Signature Bank SBNY has been assigned ratings by Moody’s Investors Service for the first time. The rating outlook has been kept stable.
The bank has been assigned long- and short-term deposit ratings of A2/Prime-1, long-term issuer rating of Baa2 and a standalone baseline credit assessment (BCA) of baa1. Further, the ratings agency has assigned long- and short-term counterparty risk assessments of A3(cr)/Prime-2(cr) and long- and short-term counterparty risk ratings (local and foreign currency) of Baa1/Prime-2 to the bank.
Rationale Behind the Ratings
The ratings agency has been impressed by the bank’s strong balance sheet position, which reflects good asset quality, high capitalization and solid core deposit funding. Also, Signature Banks’ consistent quarterly performance and higher operational efficiency than the industry’s average led to baa1 ratings for BCA. Also, per Moody’s, the bank’s low credit costs are reflective of conservative underwriting standards, thereby resulting in good asset quality performance.
Signature Bank's low expense base, resulting from its commercial and private banking business model, which does not require an extensive physical branch and office network, is another positive. The bank has also taken measures to shift its balance sheet toward a more neutral interest rate position.
The positives were slightly offset by the risks stemming from the bank's rapid asset growth over a decade. This was due to the acquisition of seasoned teams of bankers from other institutions, and poses a concern for Moody’s as it results in an unseasoned loan book, which may lead to weak asset quality during times of stress.
Also, significant exposure to commercial real estate loans is a headwind. Per Moody’s, such high concentration can result in increased earnings volatility in a real estate downturn. The bank's revenues are almost composed of net interest income, which increases its exposure to interest rate movements.
Per the agency, Signature Bank's funding profile is strong as a result of its large deposit base. However, it has always reported higher loans compared to deposits, which increases its reliance on confidence-sensitive wholesale funding, posing refinancing risk. Nevertheless, Moody’s views Signature Bank's funding profile as consistent with similarly-rated peers, though its holding of liquid assets is lower.
What Could Raise the Ratings?
Decline in commercial loans and its prudent management without increasing credit risk within the broader loan portfolio, higher capitalization and a more diversified revenue base, as well as lower market-sensitive funding might result in higher BCA and the ratings.
What Could Lower the Ratings?
Significant weakening of capitalization, profitability or funding could result in a lower BCA and ratings. A material rise in problem loans that nears 1% of loans, or an increase in asset risk, may also adversely impact the ratings.
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