OREANDA-NEWS. Fitch Ratings has affirmed NIBC Bank N.V.'s (NIBC) Long-term Issuer Default Rating (IDR) at 'BBB-' and its Short-term IDR at 'F3'. The Outlook on the Long-term IDR is Stable. Fitch has also affirmed NIBC's Viability Rating (VR) at 'bbb-'.

A full list of rating actions is available at the end of this rating action commentary.

KEY RATING DRIVERS

IDRS, VR AND SENIOR DEBT
NIBC's ratings reflect the bank's niche franchise and business model, which makes its performance more cyclical with fairly undiversified earnings and weaker operating margins than the industry average. They also factor in the bank's solid capitalisation and comfortable liquidity position and its ability to keep impaired loans reasonably low throughout the economic cycle.

NIBC's corporate business model is built around offering structured and asset-based financing to mid-cap companies, with a significant presence in cyclical industries (most notably, commercial real estate and shipping, which together comprise around a third of the bank's gross corporate exposure).

NIBC aims to reduce its above-average concentrations by reducing larger exposures and expanding in currently smaller segments, and combined with additional non-interest income revenues, improve its earnings diversification. Long tenors of existing loans, fairly limited volumes of new business, and a competitive market for advisory services mean a significant improvement in stable earnings generation may take time.

NIBC's pre-impairment profitability improved in 2014, but is structurally reliant on net interest income and under pressure from fairly narrow margins while the contribution of recurring fees remains minimal. Net interest margin widened in 2014, helped by firmer loan pricing and slightly lower funding costs.

For 2015 and 2016, Fitch expects improved profitability, supported by lower loan impairment charges in an improving domestic economy. We expect the improvements to come from increasing volumes as well as from more diversified revenues sources, including fee income and through its expanding retail activities. Fitch does not expect NIBC's risk appetite to increase in order to achieve these goals, and the bank has a track record of managing its asset quality reasonably well through a downturn, due to its sound collateral valuation and management.

Capitalisation and leverage remain strong and compare well with peers. At end-2014, NIBC's Fitch core capital (FCC)/risk-weighted assets ratio was 17.1% and tangible common equity/ tangible assets ratio was 7.6%. The sound capitalisation should, however, be considered in conjunction with still mediocre pre-impairment profit, which may be insufficient to absorb losses in case of a severe stress.

NIBC has reduced its reliance on wholesale funding in recent years, mainly by actively attracting retail savings. High proportion of term deposits and the Dutch deposit guarantee scheme contribute to the stability of this funding source, although Fitch expects that the bank may offer more competitive pricing than its larger domestic peers, particularly should competition increase for retail deposits. The bank maintains a comfortable buffer of liquid assets, which in our opinion, mitigates its refinancing risk.

SUPPORT RATING AND SUPPORT RATING FLOOR
The bank's Support Rating of '5' and Support Rating Floor of 'No Floor' reflect Fitch's view that while sovereign support is possible, it cannot be relied upon in case of need. In addition, legislative, regulatory and policy initiatives (including the implementation of the Bank Recovery and Resolution Directive (BRRD)) have substantially reduced the likelihood of sovereign support for European Union commercial banks in general.

Similarly, while there is a possibility that its owner, a consortium led by the private equity firm JC Flowers & Co, may support NIBC in case of need, Fitch is unable to adequately assess the owner's capacity to support and as a result potential support from its ultimate shareholders is not factored into NIBC's Support Rating.

SUBORDINATED AND HYBRID DEBT
NIBC's subordinated and hybrid debt is notched off the bank's VR.

Tier 2 debt issued by NIBC is rated one notch below the bank's VR to reflect the above-average loss severity of this type of debt.

Hybrid Tier 1 securities are rated four notches below NIBC's VR, reflecting the higher-than-average loss severity risk of these securities (two notches from the VR) as well as a high risk of non-performance (an additional two notches).

RATING SENSITIVITIES

IDRS, VR AND SENIOR DEBT
NIBC's company profile currently constrains the upside potential for its ratings. An upgrade would be contingent on a sustained track record of improved profitability, both in absolute terms and in the composition and quality of its earnings, resulting in an increased capacity to absorb shocks stemming from the bank's business model. Weakening of the bank's capitalisation, which currently serves as the main buffer against unexpected losses, and/or sharp deterioration of its liquidity position could result in a downgrade.

SUPPORT RATING AND SUPPORT RATING FLOOR
Any upgrade to the Support Rating and upward revision to the Support Rating Floor would be contingent on a positive change in the Netherland's propensity to support its banks, as well as a NIBC growing its domestic franchise significantly. While not impossible, this is highly unlikely in Fitch's view.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
Subordinated debt and other hybrid securities issued by NIBC are broadly sensitive to the same considerations that affect the bank's VR.

The rating actions are as follows:

Long-term IDR: affirmed at 'BBB-'; Outlook Stable
Short-term IDR: affirmed at 'F3'
Viability Rating: affirmed at 'bbb-'
Support Rating: affirmed at '5'
Support Rating Floor: affirmed at 'No Floor'
Senior unsecured debt: affirmed at 'BBB-'/'F3'
Subordinated debt: affirmed at 'BB+'
Hybrid Tier 1 securities: affirmed at 'B+'