(The following statement was released by the rating agency)
LONDON/PARIS, July 24 (Fitch) Fitch Ratings has affirmed Credit du Nord's (CN)
Long-term Issuer Default Rating (IDR) at 'A' with a Stable Outlook, Short-term
IDR at 'F1', Viability Rating (VR) at 'bbb+' and Support Rating (SR) at '1'. A
full list of rating actions is at the end of this rating action commentary.
KEY RATING DRIVERS - IDRS AND SENIOR DEBT
CN's IDRs (and senior debt) are driven by Fitch's view that there is an
extremely high probability of support from its 100% shareholder, Societe
Generale (SG, A/Stable/F1) and as such are aligned with SG's. SG's IDRs are
based on potential support available from the French state in case of need. In
Fitch's view, this support would flow through to CN, as an important contributor
to SG group's French retail and commercial banking network. For this reason,
CN's IDRs (and senior debt) are equalised with SG's.
CN is core to SG's overall domestic retail banking strategy. CN, which operates
under its own name and through a network of eight regional commercial banks, is
an integral part of SG's French retail business and generates one-quarter of
SG's domestic retail banking operating profit. CN's management is strongly
integrated within SG, which oversees CN's credit, market and liquidity risk
policies and provides CN with its expertise in management and risk tools.
CN is of limited size relative to SG (5% of total assets), which makes financial
support from SG easier to provide, even if SG faced financial stress. This
consideration is an additional factor driving Fitch's equalisation of CN's IDRs
with SG's. Unless CN's integration with or strategic importance to SG
diminishes, which is extremely unlikely, CN's IDRs will continue to move in
tandem with SG's.
The Stable Outlook on CN's Long-term IDR is aligned with SG's and indirectly
reflects the Stable Outlook on France's Long-term IDR, given that SG's Long-term
IDR is based on potential support from the French state.
RATING SENSITIVITIES - IDRS AND SENIOR DEBT
CN's IDRs (and senior debt) are sensitive to a change in SG's IDRs. Unless its
integration with or strategic importance to SG diminishes, CN's IDRs will
continue to move in tandem with SG's.
KEY RATING DRIVERS - SUPPORT RATING
CN's Support Rating of '1' reflects Fitch's view that there is an extremely high
probability that SG would support CN in case of need, given the full ownership
by SG, CN's strong integration with SG, and its contribution to SG's retail
RATING SENSITVITIES - SUPPORT RATING
The Support Rating would be downgraded if Fitch reassessed SG's propensity to
provide timely support to CN, or if SG's capacity to provide support, as
assessed by its 'A' Long-term IDR, was significantly altered.
KEY RATING DRIVERS - VR
CN's VR reflects management's ability to deliver recurring profitability in a
difficult operating environment due to its solid retail franchise, sound
business profile, and conservative market and liquidity risk management. It also
factors in a relative dependence -albeit declining- on short-term wholesale
funding, only average asset quality and only acceptable capital ratios.
CN's profitability should be lower in 2013 than 2012 due to decreased lending
activity and higher impairment charges, given subdued economic prospects in
France. However, CN's ability to maintain comfortable margins and control
operating costs should offset pressures and enable CN to record satisfactory
CN's credit risk, which is the main risk the bank is exposed to, is of
acceptable quality. Impaired lending accounts for a higher proportion of gross
loans for CN (6.3% at end-Q113) than the average for the French retail banks,
mainly because CN has a larger share of higher risk SMEs and professionals in
its loan book. The 56.8% reserve coverage ratio on impaired loans and the 35%
unreserved loans/equity ratio compares unfavourably with French retail banks.
However, Fitch views it as acceptable given the bank's track record of low
CN has an acceptable funding profile. It has some dependence on short-term
wholesale funding (around EUR3bn in certificates of deposits -CDs - at
end-Q113), but the bank is progressively replacing CDs with medium-term debt. In
Q113, CN focused on building a comfortable buffer against potential liquidity
pressures (EUR7.5bn of assets repo-able with the ECB at end-Q113). Additionally,
CN benefits from a solid retail funding base. At end-Q113 client deposits
accounted for around two-thirds of CN's funding (excluding equity). CN is not
dependent on SG for its financing.
The agency considers CN's Fitch core capital ratio (10.5% at end-Q113), to be
acceptable in light of the bank's risk profile.
RATING SENSITIVITIES - VR
CN's VR would benefit from stronger capital ratios and from lower impaired loan
ratios. Conversely, a marked deterioration in asset quality and/or capital
ratios, or higher liquidity risk, would put pressure on the VR.
The rating actions are as follows:
Long-term IDR: affirmed at 'A'; Outlook Stable
Short-term IDR: affirmed at 'F1'
VR: affirmed at 'bbb+'
Support Rating: affirmed at '1'
Long-term debt: affirmed at 'A'
BMTN programme: affirmed at 'A'
EMTN programme: Long-term affirmed at 'A', Short-term affirmed at 'F1'
CDs: affirmed at 'F1'
+33 1 44 29 91 42
Fitch France S.A.S
60 rue de Monceau
+44 20 3530 1126
Erwin van Lumich
+34 93 323 8403
Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email:
Additional information is available on www.fitchratings.com
Applicable criteria, 'Global Financial Institutions Rating Criteria', dated 15
August 2012, 'Evaluating Corporate Governance', dated 12 December 2012 are
available at www.fitchratings.com.
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
Evaluating Corporate Governance
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