OREANDA-NEWS.Fitch Ratings has assigned ING Group's (A/Negative) issue of additional Tier 1 convertible notes a final rating of 'BB'.

The final rating is in line with the expected rating Fitch assigned to the notes on 7 April 2015 (see "Fitch Rates ING Group's Additional Tier 1 Capital Instruments 'BB(EXP)'' at www.fitchratings.com).

The notes are CRD IV-compliant perpetual additional Tier 1 contingent convertible capital securities. The notes are subject to automatic conversion if ING Group's consolidated common equity Tier 1 (CET1) ratio falls below 7%, and any coupon payments may be cancelled at the discretion of the group.

KEY RATING DRIVERS
The rating is five notches below ING Group's implicit intrinsic creditworthiness. The latter reflects somewhat higher risk in ING Group as a holding company compared with its main operating company ING Bank (A+/Negative/a). The notching reflects the notes' higher expected loss severity when compared with average recoveries (two notches) as well as high risk of non-performance (an additional three notches).

The notching for loss severity reflects the instruments' deep subordination, full contractual automatic conversion language, and that the instruments can be converted before the point of non-viability.

The three notches for non-performance risk reflect the instruments' fully discretionary coupon payment, which Fitch considers as the most easily activated form of loss absorption. The consolidated phased-in CET1 ratio of ING Group (where the 7% trigger applies) was 13.5% (fully-loaded CET1 ratio of 10.5%) at end-December 2014.

Fitch expects the Dutch regulator to impose restrictions on interest payments on the notes should ING Group's capital approach the estimated Pillar 1 limit of 10% CET1 phased in by 2019 (4.5% minimum CET1 plus 2.5% capital conservation buffer plus 3% systemic risk buffer). Given ING Group's robust capital position, the current level of distributable items and Fitch's expectations for their evolution, the agency has limited the notching for non-performance to three notches.

Given the securities are perpetual, their deep subordination, coupon flexibility and going concern mandatory conversion of the instruments, Fitch has assigned 100% equity credit.

RATING SENSITIVITIES
As the notes are notched down from ING Group's implicit intrinsic creditworthiness, their rating is broadly sensitive to the same factors as those that would affect ING Bank's Viability Rating. Their rating is also sensitive to the implied notching of ING Group from ING Bank, which factors in the risk in the remaining insurance operations.

The notes' rating is also sensitive to changes in Fitch's assessment of their non-performance risk relative to that captured in ING Bank's VR.