Driving assessment

Research: Rating Action: Moody’s Affirms Kereskedelmi & Hitel Bank Rt. Deposit Ratings, Changes Outlook from Stable to Positive

Limassol, July 20, 2022 — Moody’s Investors Service (“Moody’s”) today affirmed the long-term Baa1 and Prime-2 ratings of the short-term local and foreign currency deposits of Kereskedelmi & Hitel Bank Rt. (K&H) the 100% Hungarian subsidiary of the Belgian bank KBC Bank NV (KBC Bank or KBC, A1 positive, baa1). The outlook on long-term deposit ratings changed from stable to positive.

At the same time, the rating agency affirmed the bank’s counterparty risk ratings (CRR) of A3 in the long term and Prime-2 in the short term and Baa1(cr) and Prime-2(cr) in the long and short-term counterparty risk (CR) ratings. The bank’s Baa3 Adjusted Core Credit Assessment (BCA) was also confirmed.

All other rating assessments are unaffected by this rating action.

The rating action reflects the combination of (1) the improvement that the agency expects to materialize in KBC’s credit profile (see https://www.moodys.com/research/–PR_466972June 28, 2022), which could lead to an improvement in K&H’s Adjusted BCA resulting in improved deposit ratings and (2) the agency’s expectation that K&H depositors could benefit from a lower loss in the event due to the volumes of debt K&H will place with its parent bank as it strives to meet its minimum requirements for capital and eligible liabilities (MREL), which may result in an increase in the notch as a result of applying Moody’s Advanced Forward Looking Loss Given Default (LGF) analysis.

A list of all affected ratings is provided at the end of this press release.

RATINGS RATIONALE

The affirmation of K&H’s deposit ratings, CRRs, CR ratings and adjusted BCA is driven by (1) the bank’s ba1 BCA, (2) the agency’s unchanged assumption of a high probability of support from KBC affiliates where needed, leading to a one notch uplift to a baa3 adjusted BCA and (3) the application of Moody’s advanced LGF analysis, which results in a two notch uplift of the The bank’s adjusted BCA for deposit ratings and three notches for CRRs and CR valuation. Moody’s assumption of a low likelihood of government support when needed does not result in a further rating upgrade.

Although it received three notches of rating upgrade following the application of the Advanced LGF, the bank’s CR rating is capped at Baa1(cr), one notch above the Baa2 rating of the Hungarian government.

OUTLOOK SWITCHED TO POSITIVE

The positive outlook on the bank’s long-term deposit ratings is driven by (1) Moody’s improved view of its parent bank’s credit risk profile, which could in turn translate into a Higher adjusted MCR for K&H resulting in improved deposit ratings and (2) the agency’s expectation that K&H depositors may experience less loss in default due to the volumes of debt K&H will incur with its parent bank in order to satisfy MREL, which could lead to an increase in deposit ratings.

FACTORS THAT MAY LEAD TO IMPROVEMENT OR DEGRADATION OF RATINGS

K&H’s BCA could be raised following the improvement of its financial profile, mainly the quality of its assets and its capitalization. The bank’s adjusted BCA could be updated following an improvement in its BCA or due to an upgrade of KBC Bank’s BCA. K&H’s filing ratings could be upgraded due to an upgrade to its Adjusted BCA or due to higher debt volumes which would result in a further rating increase following the application of Moody’s Advanced LGF.

The bank’s CRRs and CR rating are currently two and one notches higher than the Hungarian government’s Baa2 rating, the highest level allowed under Moody’s Banks methodology and can only be upgraded after combining an upgrade of K&H’s adjusted BCA and the upgrade of the Hungarian government’s rating.

K&H’s BCA could be downgraded in the event of a material deterioration in asset quality or reduction in capitalization. The bank’s adjusted MCR would not be affected by a one notch lower MCR. While unlikely given the positive outlook, K&H’s filing ratings could be downgraded following a significantly reduced likelihood or substantial weakening of its parent company’s ability to provide support. Deposit ratings and CRRs could also be downgraded due to changes in the bank’s liability structures leading to higher loss in resolution for depositors.

LIST OF AFFECTED RATINGS

..Issuer: Kereskedelmi & Hitel Bank Rt.

Statement:

….Base credit rating adjusted, Baa3 confirmed

….Assessment of long-term counterparty risk, confirmed Baa1(cr)

….Assessment of short-term counterparty risk, confirmed P-2(cr)

….Long-term counterparty risk ratings, confirmed A3

….Short Term Counterparty Risk Ratings, Confirmed P-2

….Long-term bank deposit ratings, Baa1 confirmed, outlook changed from stable to positive

….Short-term bank deposit ratings, confirmed P-2

Action Outlook:

….Outlook from stable to positive

MAIN METHODOLOGY

The main methodology used in these ratings is the Methodology for Banks published in July 2021 and available on https://ratings.moodys.com/api/rmc-documents/71997. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of this methodology.

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Moody’s rating symbols and definitions can be found at https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.

For all relevant securities or rated entities receiving direct credit support from the lead entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action , the associated regulatory information will be that of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to the jurisdiction: Ancillary services, Disclosures to the rated entity, Disclosures to be provided by the rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued without modification as a result of such disclosure.

These ratings are unsolicited.

has. With the participation of a rated entity or a related third party: YES

b.With access to internal documents: YES

c.With management access: YES

For more information, please see Moody’s policy on the designation and assignment of unsolicited credit ratings available on its website. https://ratings.moodys.com.

The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.

Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information for each credit rating.

Melina Skouridou, CFA
Vice President – Senior Analyst
Financial Institutions Group
Moody’s Investors Service Cyprus Ltd.
Porto Bello Building
1 Siafi Street, 3042 Limassol
Box 53205
Limassol, CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
Customer service: 44 20 7772 5454

Maria Jose Mori
Senior Vice President
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Customer service: 44 20 7772 5454

Release Office:
Moody’s Investors Service Cyprus Ltd.
Porto Bello Building
1 Siafi Street, 3042 Limassol
Box 53205
Limassol, CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
Customer service: 44 20 7772 5454