OREANDA-NEWS.  Fitch Ratings has assigned Bank of Queensland Limited's (BOQ, A-/Stable) AUD150m Basel III Tier 2 notes due 10 May 2026 a rating of 'BBB+'. The notes qualify as Tier 2 capital securities for regulatory capital purposes.

BOQ can redeem all the notes on 10 May 2021 and each interest payment date thereafter, if the notes no longer qualify as regulatory capital or their tax-treatment changes. In all cases, the redemption can only go ahead with written approval from the Australian Prudential Regulation Authority (APRA) and as long as the notes are replaced with similar or better quality regulatory capital instruments or if APRA confirms BOQ's capital position will remain adequate after the redemption.

KEY RATING DRIVERS
The notes are rated one notch below BOQ's Viability Rating (VR) of 'a-', with one notch for loss severity and zero notches for incremental non-performance risk, in line with Fitch's approach to rating hybrid capital securities.

The one notch for loss severity is Fitch's base-case approach for Basel III Tier 2 instruments, while no incremental notching is applied for non-performance risk, as the VR already captures the point of non-viability.

The notes would convert to equity in part or in full if APRA deems that without the conversion, BOQ is non-viable. All the notes would convert to equity if BOQ needed a public-sector capital injection to avoid non-viability. The proportion of notes required to be converted to equity would be written-off if BOQ could not convert the notes within five business days of the trigger event date.

RATING SENSITIVITIES
The ratings of the securities are sensitive to movements in BOQ's VR. For more details on BOQ's ratings and credit profile, see the rating action commentary, "Fitch Affirms Five Australian Regional Banks; Outlooks Stable", dated 17 November 2015 and available at www.fitchratings.com

BOQ's other ratings are as follows:

Long-Term Issuer-Default Rating: 'A-'; Outlook Stable
Short-term Issuer-Default Rating: 'F2'
Viability Rating: 'a-'
Support Rating: '3'
Support Rating Floor: 'BB'
Senior unsecured long-term debt: 'A-'
Subordinated debt (legacy Tier 2): 'BBB+'