Scope’s review will evaluate the progress the RBS group has made in transforming its business model to generate sustainable earnings. The review will also assess whether the one-notch rating uplift due to expected state support is still warranted.
Scope Ratings today placed on review for possible upgrade the long-term ratings of various entities of The Royal Bank of Scotland Group PLC (RBS Group PLC). Currently, the Issuer Rating of A- on NatWest Markets PLC (previously The Royal Bank of Scotland PLC) reflects the fundamentals of the entire RBS group. Placed on review for possible upgrade are the A- Issuer Rating, the A- rating for senior unsecured debt not eligible for MREL/TLAC, the BBB+ rating for senior unsecured debt eligible for MREL/TLAC, and the B+ rating for Additional Tier 1 (AT1) securities. The S-1 short-term debt rating and its Stable Outlook are not being reviewed.
When initially assigned in 2014, RBS’s ratings reflected the group’s positive, but still risk-prone recovery from the highly stressed situation during the crisis. Potential conduct-related costs and resolving state-aid obligations were also important issues for the group’s financial soundness.
Scope pointed out that RBS’s visible and reassuring improvement in prudential and conduct risk fundamentals, as well as the return to profitability, warrants at this time a rating review for possible upgrade. The agency added that its review will focus on the sustainability and further upward trajectory of these fundamental improvements.
Scope also highlighted that the Issuer Rating and the senior debt ratings (but not the rating for AT1 securities) incorporate a one-notch uplift due to majority ownership by the UK government. As part of the review, the agency plans to assess whether this rating uplift is still warranted, given the UK government’s medium-term plan to gradually exit the RBS ownership. As one possible outcome of the rating review, the removal of the one-notch rating uplift would in effect offset a one-notch upgrade of the Issuer Rating.
Beyond the scope and timeframe of the current rating review, the agency added that in the future it plans to assign new ratings and align existing ratings as the RBS group undertakes the reorganisation needed to implement UK ring-fencing requirements. Scope has already highlighted publicly (“UK Bank Ring-Fencing: Credit and Rating Implications”, February 2018), that the group and its future ring-fenced bank intermediate holding company would likely be rated at the same level. Meanwhile, the non-ring-fenced entity, NatWest Markets PLC, would likely have a slightly lower rating due to its business profile and lesser significance to the group.
The following ratings of the RBS group are under review for possible upgrade:
Issuer rating (NatWest Markets PLC, previously The Royal Bank of Scotland PLC): A-
Senior unsecured debt (not eligible for MREL/TLAC) rating (issued by NatWest Markets PLC, previously The Royal Bank of Scotland PLC): A-
Senior unsecured debt (eligible for MREL/TLAC) rating (issued by RBS Group PLC): BBB+
AT1 securities rating (issued by RBS Group PLC): B+
The S-1 short-term debt rating and its Stable Outlook are not under review.