Fitch Ratings has affirmed La Banque Postale's (LBP) Long-term Issuer Default Rating (IDR) at 'AA-' with a Negative Outlook, Short-term IDR at 'F1+', Viability Rating (VR) at 'bbb' and Support Rating at '1'. A full list of ratings actions is at the end of this comment.
Rating drivers and sensitivities-IDRs and support rating LBP's IDRs reflect Fitch's view that the bank would be supported, if required, by its 100% shareholder, La Poste (LP; 'AA'/Negative), France's state-owned post office, and ultimately by LP's owner, the French state ('AAA'/Negative).
Fitch considers the propensity of LP to support LBP to be extremely high in light of LBP's ownership by, strategic importance to and integration with LP. However, LP's financial condition is not sufficiently robust to ensure a direct flow of support to its sizeable subsidiary. At end-2011 LBP's equity was almost as large as LP's. In Fitch's view, support would ultimately be provided by the French state and probably through LP, whose own IDRs reflect potential support from the French state. LBP's Long-Term IDR is one notch lower than LP's to reflect Fitch's view of a potential timeliness problem in receiving support.
The Negative Outlook on LBP's Long-Term IDR matches that on France's and LP's Long-term IDRs. LBP's IDRs would be downgraded if the Long-term IDR of France and therefore of LP were downgraded. LBP's IDRs could also be downgraded if Fitch reassesses LP's and ultimately France's propensity to provide support to LBP, or if state control of LP diminishes, which Fitch does not expect.
Rating drivers and sensitivities-VR LBP's VR reflects its low-risk loan portfolio, ample liquidity and healthy funding structure, adequate capital position but also its high exposure to southern eurozone sovereigns (as a proportion of Fitch core capital, FCC) and limited ability to generate profits from its core business, retail banking.
LBP's credit risk is broadly sound. The quality of LBP's loan book, which is essentially retail and accounts for a small quarter of the balance sheet, is very good. Impaired loans represent less than 1% of total loans. However, Fitch expects credit risk to increase in the medium term from LBP's planned diversification into corporate financing. The bank's most significant credit risk is its exposure to southern European sovereign debt, which remains material in relation to FCC (151% at end-H112). This exposure has declined significantly (to EUR5.1bn at end-H112 from EUR8.6bn at end-2010) and the bulk of this credit risk is to Spain and Italy, which remain investment grade. Net exposure to Greek sovereign debt was minimal at end-H112 due to both repayment and impairments in 2011.
LBP's 2012 operating profitability should improve from the modest level reported in 2011 as the material impairment charges on Greek sovereign exposure will not be repeated. In addition, Fitch expects LBP's resilient retail business to support profitability.
LBP's liquidity is sound. The bank controls a 10.5% share of retail deposits in France and is predominantly retail funded. There is very low recourse to the wholesale market for funding, and LBP holds a comfortable liquid securities portfolio. Liquidity risk is closely monitored by the bank. Fitch views LBP's 9% FCC ratio, which benefited from a EUR860m increase of common equity in Q311, as only adequate, given the bank's exposure to GIIPS sovereigns.
If sovereign debt restructurings across the eurozone were to escalate, material required impairments on securities and consequent deterioration in the FCC ratio could put pressure on the VR. Conversely LBP's VR would benefit from a strengthened capital base and higher profitability. Fitch expects any potential acquisition of the troubled French housing loans specialist Credit Immobilier de France Developpement (CIFD, 'A'/Stable/'c'/'1') by LBP to be broadly neutral to LBP's financial strength and therefore to its VR. However, Fitch will evaluate the impact on LBP's VR if and when an acquisition takes place.