Outlook On NIBC Bank To Stable On Netherlands; Ratings Affirmed At 'BBB-/A-3'

Research Update:
Outlook On NIBC Bank To Stable On
Stabilizing Economic Risks In The
Netherlands; Ratings Affirmed At
'BBB-/A-3'
Primary Credit Analyst:
Nigel Greenwood, London (44) 20-7176-7211; nigel.greenwood@standardandpoors.com
Secondary Contact:
Alexandre Birry, London (44) 20-7176-7108; alexandre.birry@standardandpoors.com
Table Of Contents
Overview
Rating Action
Rationale
Outlook
Ratings Score Snapshot
Related Criteria And Research
Ratings List
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Research Update:
Outlook On NIBC Bank To Stable On Stabilizing
Economic Risks In The Netherlands; Ratings
Affirmed At 'BBB-/A-3'
Overview
• In our view, the Dutch banking industry should benefit moderately from
the domestic economy's gradual exit from a protracted correction phase.
• We consider that improving conditions in the housing market illustrate
this trend, despite the still-weak commercial property market.
• In our view, the trend in domestic economic risk for Dutch banks is now
stable.
• We are therefore affirming our ratings and revising the outlook to stable
from negative on NIBC Bank N.V.
• The stable outlook reflects out assumption that NIBC will maintain robust
capitalization by our measures, and that the likely pick up in its
business activity will be at least matched by deposit growth.
Rating Action
On Nov. 4, 2014, Standard & Poor's Ratings Services revised to stable from
negative its outlook on Netherlands-based NIBC Bank N.V. (NIBC). At the same
time, we affirmed our 'BBB-/A-3' counterparty credit ratings on the bank.
Rationale
The affirmation reflects our view that the domestic economic risks under which
Dutch banks operate are now stabilizing (see "Various Rating Actions Taken On
Dutch Banks On Stabilizing Economic Risks," published today on RatingsDirect).
Under our base-case scenario, we expect that real GDP will grow by around 1%
on average in 2014 and 2015, after a two-year recession in 2012 and 2013. We
anticipate that domestic house prices will continue to increase moderately. We
also expect a continued gradual reduction in private sector leverage, limited
demand for credit, and a steady decrease in credit losses next year (albeit
from a relatively high level).
Dutch property prices peaked in mid-2008 and had fallen by about 20% in
mid-2013, an average annual decline of about 4%. Prices have since stabilized
and started to increase moderately. Encouragingly, the volume of property
transactions increased by about 40% in the first nine months of 2014
year-on-year. We expect this trend to continue and forecast moderate nominal
house price growth of about 2% in 2014 and 2015, supported by improved
conditions in the domestic economy, increased affordability of housing,
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Research Update: Outlook On NIBC Bank To Stable On Stabilizing Economic Risks In The Netherlands; Ratings
Affirmed At 'BBB-/A-3'
limited housing supply, and greater certainty on fiscal policy reforms.
However, commercial real estate prices have continued to fall, a trend we
expect to reverse only gradually from 2015. Gross household leverage remains
elevated and growth in the eurozone (European Economic and Monetary Union) is
forecast to be below average. Combined with ongoing geopolitical events that
may encumber the export-orientated Dutch economy, we expect these factors to
limit the improvement in the private sector. However, in our view, Dutch banks
benefit from a diversified and competitive domestic economy, flexible fiscal
policy, and adaptable labor market, underpinning the government's track record
of reporting strong current account surpluses.
Beyond our view of the stable banking environment in The Netherlands, which
underpins NIBC's 'bbb+' anchor--the starting point in assigning an issuer
credit rating--our view of the bank's stand-alone credit factors remains
unchanged. NIBC's stand-alone credit profile (SACP) is 'bbb-'.
In particular, we assume that NIBC's capitalization will remain a supportive
ratings factor. We calculate that NIBC's risk-adjusted capital (RAC) ratio
stood at 10.9% at end-2013 (up from 9.8% at end-2012), which is above the 10%
threshold which we ascribe to a "strong" capital and earnings assessment. The
improvement in 2013 was due to certain exposure reductions, especially in the
corporate book. We estimate that this ratio will be little changed by year-end
2014 and expect that it will be in the 10.5%-11.0% range through end-2016. We
assume that in future the balance sheet will grow, despite the previous
declining trend, but that this growth will be modest and will be matched by
deposit growth.
Reported operating income has tended to fall in recent years, as NIBC focused
on reducing higher-risk exposures and rebalancing its funding profile in a
generally difficult operating environment. NIBC has long-standing expertise in
its corporate niches, which in our view helped it to defend its franchise
through the recent downturn. More recently, we have seen evidence of growth in
corporate banking business. Moreover, new mortgage lending has resumed
following a change in approach; the bank now pushes its NIBC Direct-branded
business, rather than pursuing "white-label" mortgages via a distribution
partner or insurance company. We consider that NIBC is now better positioned
to expand both businesses in future and anticipate that income will start to
rise.
Outlook
The stable outlook reflects our assumption that NIBC will maintain robust
capitalization by our measures, and that the likely pick up in business
activity will be at least matched by deposit growth.
We could lower the ratings if we saw a deterioration in the bank's hitherto
resilient asset quality or if the risk appetite evolved to one which we no
longer consider consistent with an "adequate" risk position assessment. This
scenario could be relevant, in particular, if our forecast for our RAC ratio
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Research Update: Outlook On NIBC Bank To Stable On Stabilizing Economic Risks In The Netherlands; Ratings
Affirmed At 'BBB-/A-3'
is very close to our 10% threshold for a "strong" capital and earnings
assessment.
We could raise the ratings if we observe a substantial improvement in earnings
without an associated increase in risk appetite, combined with a stable
economic backdrop in its chosen markets. In particular, if our confidence in
the predictability of NIBC's revenues increased, we could revise our business
position assessment to "moderate" from "weak." However, this possibility
appears unlikely in the near term as the management team seeks to reinvigorate
and grow its niche franchises.
We could also raise the ratings if we observe a sustainable rebalancing of the
bank's funding profile, indicated by a further decrease in its reliance on
wholesale funding, and if our confidence in the resilience of NIBC's deposit
base continues to grow.
Ratings Score Snapshot
To
BBB-/Stable/A-3
From
BBB-/Negative/A-3
SACP
Anchor
Business Position
Capital and Earnings
Risk Position
Funding and Liquidity
bbbbbb+
Weak (-2)
Strong (+1)
Adequate (0)
Below Average
and Adequate (-1)
bbbbbb+
Weak (-2)
Strong (+1)
Adequate (0)
Below Average
and Adequate (-1)
Support
GRE Support
Group Support
0
0
0
0
0
0
Additional Factors
0
0
Issuer Credit Rating
Related Criteria And Research
Related Criteria
• Bank Hybrid Capital And Nondeferrable Subordinated Debt Methodology And
Assumptions, Sept. 18, 2014
• Banks: Rating Methodology And Assumptions, Nov. 9, 2011
• Banking Industry Country Risk Assessment Methodology And Assumptions,
Nov. 9, 2011
• Bank Capital Methodology And Assumptions, Dec. 6, 2010
Related Research
• Various Rating Actions Taken On Dutch Banks On Stabilizing Economic Risks,
Nov. 4, 2014
• Banking Industry Country Risk Assessment: The Netherlands, Nov. 4, 2014
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Research Update: Outlook On NIBC Bank To Stable On Stabilizing Economic Risks In The Netherlands; Ratings
Affirmed At 'BBB-/A-3'
Ratings List
Ratings Affirmed; CreditWatch/Outlook Action
To
NIBC Bank N.V.
Counterparty Credit Rating
BBB-/Stable/A-3
From
BBB-/Negative/A-3
Ratings Affirmed
NIBC Bank N.V.
Senior Unsecured
Subordinated
Junior Subordinated
Commercial Paper
Certificate Of Deposit
BBBBB
B+
A-3
BBB-/A-3
Additional Contact:
Financial Institutions Ratings Europe; FIG_Europe@standardandpoors.com
Complete ratings information is available to subscribers of RatingsDirect at
www.globalcreditportal.com and at spcapitaliq.com. All ratings affected by
this rating action can be found on Standard & Poor's public Web site at
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