Moody's maintains bank rating, warns of new law impact

By TPN/Lusa, in News · 05-12-2018 08:29:00 · 0 Comments
Moody's maintains bank rating, warns of new law impact

Moody's maintained the ratings of Portuguese banks but changed several outlooks to negative due to the "implementation of a new legal framework" which gives preference to depositors over investors in cases of bank resolution, according to a statement released on Tuesday.

"This framework would increase the protection junior deposits benefit from as they no longer rank pari passu with senior unsecured liabilities, thereby reducing expected loss-given-failure for rated deposits," Moody's said in a statement.

"By the same token, the volume of loss-absorbing liabilities that would rank alongside senior unsecured debt would be reduced and therefore the loss rates for senior creditors in the event of failure would increase."

According to Moody's, if the draft law is enacted as planned, the agency "will reflect the revised legal ranking in its Advanced Loss Given Failure (LGF) analysis."

But Moody's also said the issuance of Minimum Requirements for Own Funds and Eligible Liabilities (MREL) compliant debt instruments could "offset or partially mitigate the negative impact on senior debt ratings of changes to the current legal framework for bank resolutions and giving priority to all deposits over senior unsecured debt."


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