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London, 05 February 2018 -- Moody's Investor Service today placed on review for upgrade
the Baa2 long-term deposit rating and the Baa3 long-term issuer rating of Ulster Bank
Ireland DAC (UBID). The agency also placed on review for upgrade UBID's baa3 adjusted
baseline credit assessment (adjusted BCA), as well as its Prime-2 short-term deposit rating,
Prime-3 short-term issuer rating and long and short term counterparty risk assessments
(CRA) of A3(cr)/Prime-2(cr).
This rating action follows the 30 January 2018 rating action on The Royal Bank of Scotland
plc (RBS, LT Bank Deposits A2, Senior Unsecured debt A3, BCA baa3, Ratings under
review), reflecting Moody's view on the likely direction of the group's subsidiaries' ratings,
following the implementation of forthcoming ring-fencing regulations. RBS will transfer most
of its Personal & Business Banking and Commercial & Private Banking operations to a ringfenced
banking sub-group (under an intermediate holding company, NatWest Holdings Ltd,
a direct subsidiary of The Royal Bank of Scotland Group plc, i.e. RBS Group), which will
account for around 80% of group risk-weighted assets. This ring-fenced bank sub-group will
include NatWest Bank, Ulster Bank Limited (LT deposits A2 Rating under Review), Adam &
Co, Coutts & Company and UBID.
As part of the 30 January rating action, Moody's placed on review for upgrade the long-term
ratings, baseline credit assessments and long-term CRAs of National Westminster Bank
PLC (NatWest Bank) and Ulster Bank Limited (UBL). Moody's expects to conclude its
review on RBS and its subsidiaries by April 2018 ahead of the legal separation of the
group's ring-fenced banks later in the year, and the entry of the legislation into force on 1
January 2019.
RATINGS RATIONALE
The review on the ratings of UBID, which is incorporated in the Republic of Ireland, was
driven by Moody's expectation that UBID will remain an integral part of the ring-fenced
banking subgroup, which will have a stronger credit profile as it will retain mostly retail and
SME activities, and have a more deposit-based funding profile.
UBID's adjusted BCA of baa3 is currently based on Moody's assessment of a very high
probability of affiliate support from its parent RBS, resulting in one notch of uplift from the
ba1 BCA, based upon RBS's BCA of baa3. UBID's adjusted BCA may be upgraded given
Moody's expectation that (i) RBS Group maintains its historically high commitment to UBID;
and (ii) the creditworthiness of the ring-fenced sub-group will be higher than that of RBS
currently.
UBID's Baa2 long-term deposit ratings incorporate a one-notch uplift from the baa3 adjusted
BCA, reflecting Moody's assessment that UBID's deposits are likely to face low loss-givenfailure
according to its Advanced LGF analysis. The bank's issuer rating of Baa3 reflects the
rating agency's expectation of moderate loss-given-failure for senior unsecured debt, and is
therefore in line with the adjusted BCA. RBSG has determined with its regulator that it would
apply a so-called "Single Point of Entry" resolution strategy. Nevertheless, Moody's
considers that, in the event of a failure of UBID, the risk to the bank's liabilities would likely
be determined by its own balance sheet characteristics, rather than being fungible with
those of the UK subsidiaries of RBSG. The agency therefore performs its Advanced LGF
analysis on the basis of UBID's own balance sheet.
UBID's BCA could be upgraded if the bank continues to strengthen its credit fundamentals,
reduces the amount of legacy and non-performing assets on its balance sheet and improves
its pre-provision profitability. UBID's deposit and issuer ratings would likely be upgraded if,
as expected, RBS Group's reorganization results in a concentration of UK retail and
commercial banking activities in the ring-fenced subgroup, which would include UBID.
UBID's BCA could be downgraded due to a decline in its capital levels beyond that already
factored into Moody's assessment; a significant increase in the use of market funding; or a
deterioration in the bank's liquidity position. A downgrade in UBID's long-term debt and
deposit ratings is unlikely given the review for upgrade but could be triggered if UBID were
to be excluded from RBS Group's ring-fenced sub-group of retail and commercial banking
activities.
LIST OF AFFECTED RATINGS
Issuer: Ulster Bank Ireland DAC
Placed on Review for Upgrade:
....LT Issuer Rating, currently Baa3, Outlook changed To Rating Under Review From
Positive
....ST Issuer Rating, currently P-3
....LT Bank Deposits, currently Baa2, Outlook changed To Rating Under Review From
Positive