bias of Western European financial institutions ratings is now flat, from slightly positive at the end of the previous quarter. Although we were hardly optimistic at the start of the year, European banks face an increasingly demanding environment. As a result, we see it as increasingly likely that the rating bias will become negative over the coming three to six months.

Market volatility, which could weigh on investor confidence and affect asset allocation decisions, is still an important risk for emerging banking sectors in EMEA. Turkish banks--and, to a lesser extent, Qatari banks--have retained their heavy dependence on external debt, which we view as a material risk. Geopolitical risk stemming from tensions between Iran and the U.S. and its regional allies has heightened and could depress sovereign and bank ratings in the GCC. Although our base-case scenario does not include direct military conflict or a significant disruption to global oil supply, these risks are not negligible.

A no-deal Brexit leading to a severe economic downturn in the U.K. is a high risk for U.K. banks.   For U.K. banks, a no-deal Brexit would likely mean a deterioration in asset quality, lower activity, weaker earnings, and slightly weaker capitalization. In the near term, such a scenario is more likely to cause us to revise outlooks on U.K. banks than to downgrade them. We would take into account the extent to which each banking group focuses on the U.K. in the context of its overall business when considering possible rating actions. Smaller lenders, more focused on U.K. retail banking or property-related lending, would be more vulnerable.

We expect banks in other, largely open European economies--like Ireland, Belgium, or The Netherlands--to be able to withstand a no-deal Brexit and we do not expect widespread rating changes. In particular, we consider Irish bank ratings have sufficient cushion to absorb some deterioration.

Limited risks from a no-deal Brexit for financial market infrastructure entities  We don't expect financial market infrastructure entities to suffer near-term disruption in the event of a no-deal Brexit. The European Commission (EC) has granted temporary equivalence, which means that U.K. clearinghouses (CCPs) can continue to serve EU-27 clients until end-March 2020, and U.K. central securities depositories (CSDs) can serve until end-March 2021. The Bank of England has granted temporary equivalence to EU-27, U.S., and other third-country CCPs for three years, giving them a long window in which to obtain permanent recognition. The U.S. Commodity Futures Trading Commission (CFTC) has also confirmed that U.K. CCPs can continue to provide services in the U.S. on the same basis that they do now.

In the medium term, we expect CCPs, including those based in the U.K. and EU-27, to win any necessary permanent recognition. That said, U.K. CCPs could experience a hiatus from April 2020 because they appear unlikely to gain permanent EU-27 recognition under the new EMIR 2.2 framework until the second or third quarter of 2020. Although this is far from certain, our base-case assumption is that the EC would extend temporary recognition to bridge any gap between April 2020 and final EMIR 2.2 implementation to any entities making progress toward permanent recognition. In the past, the EC has explicitly recognized that unhindered operation of the three large U.K. CCPs is vital to maintaining the financial stability of the EU.

Low-for-longer interest rates in Europe and the weaker economy have increasingly made weak profitability a structural problem, rather than a cyclical phenomenon.   It is clear that the economic environment is becoming less supportive, and low interest rates are likely to linger. In addition to announcing a comprehensive set of easing measures, the ECB has made conditions for the third series of targeted longer-term refinancing operations (TLTRO III) more attractive to banks. The introduction of a two-tier system for remunerating excess liquidity holdings should ease the impact of lower rates, especially for German, Dutch, and French banks. The pain will likely get worse before it gets better: we now expect another cut in the deposit rate by December and that deposit rates will remain negative until end-2023.

Although banks are trying to increase fees to help offset margin pressure, strategic measures will increasingly be needed to improve efficiency. Such measures may include process re-engineering, digital investment, and consolidation. Banks and banking systems that have a more limited ability to make structural changes will suffer more.

The rationale for in-market consolidation remains stronger than ever, but many banks seem unwilling to pursue it. The current extremely accommodative monetary policies also enable imbalances to surface. In Germany, Luxembourg, and Hungary, for example, real estate asset prices continue to grow briskly. Prolonged growth in private-sector credit, outpacing that of GDP, would also be a cause for concern. Continued price distortions in the market across sovereign, corporate, or bank debt could lead to greater risk taking as investors search for yield. We expect distortion will also contribute to increasing disintermediation.

Increased consumer activism against banks suggests litigation risks could be on the rise.   In the U.K., banks reported more claims than expected related to the mis-selling of payment protection insurance ahead of an Aug. 29, 2019, deadline. That said, after eight years, more than £50 billion in payouts, and a heavy reputational cost, the cessation of claims is a critical step for the industry.

In Spain, all eyes were on the European Court of Justice (ECJ), which recently issued a statement about mortgages linked to Spain's IRPH price index. The advocate general's ruling suggests that banks will avert the worst-case scenario, under which IRPH clauses are considered null, which could eventually lead to banks paying out significant amounts in compensation. Previously, Spanish banks have reported sizable compensation payments from misconduct involving the sale of hybrid instruments, the use of floors in mortgages, and other practices.

Similarly, Polish banks will have to bear the consequences of the ECJ's recent ruling in favor of Polish mortgage holders who borrowed in foreign currencies, mainly Swiss francs, nearly a decade ago. These borrowers were facing soaring mortgage payment charges as the Polish zloty significantly depreciated against the Swiss franc after the global financial crisis. The potential consequences of the ruling, however, will likely be spread over time. We now expect that many of these Polish mortgage holders might take their cases through Polish courts demanding that their mortgages be converted from the currency in which they were originally denominated into zloty, at the rate prevailing at the time of signing the mortgage. This could generate losses for banks that have sizable portfolios of such mortgages.

As the risk of macroeconomic imbalances has increased, the economic risk and industry risk trends for the German banking sector have turned negative, from stable.  The external environment is starting to weigh on German corporates and house price growth shows no sign of slowing. The ongoing U.S.-China trade war, Brexit-related uncertainties, and slowing growth in emerging markets are clouding Germany's growth prospects. Simultaneously, traditional sectors, such as the auto industry, are going through a significant transformation that will increase risks to companies along the supply chain.

Slowing GDP growth will make it tougher for banks to offset lower margins by aiming for higher volumes. Risk costs, which have decreased since 2015, will likely rise once again, hurting banks that have large corporate exposures more than others. Fierce competition for corporate lending business also raises the question of whether these risks were adequately priced in recent years. Moreover, although house prices have only just reached their long-term average, the Bundesbank estimates that the prices in large cities are overvalued by 15%–30%.

Competitive dynamics in the German banking sector remain under pressure due to poor cost efficiency, rising risks from tech disruption, and expectations of a prolonged low-interest-rate environment. We do not expect much relief on the liability side of banks' balance sheets, given German banks' difficulty in passing negative rates on to retail depositors. In particular, we believe this signals a negative industry risk trend because most German banks' profitability already lags that of their European peers.

As a result, we now regard the industry and economic risk trends for German banks as negative, rather than stable, under our BICRA assessment. Accordingly, we have revised to negative from stable our outlooks on core members of the German cooperative banking sector and on DekaBank, as a core member of the German savings banks sector, while affirming our ratings on these entities. At the same time, we have affirmed our ratings on nine other German banks. Our outlooks on five of these banks have remained negative and those on the other four have remained stable.

Our ratings on Deutsche Bank AG (BBB+/Stable/A-2) are unaffected because rising risk for Germany's banking system would not directly affect the components of our rating on Deutsche Bank, due to the bank's international diversification. More importantly, the success of the bank's ongoing restructuring principally depends on management's ability to restore profitability in global markets and to complete the operational integration of its German retail business (see "Deutsche Bank 'BBB+/A-2' Ratings Affirmed On Restructuring Announcement; Outlook Stable," published July 15, 2019).

Similarly, our ratings on German subsidiaries of foreign banks considered to be core or highly strategic group members are unaffected by the changes described above. Their creditworthiness is directly linked to the overall credit strength of their parent institutions, given the integral role they play within their groups and the high likelihood that they would receive parental support if needed.

Spain upgrade will not result in changes to Spanish bank ratings.  Although we raised our rating on Spain on Sept. 20 (see "Spain Ratings Raised To 'A/A-1' From 'A-/A-2' On Economic Resilience; Outlook Stable"), our ratings on Spain's banks will not immediately benefit, and we have not revised our assessment of the economic and industry risks faced by the banking sector. Indeed, we have retained a largely stable outlook on the Spanish banks, and continue to see stable trends for the banking system's economic and industry risks. Before the upgrade, the sovereign rating did not constrain any of our ratings on Spanish banks. Thus, although the sovereign upgrade will lead to a marginal improvement in banks' capital ratios as measured by our risk-adjusted capital (RAC) model, this is not sufficient to change our view of banks' capital strength.

Spain's economic growth prospects are generally supportive and it has regained its fiscal flexibility. These factors supported the sovereign upgrade and will help strengthen the banking sector. However, our assessment of economic risks already incorporates these positive factors, which contributed to us improving our assessment in May (see "Ratings On Two Spanish Banks Raised, Most Affirmed On Receding Economic Risks," published May 31, 2019). In our view, the effect of the financial crisis on our ratings on Spanish banks has faded. Any future rating changes are more likely to stem from bank-specific developments than from systemwide issues.

Geopolitical risk remains elevated in the GCC.  Tensions between Iran, the U.S., and the U.S's regional allies have increased following the attack on Saudi Aramco's facilities, which reduced Saudi oil production by more than half. The Saudi authorities have reportedly restored the production capacity to pre-attack levels. Although we still exclude from our base-case scenario direct military conflict or significant disruption to global oil supply (through closure of the Strait of Hormuz, for example), the risks are on the rise. In such a scenario, oil prices would spike and, as long as export routes remain viable, GCC countries would benefit from higher fiscal revenues.

At the same time, we anticipate that investors' appetite for the region would weaken. If foreign funding started to flow out, Qatar would likely be the most vulnerable. Qatari banks' external debt has increased further; it reached $136.5 billion at the end of June 2019, up from $121.2 billion on Dec. 31, 2018. In the unlikely event that a significant escalation in tensions led to a blockage of the strait or military conflict, the ratings on GCC sovereigns and banks could come under significant pressure.

Funding profile of Russian banking sector improved, and improved funding stability favors larger banks.   We consider that banking sector funding stability in Russia has improved, supported by stable and growing domestic deposits over the past three years. In addition, the sector's external funding is small and has been gradually diminishing and the central bank's liquidity support is available for banks in case of need. This was an important factor that helped to support the stability of the banking sector during the deposit outflows in 2014-2015. We also consider that the regulator has a range of tools and mechanisms at its disposal to stabilize liquidity in the sector if individual banks fail, and the efficiency of these has been successfully tested over the past 10 years.

Key Banking Sector Risks In EMEA

The table below presents S&P Global Ratings' views about the key risks and risk trends for banking sectors in EMEA countries where we rate banks. For more detailed information, please refer to the latest Banking Industry Country Risk Assessment (BICRA) on a given country. According to our methodology, BICRAs fall into groups from '1' to '10', ranging from what we view as the lowest-risk banking systems (group '1') to the highest-risk (group '10').

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Selected Research

We have recently published a number of articles highlighting our views on EMEA banking sectors:

  • For The FMI Industry, Global M&A Remains An Elusive And, For Now, Unnecessary Dream, Oct. 10, 2019
  • ECB's 2019 Stress Test Confirms Eurozone Banks Have Adequate Liquidity, Oct. 10, 2019
  • Countdown To Brexit: No-Deal Risks Revisited, Oct. 4, 2019
  • Bulletin: Credit Suisse Group AG's Management Turnover Is Unlikely To Undermine Strategic Execution, But Reputational Risk Remains, Oct. 1, 2019
  • Bulletin: Russia's Banking Industry Country Risk: More Stable Funding Profile Favors Larger Banks, Oct. 1, 2019
  • For German Landesbanken In 2019, The Risk Is Down, But Long-Term Questions Remain, Sept. 26, 2019
  • Credit FAQ: An Update On How We Rate German Savings Banks, Sept. 26, 2019
  • Resolution Regimes And Financial Institutions: Research By S&P Global Ratings, Sept. 26, 2019
  • Credit FAQ: How To Say Goodbye To LIBOR Without Creating Market Chaos, Sept. 23, 2019
  • Banking Industry Country Risk Assessment Update: September 2019, Sept. 20, 2019
  • Outlooks On Various German Banks Revised To Negative On Rising Banking Sector Risks; Ratings Affirmed, Sept. 18, 2019
  • Research Update: Portugal-Based Banco Santander Totta Outlook Revised To Positive On Sovereign Rating Action; 'BBB/A-2' Ratings Affirmed, Sept. 17, 2019
  • Bulletin: Contingency Risk From IRPH-Linked Mortgage Litigation Claims Is Reducing For Spanish Banks, Sept. 13, 2019
  • Belarus Banking Outlook: A Fragile Stability, Sept. 12, 2019
  • The Role Of Environmental, Social, And Governance Credit Factors In Our Ratings Analysis, Sept. 12, 2019
  • Capital Strength Helps U.K. Banks To Weather Additional PPI Charges, Sept. 10, 2019
  • Climate Change: Can Banks Weather The Effects?, Sept. 9, 2019
  • Tech Disruption In Retail Banking: GCC Banks Are Catching Up As Clients Become More Demanding, Sept. 8, 2019
  • Comparative Statistics: Top 15 French Banks, Sept. 6, 2019
  • Bulletin: Hungary's Banking Industry Country Risk: Rising House Prices Balanced By Growing Wealth, Sept. 3, 2019
  • The Future Of Banking: Research By S&P Global Ratings, Aug. 30, 2019
  • The Deadline For PPI Claims Has Passed But The Impact On U.K. Banking Is Permanent, Aug. 30, 2019
  • Limbo State Lingers For U.K. Banks, Aug. 28, 2019
  • Banking Industry Country Risk Assessment Update: August 2019, Aug. 27, 2019
  • How We're Refining Our View Of The Strategic Importance Of Certain Spanish Bank Subsidiaries, Aug. 2, 2019
  • Banking Risk Indicators: July 2019 Update, Aug. 1, 2019
  • Banking Industry Country Risk Assessment Update: July 2019, July 30, 2019
  • ECB Stimulus Signal Is Good For Growth, Bad For Bank Profits, July 26, 2019
  • Four Icelandic Banks Outlooks Revised To Negative On Weaker Business Prospects And Earnings; Ratings Affirmed, July 23, 2019
  • Research Update: Deutsche Bank 'BBB+/A-2' Ratings Affirmed On Restructuring Announcement; Outlook Stable, July 15, 2019
  • BNL Upgraded, UniCredit Outlook Revised To Stable On Improved Ability To Withstand Sovereign Distress Scenario, July 15, 2019
  • Global Banks Midyear 2019 Outlook: Low For Longer And Digital Prompt Further Rethink, July 11, 2019
  • Positive Rating Actions On Three Israeli Banks On The Supportive Operating Environment And Better Financial Performance, July 10, 2019
  • Credit FAQ: A Sharp Increase In Geopolitical Risk Could See GCC Banks Require Sovereign Support, July 8, 2019
  • Will Russia And Some Of Its Neighbors Get Out From Under Their Big Stocks Of Problem Loans? July 4, 2019

Economic, Sovereign, And Other Research

  • Global Credit Conditions Q3 2019 Ebbing Growth, Rising Risks, Oct. 1, 2019
  • Credit Conditions EMEA: Lingering In The Lowzone, Sept. 30, 2019
  • Next Debt Crisis: Earnings Recession Threat, Sept. 30, 2019
  • Research Update: Ukraine Ratings Raised To 'B' On Improved Macroeconomic Management; Outlook Stable, Sept. 27, 2019
  • Economic Research: Low Growth And Lower Rates: The Eurozone In 2020, Sept. 26, 2019
  • Economic Research: Europe's Housing Markets Lose Speed As The Economy Weakens, Sept. 24, 2019
  • New ECB Stimulus Package Is Likely To Keep Interest Rates Low Through 2023, Sept. 13, 2019
  • Bulletin: New Italian Government Could Bring Important Policy Shifts, Sept. 4, 2019
  • Bulletin: S&P Global Ratings Reports On The Latest U.S. Sanctions On Russia's Sovereign Debt, Aug. 5, 2019
  • EMEA Emerging Markets Sovereign Rating Trends Midyear 2019, July 26, 2019
  • European Developed Sovereign Rating Trends Midyear 2019, July 25, 2019
  • Global Sovereign Rating Trends: Midyear 2019, July 25, 2019
  • Most Banks Breezed Through The Fed's Stress Test--And Can Now Return Significant Capital To Shareholders, July 2, 2019
  • Country Risk Assessments Update: September 2019, Sept. 2, 2019

Rating Methodology News

  • General Criteria: Hybrid Capital: Methodology And Assumptions, July 1, 2019
  • Guidance | General Criteria: Hybrid Capital: Methodology And Assumptions, July 1, 2019
  • RFC Process Summary: Hybrid Capital: Methodology And Assumptions, July 1, 2019
  • Hybrid Issue Ratings Placed Under Criteria Observation Following Criteria Update, July 2, 2019
  • General Criteria: Group Rating Methodology, July 1, 2019
  • Guidance | General Criteria: Group Rating Methodology, July 1, 2019
  • RFC Process Summary: Group Rating Methodology, July 1, 2019
  • Corporate, Financial Institution, And Insurance Ratings Placed Under Criteria Observation On Criteria Update, July 1, 2019

BICRA Changes

Over the past quarter, we made the following changes to our Banking Industry Country Risk Assessments (BICRAs):

Estonia

We have discontinued our BICRA of Estonia, since we no longer maintain public ratings on any bank based in the country.

Germany

We now regard the economic risk trend for Germany as negative, rather than stable. The risk of macroeconomic imbalances is increasing, since the external environment is starting to weigh on German corporates and house price growth shows no sign of slowing. The ongoing U.S.-China trade war, Brexit-related uncertainties, and slowing growth in emerging markets are clouding Germany's growth prospects. Simultaneously, traditional sectors, such as the auto industry, are going through a significant transformation entailing risks to companies along the supply chain. Slowing GDP growth will make it tougher for banks to offset lower margins with higher volumes. Risk costs, which have decreased since 2015, will likely rise once again, hurting banks with large corporate exposures more than others. Fierce competition for corporate lending business also raises the question of whether these risks were adequately priced in recent years. Moreover, while house prices are just reaching long-term averages, the Bundesbank estimates they are overvalued by 15%–30% in large cities.

We also consider that the industry risk trend for Germany has turned negative. Competitive dynamics in the German banking sector remain under pressure due to poor cost efficiency, rising risks from tech disruption, and expectations of a prolonged low-interest-rate environment. The ECB's announcement of further accommodative monetary policy measures provides additional evidence that ultra-low policy rates may prevail for longer than we assumed previously. We do not expect much relief on the liability side of banks' balance sheets, given German banks' difficulty in passing negative rates on to retail depositors. In particular, we believe this signals a negative industry risk trend because most German banks' profitability has already been trailing that of their European peers. Some of the country's large universal banks are still restructuring and face fierce competition from foreign and domestic banks, especially in corporate lending. Savings and cooperative banks, which together account for over 50% of the German market by deposits, are grappling with large branch networks and a decentralized structure, which makes extensive cost-cutting difficult to implement. German banks have been slow to adapt to the rising competition from fintechs and Big Tech, increasing their exposure to tech disruption (see "Tech Disruption In Retail Banking: German Banks Have Little Time For Digital Catch-Up," published May 14, 2019).

Iceland

We now see a negative industry risk trend for Iceland. In our view, the role of pension funds in lending distorts Icelandic banks' competitive environment in terms of business generation and margins. The banks face a recession in 2019, declining interest rates, still-high taxation, and stiff competition from pension fund lending in an industry that is concentrated, given the size of the economy and bankable population. The declining profitability of many banks illustrates these challenges. While part of this is attributable to the additional cost of the ongoing investments aimed at increasing efficiency, we expect banks' profitability levels to remain structurally low at least over the next two years, with return on equity (ROE) in the low- to mid-single digits. In our view, the ongoing capital optimization will only marginally improve banks' nominal ROE as they will continue issuing relatively expensive hybrid instruments to meet their capital targets. Moreover, we believe that risks also could arise from growth in the pension funds' retail mortgage lending. Pension funds enjoy lower regulatory requirements than banks and represented about half of newly granted mortgage loans (net) in 2018.

Israel

The Israeli economy's high income level, sustained growth, and moderate leverage have underpinned improvements in the banking sector, including business opportunities and growth, strengthening profitability and asset quality. Although banks have a large exposure to the real estate sector, we see risks as more limited following the stabilization of prices in the past two years and the regulator's macroprudential measures. We believe these improvements represent an overall strengthening of the Israeli banking sector, and we therefore revised our BICRA group on Israel to '3' from '4' previously, and our economic risk score to '3' from '4'. Consequently, we have revised the anchor for banks with most of their operations and revenues in Israel to 'bbb+' from 'bbb'.

Netherlands

Because of a dynamic property market in the Netherlands over the past two years, economic imbalances in the country have not reduced, as we previously thought might be the case. Consequently, we now regard the economic risk trend as stable, rather than positive. With nominal property prices up 8.5% in 2017, 9.2% in 2018, and 6.3% expected this year, we haven't observed a reduction in gross private sector leverage, which remains among the highest in the world. The high level of private sector indebtedness constrains the structural ability of the very open Dutch economy to easily withstand potential external shocks, although we continue to see solid mitigating factors for banks operating in the country.

Russia

We have revised our industry risk score to '7' from '8', but the economic risk score remains unchanged at '8'. We continue to classify the Russian Banking Industry Country Risk Assessment (BICRA) as being in group '8'. Trends for both economic and industry risk remain stable.

We consider that banking sector funding stability in Russia has improved, supported by stable and growing domestic deposits over the past three years. In addition, the sector's external funding is small and has been gradually diminishing and the central bank's liquidity support is available for banks in case of need. Among other things, this was an important factor supporting stability of the banking sector during the deposit outflows in 2014-2015. We also consider that the regulator has a range of tools and mechanisms at its disposal to stabilize liquidity in the sector if individual banks fail, and the efficiency of these has been successfully tested over the past 10 years.

Chart 1

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About 73% of all outlooks on bank ratings in EMEA are stable, nearly 11% are positive, and about 14% are negative. In Western Europe, almost 70% of ratings have stable outlooks, with negative outlooks accounting for almost 17% of ratings, and positive outlooks accounting for nearly 12% of all ratings. For emerging market banks in EMEA, about 78% of ratings have stable outlooks, with negative outlooks accounting for nearly 11% of ratings, and positive outlooks accounting for nearly 10% of all ratings.

Chart 2

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Table 2

Ratings Component Scores: Top 50 European Banks
Institution Operating company long-term ICR/outlook Anchor Business position Capital and earnings Risk position Funding and liquidity SACP/ GCP Type of support Number of notches support Additional factor adjustment
Austria
Erste Group Bank AG A/Positive bbb+ Strong Adequate Adequate Above Avg/Strong a None 0 0
Raiffeisen Bank International AG BBB+/Positive bbb+ Adequate Adequate Adequate Above Avg/Adequate bbb+ None 0 0
Belgium
Belfius Bank SA/NV A-/Stable a- Adequate Strong Moderate Avg/Adequate a- None 0 0
KBC Bank N.V. A+/Stable bbb+ Strong Strong Adequate Avg/Adequate a ALAC 1 0
Denmark
Danske Bank A/S A/Negative bbb+ Strong Strong Moderate Avg/Adequate a- ALAC 1 0
Nykredit Realkredit A/S A/Positive bbb+ Adequate Strong Adequate Avg/Adequate a- ALAC 1 0
Finland
Nordea Bank Abp AA-/Stable a- Strong Strong Adequate Avg/Adequate a+ ALAC 1 0
OP Corporate Bank PLC AA-/Stable a- Strong Very strong Moderate Avg/Adequate a+ ALAC 1 0
France
BNP Paribas S.A. A+/Stable bbb+ Very Strong Adequate Adequate Avg/Adequate a ALAC 1 0
BPCE S.A. A+/Stable bbb+ Strong Strong Adequate Avg/Adequate a ALAC 1 0
Credit Mutuel Group A/Stable bbb+ Strong Adequate Adequate Avg/Adequate a- None 0 1
Credit Agricole S.A. A+/Stable bbb+ Strong Adequate Strong Avg/Adequate a ALAC 1 0
La Banque Postale A/Positive bbb+ Adequate Adequate Moderate Above Avg/Strong bbb+ Group 2 0
Societe Generale A/Positive bbb+ Strong Adequate Adequate Avg/Adequate a- ALAC 1 0
Germany
Commerzbank AG A-/Negative a- Moderate Strong Moderate Avg/Adequate bbb+ ALAC 1 0
Cooperative Banking Sector Germany AA-/Negative a- Strong Strong Adequate Above Avg/Strong aa- None 0 0
Deutsche Bank AG BBB+/Stable bbb+ Adequate Adequate Moderate Avg/Adequate bbb ALAC 2 -1
Hamburg Commercial Bank AG BBB/Stable a- Weak Strong Moderate Below Avg/Adequate bbb- ALAC 2 -1
Sparkassen-Finanzgruppe Hessen-Thueringen A/Stable a- Adequate Strong Adequate Avg/Adequate a None 0 0
Volkswagen Bank GmbH A-/Negative a- Weak Very strong Adequate Avg/Adequate a- None 0 0
Greece
Alpha Bank A.E. B-/Stable b Adequate Moderate Adequate Avg/Moderate b- None 0 0
National Bank of Greece S.A. B-/Stable b Adequate Weak Adequate Avg/Moderate b- None 0 0
Piraeus Bank S.A. B-/Stable b Adequate Weak Adequate Avg/Moderate b- None 0 0
Ireland
AIB Group§ BBB+/Stable bbb Adequate Strong Moderate Avg/Adequate bbb ALAC 1 0
Bank of Ireland Group PLC§ BBB+/Positive bbb Adequate Strong Moderate Avg/Adequate bbb ALAC 1 0
Italy
Intesa Sanpaolo SpA BBB/Negative bbb- Strong Moderate Strong Avg/Adequate bbb None 0 0
Mediobanca SpA BBB/Negative bbb- Adequate Adequate Strong Avg/Adequate bbb None 0 0
UBI Banca SpA BBB-/Stable bbb- Strong Moderate Adequate Avg/Adequate bbb- None 0 0
UniCredit SpA BBB/Stable bbb Strong Adequate Moderate Avg/Adequate bbb None 0 0
Netherlands
ABN AMRO Bank N.V. A/Stable bbb+ Adequate Strong Adequate Avg/Adequate a- ALAC 1 0
Cooperatieve Rabobank U.A. A+/Stable bbb+ Strong Strong Adequate Avg/Adequate a ALAC 1 0
ING Groep N.V. A+/Stable bbb+ Strong Strong Adequate Avg/Adequate a ALAC 1 0
Norway
DNB Bank ASA AA-/Stable a- Strong Strong Adequate Avg/Adequate a+ ALAC 1 0
Spain
Banco Bilbao Vizcaya Argentaria S.A. A-/Negative bbb Strong Adequate Strong Avg/Adequate a- None 0 0
Banco de Sabadell S.A. BBB/Stable bbb Adequate Adequate Adequate Avg/Adequate bbb None 0 0
Banco Santander S.A. A/Stable bbb Very Strong Adequate Strong Avg/Adequate a None 0 0
Bankia S.A. BBB/Stable bbb Adequate Adequate Adequate Avg/Adequate bbb None 0 0
CaixaBank S.A. BBB+/Stable bbb Strong Adequate Adequate Avg/Adequate bbb+ None 0 0
Sweden
Skandinaviska Enskilda Banken AB A+/Stable a- Adequate Strong Adequate Avg/Adequate a ALAC 1 0
Svenska Handelsbanken AB AA-/Stable a- Strong Adequate Strong Avg/Adequate a+ ALAC 1 0
Swedbank AB AA-/Negative a- Strong Strong Adequate Avg/Adequate a+ ALAC 1 0
Switzerland
Credit Suisse Group AG§ A+/Stable a- Adequate Strong Moderate Avg/Adequate a- ALAC 2 0
UBS Group AG§ A+/Stable a- Strong Strong Moderate Avg/Adequate a ALAC 1 0
Zuercher Kantonalbank AAA/Stable a- Strong Very Strong Adequate Avg/Strong aa- GRE 3 0
U.K.
Barclays PLC§ A/Stable bbb+ Adequate Strong Moderate Avg/Adequate bbb+ ALAC 2 0
HSBC Holdings PLC AA-/Stable bbb+ Very Strong Adequate Strong Above Avg/Adequate a+ ALAC 1 0
Lloyds Banking Group PLC§ A+/Stable bbb+ Strong Adequate Adequate Avg/Adequate a- ALAC 2 0
Nationwide Building Society A/Positive bbb+ Adequate Strong Adequate Avg/Adequate a- ALAC 1 0
The Royal Bank of Scotland Group PLC§ A/Stable bbb+ Adequate Adequate Adequate Avg/Adequate bbb+ ALAC 2 0
Standard Chartered PLC§ A/Stable bbb+ Adequate Strong Moderate Above Avg/Strong a- ALAC 1 0
Source: S&P Global Ratings; data as of Oct. 11, 2019. In the "Type of Support" column, "None" includes some banks where ratings uplift because of support factors may be possible but none is currently included. For example, this column includes some systemically important banks where systemic importance results in no rating uplift. §Holding company; the rating reflects that on the main operating company. ICR--Issuer credit rating. GRE--Government-related entity. SACP--Stand-alone credit profile. Sys. Imp.--Systemically important. ALAC--Additional loss-absorbing capacity. UGCP--Unsupported group credit profile. N/A--Not applicable. Sov—government support.

Table 3

Ratings Component Scores: Top 25 CEEMEA Banks
Institution Operating company long-term ICR/outlook Anchor Business position Capital and earnings Risk position Funding and liquidity SACP/ GCP Type of support Number of notches support Additional factor adjustment
Bahrain
Ahli United Bank B.S.C. BBB/WatchPos bb+ Strong Adequate Adequate Above Avg/Strong bbb None 0 0
Arab Banking Corp. B.S.C. BBB-/Stable bbb- Adequate Strong Adequate Below Avg/Strong bbb- None 0 0
Israel
Bank Hapoalim B.M. A/Stable bbb+ Strong Strong Moderate Avg/Adequate a- Sov 1 0
Bank Leumi le-Israel B.M. A/Stable bbb+ Strong Strong Moderate Avg/Adequate a- Sov 1 0
Israel Discount Bank Ltd. BBB+/Positive bbb+ Adequate Adequate Moderate Avg/Adequate bbb Sov 1 0
Jordan
Arab Bank PLC B+/Stable bb Strong Adequate Moderate Above Avg/Strong bb+ None 0 -3
Kuwait
National Bank of Kuwait S.A.K. A+/Stable bbb Strong Strong Adequate Avg/Adequate a- Sov 2 0
Qatar
Qatar National Bank (Q.P.S.C.) A/Stable bbb- Strong Adequate Adequate Avg/Adequate bbb GRE 3 0
Qatar Islamic Bank (Q.P.S.C.) A-/Stable bbb- Adequate Strong Moderate Avg/Adequate bbb- Sov 3 0
The Commercial Bank (P.S.Q.C.) BBB+/Stable bbb- Adequate Strong Weak Avg/Adequate bb+ Sov 3 0
Russia
VTB Bank JSC BBB-/Stable bb- Strong Weak Adequate Avg/Adequate bb- GRE 3 0
Gazprombank JSC BB+/Stable bb- Strong Weak Adequate Avg/Adequate bb- GRE 2 0
Alfa-Bank JSC BB+/Stable bb- Strong Adequate Strong Avg/Adequate bb+ None 0 0
Oman
BankMuscat S.A.O.G. BB/Negative bb+ Strong Adequate Adequate Avg/Adequate bbb- None 0 -2
Saudi Arabia
The National Commercial Bank BBB+/Stable bbb Strong Strong Moderate Avg/Adequate bbb+ None 0 0
Al Rajhi Bank BBB+/Stable bbb Adequate Strong Adequate Avg/Adequate bbb+ None 0 0
Samba Financial Group BBB+/Stable bbb Adequate Strong Adequate Avg/Adequate bbb+ None 0 0
Riyad Bank BBB+/Stable bbb Adequate Strong Adequate Avg/Adequate bbb+ None 0 0
Banque Saudi Fransi BBB+/Stable bbb Adequate Strong Moderate Avg/Adequate bbb Sov 1 0
Arab National Bank BBB+/Stable bbb Adequate Strong Moderate Avg/Adequate bbb Sov 1 0
The Saudi Investment Bank BBB/Stable bbb Moderate Strong Moderate Avg/Adequate bbb- Sov 1 0
Turkey
Turkiye Is Bankasi AS B+/Negative b+ Adequate Weak Adequate Avg/Adequate b+ None 0 0
Turkiye Vakiflar Bankasi TAO B+/Negative b+ Adequate Weak Adequate Avg/Adequate b+ None 0 0
United Arab Emirates
Mashreqbank A-/Stable bbb- Adequate Strong Adequate Avg/Adequate bbb Sov 2 0
First Abu Dhabi Bank P.J.S.C. AA-/Stable bbb- Strong Strong Strong Avg/Strong a- GRE 2 1
Abu Dhabi Commercial Bank PJSC A/Stable bbb- Strong Strong Adequate Avg/Adequate bbb+ GRE 2 0
Source: S&P Global Ratings; data as of Oct. 11, 2019. In the "Type of Support" column, "None" includes some banks where ratings uplift because of support factors may be possible but none is currently included. For example, this column includes some systemically important banks where systemic importance results in no rating uplift. ICR--Issuer credit rating. GRE--Government-related entity. SACP--Stand-alone credit profile. Sys. Imp.--Systemically important. ALAC--Additional loss-absorbing capacity. UGCP--Unsupported group credit profile. N/A--Not applicable. Sov— government support.

Recent Rating Actions: EMEA Banks

Table 4

Recent Rating Actions: EMEA Banks
Date of action Bank Country To From
10/10/2019 Banco Comercial Portugues S.A. Portugal BB/Positive/B BB/Stable/B
04/10/2019 Hamkorbank Uzbekistan B+/Positive/B B+/Stable/B
27/09/2019 Swedbank AB Sweden AA-/Negative/A-1+ AA-/Watch Neg/A-1+
27/09/2019 Garanti BBVA Turkey NR B+/Negative/--
25/09/2019 mBank Poland BBB/Developing/A-2 BBB+/Negative/A-2
24/09/2019 DEPFA Bank PLC Ireland A-/Negative/A-2 A-/Stable/A-2
20/09/2019 Sovcombank PJSC Russia BB/Stable/B BB-/Positive/B
18/09/2019 DekaBank Deutsche Girozentrale Germany A+/Negative/A-1 A+/Stable/A-1
18/09/2019 Bausparkasse Schwaebisch Hall AG Germany AA-/Negative/A-1+ AA-/Stable/A-1+
18/09/2019 Deutsche Apotheker- und Aerztebank eG Germany AA-/Negative/A-1+ AA-/Stable/A-1+
18/09/2019 DZ BANK AG Deutsche Zentral-Genossenschaftsbank Germany AA-/Negative/A-1+ AA-/Stable/A-1+
18/09/2019 DZ HYP AG Germany AA-/Negative/A-1+ AA-/Stable/A-1+
17/09/2019 Banco Santander Totta S.A. Portugal BBB/Positive/A-2 BBB/Stable/A-2
16/09/2019 NRW.BANK Germany AA/Stable/A-1+ AA-/Positive/A-1+
10/09/2019 AXA Bank Belgium Belgium A+/Negative/A-1 A+/Stable/A-1
10/09/2019 Abanca Corporacion Bancaria S.A Spain BB+/Positive/B BB+/Stable/B
27/08/2019 CentroCredit Bank JSC Russia B/Stable/B B/Negative/B
14/08/2019 Danmarks Skibskredit A/S Denmark BBB+/Stable/A-2 BBB+/Negative/A-2
14/08/2019 Frankfurter Sparkasse Germany A/Stable/A-1 A/Positive/A-1
14/08/2019 Landesbank Hessen-Thueringen Girozentrale Germany A/Stable/A-1 A/Positive/A-1
14/08/2019 Nassauische Sparkasse Germany A/Stable/A-1 A/Positive/A-1
12/08/2019 First Heartland Jusan Bank JSC Kazakhstan B-/Positive/B B-/Stable/B
01/08/2019 Banco Portugues de Investimento S.A. Portugal NR BBB/Stable/A-2
31/07/2019 Garanti BBVA Turkey B+/Negative/-- B+/Stable/--
31/07/2019 Bank of Valletta PLC Malta BBB-/Stable/A-3 BBB/Negative/A-2
30/07/2019 Uzpromstroybank Uzbekistan B+/Watch Pos/B B+/Stable/B
26/07/2019 Vozrozhdenie Bank Russia NR B+/Positive/B
23/07/2019 Arion Bank Iceland BBB+/Negative/A-2 BBB+/Stable/A-2
23/07/2019 Housing Financing Fund Ibudalanasjodur Iceland BB+/Negative/B BB+/Stable/B
23/07/2019 Islandsbanki hf Iceland BBB+/Negative/A-2 BBB+/Stable/A-2
23/07/2019 Landsbankinn hf. Iceland BBB+/Negative/A-2 BBB+/Stable/A-2
19/07/2019 Bank CenterCredit Kazakhstan B/Negative/B B/Stable/B
18/07/2019 Zagrebacka banka dd Croatia BBB-/Stable/-- BBB-/Negative/--
18/07/2019 UniCredit Bank AO Russia BBB-/Stable/A-3 BBB-/Negative/A-3
15/07/2019 UniCredit SpA Italy BBB/Stable/A-2 BBB/Negative/A-2
15/07/2019 Banca Nazionale del Lavoro SpA Italy BBB+/Negative/A-2 BBB/Negative/A-2
12/07/2019 Bank SOYUZ Russia B+/Stable/B B/Stable/B
12/07/2019 Halk Bank Uzbekistan NR B+/Stable/B
10/07/2019 Bank Hapoalim B.M. Israel A/Stable/A-1 A-/Positive/A-2
10/07/2019 Bank Leumi le-Israel B.M. Israel A/Stable/A-1 A-/Positive/A-2
10/07/2019 Israel Discount Bank Ltd. Israel BBB+/Positive/A-2 BBB+/Stable/A-2
09/07/2019 Commbank Europe Ltd. Malta AA-/Stable/A-1+ AA-/Negative/A-1+
05/07/2019 West Siberian Commercial Bank Russia NR BB+/Positive/B
04/07/2019 FinecoBank S.p.a. Italy BBB/Negative/A-2
01/07/2019 Cembra Money Bank AG Switzerland A-/Negative/A-2 A-/Stable/A-2
Source: S&P Global Ratings.

Table 5

RCR Rating actions: EMEA Banks
Date of action Bank Country To From
25/09/2019 mBank Poland BBB+/A-2 A-/A-2
01/08/2019 Banco Portugues de Investimento S.A. Portugal NR BBB/A-2
31/07/2019 Bank of Valletta PLC Malta BBB/A-2 BBB+/A-2
15/07/2019 Banca Nazionale del Lavoro SpA Italy A-/A-2 BBB+/A-2
Source: S&P Global Ratings.

Recent Rating Actions/Resolution Counterparty Ratings: EMEA Banks

On April 19, 2018, we published a criteria article, "Methodology For Assigning Financial Institution Resolution Counterparty Ratings" (the RCR criteria) and an associated guidance document "Guidance/Criteria/Financial Institutions/General: Methodology For Assigning Financial Institution Resolution Counterparty Ratings," which is intended to be read in conjunction with the RCR criteria.

Subsequently, we assigned resolution counterparty ratings (RCRs) to selected European banks that we expect to be subject to an effective bail-in resolution if they reach the point of nonviability. This is to reflect the fact that in a resolution scenario, certain banks' liabilities will be excluded from bail-in, and therefore will have a lower default risk than traditional senior obligations. Over the past quarter, we have assigned RCRs to the selected European banks presented in table 5 below.

This report does not constitute a rating action.

Primary Credit Analyst:Natalia Yalovskaya, London (44) 20-7176-3407;
natalia.yalovskaya@spglobal.com
Secondary Contacts:Elena Iparraguirre, Madrid (34) 91-389-6963;
elena.iparraguirre@spglobal.com
Mohamed Damak, Dubai (971) 4-372-7153;
mohamed.damak@spglobal.com

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