Fitch: Coronavirus Leads to Rating Actions on Seven Dutch Banks

Van Lanschot Kempen NV

06/04/2020 17:55

(The following statement was released by the rating agency)


Fitch Ratings-Paris/London-April 06: Fitch Ratings took rating action on seven 
Dutch banks last week to reflect the downside risks to their credit profiles 
resulting from the economic and financial market implications of the coronavirus 
outbreak. The ultimate implications of the crisis on Dutch banks' credit 
profiles are unclear, but Fitch considers the risks to be skewed to the 
downside, which drove the rating actions.

The main actions were as follows:

-	Long-Term Issuer Default Rating (IDR) affirmed; Outlook Negative: ABN AMRO 
Bank N.V. at 'A+'

-	Long-Term IDRs affirmed; Outlooks Revised to Negative from Stable; de 
Volksbank N.V. at 'A-', Van Lanschot Kempen Wealth Management N.V. at 'BBB+'

-	Long-Term IDRs placed on Rating Watch Negative (RWN); Cooperatieve Rabobank 
U.A. at 'AA-', ING Groep N.V. at 'A+', NIBC Bank N.V. at 'BBB'

-	Long-Term IDR downgraded; Outlook Negative; Credit Europe Bank N.V. to 'B+' 
from 'BB-'.

We believe the banks for which we affirmed Long-Term IDRs and revised the 
Outlooks to Negative have headroom to emerge from the crisis with their ratings 
intact. This is because of the relative strength of their financial profiles at 
their rating levels and because sound capital buffers are important factors 
underpinning their ratings. However, the ratings could be downgraded if the 
economic and financial market disruption arising from the pandemic places 
sustained pressure on the banks' financial profiles, in particular on asset 
quality and profitability.

RWNs indicate that we see near-term pressure on the ratings and that the rating 
headroom within the current ratings is lower because of weaknesses in asset 
quality, earnings or capitalisation relative to the banks' rating levels and 
compared with domestic and international peers.

The most immediate downside rating sensitivity for all these banks' ratings now 
relates to the economic and financial market fallout arising from the 
coronavirus outbreak. The operating environment in the Netherlands will likely 
deteriorate significantly in 2020 and we have revised our outlook for the 
sector's operating environment to negative. The crisis is a clear risk to our 
assessment of asset quality and earnings for most banks and, in some instances, 
capitalisation. Pressure on the ratings could nevertheless be mitigated by the 
support packages offered by the Dutch government and the Dutch and European 
central banks, which should offset the impact of the probable contractions in 
Dutch and eurozone GDP in 2020.

Fitch forecasts a fall of more than 4% of GDP in the eurozone as a result of 
lockdown measures (see Global Economic Outlook - Crisis Update: 2 April 2020 at 
www.fitchratings.com). We assume containment measures can be unwound in 2H20, 
allowing for a sharp recovery in growth to close to 3% in 2021 for the eurozone.

However, the uncertainties surrounding these forecasts are extremely high and 
risks are on the downside. In the event that a longer lockdown period is 
required to contain the virus, the damage to 2020 GDP will be bigger. A 
plausible downside case, including a second wave of infections and a longer 
lockdown period, would see an even larger decline in output in 2020 and a weaker 
recovery in 2021.

Support measures announced by the Dutch government are expected to support the 
banks' asset quality and contain the increase in loan impairment charges in the 
short-to-medium-term and, to a lesser extent, cushion revenue generation 
erosion. Government support is large in relation to GDP (about 10%) and includes 
EUR1.5 billion in government guarantees on new bank loans for companies, a state 
contribution to labour costs for companies that lost more than 20% of their 
revenue, and temporary tax suspension.

However, we expect overall Dutch banks' asset quality to deteriorate as not all 
businesses will be able to weather the impact of the economic downturn unscathed 
and for loan impairments to rise despite the policy measures. Profitability will 
also be affected by lower business volumes and persistently low interest rates. 

We believe that the banks' capitalisation levels should help them withstand 
moderate pressures, as capital ratios are sound. On top of the European Central 
Bank's (ECB) relief on capital requirements, the Dutch Central Bank has  reduced 
the countercyclical buffer, and the systemic buffer for domestic banks. It will 
postpone the introduction of risk-weight floors on residential mortgage loans 
which was expected in 4Q20. These measures combined should release around EUR8 
billion capital for Dutch banks. The central bank's aim is to free up capital 
for lending, or provide headroom to absorb losses. Most Dutch banks have 
suspended dividend payments until 1 October 2020 following the ECB's 
recommendation.  

Deposits may see some outflows caused by liquidity pressures on smaller 
corporates, although we believe that stronger corporates will continue to access 
credit thanks to the government loan guarantee scheme, and that SMEs will be 
able to access the government guarantee scheme. Banks may see increased deposit 
outflows from savers, but Fitch expects overall liquidity to be supported by the 
central bank facilities which have been made available. Dutch banks have 
relatively high reliance on wholesale funding compared with European peers.  
Debt refinancing during the crisis will be could result in additional pressure 
on margins as investors will demand higher returns.

Contact: 

Andreea Playoust

Director, Banks

+33 1 44 29 91 71

Fitch France S.A.S.

60 rue de Monceau 

Paris 75008

Olivia Perney Guillot

Managing Director, Banks

+33 1 44 29 91 74

Konstantin Yakimovich

Senior Director, Banks

+44 203 530 1789

Michal Bryks

Director, Banks

+48 22 338 6293

Romain Levasseur

Associate Director, Banks

+33 1 44 29 91 76

Lukas Rollmann,

Associate Director, Banks

+33 1 44 29 91 22

Media Relations: Louisa Williams, London, Tel: +44 20 3530 2452, Email: 
louisa.williams@thefitchgroup.com.

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