Scope Ratings today placed on review for possible upgrade the long-term ratings of various entities of The Royal Bank of Scotland Group PLC (RBS Group PLC). Currently, the Issuer Rating of A- on NatWest Markets PLC (previously The Royal Bank of Scotland PLC) reflects the fundamentals of the entire RBS group. Placed on review for possible upgrade are the A- Issuer Rating, the A- rating for senior unsecured debt not eligible for MREL/TLAC, the BBB+ rating for senior unsecured debt eligible for MREL/TLAC, and the B+ rating for Additional Tier 1 (AT1) securities. The S-1 short-term debt rating and its Stable Outlook are not being reviewed.

When initially assigned in 2014, RBS’s ratings reflected the group’s positive, but still risk-prone recovery from the highly stressed situation during the crisis. Potential conduct-related costs and resolving state-aid obligations were also important issues for the group’s financial soundness.

Scope pointed out that RBS’s visible and reassuring improvement in prudential and conduct risk fundamentals, as well as the return to profitability, warrants at this time a rating review for possible upgrade. The agency added that its review will focus on the sustainability and further upward trajectory of these fundamental improvements.

Scope also highlighted that the Issuer Rating and the senior debt ratings (but not the rating for AT1 securities) incorporate a one-notch uplift due to majority ownership by the UK government. As part of the review, the agency plans to assess whether this rating uplift is still warranted, given the UK government’s medium-term plan to gradually exit the RBS ownership. As one possible outcome of the rating review, the removal of the one-notch rating uplift would in effect offset a one-notch upgrade of the Issuer Rating.

Beyond the scope and timeframe of the current rating review, the agency added that in the future it plans to assign new ratings and align existing ratings as the RBS group undertakes the reorganisation needed to implement UK ring-fencing requirements. Scope has already highlighted publicly (“UK Bank Ring-Fencing: Credit and Rating Implications”, February 2018), that the group and its future ring-fenced bank intermediate holding company would likely be rated at the same level. Meanwhile, the non-ring-fenced entity, NatWest Markets PLC, would likely have a slightly lower rating due to its business profile and lesser significance to the group.

The following ratings of the RBS group are under review for possible upgrade:

Issuer rating (NatWest Markets PLC, previously The Royal Bank of Scotland PLC): A-

Senior unsecured debt (not eligible for MREL/TLAC) rating (issued by NatWest Markets PLC, previously The Royal Bank of Scotland PLC): A-

Senior unsecured debt (eligible for MREL/TLAC) rating (issued by RBS Group PLC): BBB+

AT1 securities rating (issued by RBS Group PLC): B+

The S-1 short-term debt rating and its Stable Outlook are not under review. 

Stress testing & cash flow analysis
No stress testing was performed. No cash flow analysis was performed.

Methodology
The methodology/ies used for this rating(s) and/or rating outlook(s) Bank Ratings Methodology and Bank Capital Instruments Methodology are available on www.scoperatings.com.
 Historical default rates of Scope Ratings can be viewed in the rating performance report on https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA Please also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s definition of default as well as definitions of rating notations can be found in Scope’s public credit rating methodologies on www.scoperatings.com.
The rating outlook indicates the most likely direction of the rating if the rating were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The rating was not requested by the rated entity or its agents. The rated entity and/or its agents participated in the rating process. Scope had no access to accounts, management and/or other relevant internal documents for the rated entity or related third party.
The following substantially material sources of information were used to prepare the credit rating: public domain, the rated entity and third parties.
Scope considers the quality of information available to Scope on the rated entity or instrument to be satisfactory. The information and data supporting Scope’s ratings originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the rating or outlook action, the rated entity was given the opportunity to review the rating and/or outlook and the principal grounds on which the credit rating and/or outlook is based. Following that review, the rating was not amended before being issued.

Regulatory Disclosures
This credit rating and/or rating outlook is issued by Scope Ratings GmbH.
Lead analyst Pauline Lambert, Executive Director
Person responsible for approval of the rating: Samuel Theodore, Group Managing Director
RBS PLC’s issuer rating/outlook were first released by Scope on 02.04.2014. The rating/outlook were last updated on 01.06.2016.
RBS PLC’s short-term rating/outlook were first released by Scope on 22.05.2014. The rating/outlook were last updated on 26.10.2017.
RBS PLC’s senior unsecured debt rating/outlook were first released by Scope on 02.04.2014. The rating/outlook were last updated on 01.06.2016
RBS Group PLC’s senior unsecured debt rating/outlook were first released by Scope on 02.04.2014.

Potential conflicts
Please see www.scoperatings.com. for a list of potential conflicts of interest related to the issuance of credit ratings.

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