Rating actions conclude review initiated two months ago. They reflect the improvement in RBS Group’s fundamentals. Ratings no longer benefit from one-notch of uplift for expected state support. Further, ratings reflect group’s new ring-fenced structure.
Driven by the reassuring improvement in prudential and conduct risk fundamentals as well as the return to profitability, Scope Ratings today took rating actions on the long-term ratings of various entities of The Royal Bank of Scotland Group PLC (RBS Group PLC). With legacy issues largely resolved and the group’s business transformation nearly completed, the rating agency expects these fundamental improvements to be sustained.
In addition, Scope removed the one-notch of rating uplift which was incorporated in the Issuer Rating and the senior debt ratings (but not the AT1 securities ratings) due to majority ownership by the UK government. The rating agency concluded that this rating uplift is no longer warranted, given the UK government’s medium-term plan to gradually exit the RBS ownership.
The rating actions further reflect RBS Group’s new organisational and legal structure due to UK ring-fencing requirements. All necessary changes to implement ring-fencing are expected to be completed in September 2018. However, the effective separation of ring-fenced entities from non-ring-fenced entities within RBS Group is already in place.
The following rating actions have been taken regarding the various entities of the RBS group:
• Assigned new Issuer Rating of A to RBS Group PLC.
• Assigned new Issuer Rating of A to NatWest Holdings Limited, a ring-fenced bank intermediate holding company containing the core retail and commercial banking businesses of the group.
• Affirmed Issuer Rating of A- on NatWest Markets PLC (formerly The Royal Bank of Scotland PLC). Under the group’s new organisational structure, NatWest Markets PLC is a markets-focused business and accounts for about 15% of group RWAs. The rating differential between NatWest Markets and RBS Group is due to its business profile and lesser significance to the group.
• Affirmed A- rating on senior unsecured debt (not TLAC/MREL eligible) issued by NatWest Markets PLC (formerly The Royal Bank of Scotland PLC).
• Upgraded to A- from BBB+ the rating on senior unsecured debt (TLAC/MREL eligible) issued by RBS Group PLC.
• Upgraded to BB from B+ the rating on AT1 securities issued by RBS Group PLC. One notch of the upgrade reflects the improved fundamentals of RBS Group leading to a higher base for notching down the AT1 rating. The other notch reflects an improvement in the risk profile of the AT1 securities. The AT1 rating had incorporated an additional notch down due to material litigation risks.
All ratings have a Stable Outlook. The S-1 short-term debt rating and its Stable Outlook were not reviewed.