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Banks’ standalone credit assessments currently above the sovereign rating likely to decline, in line with Moody’s global guidance
Singapore, April 30, 2012 — Moody’s Investors Service has today placed on review for downgrade three banks in India, whose standalone credit assessments are currently positioned above India’s sovereign debt rating. The debt and deposit ratings for all three banks are unaffected. Today’s announcements reflect Moody’s revised assessment of the linkage between the credit profiles of sovereigns and financial institutions globally, which is further discussed in the rating implementation guidance “How Sovereign Credit Quality May Affect Other Ratings” published on 13 February, 2012.
Consistent with this guidance, Moody’s expects to position the standalone credit assessments of most banks globally at (or below) the rating of the sovereign where the bank is domiciled.
Moody’s expects to conclude the reviews within approximately three months. A detailed list of the banks and ratings affected by this announcement can be found at the end of the press release.
RATINGS RATIONALE
- REVIEW OF STANDALONE RATINGS ABOVE THE SOVEREIGN DEBT RATING
Moody’s believes that the creditworthiness of financial institutions with low cross-border operational diversification and/or high balance-sheet exposures to the debt of their domestic sovereign is closely linked to that sovereign’s credit strength. Banks with these characteristics are unlikely to have standalone credit assessments above the sovereign, which is often viewed as the lowest credit risk in the local market or currency.
During the reviews, Moody’s will assess the degree to which the issuer’s standalone credit profile is correlated with that of the sovereign. The reviews will take into account (i) the extent to which the banks’ business depends on the domestic macroeconomic and financial environment; (ii) the degree of reliance on market-based, and therefore more confidence-sensitive, funding; and (iii) direct or indirect exposures to domestic sovereign debt, compared with their capital bases.
Overall, for most of the affected banks, Moody’s expects that most standalone credit assessments will be rated at the same level as their domicile sovereigns’ debt ratings, once the rating agency has concluded the reviews. Exceptions may arise in cases where banks’ linkages with sovereign risk are mitigated by high levels of cross-border diversification (operations and earnings) and low levels of sovereign debt holdings.
- LOCAL-CURRENCY DEPOSIT AND ISSUER RATINGS
Moody’s ratings incorporate assumptions about external support through its joint-default analysis (JDA) methodology. As a result, issuers whose standalone credit strength is positioned below or at the sovereign rating level will continue to benefit from the availability of external sources of support, either from a higher-rated foreign parent and/or government (or systemic) support, where applicable.
Moody’s expects that some banks’ local-currency deposit and debt ratings may continue to benefit from rating uplift due to systemic or parental support assumptions; however, the degree of uplift will depend on their systemic importance or shareholder composition that includes a higher-rated parent. The level of external support and the positioning of the standalone credit assessment will determine the extent of each bank’s local-currency deposit and debt rating downgrades.
- FOREIGN-CURRENCY DEPOSIT AND ISSUER RATINGS
The foreign-currency deposit ratings of some of the affected banks are lower than their standalone credit assessments, as they are constrained by relatively low foreign-currency deposit ceilings in their respective countries. Therefore, Moody’s expects that these ratings are unlikely to be affected by the downgrade of the banks’ standalone credit assessments.
In certain cases, the foreign-currency issuer ratings are positioned higher than the foreign-currency deposit ratings. As a result, some banks’ foreign-currency issuer ratings will be affected by their standalone credit assessment downgrades.
KEY RATING DRIVERS
For the affected three banks, the key rating drivers are (i) the level of cross-border diversification of their operations; (ii) the level of balance-sheet exposure to domestic sovereign debt, compared with their capital bases; (iii) franchise resilience and intrinsic strength within the operating environment; (iv) shareholder composition and the rating of the parent bank incorporated in Moody’s JDA; and/or (v) the assumptions for systemic support available to a bank in case of need.
LIST OF RATING ACTIONS
The following rating actions were taken:
- ICICI Bank Limited’s C-/baa2 standalone bank financial strength rating/baseline credit assessment placed on review for downgrade; Baa2 foreign currency long-term senior unsecured debt rating, (P)Baa2 foreign currency long-term senior unsecured debt program rating, Baa2 long-term local currency bank deposit rating, Prime-2 short-term local currency bank deposit rating, Baa3 long-term foreign-currency deposit rating, Prime-3 short-term foreign currency bank deposit rating, Baa3 foreign currency subordinated debt rating, (P)Baa3 foreign currency subordinated debt program rating, Ba1 foreign currency junior subordinated debt rating, (P)Ba1 foreign currency junior subordinated debt program rating and Ba2 hybrid debt rating unaffected.
- HDFC Bank Limited’s C-/baa2 standalone bank financial strength rating/baseline credit assessment placed on review for downgrade; Baa2 foreign currency long-term senior unsecured debt rating, (P)Baa2 foreign currency long-term senior unsecured debt program rating, Baa2 long-term local currency bank deposit rating, Prime-2 short-term local currency bank deposit rating, Baa3 long-term foreign-currency deposit rating, Prime-3 short-term foreign currency bank deposit rating, Baa3 foreign currency subordinated debt rating, (P)Baa3 foreign currency subordinated debt program rating, Ba1 foreign currency junior subordinated debt rating, (P)Ba1 foreign currency junior subordinated debt program rating and (P)Ba2 hybrid debt rating unaffected.
- Axis Bank Limited’s C-/baa2 standalone bank financial strength rating/baseline credit assessment placed on review for downgrade; Baa2 foreign currency long-term senior unsecured debt rating, (P)Baa2 foreign currency long-term senior unsecured debt program rating, Baa2 long-term local currency bank deposit rating, Prime-2 short-term local currency bank deposit rating, Baa3 long-term foreign-currency deposit rating, Prime-3 short-term foreign currency bank deposit rating, Baa3 foreign currency subordinated debt rating, (P)Baa3 foreign currency subordinated debt program rating, Ba1 foreign currency junior subordinated debt rating, (P)Ba1 foreign currency junior subordinated debt program rating and Ba2 hybrid debt rating unaffected.
PRINCIPAL METHODOLOGIES
The methodologies used in these ratings were Bank Financial Strength Ratings: Global Methodology published in February 2007, and Incorporation of Joint-Default Analysis into Moody’s Bank Ratings: Global Methodology published in March 2012. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued by one of Moody’s affiliates outside the EU are endorsed by Moody’s Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
The ratings have been disclosed to the rated entities or their designated agent(s) and issued with no amendment resulting from that disclosure.
Moody’s considers the quality of information available on the rated entities, obligations or credits satisfactory for the purposes of issuing these ratings.
Moody’s adopts all necessary measures so that the information it uses in assigning the ratings is of sufficient quality and from sources Moody’s considers to be reliable including, when appropriate, independent third-party sources. However, Moody’s is not an auditor and cannot in every instance independently verify or validate information received in the rating process.