Fitch affirms Viability Rating Rabobank and removes RWN. Long-Term IDR downgraded to ‘A+’, Outlook Negative

On 15 September 2020 Fitch downgraded Rabobank's Long-Term and Short-Term Issuer Default Ratings ('IDR's) to 'A+' and 'F1' from 'AA-' and 'F1+', respectively. The Outlook on the Long-Term IDR is Negative. At the same time Fitch has affirmed Rabobank's Viability Rating (VR) at 'a+' and removed it from Rating Watch Negative (RWN).

The downgrade of the IDR’s is driven by a ‘technical’ aspect of Fitch’s methodology. Until now Rabobank's Long-Term IDR and senior debt ratings (including senior non-preferred debt) benefitted from a one-notch uplift above its VR due to a large buffer of qualifying junior debt (‘QJD’), consisting of AT1 and Tier 2 debt instruments. Today's downgrade of the Long-Term IDR to the level of Rabobank's VR reflects Fitch's view that Rabobank's QJD will no longer sustainably exceed 10% of its risk-weighted assets (‘RWA’). As a result, Rabobank's senior non-preferred ('SNP') debt has been downgraded one notch.
 
Under Fitchʼs methodology for any bank the lowest ranking layer of senior debt is the reference liability for the Long-Term IDR. Now that Rabobank has started issuing SNP, the reference liability for our Long-Term IDR has changed to SNP from senior preferred ('SP') debt previously. Because of this change in reference liability and Rabobank's SNP now being downgraded, also Rabobankʼs Long-Term IDR has been downgraded one notch. Please note that our SP debt rating has been affirmed at 'AA-', as SP debt continues to benefit from the protection offered by the QJD and SNP debt buffers (the combined buffer of QJD and SNP exceeds 10% of RWA).
 
At the same time Fitch affirmed Rabobank's VR and has taken it off RWN because it expects the bank's capitalisation, scored 'a+' and considered a rating strength, to remain sufficiently robust to offset the likely material deterioration of the bank's asset quality and earnings (both scored 'a-') over the next two years as a result of the impact of COVID-19. The Negative Outlook on the Long-Term IDR reflects downside risks to this expectation from a potentially greater-than-expected or more permanent deterioration in asset quality, or delays to the recovery of profitability towards Rabobank's longer-term average levels.

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