The credit ratings for the Canadian banks will not be affected by changes to Moody’s methodology for rating global banks, the rating agency says.
Earlier this week, Moody’s Investors Service announced several changes to its bank rating methodology, including the introduction of new elements to its baseline credit assessments (BCAs), and the addition of a loss given failure (LGF) analysis framework. The revisions aim to better predict bank failures, and determine how each creditor class is likely to be treated when a bank fails and enters resolution.
Those changes are now leading to a series of rating actions that affect more than 1,000 of the 1,900 banking entities rated by Moody’s. Among other things, these rating actions include reviews of: 147 baseline credit assessments (84 possible upgrades and 63 potential downgrades); 421 long-term deposit ratings (314 for upgrade, 96 for downgrade, and 11 that are uncertain); and, 451 senior unsecured debt and issuer ratings (214 for upgrade, 212 for downgrade and 25 uncertain).
“Our fundamental approach to bank ratings has not changed dramatically, but we have introduced a number of new tools to enhance our analysis, which has resulted in these rating reviews,” said Greg Bauer, Moody’s co-head of global banking. “These reviews are prompted by our new methodology, which we are confident will enable us to appropriately reflect the rapidly evolving global banking environment as it continues to develop.”
Globally, Moody’s says that it expects the enhanced approach to have a generally modest positive impact on banks’ BCAs, with changes concentrated among European banks. “These likely changes will generally be the result of the application of the new scorecard framework, which provides additional tools to assess banks’ credit fundamentals,” it says.
For Canada, Moody’s says that the banks’ ratings will be unaffected by the new methodology. In the U.S., it expects generally positive effects on bank deposit ratings and mixed, though net negative, effects on senior unsecured debt ratings. For Europe, it expects a positive effect on long-term deposit ratings, and a generally neutral effect on senior unsecured debt
ratings.
Separately, Moody’s reports that it has also lowered its expectations about the likelihood of government support for European banks amid recent regulatory changes designed to prevent taxpayer bailouts. It says that the probability of support, even to systemically important banks, in the region has declined.