CRÉDIT AGRICOLE S.A.
Fitch Ratings has published
A full list of rating actions is below.
Key Rating Drivers
Support Drives IDR: CAnb's IDRs and Shareholder Support Rating (SSR) reflect our view of a very high probability of support from ultimate parent
Modest Franchise Focussed on Mortgages: CAnb's VR is supported by the bank's conservative risk appetite, strong asset quality and adequate capitalisation, which benefits from ordinary support from its shareholders. While our assessment of the bank's franchise considers the benefits of it being part of CA, it is constrained by CAnb's small size and niche business model, which limit pricing power and profitability.
Conservative Risk Profile: CAnb's risk profile is a rating strength and reflects conservative underwriting standards. The bank has continued to invest to improve its risk controls and systems, including a new core banking system that will support growth. CAnb has access to risk-management expertise from CA and ensures that best practices are swiftly adopted.
Healthy Asset Quality: Asset quality is sound, with an unchanged impaired loan ratio of 1.1% at end-2021, and has remained stable in recent years. CAnb's asset quality benefits from low levels of arrears and the loan book being secured on residential properties in
Weak Profitability Likely to Improve: Profitability is moderate and remains a rating weakness. The bank's operating profit increased to 0.6% of risk-weighted assets (RWAs) at end-2021, having been supported by reduced IT expenditure and rising interest rates. We expect the ratio to increase to around 1% through the cycle as the bank benefits from stronger net interest margins, greater scale and increased fee and foreign-exchange income. We expect increased profitability to be partially offset by higher loan impairment charges due to increased macroeconomic uncertainty.
Adequate Capital Ratios: CAnb's common equity Tier 1 (CET1) ratio of 17.6% at end-2021, calculated under Swiss GAAP, is adequate for the bank's risk profile and provides a solid buffer over regulatory requirements. We expect the bank to continue to benefit from ordinary capital support from its shareholders, if needed, to support the bank's growth strategy. CAnb's leverage ratio of 6.7% is sound and compares strongly with peers'.
Funding and Liquidity Support: CAnb benefits from ordinary support from CA group entities, which provides about half of the bank's funding needs. We believe this funding is stable and will remain available to CAnb, which partly mitigates the bank's high loan-to-deposit ratio of 281% at end-1H22.
Liquidity is adequate and consists of central bank deposits and a small, conservatively invested securities portfolio. CAnb also benefits from a committed liquidity facility provided by CA. CAnb's Short-Term IDR of 'F1' is the baseline option mapping to an 'A' Long-Term IDR and is in line with that of the parent.
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
CAnb's IDRs and SSR would be downgraded if CA's IDRs are downgraded. The ratings could also be downgraded if CA's propensity to provide support to CAnb decreases.
CAnb's VR would come under pressure if the bank is unable to consistently achieve operating profit greater than 0.5% of RWAs. We could also downgrade the VR if asset quality and risk appetite deteriorate substantially, which Fitch does not expect, or if ordinary support from shareholders is materially reduced.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
CAnb's IDRs and SSR would be upgraded if CA's IDRs are upgraded. The ratings could also be upgraded if CA's propensity to provide support to CAnb increases, such as through further integration and inclusion of CAnb in CA's mutual support mechanism.
An upgrade to CAnb's VR is unlikely in the near term unless its franchise and business model strengthens and results in materially improved earnings and profitability.
VR ADJUSTMENTS
The 'bbb' business profile score is above the 'bb' category implied score due to the following adjustment reason: group benefits and risks (positive)
The 'a-' capitalisation & leverage score is below the 'aa' category implied score due to the following adjustment reason: size of capital base (negative)
The 'bbb+' funding & liquidity score is above the 'b & below' category implied score due to the following adjustment reason: liquidity access and ordinary support (positive)
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
CAnb's IDRs and SSR are driven by shareholder support from CA.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
(C) 2023 Electronic News Publishing, source
