Banque et Caisse d'Epargne de l'Etat, Luxembourg

Our stable outlook on BCEE mirrors that on Luxembourg (AAA/Stable/A-1+). This reflects BCEE's status as a GRE and our expectation that the bank will keep its integral link with, and very important role for, the Luxembourg government over our outlook horizon. We factor in our expectations that, despite the difficult economy, BCEE will sustain solid profitability in the next two years, supported in particular by the high interest rate environment, and that it will continue to monitor its capitalization at, or above, the current very high level. We would lower the long-term rating on BCEE to 'AA' if we lowered the long-term rating on Luxembourg to 'AA+'. We might also consider a negative rating action if the relationship between BCEE

...The Banque et Caisse d'Epargne de l'Etat, Luxembourg (BCEE) has a leading domestic retail banking franchise heavily focused on Luxembourg. BCEE ranks among the top three banks in Luxembourg. Its dominant home market position, particularly among households, is one of the bank's key business strengths, with a market share in the individual deposits and mortgage loans segments of about 40%-50%. Substantial efforts in improving its digital offer in recent years have supported the bank's customer-centric strategy, and we believe this digitalization process will continue as customer demand for flexible contact channels increases. BCEE is set to report record earnings in 2023 on the back of a strong increase in net interest income consecutive to the rapid increase in interest rates. The bank enjoys strong customer relationships and a relatively diversified business model. We forecast resilient earnings in 2024-2025, as the net interest margin is set to normalize only progressively. BCEE will face...

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