Paris, September 21, 2022 – Moody’s Investors Service (“Moody’s”) today affirmed BNP Paribas Personal Finance’s (BNPP PF) long-term deposits and issuers a rating of Aa3. Moody’s has also confirmed BNPP PF’s P-1 rating for short-term deposits and issuers, its Aa3(cr)/P-1(cr) counterparty risk (CR) assessments and its Aa3/P-1 counterparty risk ratings (CRRs). . . In addition, Moody’s confirmed the Bank’s Baseline Credit Assessment (BCA) of ba1 and Adjusted BCA of baa1, which include three tiers of related support from the firm’s ultimate parent, BNP Paribas (BNPP, Aa3/Aa3 stable, baa1). The outlook for long-term deposit and issuer ratings is stable.
REASONS FOR VALUATION
BCA and long-term ratings
The confirmation of BNPP PF’s BCA by ba1 reflects the institution’s robust position as a specialist consumer finance firm with significant market shares, primarily in Europe. BNPP PF consolidates most of the consumer finance activities of the BNPP Group in its accounting area such as France, Italy, Spain or the UK, but is also closely involved in the consumer finance activities of other BNPP subsidiaries, for example in Belgium, Germany or North Africa. The BCA takes into account the relatively high risk profile of BNPP PF’s loan book compared to its closest peers and the European retail banking average. At the same time, asset risks are partially mitigated by BNPP PF’s geographic diversification; its focus on stable European operating environments for growth; and a gradual rebalancing of products in favor of less risky products such as auto loans. Moody’s believes that continued inflationary pressures are likely to increase loan losses, although the increasing share of auto loans will mitigate downside risks.
The BCA also reflects BNPP’s modest profitability, which has declined over the past five years in part due to the very low interest rate environment in Europe. The pandemic also negatively impacted lending due to repeated lockdown measures. In addition, changing consumer needs have necessitated significant investments to transform BNPP PF’s infrastructure. Moody’s expects the impact of rising inflationary pressures on bank spending, risk costs and lower lending over the forecast horizon to offset somewhat the positive impact of earnings repricing.
The BCA also takes into account BNPP PF’s heavy reliance on BNPP for its funding and liquidity management and takes into account the company’s modest capitalization (Common Equity Tier 1 (CET1) ratio is 10.2% at year-end 2021). Capital will be optimized at group level and Moody’s expects the capital retention to be aligned with BNPP PF’s capital needs and support future growth ambitions.
The confirmation of BNPP PF’s baa1 Adjusted BCA reflects Moody’s view of a very high probability of support from BNP Paribas. This is underpinned by (1) BNPP PF’s strategic position as the Group’s operating arm for the Group’s consumer finance activities, one of the core businesses of BNPP and several of its international subsidiaries; (2) Integration of BNPP PF into the management of the group, resulting in a very high level of dependency and interdependence between BNPP and BNPP PF in terms of capital, funding and asset and liability management.
The confirmation of BNPP PF’s Aa3 long-term deposit and issuer rating reflects Moody’s view that BNPP PF would be included in BNPP’s resolution arm. BNPP PF’s issuer and deposit ratings of Aa3 are therefore based on (1) its baa1 Adjusted BCA; (2) the application of Moody’s Advanced Loss Given Failure (LGF) analysis at the BNPP level, resulting in a three notch increase over the adjusted BCA given the significant volumes in senior debt and subordinated deposits; and (3) an additional increase in government support, reflecting a moderate probability of government support.
Valuation Outlook
The outlook for long-term deposit and issuer ratings is stable, in line with BNP Paribas’ ratings outlook, which also reflects Moody’s expectation that BNPP PF’s proprietary credit profile will be resilient to the adverse impact of an inflationary environment on its asset risks should and profitability.
FACTORS THAT COULD RESULT IN AN UPGRADE OR DOWNGRADE IN RATINGS
BNPP PF’s BCA could be upgraded as a result of a significant and sustained increase in profitability or capital or a material reduction in asset risk. An upgrade of BCA is unlikely to result in an upgrade of its issuer and deposit ratings as these are constrained by BNPP’s ratings. BNPP PF’s issuer and deposit ratings could be upgraded if BNPP’s ratings were upgraded.
BNPP PF’s BCA could be downgraded in the event of a material deterioration in its asset quality, solvency or liquidity and funding support from its parent company. A BCA downgrade does not necessarily imply a downgrade in issuer or deposit ratings if we conclude that BNPP support would remain very strong. Finally, a downgrade of BNPP’s ratings would lead to similar action at BNPP PF.
LIST OF AFFECTED REVIEWS
..Issuer: BNP Paribas Personal Finance
Affirmations:
….Adjusted Baseline Credit Assessment, Confirmed baa1
….Basic credit check, confirmed ba1
….Long-term counterparty risk rating, confirmed Aa3(cr)
….Short-term counterparty risk assessment, confirmed P-1(cr)
….Long-term counterparty risk ratings, confirmed Aa3
….Short-term counterparty risk ratings, confirmed P-1
….Long-term issuer rating Aa3 confirmed, outlook remains stable
….Short-term issuer rating, confirmed P-1
….Long-term bank deposit rating Aa3 confirmed, outlook remains stable
….Short-term bank deposit rating, P-1, confirmed
Outlook action:
….Outlook remains stable
BASIC METHODOLOGY
The main methodology used in these ratings was the bank methodology published in July 2021 and available at https://ratings.moodys.com/api/rmc-documents/71997. Alternatively, you can check out the Assessment Methods page https://ratings.moodys.com for a copy of this methodology.
LEGAL DISCLOSURES
For more details on Moody’s key rating assumptions and sensitivity analyses, see the methodology assumptions and sensitivity to assumptions sections of the disclosure document. For Moody’s rating symbols and definitions, see https://ratings.moodys.com/rating-definitions.
For ratings provided for a program, series, category/class of debt instrument, or security, this announcement contains certain regulatory disclosures with respect to each rating of a subsequently issued bond or debenture of the same series, category/class of instrument, security or under a program for which ratings are derived solely from existing ratings in accordance with Moody’s rating practice. For ratings provided by a support provider, this notice contains certain regulatory disclosures in relation to the support provider’s credit rating action and in relation to each individual credit rating action for securities that derive their credit ratings from the support provider’s creditworthiness. For preliminary ratings, this announcement contains certain regulatory disclosures in relation to the preliminary rating assigned and in relation to a final rating that may be assigned after the final issuance of the Debt Instruments, in each case where the transaction structure and terms have not changed before issuing the final rating in a way that would have affected the rating. For more information, see the issuer’s issuer/deal page https://ratings.moodys.com.
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Oliver Panis
Senior Vice President
Group of financial institutions
Moody’s France SAS
96 Boulevard Haussmann
Paris, 75008
France
JOURNALISTS: 44 20 7772 5456
Customer Service: 44 20 7772 5454
Alain Laurin
Deputy General Manager
Group of financial institutions
JOURNALISTS: 44 20 7772 5456
Customer Service: 44 20 7772 5454
Approving office:
Moody’s France SAS
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France
JOURNALISTS: 44 20 7772 5456
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