OREANDA-NEWS. Fitch Ratings has affirmed Bank Nederlandse Gemeenten's (BNG) Long-term Issuer Default Rating (IDR) at 'AAA', Short-term IDR at 'F1+', and Support Rating Floor at 'AAA'. The Outlook on the Long-term IDR is Negative.

A full list of rating actions is available at the end of this rating action commentary.

KEY RATING DRIVERS - IDRs, SENIOR DEBT, SUPPORT RATING AND SUPPORT RATING FLOOR
BNG's 'AAA' Long-term IDR is at the bank's Support Rating Floor and reflects Fitch's belief that there is an extremely high probability that the Netherlands (AAA/Stable) will support the bank in case of need. Fitch's expectation is primarily based on BNG's state ownership as well as its important and long-lasting policy role in financing the Dutch public sector.

BNG's full public ownership is long-term and strategic. The bank's articles of association prevent private ownership. BNG is one of the two Dutch policy banks whose clear, strategic and long-established roles have been to provide banking services to the public authorities. This is defined in BNG's articles of association. Fitch believes it would be very difficult to transfer this role to commercial banks given the low yield and long maturity of the assets generated by public authority financing.

We believe that the absence of explicit funding guarantee from the Netherlands to BNG and of a special legal status, which would legally bind the state to support the bank, is largely offset by the greater importance to the ratings of BNG's policy role and public ownership. As a result, BNG's Support Rating Floor, and hence its Long-term IDR are equalised with the Netherlands' Long-term IDR.

BNG's operations are entirely determined by its policy role, its strategy is framed by the bank's articles of association and its franchise largely dependent on its public ownership. The extremely low-risk nature of BNG's assets, its solid risk-weighted capital ratios, accommodative Dutch regulatory policy towards policy banks and prudent liquidity management make it highly unlikely that it will ever require extraordinary support.

The Negative Outlook on BNG's Long-term IDR reflects Fitch's belief that the probability of state support available to senior unsecured creditors is slightly weakening as a consequence of the developments at EU level to reduce state support for banks. The Bank Recovery and Resolution Directive (BRRD), effective since 1 January and expected to be implemented formally into Dutch legislation later this year, with the bail in tool, and the Single Resolution Mechanism (SRM) effective from 1 January 2016, represent a small growing incremental risk to state support being made available to BNG's senior unsecured creditors in a timely manner, as well as dilution of national discretion over resolution decisions.

RATING SENSITIVITIES - IDRs, SENIOR DEBT, SUPPORT RATING AND SUPPORT RATING FLOOR
Fitch expects to revise downwards BNG's Support Rating Floor, and hence downgrade its Long-term IDR, by one notch by mid-2015 to reflect our view that BRRD introduces an incremental risk to senior unsecured creditors of BNG compared with those of the sovereign.

BNG's Support Rating Floor and Long-term IDR are unlikely to be notched more than once from the Netherlands' rating. Fitch believes that the state would act pre-emptively to replenish capital levels, due to the dependence of BNG's business model on wholesale funding. Also, there is a very low likelihood that the bank will face a sudden need for capital support given its mainly domestic public sector assets. Were this to happen, Fitch considers it highly likely that support from the public owners of BNG would be arranged in accordance with the private investor test under state aid considerations and also required under the BRRD to avoid necessary bail in of senior creditors. However, a remote risk that this could not be achieved drives the likely one notch differential Fitch expects to introduce between the bank's Long-term IDR and the state's by end-June 2015.

BNG's Support Rating Floor and Long-term IDR are also sensitive to any change in the Netherlands' ability to provide support as reflected in its ratings. A weakening of BNG's strategic importance to the Dutch state and/or ownership, which we view as highly unlikely, could also cause a widening of the notching between the Netherlands' and BNG's ratings. A deviation from its narrowly defined domestic policy role may also be rating-negative.

LIST OF RATING ACTIONS

Long-term IDR: affirmed at 'AAA'; Negative Outlook
Short-term IDR: affirmed at 'F1+'
Support Rating: affirmed at '1'
Support Rating Floor: affirmed at 'AAA'
Long-term senior unsecured debt: affirmed at 'AAA'
European commercial paper: affirmed at 'F1+'
Long-term market linked senior unsecured debt: affirmed at 'AAA(emr)'