NIBC Bank N.V

NIBC Bank N.V. Primary Credit Analyst: Letizia Conversano, Dublin 353 1 568 0615; [email protected] Secondary Contact: Nicolas Hardy, Paris (33) 1-4420-7318; [email protected] Table Of Contents Major Rating Factors Outlook Rationale Related Criteria Related Research WWW.STANDARDANDPOORS.COM/RATINGSDIRECT SEPTEMBER 5, 2019 1 NIBC Bank N.V. Additional SACP bbb Support +1 0 + + Factors Anchor bbb+ Issuer Credit Rating ALAC +1 Business Support Weak Position -2 BBB+/Stable/A-2 Capital and GRE Support Strong 0 Earnings +1 Risk Position Adequate 0 Group Resolution Counterparty Rating Support 0 Funding Average A-/--/A-2 0 Sovereign Liquidity Adequate Support 0 Major Rating Factors Strengths: Weaknesses: • Large capital buffer. • Niche strategy in corporate banking and mortgage • Highly-collateralized loan book. franchises, combined with the constant search for • Agile business model, and prudent foray into new the next growth drivers. areas, facilitating the required build-up of sector • Exposure to potentially volatile segments such as expertise. shipping, commercial real estate, and oil and gas. • Business model more sensitive to market confidence than larger universal banks in NIBC's key markets. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT SEPTEMBER 5, 2019 2 NIBC Bank N.V. Outlook: Stable The stable outlook on NIBC Bank N.V. reflects S&P Global Ratings' view that the bank will preserve its robust capitalization and sound asset quality. We expect NIBC to keep pursuing moderate balance-sheet growth over the next two years while maintaining its risk-controlled niche strategic focus. We expect its funding profile to remain aligned with that of other domestic peers. This implies that the bank's retail deposits will remain stable over time and constitute the majority of NIBC's funding base, while its wholesale funding remains well-diversified and strongly biased toward long-term maturities. The outlook also incorporates our belief that the bank will be able to maintain a buffer of bail-in-able instruments comfortably above 5.5% of projected S&P Global Ratings risk-weighted assets (RWAs) over the next 24 months. Upside scenario We currently see no upside to the bank's stand-alone credit profile (SACP), which we assess at 'bbb', given the bank's market sensitive business model and niche strategy. An upgrade could come from the build-up of more sustainable client-driven activities on both sides of the balance-sheet. However, we do not contemplate this scenario for the moment. Downside scenario We could lower our long-term rating on NIBC if we saw greater risk appetite or business concentration, which could result in a deterioration of the bank's asset quality or earnings stability. We could also lower the rating if the bank's capacity to attract and retain sources of stable funds at moderate costs--be it on the wholesale markets or via retail deposits--were to falter. Finally, a negative action could also be prompted by the additional loss-absorbing capacity (ALAC) buffer protecting senior creditors falling short of our expectation that it will remain above 5.5% of S&P Global Ratings' RWAs over the outlook horizon. This could happen, for example, because of a more aggressive capital policy than currently expected. Rationale Our rating rationale on NIBC captures the bank's sound capitalization, which, combined with the well-collateralized loan book and risk management expertise in the sectors the bank operates in, underpins its financial profile. In particular, we anticipate our risk-adjusted capital (RAC) ratio to remain well above 10% through to year-end 2021. Moreover, the 'BBB+' rating also benefits from our view that the bank has soundly progressed in the build-up of additional loss-absorbing buffers, therefore granting its senior creditors an enhanced level of protection in the event of a resolution scenario. This is reflected in one notch of (ALAC) above the bank's SACP. We continue to believe that a strong capitalization is important to NIBC's capacity to attract funding at moderate costs and, therefore, to its earnings prospects, given the bank's market sensitive business model. In this regard, we believe that NIBC's business strategy will remain focused on niche corporate and mortgage franchises, profitable but still limited relative to large and more diverse banks operating in its key markets. Furthermore, we believe that NIBC will continue to be subject to potential volatility or more pronounced credit cycles in its chosen segments, particularly from its riskier corporate banking activities. This limits any upside at this stage, in WWW.STANDARDANDPOORS.COM/RATINGSDIRECT SEPTEMBER 5, 2019 3 NIBC Bank N.V. our view. The starting point for our ratings on NIBC is its 'bbb+' anchor, which we base partly on our view of the weighted-average economic risks across the countries in which it operates. We then adjust for four institution-specific factors, as detailed below, to determine the group credit profile (GCP), currently 'bbb'. Anchor: A wealthy and currently well-performing open Dutch economy, prone to volatility, and with a highly leveraged private sector Although NIBC is exposed to other countries--mainly Germany and the U.K.--our assessment of economic risks in The Netherlands, where the majority of NIBC's exposures reside, is what mainly drives our blended economic risk score. We currently calculate its blend of economic risks to be close to '3 'on a scale of 1-10 ('1' is the lowest risk and '10' is the highest). We base our assessment of economic risk on our view that the Dutch economy is wealthy, diversified, open, and competitive. We see this in the country's high income per capita, net external asset position, recurrent and elevated current account surpluses, and a long track record of prudent and flexible macroeconomic policies in a 'AAA'-rated country. The Dutch economy continues to perform well, and we forecast above-eurozone-average real GDP growth of 1.7% in 2019 and 1.5% on average over 2020-2022, with low unemployment, at about 3.3%. We believe this environment continues to uphold banking activities in the country. However, we also consider that the very open nature of the Dutch economy is a source of volatility. The current global trade tensions and the uncertainty around Brexit will contribute to the slowdown of economic growth in Europe, according to our estimates. Private sector leverage, on a gross basis, remains among the highest in the world and constrains the structural ability of the Dutch economy to easily withstand potential external shocks. Economic imbalances have not receded in recent years because of a very dynamic real estate market. Nominal property prices rose by 8.5% in 2017 and 9.2% in 2018, and we project 6.3% growth this year. Household indebtedness will reduce over time, with the gradual shift from interest-only (non-amortizing) mortgages, but improvements so far have hardly been visible in absolute terms. Our assessment of industry risks for Dutch banks incorporates high domestic concentration and our view of steady competition. We consider that the prospective profitability of domestic banking activities is adequate. We particularly note supportive price discipline in the competitive mortgage segment. Some of the large banks have completed sizable restructuring efforts and cost-optimization programs continue to counter the persistently low interest rates. Cost of risk also remained at low levels, mitigating asset repricing. The system's relatively large reliance on wholesale funding is partly attributable to households' propensity to save in life insurance and pension products, rather than in bank deposits. We consider that Dutch system-wide funding benefits from, among other things, the depth of the domestic capital market and the Dutch authorities' good track record in providing liquidity support. Table 1 NIBC Holdings N.V. Key Figures (Mil. €) 2019* 2018 2017 2016 2015 Adjusted assets 21,517 21,548 22,145 23,492 23,153 Customer loans (gross) 17,502 17,231 17,131 17,253 16,517 Adjusted common equity 1,543 1,483 1,726 1,595 1,617 Operating revenues 251 551 559 391 354 WWW.STANDARDANDPOORS.COM/RATINGSDIRECT SEPTEMBER 5, 2019 4 NIBC Bank N.V. Table 1 NIBC Holdings N.V. Key Figures (cont.) (Mil. €) 2019* 2018 2017 2016 2015 Noninterest expenses 116 239 233 206 189 Core earnings 89 229 216 87 87 *Data as of June 30. Business position: Niche franchises, but long-standing selected corporate sectorial expertise We consider NIBC's niche franchises in both its corporate and retail segments, our view of potential volatility in some of the bank's sectors, and modest overall market position to be factors that may jeopardize the predictability of the bank's earnings stability over time. In our view, NIBC's continued focus on managing and reducing high-risk exposures partially offsetting these factors. With total assets of €21.5 billion at June. 30, 2019, NIBC is a midsize bank within the overall Dutch system. We consider the bank's activities to be less diversified than its larger domestic peers (ABN AMRO, ING, and Rabobank), which also benefit from the strength of their long-standing franchises. Furthermore, we compare NIBC with smaller Dutch banks and other lenders--including De Volksbank and Van Lanschot, and international peers such as CYBG PLC, Bank of Ireland, Deutsche Pfandbriefbank AG, and Danmarks Skibskredit (see chart 1). Chart 1 WWW.STANDARDANDPOORS.COM/RATINGSDIRECT SEPTEMBER 5, 2019 5 NIBC Bank N.V. The majority of NIBC's corporate banking income originates from lending and providing advisory services to mid-cap companies in the Benelux region and Germany, and internationally to a few niche sectors--including infrastructure, shipping, and oil and gas. We regard the bank's consumer banking franchise (NIBC Direct), which mainly comprises online deposit-gathering activities and mortgage lending, as relatively limited.

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