Moody's assigns first-time A2 issuer rating to La Banque Postale; Outlook stable - Moody's

Moody's assigns BCA and Adjusted BCA of baa2

NOTE: On July 26, 2022, the press release was corrected as follows: At the end of the press release, the second contact was changed to Alain Laurin. Revised release follows.

Paris, July 26, 2022 -- Moody's Investors Service ("Moody's") today assigned first-time A2 long-term deposit and issuer ratings to La Banque Postale (LBP). The outlook on these ratings is stable. Moody's also assigned to LBP a Baseline Credit Assessment (BCA) and Adjusted BCA of baa2, short-term deposit and commercial paper ratings of Prime-1, a junior senior unsecured debt rating of Baa2, a subordinated debt rating of Baa3, a non-cumulative preference share rating of Ba2(hyb), long-term and short term Counterparty Risk (CR) Assessments of Aa3(cr) and Prime-1(cr) respectively, and long-term and short-term Counterparty Risk Ratings (CRR) of Aa3 and Prime-1 respectively.

A full list of ratings is provided at the end of this press release.

RATINGS RATIONALE

BCA and Adjusted BCA

The baa2 BCA reflects LBP's franchise as a large domestic bancassurer in the French market, its strong asset quality, robust liquidity and funding structure, and the sound fundamentals of CNP Assurances (CNP, A1 Insurance Financial Strength Rating or IFSR stable), its main insurance subsidiary. These strengths are nonetheless offset by the group's low solvency and the subdued profitability of its banking activities.

The BCA assigned to LBP results from the combined assessment of LBP's banking activities and its insurance business that is reflected in the A2 senior debt rating equivalent of CNP (excluding any external support). In assessing the relative importance of the two activities, Moody's considered the capital requirements applicable to the banking operations compared to the capital requirements CNP is subject to.

Moody's credit assessment of LBP's banking activities is driven by several considerations.

Firstly asset quality is sound, underpinned by the good performance of its domestic retail-focused lending activities. Moody's however factors into its assessment the risks associated with the rapid growth and change in the composition of the loan portfolio as the bank develops its corporate lending and consumer finance businesses.

Secondly the bank's funding structure is robust. It is primarily comprised of stable retail deposits which comfortably exceed the size of its loan book. Liquid resources, consisting of a large portfolio of high-quality securities, are ample and would comfortably cover unexpected outflows under a stressed scenario.

Thirdly Moody's considers that LBP's solvency is significantly lower than suggested by its consolidated Common Equity Tier 1 ratio of 19.1% at year-end 2021. This ratio benefits from the so-called "Danish compromise", which allows financial conglomerates to reflect their equity stakes in insurance companies in their risk-weighted assets instead of deducting them from their regulatory capital. Hence a large portion of the capital allocated to CNP is also allocated to cover the bank's own risks.

Excluding CNP's contributions, the bank's profitability is low. This reflects its business portfolio primarily composed of low risk-low margin activities and high cost base. It also underlines the high sensitivity of its revenues to the ultra-low interest rate environment, which has eroded its net profit over the past six years. Rising interest rates will ultimately drive net interest income up although Moody's expects the rally to be gradual.

Corporate governance is also a key credit consideration. LBP's risk management policies and procedures are in line with industry best practices. The group has a contained risk appetite and its legal structure is simple. LBP has been smoothly integrating CNP into the bank's strategic decision-making, risk management and control processes since it took the control of the insurance company in 2020. LBP's full ownership by La Poste however poses governance risks such as conflicts of interest which are only partly mitigated by the presence of four independent directors out of 15.

Long-term ratings

The long-term bank deposit and issuer ratings also reflect Moody's assumption of a high probability of government support from the Government of France (Aa2 stable), resulting in two additional notches of uplift. This assessment is justified by (i) the French government's indirect stake in LBP, (ii) the public service mission entrusted with the bank for the provision of universal banking access to low income households in France, and (iii) the bank's status of "other systemically important institution" recognized by the French Autorité de Contrôle Prudentiel et de Résolution. Moody's also believes that the full ownership of CNP further increased LBP's systemic importance.

The LGF analysis shows a moderate loss-given-failure for the long-term junior senior (senior non-preferred) unsecured rating, which hence is in line with the baa2 Adjusted BCA.

For the other junior securities, the LGF analysis points to a high loss-given-failure. This leads to the subordinated debt rating one notch below the bank's Adjusted BCA at Baa3. For LBP's preferred stocks (Additional Tier 1 securities), Moody's also incorporates an additional downward adjustment of two notches to Ba2(hyb), reflecting coupon suspension risk ahead of failure.

Given that the purpose of these junior instruments is to provide additional loss absorption and improve the ability of authorities to conduct a smooth resolution of ailing banks, the agency attributes only a low probability to government support for these debt classes and hence there is no further uplift.

Rating outlook

The stable outlook on LBP's long-term deposit and issuer ratings reflects Moody's view that despite the uncertain operating environment, the group's strong asset quality and prudent underwriting policies, robust liquidity as well as the sound fundamentals of the insurance business will continue to support its creditworthiness.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Although unlikely over the outlook horizon, the BCA could be upgraded as a result of an improved solvency or profitability at the bank. The BCA could also be upgraded if CNP's IFSR were to be upgraded. A positive change of the BCA could affect ratings positively.

The deposit, issuer and junior senior unsecured debt ratings could also be upgraded if the loss-given-failure of these classes of debt were to decrease significantly as a result of the issuance of senior unsecured, junior senior unsecured debt or subordinated instruments.

LBP's BCA could be downgraded as a result of a material deterioration in asset quality or solvency, if the group were unable to restore the profitability of its banking activities. A downgrade of CNP's IFSR could also trigger a downgrade of LBP's BCA. A lower BCA could trigger a downgrade of the ratings.

LIST OF AFFECTED RATINGS

Issuer: La Banque Postale

..Assignments:

....Long-term Counterparty Risk Ratings, assigned Aa3

....Short-term Counterparty Risk Ratings, assigned P-1

....Long-term Counterparty Risk Assessment, assigned Aa3(cr)

....Short-term Counterparty Risk Assessment, assigned P-1(cr)

....Long-term Bank Deposits, assigned A2, outlook Stable

....Short-term Bank Deposits, assigned P-1

....Baseline Credit Assessment, assigned baa2

....Adjusted Baseline Credit Assessment, assigned baa2

....Long-term Issuer Rating, assigned A2, outlook Stable

....Senior Unsecured Medium-Term Note Program, assigned (P)A2

....Junior Senior Unsecured Regular Bond/Debenture, assigned Baa2

....Junior Senior Unsecured Medium-Term Note Program, assigned (P)Baa2

....Subordinate Regular Bond/Debenture, assigned Baa3

....Subordinate Medium-Term Note Program, assigned (P)Baa3

....Preferred Stock Non-cumulative, assigned Ba2(hyb)

....Commercial Paper, assigned P-1

....Other Short Term, assigned (P)P-1

..Outlook assigned:

..Outlook Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks Methodology published in July 2021 and available at https://ratings.moodys.com/api/rmc-documents/71997. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Yasuko Nakamura
VP - Senior Credit Officer
Financial Institutions Group
Moody's France SAS
96 Boulevard Haussmann
Paris, 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Alain Laurin
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's France SAS
96 Boulevard Haussmann
Paris, 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454