OREANDA-NEWS. Fitch Ratings has affirmed Credit du Nord's (CN) Long-Term Issuer Default Rating (IDR) at 'A', Short-Term IDR at 'F1', Support Rating at '1' and Viability Rating (VR) at 'bbb+'. The Outlook on the Long-Term IDR is Stable. A full list of rating actions is available at the end of this rating actions commentary.

KEY RATING DRIVERS

IDRS, SUPPORT RATING AND SENIOR DEBT

CN's IDRs and senior debt ratings are aligned with parent Societe Generale's (SG, A/Stable), reflecting Fitch's view that CN is a core subsidiary for its 100% shareholder. We believe that there is an extremely high probability that CN would receive support from SG, if required, as reflected in the Support Rating of '1'.

Fitch's view of the status of CN as a SG core subsidiary is underpinned by its integral role in SG's domestic retail banking strategy, its full ownership by SG and its strong integration within SG. CN is a significant contributor to SG's retail banking profit, generating around a quarter to a third of this division's operating profit. CN's limited size compared with SG's (around 5% of SG's total assets at end-2015) should make financial support from SG manageable, even if SG itself should face financial stress.

VR

The VR reflects CN's strong regional franchise, acceptable risk appetite and resilient profitability. CN's weak asset quality is a rating constraint.

CN's impaired loans-to-gross loans ratio is high for the bank's rating, at around 7% at end-2015. CN's mortgage lending makes up around half of total loans and is of good quality and is performing in line with that of other French banks. Lending to SMEs and professionals (around 25% of gross loans) are more vulnerable to a weak economic environment, particularly in rural areas where CN has its core franchise. Reserves for impaired loans are moderate, and CN's unreserved impaired loans amounted to almost 60% of the bank's Fitch core capital at end-2015. While this is partly mitigated by the security (guarantee or mortgage) received by CN, it makes the bank dependent on collateral values.

CN has a small national franchise with around 2% market share in deposits and lending, but its market shares are significantly stronger in some regions. CN benefits from stable earnings, driven by its focus on retail banking, and its margins compare well to peers' given its larger share of high-risk but high-return SME and professional loans. Low interest rates, combined with strong competitive pressures, particularly in French housing lending, pose challenges for French banks, including CN. However, CN's comfortable margins and cautious management of its cost base should enable the bank to maintain satisfactory profitability.

CN is not dependent on SG for funding and its funding profile is underpinned by a solid retail deposit base that accounted for around two-thirds of its total non-equity funding at end-2015. CN has made significant progress since 2011 in reducing its dependence on wholesale funding, resulting in a loans/deposits ratio that is now in line with its domestic peers. Liquidity management is prudent and the bank maintains a comfortable liquidity buffer.

CN's capitalisation is only acceptable in our view given the bank's risk profile and material volume of unreserved impaired loans. CN's high dividend pay-out ratios, but also potential ordinary support from SG, are factored into the ratings. Should CN need additional capital to support growth, we expect the bank to adjust its dividend pay-out.