DBRS Ratings GmbH (DBRS Morningstar) confirmed the Long-Term Issuer Rating of Belfius Bank SA/NV (Belfius or the Bank) at “A” and the Short-Term Issuer Rating at R-1 (low). The trend on all ratings is Stable. DBRS Morningstar has also maintained the Bank’s intrinsic assessment (IA) at A and its support assessment at SA3. See the full list of ratings at the end of this press release.
KEY RATING CONSIDERATIONS
The ratings confirmation and the stable trend reflect the Group’s sound earnings generation which, combined with cost control and a very low cost of risk enabled the Group to report strong results in 2021. Belfius’ ratings continue to be underpinned by its leading bancassurance franchise in Belgium, its strong funding and liquidity profile, backed by a large and stable deposit base and substantial liquidity buffers. We also continue to take into account the Bank’s strong capital position, which remains at the higher-end of its peer group and well above regulatory requirements.
Belfius maintained sound asset quality metrics in 2021, as credit deterioration stemming from the COVID-19 pandemic has, to date, been very limited. The ratings also consider the impact the Russian invasion of the Ukraine could have on the macroeconomic outlook as we expect supply chains, energy prices, inflation and interest rates to be affected. Nevertheless, we also note that Belfius’ direct exposure to Russia and the Ukraine is very limited.
An upgrade of the Long-Term Issuer Rating would require a sustained track record of strong profitability metrics whilst maintaining a low risk profile and solid capital levels.
A ratings downgrade would occur if there was a significant deterioration in asset quality, a prolonged period of weak profitability or a notable deterioration in capital buffers.
Franchise Combined Building Block (BB) Assessment: Strong/Good
The Bank’s ratings are underpinned by its well-established and leading bancassurance franchise in its core market of Belgium. The Bank has a strong domestic franchise in retail, SME and mid-cap customer segments and is the market leader in public sector banking in Belgium, particularly lending to local governments and public/project finance. The Bank is owned by the Belgian state, but is expected to be privatised in the future.
Earnings Combined Building Block (BB) Assessment: Good/Moderate
Belfius has continued to demonstrate sound earnings generation, and reported a net attributable profit of EUR 935 million in 2021, up significantly from EUR 532 million in 2020. Results in 2021 were driven by a very low cost of risk on the back of provision releases, a rebound in banking revenues, solid performance in insurance and continued cost containment. We expect pressure on net interest income to continue due to the low rate environment, and the cost of risk to remain low in 2022 thanks to outstanding COVID-19 related provisions yet to be released. In addition, we also expect Belfius to continue managing its cost base efficiently.
Risk Combined Building Block (BB) Assessment: Strong/Good
DBRS Morningstar considers that Belfius has generally maintained a solid risk profile, benefiting from a moderate appetite for risk and a loan portfolio dominated by high quality exposures. Asset quality is supported by low risk retail exposures, which in large part consist of Belgian mortgages and loans to public entities. Belfius’ asset quality metrics remained strong at end-2021 with a reported gross NPL ratio of 1.95%, fairly stable from end-2020, and coverage levels remained solid at 60.4%, essentially unchanged from end-2020. Whilst the unprecedented measures put in place by the domestic and European authorities have delayed the formation of NPLs following the COVID-19 pandemic, uncertainty remains regarding the full effect of the pandemic on asset quality. In addition, the macroeconomic outlook is more uncertain following Russia’s invasion of Ukraine, although we note that Belfius has almost no direct exposure to Russia or Ukraine.
Funding and Liquidity Combined Building Block (BB) Assessment: Strong/Good
Belfius benefits from a solid funding profile, including a strong and stable deposit base in Belgium. Customer funds, predominantly retail, represented 78.5% of the bank’s funding at end-2021, contributing to its stability. Belfius is also an active issuer of covered bonds, backed by mortgage loans and by public sector loans. The loan-to-deposit ratio of the commercial (i.e. core lending) banking balance sheet improved to 85% at end-2021, (end-2020: 87%), driven by customer funding growing by 8.3% YoY to EUR 114 billion. Belfius’ liquidity profile remains strong and has further improved in 2021. Due to sizeable use of secured funding, encumbered assets were a relatively high 25.9% of Belfius Bank’s total bank balance sheet and collateral (received under securities format). Despite this, Belfius Bank’s liquidity position is robust with an available liquid asset buffer of EUR 42.3 billion, representing around twenty times the outstanding wholesale funding with maturity below one year of EUR 2.1 billion at end-2021. At end-2021 the Liquidity Coverage Ratio (LCR) ratio stood at 195% and Net Stable Funding Ratio (NSFR) was 136%.
Capitalisation Combined Building Block (BB) Assessment: Good
The Group has a solid capital position, supported by its strong internal capital generation. At end-2021, Belfius’ Basel III Common Equity Tier 1 (CET1) ratio, under the Danish compromise, was 16.4%, up from 17.1% at end-2020. Belfius also reported a strong total capital ratio of 19.8%, up from 20.4% at end-2020. This provides Belfius with an ample buffer over the 2022 CET1 and total capital requirements of 9.71% (with the new P2R requirement of 2.13% including the NPE P2R add-on from March 2022 onwards) and 14.14%. The fully loaded Basel 3 leverage ratio for the Group (under the Danish compromise) remained relatively high at year-end 2021 at 7.1%. Belfius also reported a Group level 190% Solvency II ratio, well above the 100% minimum requirement. With EUR 18.8 billion of MREL at end-2021, (MREL ratio of 12.0% of Total Leverage Exposure at end-2021), DBRS Morningstar considers that Belfius maintains an ample cushion over its MREL requirements of 6.84%.
Further details on the Scorecard Indicators and Building Block Assessments can be found at https://www.dbrsmorningstar.com/research/394034.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.
All figures are in EUR unless otherwise noted.
The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (19 July 2021) https://www.dbrsmorningstar.com/research/381742/global-methodology-for-rating-banks-and-banking-organisations. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (3 February 2021) https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings
The sources of information used for this rating include Morningstar Inc. and Company Documents, Belfius Q4 2021 Earnings Presentation and Belfius Q4 2021 Press Release. DBRS Morningstar considers the information available to it for the purposes of providing this rating to be of satisfactory quality.
With respect to FCA and ESMA regulations in the United Kingdom and European Union, respectively, this is an unsolicited credit rating. This credit rating was 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
DBRS Morningstar does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.
Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar's outlooks and ratings are under regular surveillance.
For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.
The sensitivity analysis of the relevant key rating assumptions can be found at: https://www.dbrsmorningstar.com/research/394032.
This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.
Lead Analyst: Arnaud Journois, Vice President - European Financial Institutions
Rating Committee Chair: Ross Abercromby - Managing Director - Global FIG
Initial Rating Date: December 5, 2007
Last Rating Date: March 23, 2021
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