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 positive operating leverage and a very low cost of risk enabled the Group to report strong results in 2022. We anticipate revenues to benefit in 2023 from rising interest rates, which should offset the negative pressure of inflation on operating expenses and an expected higher cost of risk stemming from the current stressed environment.
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. In our view, this provides Belfius with sufficient cushion amidst the current market volatility.
Belfius maintained sound asset quality metrics in 2022, as asset quality has not shown any sign of deterioration so far. However, we expect geopolitical tensions, rising interest rates and high inflation to lead to a rise in defaults, although we view Belfius’s solid asset quality metrics and low risk profile to be key mitigating factors.
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 prolonged period of weak profitability, a significant deterioration in asset quality, or a notable deterioration in capital buffers or funding profile.
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 as well as Private & Wealth 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 975 million in 2022, up from a net attributable profit of EUR 935 million in 2021. Results were driven by a strong revenue growth which absorbed higher operating expenses. The Group reported in particular strong growth in net interest income as well as solid performance in insurance whilst the performance in other fees and commissions was more subdued. Results were also driven by a very low cost of risk compared to provision releases last year. We expect net interest income growth on the back of higher rates to boost revenues in 2023 and allow positive jaws to offset a potentially higher cost of risk related to the uncertain environment.
Risk Combined Building Block (BB) Assessment: Strong
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 consists of Belgian mortgages and loans to public entities. Belfius’ asset quality metrics remained strong at end-2022 with a reported gross NPL ratio of 1.82%, slightly improved from end-2021 as asset quality has not shown any sign of deterioration so far. Coverage levels remained solid at 59.6% compared to 60.4% in the same period. However, DBRS Morningstar expects geopolitical tensions, rising interest rates and high inflation to lead to a rise in defaults, although we view Belfius’s solid asset quality metrics and low risk profile to be key mitigating factors.
Funding and Liquidity Combined Building Block (BB) Assessment: Strong/Good
Belfius benefits from a solid funding profile, taking advantage of a strong and stable deposit base in Belgium. Customer funds, predominantly retail, represented 75.6% of the bank’s funding at end-2022, 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 (as calculated by DBRS Morningstar) of the commercial (i.e. core lending) banking balance sheet improved to 87% at end-2022, against 85% last year, driven by loan growth by 8.3% YOY to EUR 104 billion at end-2022 Belfius’ liquidity profile remains strong in 2022. Due to sizeable secured funding, encumbered assets were a relatively high, 22.3% of Belfius Bank’s total bank balance sheet. Despite this, Belfius Bank’s liquidity position is robust with an available liquid asset buffer of EUR 46.2 billion, representing around five times the outstanding wholesale funding with maturity below one year of EUR 9.3 billion at end-2022. The Liquidity Coverage Ratio (LCR) ratio stood at 173% and Net Stable Funding Ratio (NSFR) was 135% at end-2022.
Capitalisation Combined Building Block (BB) Assessment: Good
DBRS Morningstar views Belfius’ capitalisation as solid. In 2022, the Group maintained strong capital ratios, reporting a fully loaded Basel III Common Equity Tier 1 (CET1) under the Danish compromise of 16.5% fairly stable from 16.4% at end-2021. Belfius also reported a strong total capital ratio of 19.8% stable YOY. This provides Belfius with ample cushions over the 2023 CET1 and total capital requirements of 10.05% (with the new P2R requirement of 2.13% including the NPE P2R add-on from March 2022 onwards and the new National Bank of Belgium Sectoral Systemic Risk buffer of 0.30% as of May 2022) and 14.48%. The fully loaded Basel 3 leverage ratio for the Group (under the Danish compromise) remained relatively high at year-end 2021 at 6.3%. Belfius also reported at Group level a 193% Solvency II ratio, well above the 100% minimum requirement. With EUR 18.4 billion of MREL at end-2022, (MREL ratio of 10.3% of Total Leverage Exposure at end-2022), DBRS Morningstar considers that Belfius already maintains an ample cushion over its final biding MREL requirements of 6.87% for 2024.
Further details on the Scorecard Indicators and Building Block Assessments can be found at https://www.dbrsmorningstar.com/research/411023
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/ Social/ Governance factor(s) that had a significant or relevant effect on the credit analysis
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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).
All figures are in EUR unless otherwise noted.
The principal methodology is the Global Methodology for Rating Banks and Banking Organisations https://www.dbrsmorningstar.com/research/398692 (June 23, 2022). In addition DBRS Morningstar uses the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings, https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022) in its consideration of ESG factors.
The sources of information used for this rating include Morningstar Inc. and Company Documents, Belfius Q4 2022 Supporting Slides, Belfius Q4 2022 Full Presentation to Analysts and Belfius Q4 2022 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: NO
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.
The conditions that lead to the assignment of a Negative or Positive trend are generally 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: https://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/411022
This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.
Lead Analyst: Arnaud Journois, Vice President – Global FIG
Rating Committee Chair: William Schwartz - Senior Vice President - Credit Practices Group
Initial Rating Date: December 5, 2007
Last Rating Date: March 22, 2022
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