Ulster Bank Ireland DAC -- Moody's affirms long-term deposit ratings of Ulster Bank Ireland DAC and changes outlook to negative from positive

Rating Action: Moody's affirms long-term deposit ratings of Ulster Bank Ireland DAC and changes outlook to negative from positiveGlobal Credit Research - 01 Mar 2021London, 01 March 2021 -- Moody's Investors Service (Moody's) today affirmed the long- and short-term A3/Prime-2 deposit ratings, the Baa1/Prime-2 issuer ratings, the ba1 Baseline Credit Assessment (BCA) and the baa2 Adjusted BCA of Ulster Bank Ireland DAC (UBIDAC). As part of today's action, the agency also affirmed, UBIDAC's long- and short-term Counterparty Risk Ratings (CRRs) and Counterparty Risk (CR) Assessments at A2/Prime-1 and A2(cr)/Prime-1(cr), respectively. Additionally, Moody's changed the outlooks on the long-term deposit and issuer ratings to negative from positive.This rating action follows the announcement by NatWest Group plc (NWG, Baa2 positive, baa2) on 19 February 2020 that it intends to begin a phased withdrawal from the Republic of Ireland (A2 stable). The decision follows NWG's strategic review of wholly owned subsidiary UBIDAC, which concluded that the subsidiary would not achieve an acceptable level of sustainable returns over UBIDAC's planning horizon[1]. The phased withdrawal is expected to be executed over a multi-year period.A full list of affected ratings can be found at the end of this press release.RATINGS RATIONALE--- RATIONALE FOR THE BCA AND ADJUSTED BCAMoody's affirmation of UBIDAC's ba1 BCA reflects the agency's expectation of a deterioration in UBIDAC's loan book quality and ongoing weak profitability against which, UBIDAC's solid capital provides a strong loss absorbing cushion. The agency's expectation of a weakening in the loan book quality is on the back of the economic slowdown due to COVID-19, and due to the performing corporate and commercial loans being sold-off to peers. Furthermore, Moody's expects UBIDAC's profitability to remain weak due to the withdrawal decision resulting in deceleration in new credit origination. The agency expects UBIDAC's capital to remain at a high level during the withdrawal process. Overall, Moody's expects UBIDAC's liquidity profile to remain strong despite an expectation of a higher degree of deposit volatility as its activities reduce. Additionally, the BCA also incorporates the rating agency's view that the withdrawal process will be orderly and subject to close supervisory oversight but could nevertheless be subject to unexpected delays and or other non-financial risks.The affirmation of the baa2 Adjusted BCA reflects the maintenance of an assumption of a very high probability of affiliate support from UBIDAC's UK ringfenced sister companies resulting in two notches of uplift from the ba1 BCA. We expect NWG to provide ongoing support to UBIDAC during the phased withdrawal process to ensure continued compliance with regulatory capital and liquidity requirements and that the withdrawal process will be orderly while minimizing disruption to its existing client base.--- RATIONALE FOR THE AFFIRMATION OF THE DEPOSIT AND ISSUER RATINGS, CRRs AND CR ASSESSMENTThe affirmation of UBIDAC's A3 deposit ratings and Baa1 issuer ratings reflects the results of Moody's Advanced LGF analysis and the loss absorption provided by the presence of a modest amount of subordinated debt in UBIDAC's liability structure, as well as the substantial volume of deposits themselves. This results in two and one notches respectively of uplift from UBIDAC's baa2 Adjusted BCA.The affirmation of the A2 CRRs, and A2(cr) CR Assessment reflects UBIDAC's baa2 Adjusted BCA, and the result of Moody's Advanced Loss Given Failure (LGF) analysis. Moody's Advanced LGF analysis continues to incorporate three notches of uplift for CRRs and for the CR Assessment.Moody's assumption of a low probability of support from the Government of Ireland results in no further rating uplift.--- RATIONALE FOR THE OUTLOOK CHANGE TO NEGATIVEThe outlook change to negative from positive on the bank's long-term deposit and issuer ratings reflects uncertainties regarding the evolution of bank's liability structure during the earlier stages of the withdrawal process and the risk that there could be a material decline in the volume of junior deposits increasing the senior creditors' loss given failure. The negative outlook also reflects the potential for deterioration of the bank's financial profile in the course of the withdrawal process beyond the rating agency's central scenario, which might be partly or fully offset by its parent's ability to support it in case of need.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSGiven the negative outlook on the long-term deposit and issuer ratings of UBIDAC, the ratings of the bank are unlikely to be upgraded over the next 12-18 months. The outlook could return to stable because of sustained stability or an increase in the volume of junior deposits and available subordination, or due to an upgrade of the UBIDAC's UK ring-fenced sister banks, which currently carry a positive outlook, resulting in an offset of some of the negative pressures on UBIDAC's ratings.UBIDAC's deposit and issuer ratings could face downward pressure because of further reduction in the junior deposit volumes. The BCA could be downgraded if there is a weakening in the bank's solvency due to a significant deterioration in asset risk and profitably or due to pressure on the bank's liquidity or the stability of its deposit base. However, a one notch downgrade of UBIDAC's BCA would likely be offset by the benefit of affiliate support and not result in a lower Adjusted BCA nor downgrade of the ratings.LIST OF AFFECTED RATINGS..Issuer: Ulster Bank Ireland DACAffirmations:....Long-term Counterparty Risk Ratings, affirmed A2....Short-term Counterparty Risk Ratings, affirmed P-1....Long-term Bank Deposits, affirmed A3, outlook changed to Negative from Positive....Short-term Bank Deposits, affirmed P-2....Long-term Counterparty Risk Assessment, affirmed A2(cr)....Short-term Counterparty Risk Assessment, affirmed P-1(cr)....Long-term Issuer Rating, affirmed Baa1, outlook changed to Negative from Positive....Short-term Issuer Rating, affirmed P-2....Baseline Credit Assessment, affirmed ba1....Adjusted Baseline Credit Assessment, affirmed baa2Outlook Action:....Outlook changed to Negative from PositivePRINCIPAL METHODOLOGYThe principal methodology used in these ratings was Banks Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain 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.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, 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 issued the credit rating is available on www.moodys.com.REFERENCES/CITATIONS[1] Company Annual Report 19-Feb-2021Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Arif Bekiroglu Vice President - Senior Analyst Financial Institutions Group Moody's Investors Service Ltd. One Canada Square Canary Wharf London E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Nicholas Hill MD - Financial Institutions Financial Institutions Group JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Releasing Office: Moody's Investors Service Ltd. 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