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TEXT-Fitch keeps SNS Reaal's 'BBB+' rating on watch negative

(The following statement was released by the rating agency)

Oct 9 - Fitch Ratings has affirmed SNS Bank's Long-term Issuer DefaultRating (IDR) at 'BBB+' and maintained SNS REAAL's

Long- and Short-termIDRs on Rating Watch Negative (RWN). The Outlook on SNS Bank's Long-term IDRs isStable. Fitch has also downgraded SNS Bank's Viability Rating (VR) to 'bb' from'bbb-' and simultaneously removed it from RWN. The Rating Watch Evolving (RWE)on SRLEV's and REAAL Schadeverzekeringen's Insurer Financial Strength (IFS)rating has been maintained. A list of rating actions is at the end of thiscomment.

RATING ACTION RATIONALEThe affirmation of SNS Bank's IDRs reflects Fitch's continued belief there is ahigh probability that the Dutch state will provide support to the bank, ifrequired.

SNS REAAL's ratings have been maintained on RWN, on which they were placed on 18July 2012. The RWN reflects Fitch's view that if all or the majority of thegroup's insurance operations are sold, potential future support from theauthorities in case of need would likely be provided to SNS Bank directly ratherthan through the holding company. There are still significant uncertainties onthe scope and breath of the various strategic options being considered and, asthe agency indicated on 18 July 2012, it expects to resolve the RWN placed onSNS REAAL once there is further clarity on the strategic options. This could, inFitch's opinion, include the likelihood of part or all of the insurance assetsbeing sold, but would not be restricted to it.

The downgrade of SNS Bank's VR to 'bb' from 'bbb-' and removal from RWN reflectsthe heightened risks carried by the bank's commercial real estate (CRE) loanbook (EUR4.2bn property development and, to a lower extent, the EUR3.6bnproperty investment - in total around 4x book equity at end-June 2012) in theview of the data published by the bank in its first-half results and the latestcommercial property market trends in the Netherlands (around 80% of the totalexposures) and across Europe.

SNS Bank's VR was placed on RWN on 18 July 2012 (see 'Fitch Places SNS REAAL onRWN; Affirms SNS Bank at 'BBB+'' available at

), followingSNS REAAL's announcement that it is considering various capital strengtheningoptions to be able to meet the end-2013 timeline for the repayment of statecapital securities (EUR848m, including repayment premium) agreed on with theEuropean Commission (EC). This raised concerns of an induced reduced financialflexibility for the bank, because of, among other factors, difficult economicconditions and property markets.

Fitch expects that the difficulties in the highly cyclical commercial propertymarkets will protract if not worsen, notably in the Netherlands, as the publicand private sectors are undertaking a substantial deleveraging process, giventhe reducing refinancing opportunities as financial institutions turn away fromproperty lending and as the economic conditions remains weak. Unlike other majorDutch banks, SNS Bank's CRE portfolio is dominated by exposures to propertydevelopment (Property Finance) which is, by nature, much riskier than propertyinvestment. In addition, SNS Bank has property development exposures tocountries that have experienced severe real estate shocks (Spain and US),although these have been largely written-down and/or foreclosed.

The quality of the Property Finance loan book in run-off (EUR4.2bn) has furtherweakened with impaired loans and average loan-to-value ratios deterioratingagain during H112 to high levels (39.6% and 105.4% respectively). In addition,the less risky property investment loan book (Property Finance SME) has startedto experience some deterioration and the relatively low 4.3% impaired loan ratioreported at end-June 2012 is expected to increase, causing higher loanimpairment charges. Along with earnings strains in the bank's retail activitiesdue to continued pressure on net interest margin and higher, but still low, loanimpairment charges, the CRE exposures will cause significant further losses forthe bank over the foreseeable future and, ultimately, pressure on capital. Thebank has so far succeeded in mitigating the negative impact on its capitalposition through deleveraging (but also through some support from the group'sinsurance operations) but would not be able to continue doing so if the currentadverse conditions on the CRE markets protracts, if not worsen.

In Fitch's opinion, the continued, and potentially increasing, burden of theproperty lending on SNS Bank's earnings and ultimately capital (ahead of theimplementation of tougher regulatory requirements) is not commensurate anymorewith an investment grade standalone creditworthiness.

Fitch placed the insurance operating entities' ratings on RWE on 16 July 2012reflecting SNS REAAL's announcement that it will take capital strengtheninginitiatives by the end of 2012. All scenarios are still under review bymanagement and no final decision has been made yet. Consequently, Fitch hasmaintained the RWE on the insurance operating entities. Fitch expects to resolvethe RWE once there is greater clarity about the future of the insuranceoperations in the context of the group's capital strengthening initiatives.

RATING DRIVERS AND SENSITIVITIES - IDRS AND SENIOR DEBTSNS REAAL and SNS Bank's respective Long-term IDRs and senior debt ratings areat their Support Rating Floor, which means that there are sensitive to anyweakening of the Dutch state's ability or willingness to provide support. TheRWN placed on SNS REAAL's IDRs are expected to be resolved once there is furtherclarity on the various strategic options envisaged by the group.

SNS Bank's state guaranteed debt securities are rated 'AAA', reflecting theNetherlands' guarantee and so would be sensitive to any change in theNetherlands' rating.

RATING DRIVERS AND SENSITIVITIES - VRSNS Bank's VR reflects its solid franchise in Dutch retail banking, which hasenabled it to maintain a healthy net inflow of customer deposits during H112,improving its funding mix while the bank is reducing its loan book (theloans/deposits ratio improved to 147% at end-June 2012 versus 162% at end-2011).This still high loans/deposits ratio indicates that the bank remains reliant onthe capital markets for its funding needs (a structural feature of Dutch banks),but has regained access to secured funding in H212 with a EUR1bn covered bondand EUR960m RMBS placements. This has further strengthened an already solidliquidity position. The VR also incorporates the substantial strains of theproperty finance exposure on SNS Bank's earnings and the related significantchallenges for its capital position.

SNS Bank's VR would be vulnerable to any deterioration in asset quality beyondcurrent expectations causing heightened stress on capital, but also to aweakening of the bank's core retail franchise or to any material set-back in itsliquidity profile.

RATING DRIVERS AND SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOORSNS Bank's and SNS REAAL's Support Ratings and Support Rating Floors continue toreflect the high probability of support from the Dutch state being madeavailable if required, which means that they are sensitive to any weakening ofthe Dutch state's ability or willingness to provide support. As indicated SNSREAAL's Support and Support Rating Floor are on RWN.

RATING DRIVERS AND SENSITIVITIES - IFSThe IFS ratings of SNS REAAL's operating insurance subsidiaries, SRLEV and REAALSchadeverzekeringen, reflect the insurance subsidiaries' strong businessposition in the Dutch insurance market, solid capital adequacy and stableprofitability. These strengths are offset by moderate financial flexibility,including repayment of the capital securities issued by the group to the Dutch.Key ratings drivers for a downgrade of the IFS ratings would be a sustaineddecline in the group regulatory solvency ratio to below 150% or a structuraldecline in the insurance activities' profitability (for example, if reported netincome was below EUR200m and expected to remain below that level).

Although no final decision has been made yet, Fitch expects capitalstrengthening initiatives to be taken in the near future. The agency still viewsthe sale of the group's insurance operations, either partly or in total, as apossibility. If the insurance operations are acquired by a financially strongergroup, the ratings of SRLEV and/or REAAL Schadeverzekeringen could be upgraded.However, if the insurance operations are sold to a financially weaker group,these insurers' ratings could be downgraded.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIESSNS Bank's hybrid Tier 1 securities are notched off SNS Bank's VR in line withFitch's rating criteria for such securities and their downgrade to 'B-' from'B+' mirrors the two notches downgrade of SNS Bank's VR. Given SNS Bank's hybridTier 1 securities are notched off SNS Bank's VR, their ratings are sensitive toany changes in the banks' VR. Fitch notes that there is a possibility that theEC will impose some form of 'burden sharing' (such as coupon omission) on SNSBank's subordinated debt and hybrid securities if SNS REAAL were not be able torepay according to the agreed timeframe.

The rating actions are as follows:

SNS REAAL:Long-term IDR: 'BBB+'; remains on RWNShort-term IDR: 'F2'; remains on RWNSupport Rating: '2' ; remains on RWNSupport Rating Floor: 'BBB+' ; remains on RWNSNS Bank:Long-term IDR: affirmed at 'BBB+'; Outlook StableShort-term IDR: affirmed at 'F2'Viability Rating: downgraded to 'bb' from 'bbb-', RWN removedSenior debt: affirmed at 'BBB+/F2'Market linked notes: affirmed at 'BBB+(emr)'Hybrid Tier 1 securities: downgraded to 'B-' from 'B+'; RWN removedCommercial paper: affirmed at 'F2'Support Rating: affirmed at '2'Support Rating Floor: affirmed at 'BBB+'Dutch government guaranteed securities: affirmed at 'AAA'SNS REAAL N.V. Insurance Activities:SRLEV N.V. IFS: 'A-'; remains on RWEREAAL Schadeverzekeringen N.V. IFS: 'A-'; remains on RWE

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The ratings above were solicited by, or on behalf of, the issuer, and therefore,Fitch has been compensated for the provision of the ratings.

Applicable criteria, 'Global Financial Institutions Rating Criteria', dated 15August 2012, 'Rating Bank Regulatory Capital and Similar Securities', dated 15December 2011; 'Rating FI Subsidiaries and Holding Companies' dated 10 August2012, 'Treatment of Hybrids in Bank Capital Analysis' dated 9 July 2012 and'Insurance Rating Methodology' dated 19 September 2012 are all available at

.Applicable Criteria and Related Research:Global Financial Institutions Rating CriteriaRating Bank Regulatory Capital and Similar SecuritiesRating FI Subsidiaries and Holding CompaniesTreatment of Hybrids in Bank Capital AnalysisInsurance Rating Methodology(New York Ratings Team)

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