(The following statement was released by the rating agency)PARIS/LONDON, March 26 (Fitch) Fitch Ratings has revised SNS REAAL N.V.'s (SNS REAAL) and SNS Bank N.V.'s Outlook to Negative from Stable and affirmed their 'BBB+' Long-term IDRs.  At the same time, SNS Bank's Viability Rating (VR) has been upgraded to 'bbb-' from 'bb+' and removed from Rating Watch Positive (RWP). A full list of rating actions is provided at the end of this rating action commentary.The revision of the Outlook on SNS Bank's and SNS REAAL's Long-term IDR to Negative reflects Fitch's expectation that the probability of support from the Dutch state, if ever required, without senior creditors suffering losses, is likely to decline within the next one to two years. The rating actions have been taken in conjunction with a review of sovereign support for banks globally.The upgrade of SNS Bank's VR reflects the cumulative benefits of the measures taken by the Dutch state to restore the bank's individual strength (most notably the capital injection and complete separation of the Property Finance exposures). It also reflects Fitch's opinion on the bank's standalone creditworthiness in its new scope as a retail-focused Dutch bank with robust capitalisation, satisfactory performance but also a moderate franchise relative to dominant domestic players and a funding mix incorporating confidence-sensitive capital markets debt.KEY RATING DRIVERS - SNS BANK's AND SNS REAAL'S IDRS, SUPPORT RATINGS AND SUPPORT RATING FLOORS AND SNS BANK'S SENIOR DEBTSNS Bank's and SNS REAAL's Long- and Short-term IDRs, Support Ratings (SRs), Support Rating Floors (SRFs) and senior debt ratings reflect Fitch's expectation that there remains an extremely high probability of support from the Dutch state (AAA/Negative) if required, and the Long-term IDRs are at their SRFs. This expectation reflects the Netherlands' extremely high ability and high propensity to support its banks. Specific to SNS REAAL and thus its fully-owned subsidiary SNS Bank, our view of support likelihood is based mostly on its systemic importance in the Dutch banking landscape where SNS Bank is the fourth-largest retail bank. Another consideration is their current full state ownership. However, this public ownership is temporary and will cease as the state clearly intends to privatise SNS Bank over the medium term, while SNS REAAL is intended to be ultimately wound down.The Negative Outlook on SNS Bank's and SNS REAAL's Long-term IDRs reflects Fitch's view that there is a clear intention ultimately to reduce implicit state support for financial institutions in the European Union (EU), as demonstrated by a series of legislative, regulatory and policy initiatives. We expect to see the EU's Bank Recovery and Resolution Directive (BRRD) voted through European parliament in the coming weeks and implemented into national legislation and practice within the next one to two years. We also expect progress towards the Single Resolution Mechanism (SRM) for eurozone banks in this time horizon. These two developments will, in Fitch's view, dilute the influence the Dutch state has in deciding how their domestic banks are resolved and increase the likelihood of senior debt losses in its banks if these fall foul of solvability assessments.SNS REAAL is the state-owned holding company of SNS Bank and its sister insurance companies (SRLEV N.V. and REAAL Schadeverzekeringen N.V., both rated Insurer Financial Strength (IFS) BBB+). The only outstanding debt at SNS REAAL is a EUR1.1bn bridge loan granted by the Dutch state at part of the group's nationalisation in February 2013. The restructuring plan resulting from state aid received and agreed with the European Commission (EC) essentially consists of splitting off bank and insurance activities. The divestment of the insurance operations shall be the first step of the separation and the proceeds will be used to repay the bridge loan.RATING SENSITIVITIES - SNS BANK AND SNS REAAL'S IDRS, SUPPORT RATING, SUPPORT RATING FLOORS AND SNS BANK'S SENIOR DEBTAs SNS Bank's and SNS REAAL's Long-term IDRs are at their SRFs, the sensitivities of their IDRs are predominantly the same as those for the SRFs. The SRs and SRFs are sensitive to progress made in implementing the BRRD and the SRM. The directive requires 'bail in' of creditors by 2016 before an insolvent bank can be recapitalised with state funds. A functioning SRM and progress on making banks 'resolvable' without jeopardising the wider financial system are areas of focus for eurozone policymakers. Once these are operational they will become an overriding rating factor, as the likelihood of the bank's senior creditors receiving full support from the sovereign, despite the bank's systemic importance, will diminish substantially. Fitch expects that the BRRD will be enacted into EU legislation in the near term and progress made on establishing the SRM is looking close to being ready in the one to two years. Therefore, Fitch expects to downgrade SNS Bank's and SNS REAAL's Support Rating to '5' and revise down their SRF to 'No Floor' later in 2014 or in 1H15. The agency will release a special report on the topic shortly.A revision of the SRF to 'No Floor' would mean that SNS Bank's Long-term IDRs would likely be downgraded to the level of its VR, which as it currently stands would mean a two-notch downgrade to 'BBB-'. After a revision of the SRF, the Long-term IDR and the Outlook would be sensitive to the same factors that affect the VR. SNS REAAL's IDRs would be assessed in line with Fitch's criteria for holding companies and linked to SNS Bank's VR.KEY RATING DRIVERS - SNS BANK'S VR SNS Bank's VR is highly influenced by the bank's business mix focused on domestic retail banking, a moderate- to low-risk segment operating in a stable environment. However, Fitch considers that SNS Bank's operations lack geographical and business diversification and its franchise in the Dutch retail market is moderate (10% market share of retail savings, 7% of outstanding mortgages) compared with the three large Dutch banks (each with a market share of 20%-30%). In Fitch's opinion, SNS Bank's second-tier franchise constrains its competitive position, pricing power, and stability of customer relationship and, ultimately, the bank's VR. The separation from its insurance sister companies, as agreed in the EC restructuring plan, should not have a material, if any, impact on the bank's business position.Management changes have occurred, notably with top management running the group at the time of the acquisition of Property Finance having resigned, and the team in charge of the division having either resigned or been transferred to the separated entity that manages the Property Finance exposures. Fitch believes current management has a reasonable degree of depth and experience and is adequate to conduct the group's restructuring as well as to run and develop the bank's operations. Another key driver of SNS Bank's VR is its capitalisation, with strong risk-weighted core capital ratios (an estimated 14.7% Fitch Core Capital ratio at end-2013, 'fully-loaded' Basel III common equity Tier 1 ratio of 12.9% at the same date), providing the bank with a substantial buffer above regulatory minimum requirements to absorb losses and protect its viability. However, the bank has high leverage (ratio of tangible common equity to tangible assets of 2.9% at end-2013). In addition, unreserved impaired loans account for around one-third of equity, making it vulnerable to collateral valuation changes.  These two ratios reflect SNS Bank's focus on residential mortgages, an asset class carrying low risk weighting and backed by collateral.The bank's VR also encompasses a funding mix geared to customer deposits. However, a customer loans/deposits ratio of 122.7% at end-2013 (according to Fitch's calculation) means that the bank may still turn to confidence-sensitive debt capital markets for funding. This is a structural feature of Dutch banks, but Fitch believes it is a more acute issue for smaller banks, with more volatile access to capital markets. Refinancing risk has been mitigated by prudent liquidity management, and Fitch expects this to continue. Fitch considers that the 'quality' (price sensitivity) of SNS Bank's customer deposits is not as strong as for the largest Dutch banks, reflecting SNS Bank's moderate franchise.Asset quality has deteriorated given the economic headwinds in the Netherlands, but remained overall satisfactory. Fitch does not expect excessive risk-taking given management's moderate risk appetite.  The ratio of 90-day past due loans to total customer loans was 2.3% at end-2013, which is moderate in absolute terms but high for a mortgage lending-focused bank. As a consequence of historically looser underwriting standards, SNS Bank has a weaker Dutch mortgage lending book than the industry average, with 2.1% 90-day past due loans at end-2013 (just below 1% for the sector) with loan impairment charges (LICs)  significantly above peers over the past two years. Earning generation capacity is satisfactory, but reliant on a single market and highly dependent on net interest income as a dominant revenue stream. Fitch expects LICs to remain elevated in 2014, given the lag effects of a gradual rise in unemployment during 2013 and early 2014, and to continue to erode pre-impairment operating profit. The bank generated a solid operating performance (excluding discontinued operations) in 2013 (18.8% operating return on equity), owing to a significant reduction in funding costs from lower interest paid on savings as the bank stabilised post-nationalisation, but also from its reduced cost base as a result of successive cost-saving initiatives. RATING SENSITIVITIES - SNS BANK'S VR Fitch believes that a successful track record established by the new management in a challenging operating environment would be beneficial to SNS Bank's VR. In particular, maintaining a sound operating performance, managing the deterioration in asset quality and improving market shares in the production of new mortgages, while adhering to its moderate risk appetite, would be positive for the VR. The bank's VR incorporates the agency's assumptions that it will keep capital ratios at robust levels, improve its leverage, maintain satisfactory operating profitability and that the strains in asset quality will not increase materially in 2014 but may instead gradually ease towards the end of the year. SNS Bank's VR would be sensitive to any material adverse changes in Fitch's forecasts around key economic and market variables for the Netherlands, for instance any setback in the expected anaemic recovery, escalation in unemployment rate and/or further reduction in property prices. Currently, the agency estimates that GDP growth should be zero in 2014 (-1% in 2013), unemployment rate to be on average 7.5% (6.7% in 2013) and housing prices to bottom out during the year. Given the structural shortage of deposits in the Dutch banking system, the bank may turn to wholesale funding, at least in the medium term. As such, any setback in its prudent liquidity management to mitigate refinancing risk would also be detrimental to SNS Bank's VR.Fitch will hold a teleconference to discuss sovereign support for banks and give an update on rating paths on Friday, March 28 at 15:00 GMT. Callers must register in advance using the link below and are requested to dial in early:
  http://event.onlineseminarsolutions.com/r.htm?e=773507&s=1&k=E99B5BCE23C11883F75
  DA40C4B1FED21 The rating actions are as follows: SNS BankLong-term IDR affirmed at 'BBB+'; Outlook revised to Negative from StableShort-term IDR affirmed at 'F2'Support Rating affirmed at '2'Support Rating Floor affirmed at 'BBB+'Viability Rating upgraded to 'bbb-' from 'bb+'; off RWPSenior debt: affirmed at 'BBB+'Commercial paper: affirmed at 'F2' SNS REAALLong-term IDR: affirmed at 'BBB+'; Outlook revised to Negative from StableShort-term IDR: affirmed at 'F2'Support Rating: affirmed at '2'Support Rating Floor: affirmed at 'BBB+'Contact: Primary Analyst Philippe Lamaud (SNS Bank and SNS REAAL)Director+33 144 29 91 26Fitch France S.A.S60 rue de Monceau75008 ParisSecondary Analysts Olivia Perney Guillot (SNS Bank)Senior Director+33 144 29 91 74Federico Faccio (SNS REAAL)Senior Director+44 203 530 1394Committee Chairperson Bridget GandyManaging Director+44 203 530 10 95Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com.Additional information is available on 
  www.fitchratings.com
 Applicable criteria, Global Financial Institutions Rating Criteria, dated 31 January 2014, are available at 
  www.fitchratings.com.
 Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria
  http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397
 Additional Disclosure Solicitation Status 
  http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=825128
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